Feature article

E-commerce: the
medium is the mart

1. Introduction
The number of people using the Internet is
growing exponentially world over. There were
20 million users four years ago, and the figure
today is estimated at 150 million. The
Internet has become an enormously popular
marketing paradigm that facilitates anything
consumers want to shop for or buy on the
Web, cutting out the middlemen of
distributors, retailers, travel agents, stores,
etc. E-commerce could be defined as
computer to computer, individual to
computer or computer to individual business
relationships enabling an exchange of
information or value. In e-commerce trading
partners interact through electronic
communications and automated computer
systems. Some form of e-commerce has
existed among a significant number of large
companies for about two decades in the form
of Electronic Data Interchange (EDI). The
technologies used for e-commerce include
EDI, e-mail (interpersonal and integrated
messaging), electronic bulletin board systems,
electronic catalogues, electronic forms,
finance and banking technologies, smart
cards, funds transfer, digital cash, etc.

Siriginidi Subba Rao

The author
Siriginidi Subba Rao is Head of Information Technology
at the Central Leather Research Insitute, Chennai, India.
Keywords
Internet, Electronic data interchange, Security, Legislation,
India
Abstract
Defines and lists the technologies as Electronic Data
Interchange, e-mail, bulletin board systems, electronic
catalogues and forms, smart cards, etc. used for the
e-commerce. Discusses the benefits of buying over the
Internet and new business ecosystem that resulted as an
outcome of informed buying. Highlights the trading over
the Internet with predictions and select examples from
various sectors. Presents the survey results for security
issues and legislation from international organizations
and governments, and solutions with the use of
cryptography and digital certification. Also, discusses
e-commerce scenarios in the Indian context, with a three
step evolutionary process and the trends that dictate the
future course of retailing. Concludes that organizations
need to orient their businesses to this new market
paradigm to tap potential customers. It is only a matter of
time before the waves of this change wash on Indian
shores.

2. Benefits of buying over the Internet

The benefits of buying over the Internet
include: convenience of ordering everything
from the desktop, knowing immediately the
availability of the product, quick purchase
method, keeping track of expenditure spent
directly and to gain better value for money;
and scope for informed buying.
The scope for informed buying comprises:
availability of enormous amounts of
information on the Web due to cross linkages
allowing consumers to access competitive
information and make an informed purchase
and the interactive nature of Internet permits
convenient bargaining with a host of sellers to
get the best price; and the unique selling
proposition of the Internet as a marketplace
enables a company to create new customer
value by offering a variety of complementary
services and products beyond its own ken and
a customer to do single-stop shopping for a
vast variety of services and products.
The suppliers, on the other hand, could
reach their customers at very low unit cost.
The electronic shop-front is open 24 hours a

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E-commerce: the medium is the mart

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Volume 101 . Number 1154 . 2000 . 5359

Siriginidi Subba Rao

products to their customers in a more

integrated fashion. SAP, a major ERP vendor,
announced that it would extend its business
interfaces over the Internet, essentially letting
users of its R/3 system connect to the systems
of their customers, suppliers and distributors.
Amazon.com has integrated its product
offering of books online with the portal
Yahoo. Boots, a retail pharmacy chain in the
UK, has begun to expand its services on the
Internet by providing customers with personal
healthcare information.

day, to the entire world, and overheads are

lower, with no investment in physical
infrastructure.

3. New business ecosystem

The scope for informed buying leads to the
new business ecosystem wherein the
customers' expectations would be more than
just price competition among suppliers, and
companies must now compete on price, value
and service. To illustrate, consider a shopper
planning an excursion holiday. Under the new
business ecosystem, the shopper would visit
various shops and bank through computer
and Internet; place orders for two custommade Denim pants and a Denim shirt,
walking shoes of choice make, and a ticket for
a promotional weekend excursion offered by a
tour operator and return air tickets at Levi's
online eco-stores. Payments would be made
by a combination of electronic money,
frequent flyer mileage and Levi's affinity
points. The order management system at the
Levi's online store processes all transactions
across multiple systems and businesses,
including the tour operator, airline, shoe
store, credit card companies, the delivery
company of the customer's choice and any
other related to the various goods and
services. For the customer all this would be
seamless, and deals with a single trusted
source the Levi's online store.
The new business ecosystem would cover
all business networking to mutual advantage
and is characterized by:
.
connectivity between information systems
of the partnering businesses;
.
real time communication;
.
two way communication;
.
businesses having shared information; and
.
use of Internet technologies.

