2. e-commerce: Origins, Evolution and Implications

2.1 Definition
Electronic commerce (e-commerce) is the process of trading across the Internet, i.e. a buyer visits a seller's website and makes a transaction there. Less rigidly it includes deals where the Internet plays some role, e.g. assisting the buyer in locating or comparing products and/or sellers.

2.2 Origins
In the late 1960s the U.S. Defense Department developed a secure and robust communications network (ARPANET) linking organisations engaged in defence research, which was designed to be able to continue functioning even if part of it was damaged, e.g. by nuclear attack. During the 1970s ARPANET became increasingly used by academics for sharing research material and eventually evolved into the worldwide network of inter-connected networks known as the Internet (or simply the 'net).

In 1989 Tim Berners Lee proposed the World Wide Web (WWW or web) while working at CERN, the Swiss based scientific organisation for research into subnuclear physics. Berners Lee initially envisaged a text based global hypertext system enabling fast and efficient communication between scientists located around the world and released the first text based browser in January 1992.

The 1990s saw the advent of affordable desktop computers together with the emergence of Microsoft's Windows as the dominant personal computer (PC) operating system. Its point-and-click graphical interface utilised a set of (supposedly) universally understandable icons to represent tasks such as file management and printing.

September 1992 saw the release of Mosaic. Developed by Marc Andreesen and others at the National Center for Supercomputing Applications at the University of Illinois, Mosaic was the first web browser with a graphical interface. The web started to become the familiar face of the Internet providing easy access to a wealth of text, images, animation, sound and video.

Sources and further information [33, 34, 91].

2.3 Growth and Evolution
Matthew Gray, of the Massachusetts Institute of Technology, estimated there were a mere 130 web sites in June 1993, which had risen to 650,000 by January 1997 [45]. Leading search engine Google [44] now claims to index 1,346,966,000 web pages. Global Reach [43] placed the worldwide number of Internet users at 369,400,000 in Sept 2000. The Electronic Telegraph [29] quoted a survey by MMXI Europe in July 2000, which found that nearly one in five people in Britain uses the Internet from home. Many more have access to the 'net at work or school, or from public libraries and Cybercafes.

The largely academic roots of Cyberspace meant the commercial exploitation of the 'net was initially viewed with hostility. In 1994 two Arizona lawyers, Laurence Canter and Martha Siegal, posted advertisements to a large number of newsgroups offering legal help to foreigners seeking U.S. work permits. Their act caused outrage, resulting in thousands of complaints including death threats. Since then attitudes have changed with most users accepting most forms of 'net advertising as a means of paying for the huge amount of valuable free content available, just as television advertising pays for the programmes. However, the non-commercial ethos of the web remains evident in the vast quantity of valuable content which is still freely available, including daily newspapers such as the Times [95] and the entire contents of the Encyclopaedia Britannica [34]. This is significant for the contemporary e-commerce enterprise.

2.4 The Benefits of e-commerce
The potential benefits of e-commerce are enormous to consumers and business alike.

2.4.1 Finding the Best Deal
For the consumer the Internet provides an environment of near perfect competition in which prices from many suppliers can be compared within seconds. Bloor [8, p176] predicts that "Arbitrage will become a fact of life in the electronic economy. Nowhere will artificially high prices be sustainable". Sites such as DealTime [19] and mySimon [69] enable consumers to find the best online deal for whatever they want - free of charge.

2.4.2 Convenience
For the elderly, disabled or those simply short of time, goods may be ordered online and delivered to their doorstep.

2.4.3 Flexibility
e-commerce increases the variety of ways in which business may be transacted. The use of auction has become increasingly common with sites such as eBay [25] permitting anyone to auction anything in a variety of auction styles. An interesting variation is provided by Priceline.com [86], where customers enter the price they are willing to pay for air tickets, the company then surveys the major airlines to find if one is willing to sell at that price. These alternative business methods would not be possible without the real-time information sharing capabilities of the Internet.

2.4.4 The Global Marketplace
Cyberspace means business is no longer constrained by physical distance. The Internet provides a potential worldwide audience of over 300 million, which is growing daily. Savings in overheads will be made as retail outlets and office space become redundant. Many more workers will be freed from the daily drudgery of commuting as home working becomes widespread.

2.4.5 New Opportunities
The new medium provides unprecedented opportunity for small operators. Whittle [95] writes "The web site of a small company fills just as much of an individual's screen as the web site of a multi-national conglomerate". 'Net shapers such as Yahoo, Netscape, Amazon and even Microsoft all started small.

2.5 The Challenges faced by e-commerce
For the full potential of e-commerce to be realised a number of challenges remain to be overcome.

2.5.1 Security
According to Fleming [38, p106] "for most shoppers, feeling secure about entering financial information is the most important consideration in shopping on line". She justifies her assertion by making reference to the 8th GVU User Survey [41] in which "shoppers overwhelmingly listed security as a concern". Consumers who would happily mail their credit card number, read it down a telephone line or even hand it across a bar hesitate before typing it into a browser screen. Such fears are intensified by news reports of hacking such as the attacks on 'net giants Yahoo [31] and Microsoft [32] and the teenager who illegally obtained thousands of names, addresses and credit card details including those of Bill Gates [30].

E-commerce currently offers secure server and encryption technology as a solution to the security risks associated with transmitting data through Cyberspace. Encryption involves encoding information into a form that only the intended recipient can interpret. The commonly used public key encryption involves two keys for each user; a public one, made freely available, and a private one known only to the user. Sensitive information (e.g. a credit card number) is encoded using the intended recipient's public key before transmission, even if intercepted by a hacker it is thus useless without the corresponding private key (Whittle [95, pp 99-103]). In addition to utilizing secure technology for processing transactions and storing user data it is also necessary to inform users that such measures have been implemented, see 4.9 for further discussion.

The ease with which individuals may represent themselves misleadingly also gives cause for concern. Before entering a credit card number consumers demand reassurance they are dealing with a legitimate supplier that will meet its side of the bargain rather than a confidence trickster operating an online fraud. Digital certificates, issued by a trusted third party, may provide authentication of an online trader's identity.

2.5.2 Privacy
Closely related to the issue of security is that of privacy. Quoting the 8th GVU User Survey [41] Fleming [38, p107] states "Privacy is second only to security in most shoppers' minds". The process of requesting and storing personal information is one where the interests of site providers and visitors are seemingly at odds. Web users are naturally concerned about the potential invasion of privacy associated with providing information online. Visitors to bricks and mortar stores are not asked personal questions when making purchases, let alone browsing. The provider wishes to gather data to more effectively understand his visitors. This may be for purposes of providing more appropriate content or displaying targeted advertising. Some e-tailers, such as Amazon, are able to make recommendations based upon customers past purchasing patterns. Fleming advises "Advertising a policy that supports the privacy of shoppers' data and preferences helps to create a safe and welcoming environment".

2.5.3 Representational Difficulties
Some products cannot be represented in Cyberspace as effectively as others. Books, CDs and software sell well across the 'net because the customer has a clear idea of the nature of the product. Frequently authors publish sample chapters of their books on the web, and MP3 song samples are a common feature of online music stores. Goods such as clothes and audio equipment fare less well because consumers like to experience them (by trying them on or listening to them) before buying.

This may account for why only an estimated 2.7% of new-car sales in America in 1999 took place over the Internet while as many as 40% involved the 'net at some point, e.g. for information gathering [28]. The consequence may be more manufacturer's showrooms, such as the Sony Centre in Tokyo, where visitors can peruse, but not purchase, the company's latest gadgetry.

Advances in virtual reality capabilities combined with the increasing availability of high-speed Internet access will permit more realistic representations of products to be presented. Already estate agents are able to provide virtual walk-throughs of properties and car manufacturers to present 360° views of their range of models. Avatar technology will provide users with a physical representation in Cyberspace that could be used, for example, to try on clothes in virtual boutiques.

2.5.4 Information Overload
A major problem associated with the rapid growth of the web is that of information overload. Finding one's precise requirements among the unstructured chaos that is Cyberspace is akin to looking for the proverbial needle in a haystack, this has been described as "infoglut" by the Gartner Group [53]. It seems likely that this problem will be addressed by considerable growth in the number of portal sites together with increasingly sophisticated search engines and intelligent agents (see 2.9).

2.5.5 Integrity
The ease with which anyone can publish anything on the web has implications for the integrity of the medium as an information source. The web holds much valuable content, it also houses much which is of little value and erroneous. Users would be wise to verify the authority of sources and, when in doubt, to cross check retrieved "facts".

2.6 Advertising
Many providers of valuable free content on the web derive most or all of their revenue from advertising. According to content and media analyst Beauvillain, popular search engine Yahoo! [98] "gets 90 per cent of its revenues from advertising" [7].

Banner advertising involves sites making a small area of their page available to other sites in return for payment, or a reciprocal arrangement. A particularly irritating variant involves the use of JavaScript to spawn a multitude of regenerating pop-up windows upon loading a particular page.

A form of marketing unique to the web is the affiliate program. First introduced by Amazon [3], it involves links to a company's site being posted on numerous other affiliate sites. For example, a photography website may link to Amazon (as a supplier of photographic books), photographic stores, processing houses etc. When a sale arises from one of these links the owner of the affiliate site earns commission.

Corporate websites are advertisements, but the most successful offer valuable content alongside the sales pitch e.g. a supermarket providing free recipes. Whittle [95] predicts a blurring of the distinction between information and advertising in Cyberspace along with users being able to determine what kind(s) of advertising they are subjected to.