4. Commerce over the Internet

Trading over the Internet, mainly in the US
but at an increasing rate in Europe, is
accelerating the pace of change and for the
first time providing the conditions for
seriously free markets. The Internet provides
affordable, accessible technology to bring
together buyers and sellers, large and small,
right across the globe. E-commerce also
provides hitherto unheard of transparency
where buyers could be aware of just about all
of the sellers out there. People from any
location on the planet could enter competitive
markets.
The Internet industry is ascending new
scales of prosperity. In 1998, it generated
US$300 billion in revenues in the US,
compared to US$350 billion by the auto
industry and US$225 billion by the energy
sector. Since, 1995, it has been growing at a
compounded annual rate of 175 per cent and
giving employment to 1.2 million. As per the
Jupiter Communications estimations, the
value of online shopping would hit US$6
billion in 1999 and US$41 billion in 2002.
According to IDC, the e-commerce market
will be worth US$900 billion by the year 2003
and the revenues from e-commerce
applications via the Internet in the Asia
Pacific (excluding Japan) are expected to be
US$1.3 billion. The customers four years
hence will be spending around US$2 million a
minute on the Internet.
The organization for economic cooperation
and development (OECD) has projected that
revenue from e-commerce will total no more
than US$1 trillion by 2005. This growth,
though meager considering that companies
have spent nearly US$2.5 trillion to build the
Internet infrastructure around the world since
1994, still reflects the fact that e-commerce

These characteristics distinguish the new

business ecosystem from the slower EDI type
business to business communication
prevalent today. Global business ecosystems
would only operate successfully if members
could draw together their disparate enterprise
resource planning (ERP) systems to create an
extra-enterprise architecture that allows
seamless and efficient communication
between partners. Forward thinking
organizations have already begun partnering
with their suppliers to deliver services and
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will be a potential gold mine for organizations

(OECD, 1998a).
A new World Trade Organization (WTO)
study on e-commerce and the role of WTO,
emphasizes the exponential growth of
opportunities that e-commerce offers,
including for developing countries, predicts
more than 300 million users would be
transacting over the Net and estimates
US$300 billion e-commerce by 2000. The
WTO economists believe that products
bought and paid for over the Net will be
subject to WTO rules. The stumbling block
to this exponential growth may come by way
of infrastructure and skills.
4.1 Select examples
The book and music industries are already in
the process of being transformed through
e-commerce. Amazon.com was launched four
years ago, with 1998 fourth quarter sales
showing a 283 per cent increase over the
previous year and customer base from 1.7
million accounts to 6.2 million. It offers 2.5
million books. Amazon.com is now launching
into related areas such as music and video as
well, where other sites such as CDnow report
similar strong sales.
In Education, the Northern Territory
University (NTU), Australia has introduced
online enrollments in 1998. Using Lotus
Domino, students apply for enrolments
directly over the Internet by filling out an
online form that interfaces directly with the
NTU administration system, ASCOL, to
process the enrollment. Using the Internet, all
students have access to their enrollment
details, university accounts and course
information.
Usage of smart cards in airlines industry,
currently running at US$1 billion a year,
could reach US$20 billion a year within the
next three years, given the range and
capabilities of smart card technology. It is
estimated that there could be 2.5 to 3 billion
cards in use by the turn of the century. Hotels
and airlines are expected to be among the
major users of smart cards. Air France, Delta,
Lufthansa and SAS are only a few of the many
airlines now offering smart card applications.
American Express and IBM have developed
ticketless travel for American airline
customers at 21 airports in the US.
Another area of rapid growth would be
selling stocks and shares online. According to
55

Forrester Research estimates, about 3.7

million online brokerage accounts exists.
Business to business sites are also
experiencing the same increased sales
patterns.
Chemdex.com is the online market for
Bioscience, supplying chemicals for research
over the Internet. It offers over 120,000
products from over 80 different companies
and is growing by 20,000 products a week.
ChemConnect.com aims to provide the
information resources for commercial
chemical buyers and sellers to connect, and
build online global trade in the chemical
industry, through its Chemical Trading
Exchange and Suppliers Directory. It has
developed an unprecedented medium for
commercial chemical organizations to initiate
sales contacts and establish relationships with
chemical buyers and sellers worldwide.
ChemWeb.com the worldwide club for the
chemical community, embraced e-commerce
when it was launched in 1997. The site has
been hosting a wide range of scientific
information such as journals and
bibliographic, patent and structure databases
from a variety of 19 leading vendors. The site
has 15 million plus records. Chemists can join
this virtual community free and access 90 per
cent of the site including searching and in
many cases viewing article abstracts. When a
customer chooses to download the full text of
an article, payment is required according to
guidelines set out by the publisher. It aims to
provide a one stop shop for chemists that
covers the entire spectrum of what a chemist
needs in the course of daily work. In addition
to selling information, a shopping mall was
launched in 1998, and currently sells books
(over 800 from major publishers), software
(over 200 from suppliers including
CambridgeSoft) and lab equipment. The
software could be downloaded from the site to
the scientist's desktop, cutting out time and
aggravation. The mall will be broadening its
range to chemicals, market information, and a
product search bureau, in order to achieve its
aim of supplying a comprehensive range of
quality products, goods and services
(ChemWeb, 1998).
Annet Communications, Mumbai claims to
be the first online shopping mall in India.
This idea cropped up following its successful
launch of its first e-commerce site
indiabookshop.com, in June 1999 based on
the demand for other products through

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indishop.com that stocks branded labels

baggage items, books, computers, electronics,
food, gifts, health and sports goods, home and
garden products, house ware, lingerie, music,
stationary, toiletries and watches.

5. Security
In order to make e-commerce work for the
customer, one has to ensure adequate security
for the transactions. In many people's minds,
entering their credit card details over the Web
represents a major threat. In many ways, this
is actually no more of a threat than paying by
credit card in a restaurant, or booking a train
ticket over the phone. One of the reasons why
it could be perceived as a threat is due to
absence of physical element to purchase
compared with a purchase in a shop where
one could see and feel the item. Fraud could
take many forms, such as using Web
resources to fraudulently obtain invalid credit
card numbers that nevertheless pass through
security checks. In principle, hackers could
intercept a transaction, or alter the content of
a transaction whilst it is in process. Many of
these threats could be overcome by using
appropriate security measures (Town, 1999).
5.1 Surveys
Pollara, a survey and management consultant
firm in 1997 found that 56 per cent of
Canadian Internet users, who have not
conducted online transactions, have concerns
about the security of their credit card
information.
Another recent study conducted by
Consumers International, a federation of 245
consumer organizations in 110 countries and
financed by the European Union showed the
need for massive improvement in cyber
retailing. As part of the study, the
representatives bought more than 150 items
from Web sites based in 17 countries, and
tried to return them. Results showed that 8
per cent of the items never arrived, many sites
did not provide clear information about
delivery charges, a minority disclosed whether
the laws of the seller's country or the buyer's
country would apply in the event of a dispute,
53 per cent had a return policy, 13 per cent
committed not to sell customers' personal
data to a third party and 32 per cent provided
information on how to complain if there was a
problem with a transaction.
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The Ernst & Young study Indian Internet

Shopping '99 indicated that retailers must
concentrate on credit card security, Web site
navigation and branding to help attract
consumers. Around 97 per cent of consumers
who had not purchased anything online
expressed the main reason was fear of
disclosing their credit card information.
5.2 Legislation and solutions
The phenomenal growth and the tremendous
potential for further growth in e-commerce
needed enactment of suitable laws governing
cyberspace. The United Nations Commission
on International Trade Law (UNCITRAL)
adopted in 1996, a Model Law on
e-commerce, intended to give States a
legislative framework to remove legal barriers
to e-commerce (UN, 1996). The OECD has
chalked out several tasks to be undertaken by
its 29 member countries, to tackle legal issues
of e-commerce. The tasks include monitoring
the application of existing treaty norms for the
taxation of business, treaty characterization of
e-commerce payments, consumption tax,
professional data assessment and technology
development. The other tasks being handled
by OECD include the extension of analytical
work on the economic and social impacts of ecommerce, defining and measuring
e-commerce and development of guidelines
for consumer protection (OECD, 1998b).
Governments around the world including
Australia and Canada have been introducing
electronic commerce legislation in order to
prevent security risks, with the UK currently
putting forward its own consultation paper,
entitled ``Building confidence in electronic
commerce'' (UK Government, 1999).
Several solutions to the security issue could
be proposed, focusing around the use of
cryptography. Users could encrypt their
messages using private keys, which ensure
their privacy. However, these must be
recognizable by the recipient of the message,
so a relatively lengthy procedure of swapping
private keys in order to establish the identity
of purchaser/vendor must be followed before
a transaction could occur. Alternatively, these
keys could be held in the public domain, by a
third party. Based on this the digital
certificates, also known as Server IDs, work.
Digital certificates work as a form of
identification, issued by a third party, called a
certification authority (CA). Before they issue
a certificate, CAs look closely at a company or

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individual, in order to ensure their integrity.