The most controversial form of Cyber advertising is spam, the e-mail equivalent of direct (junk) mail. The 'net makes it easy and cheap for advertisers to mail millions of recipients. Programs trawl Cyberspace collecting e-mail addresses, which are traded on huge lists. The result is that anyone who has published his e-mail address is bombarded with worthless messages like:

Sell 1 million products on your website.
GUARANTEED LOWEST CAR PRICING ON LINE (NEW)$$$$$$$$$ 7085
Re: Winning Confirmation n7 17746
No Flame Lighters Hottest Christmas Gift and More (200)
You'll Be Amazed!! What a Great Adult Site!!

to quote but a few examples from my own mailbox. Every such message has to be transmitted and then downloaded before it can be discarded, given the number of recipients that implies a huge amount of wasted time. Many e-mail services such as Yahoo and Hotmail now offer "filters" to automatically delete such messages.

2.7 Case Study: Amazon.com
Amazon [3], one of the best-known e-commerce successes, was founded in 1995 by Jeff Bezos as an on-line bookstore. Amazon has since diversified into areas including videos, software and toys. In addition to the usual search options Amazon encourages visitors to submit their own reviews of its offerings, allowing potential buyers to benefit from the findings of others. Its database makes recommendations based on previous purchases - the virtual equivalent of your friendly local bookseller - and its patented "one-click" technology provides a simple and effective means of ordering.

Amazon backs up its excellent Cyber-presence with a reputation for fulfilment and delivery. Whilst it is not the cheapest e-tailer, according to the Economist [27] 66% of its sales go to repeat customers.

Despite its apparent success Amazon has yet to record a profit. According to the E-commerce Times [26] the company has debts of more than $2 billion and a second quarter loss of $58 million announced in July 2001 was reported as good news by BBC Business [6].

2.8 The Changing Business Environment
Peter Small, a former electronic system design engineer and fashion entrepreneur, proposes a radical new strategy for the e-business. Small likens recent developments in information technology to the invention of machines, which led to the industrial revolution, and suggests we are currently in the transition period between the industrial and information ages.

Small believes methodologies which were successful in the industrial age are no longer applicable due to the inherent unpredictability of rapidly changing technology. "It is not just that there are new rules or that some of the rules have changed. The new rules which apply in the digital world of communications and e-commerce are sometimes the exact opposite of the proven and accepted dogmas which apply in the conventional world" [90, p19]. He goes on to suggest a process of evolutionary design as an alternative to traditional planning. In this model a business develops and changes in response to the market, technological advancement, user feedback etc.

Small [90, pp272-7] describes the limitations, in the information age, of the traditional managed team operating as part of a rigid hierarchy. Instead he proposes the concept of temporary, virtual teams, brought together by an initiator, someone able to "identify a win-win situation where cooperation can produce benefits" and "produce enough evidence that profits will result from [the] proposed cooperation". Such teams aren't "held together by rules, but by benefits of mutual advantage."

Of the Internet, Small [90, p179] states "It isn't about technology, it is about communicating with people". The 'net thus provides the perfect environment for the formation of virtual teams.

2.9 Agents
Agents are intelligent computer programs which are able to represent the interests of, and act on behalf of, their human owners. DealTime and mySimon (referred to in 2.4.1) are examples of a form of agent called the shopbot. Given a user's requirements they are able to enquire of many suppliers and so recommend the best deal. A further type of agent, the pricebot, is described by Kephart et al. [55] as one which adjusts "prices automatically on the seller's behalf in response to changing market conditions". Books.com is quoted as an example, it uses an agent to slightly undercut the prices of its leading competitors.

The Information Economies group at IBM research carries out simulations using agents programmed with various strategies. The work is described by Kephart et al. [55] who predict that over the next decade "the global economy and the Internet will merge into an information economy bustling with billions of autonomous software agents that exchange information goods and services with humans and other agents". This report also predicts a role for agents in personalised filtering and bundling of information as a response to the problem of information overload described in 2.5.4 above.

Bloor [8, p176] reports that "some websites have chosen to bar access to the robots that obtain comparison prices". He describes this as foolish and likens it to "turning customers away".

2.10 The Future
e-commerce has experienced phenomenal growth in the last five years both in terms of the number of participants and the variety and sophistication of features which e-tailers can use to promote their product. Continuing improvements in communications technology and access devices coupled with an ever richer array of software tools which designers can employ to convey their message across the 'net suggest the impact of e-commerce is set to increase unabated for the foreseeable future. The momentum acquired thus far is likely to inspire innovative solutions to remaining problems such as security issues and representational difficulties.

As intelligent agents become more sophisticated and more widely deployed it would appear that profit through artificially high prices will cease to be feasible. Merchants of near-identical goods and services will need to provide some form of added value to their core purpose in order to differentiate themselves from their competitors and earn a share of the market. For those that can successfully achieve this the potential rewards are enormous.

e-commerce promises to liberate business, consumers and workers alike but is set to impact widely on the existing economy forcing traditional businesses to adapt and creating numerous opportunities for new entrants.