When they issue the certificate, they endorse a
company's or individual's right to trade under
their name, and to use their Web address.
One of the security risks involved in trading
over the Internet would be spoofing, whereby
someone mimics a real Web site in order to
obtain credit card details from those visiting
the site. Digital certificates ensure that this
could not happen and a transaction could be
conducted in a secure manner, by inserting an
electronic equivalent of a seal, which confirms
the identity of both parties, and checks that it
stays intact during the purchase procedure.
This could be achieved by using advanced
cryptographic techniques. The end result
makes the potential purchasers feel secure
about the integrity of the company with which
they would be dealing, and the transaction
would remain secure. For the vendor, digital
certificates offer the further potential to
identify the customer's status (Rai et al.,
1997a and 1997b; VeriSign).
Thus, digital certificates not only make the
purchase procedure safe for customers; they
also provide exact information for the vendor
as to who the customers are. So, if for
example a company wishes to sell a
subscription to a scientific journal to an
institution over the Internet, and restrict the
number of users, it is possible to verify who is
accessing the information from the Secure
Server. There can be no question that
e-commerce will be the marketplace of the
future. In view of this, there are numerous
software packages being produced for those
wishing to trade over the Internet. Microsoft
will be bringing out a new server framework
called BizTalk.
In India, there is a series of acts that needs to
be enacted for preparing the legal policy for
Internet and e-commerce. The Ministry of
Commerce draft E-Commerce Act, 1998, the
draft IT Bill of Department of Electronics
(DOE) and Internet Service Providers Policy
have to be implemented soon for e-commerce
to be enabled. The draft E-Commerce Act
covers issues relating to Indian Evidence Act
for recognition of a digital signature, the
Privacy Laws or Encryption Regulations
including providing security through a system
of cryptography, the Negotiable Instruments
Act and the Indian Contract Act for according
recognition to a digital signature and e-cash,
taxation and Foreign Exchange Management
Act. The latter draws heavily on the

UNCITRAL. Also, there is the need for

synthesizing the White Paper on E-commerce,
the draft of the E-Commerce Act and the IT
Bill. The major issues that would come up
while drafting the legal policy for Internet
include:
.
which law would apply in the case of an
international e-commerce transaction;
.
would a contract entered into over the
Net be considered legal in India or not;
.
issues of encryption and security for
credit card transactions (would involve
the Reserve Bank of India and banking
system as a whole);
.
intellectual property rights; and
.
whether or not to tax e-commerce
transactions (KPMG, 1999; Kurup,
1999).

6. Indian scenario
The Indian Market Research Bureau reported
India's e-commerce potential will be at
US$11.54 billion (Rs 50,000 crore) in the
next two years. Web retailing will open up a
gold mine for consumers and retailers in
India. It has carved its own niche with
everything from flowers to chocolates to real
estate available on the Web. The three major
forces that forced Web retailing into the
limelight world wide include:
(1) exponential increase in the number of
consumers hooked onto the Internet;
(2) consumers, themselves having less and
less time at their disposal to spend on
shopping; and
(3) continuous improvements in hardware
and software technology.
PriceWaterhouse Coopers (PwC), India's
largest professional services firm conducted
an E-Business Survey involving 64 bluechips
in fast moving consumer goods, financial
services, entertainment, infotech sector,
power, telecom, etc. PwC's research indicates
that CITIBANK, ICICI bank, Mico Bosch,
Henkel, Rediff, Bajaj Auto, Maruti Udyog
will be among the key players propelling the
e-business boom in corporate India.
A majority of small and medium businesses
in India are family owned and would not
invest in IT unless they see a perceptible and
viable opportunity to make profits and
expansion for their businesses with least risk
and minimum investment. These are
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Siriginidi Subba Rao

backbones of the retail and wholesale trade,

small scale manufacturing and tiny industries.
To introduce e-commerce to these
businesses, a three step evolutionary process
may be adopted. In the first step, businesses
should advertise their products/services
offered on the Web by putting non-interactive
Web pages on the Net via sites that offer
creation of free Web pages. These Web pages
could be linked to the search engines of
popularly accessed sites. This would be
effective in testing the waters in terms of
response and consequent increase in business
opportunities. In the second step, interactive
Web pages that may take online orders or
other queries from prospective customers may
be designed using the available EDI packages
with integration of encryption and security
mechanisms. The third step involves a fullfledged e-commerce application that means
the total transaction is put through the Net,
except for physical movements of goods or the
performance of the service.
It is only a matter of time before Indian
companies adapt themselves to this new
paradigm. The trends that may dictate the
future course of retailing in India include:
.
Active consumer: the typical Indian
customer wants very much to be
physically present at the point of
purchase, but the ground work like
collecting details about the product
would be done through the Net. If a
customer wants a choice item, they could
simply log onto the particular site to get
information about retailer locations in
his/her city, product descriptions, mode
of payment, etc. and then choose the
color and size at the actual shop.
.
Neutrality of information: in the near future,
with the help of sophisticated search
engines consumers would be able to
compare a multitude of brands feature by
feature and eventually get the best deal.
.
The twain meets: no longer would Indian
consumers tolerate infotech products that
are behind their US counterparts. In a
truly borderless environment Indian
consumers would settle for nothing less
than the latest product that they could
buy directly from major US companies
through the Net.
.
Consumers crack the whip: till now,
retailers concentrated on their supply
chain and assumed that consumers would
take the trouble of coming to their stores.

But with the web, the scenario may well

reverse. This would mean that every
retailer, big or small, needs to have Web
presence.
Battle for the eye balls: the Web site of the
future must be simple, interactive and
above all user friendly. To this end
consumers should be guided through
every step of the buying process without
being pressurized to buy. Innovative
schemes such as a customer is paid if he/
she visits a web site for a given of number
of times, would be used to good effect in
future. The Mitsubishi Lancer web site
allows the entire buying process to be
completed online, whereas, one may not
get all the required information, so avoid
buying from the Maruti Web site.

7. Conclusion
Organizations need to think how to orient
their businesses to this new market paradigm,
the Internet. This is no longer a choice but a
fundamental business need. By taking the
necessary steps to ensure the security of
financial transactions over the Internet,
businesses will be able to expand into the
huge and as yet untapped source of potential
customers. And let Indian businesses not be
under the misapprehension that all this will be
happening only in the developed world. It is
only a matter of time before the waves of this
change wash on Indian shores.

References
ChemWeb (1998), ``ChemWeb: the worldwide club for the
chemical community'', http://www.chemweb.com/
home/prpages/articles.html
KPMG (1999), ``1998 E-commerce India survey report'',
http://www.kpmg.com/ecommerce_report.html
Kurup, E.J. (1999), ``Business click'', The Economic Times,
20 June, p. 7.
OECD (1998a), ``Business-to-consumer electronic
commerce survey of status and issues'', http://
www.oecd.org/dsti/sti/it/ec/prod/gd97219.htm
OECD (1998b), ``Measuring electronic commerce'', http://
www.oecd.org/dsti/sti/it/ec/prod/e_97-185.htm
Rai, G., Dubash, R.K. and Chakravarti, A.K. (1997a),
``Cryptography technology and policy directions in
the context of NII'', http://www.allindia.com/gov/
doe/cryplaw.htm
Rai, G., Dubash, R.K. and Chakravarti, A.K. (1997b), ``Digital
signature law a survey of international scenario'',
http://www.allindia.com/gov/doe/digilaw.htm

58

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Siriginidi Subba Rao

Town, B. (1999), ``E-commerce tomorrows marketplace'',

Online & CDROM Review, Vol. 23 No. 2, pp. 107-9.
UK Government (1999), ``Building confidence in electronic
commerce'', http://www.dti.gov.uk/Public/search.html
UN (1996), ``Legal guidelines on arbitral proceedings,
electronic commerce'', http://www.un.org/plweb-cgi/
iopcode.p
VeriSign, ``Securing your Web Site for Business'', http://
www.verisign.com/whitepaper/server/secure/
Introduction.html

ChemConnect can be found at http://

www.chemconnect.com/about/index.html
Chemdex can be found at http://www.chemdex.com/
about_chemdex
Forrester can be found at http://www.forrester.com/ER/
Search/Results
IDC can be found at http://www.idc.com
Indiabookshop can be found at http://
www.indiabookshop.com
Northern Territory University can be found at http://
www.ntu.edu.au
Pollara can be found at http://www.pollara.com/new/
POLLARA_NET.html
WTO can be found at http://www.wto.org/wto/ecom/
e_press96.htm

Further reading
Amazon can be found at http://www.amazon.com

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