DEFINITION
Electronic Commerce ("e-commerce") has been defined by the Organisation for Economic Cooperation and Development ("OECD") to be ‘commercial transactions, involving both organisations and individuals, that are based upon the processing and transmission of digitized data, including text, sound and visual images and that are carried out over open networks (like the Internet) or closed networks (like AOL or Minitel) that have a gateway onto an open network’.
The International Fiscal Association ("IFA") has defined e-commerce to be ‘commercial transactions in which the order is placed electronically and goods or services are delivered in tangible or electronic form and there is an ongoing commercial relationship’. The transactions may be on an open network using non-proprietary protocols, like the Internet, or over proprietary networks like intranet or extranet’. Discrete sales (sporadic sales that do not involve substantial amounts) and transactions involving the use of electronic data interchange ("EDI") and electronic funds transfer ("EFT") and other electronic networks that were extensively used prior to the 1990’s have been excluded from the definition.
National Association of Software and Service Companies ("NASSCOM") defines e-commerce to be ‘transactions where both the offer for sale and the acceptance of offer are made electronically’.
The significant point to be noted is that as defined above, e-commerce would include transactions involving delivery and payment in traditional manner if offer and acceptance of the offer is through a ‘network’. The above definitions of e-commerce are crucial from the perspective of understanding the nature of transactions and the manner in which such transactions change traditional business practices.
E-MODELING
The importance of conducting business electronically cannot be undermined. Most businesses are gradually moving towards the digital marketplace as it offers infinite choices. This has led to the emergence of virtual marketplaces, which are the nothing but the blossoming of real world commercial and consumer transactions into the cyber world. This transition has changed the role of technology from being a mere enabler to being the backbone of business.
The virtual workplace has now graduated to being a versatile new marketplace in itself, spinning a whole new business sphere and accompanying models, revenue streams and growth spurs. The main businesses, spurring this shift to the digital marketplace are:
Internet Service Providers
Application Service Providers
Business 2 Consumer segment
Business 2 Business segment
Consumer 2 Business segment
1. Internet Service Providers ("ISPs")
ISP’s make the Internet accessible. The service rendered by the ISP’s may be classified into:
Primary access services - dial-up access through analog modems, dedicated access through leased lines and cable network or wholesale services provided by backbone operators (e.g. MCI Worldcom, VSNL, etc); and
Value added services – e-mail, web hosting, Internet telephony, e-commerce services, etc
Presently, dial-up access is the single most popular access mechanism. However, with the advent of the best tools in convergence, access through cable, asymmetrical digital subscriber lines, local multi-point distribution system, etc are expected to significantly erode the number of subscribers opting for dial-up access. The single largest driver of this change is the inevitable necessity to provide greater bandwidth to Internet users.
A number of ISPs are operating in
2. Application Service Provider ("ASP")
An ASP manages and delivers application capabilities to multiple entities, either over a dedicated wide area network or over the Internet. The primary benefits are:
The cost of the application and maintenance is spread over multiple users and hence the cost per user is reduced;
Individual users are also relieved of the responsibility of maintaining server infrastructure and operating staff; and
The model is suitable for packaged off-the-shelf applications, which can be used by multiple users without significant customisation, etc.
Software companies such as Microsoft, Oracle, etc offer their packaged products through ASP’s. An ASP consortium has been formed in
3. Business to-Business ("B2B") segment
This segment comprises transactions between businesses via the Internet. In this segment, the entire range of activities like marketing, order processing and fulfillment, inventory valuation, material management, payment processing, financial reporting and taxation, etc can be carried out using Internet and Internet based technologies. Significant B2B players on the net are General Motors, Ford and Wal Mart.
The various business models operated in the B2B segment are as follows:
a. Catalog model
A catalog model creates value by aggregating suppliers and buyers. It works best in industries characterised by fragmented buyers and sellers, who transact frequently for relatively inexpensive items and in situations where demand is predictable and prices are stable. Examples include Chemdex.com, PlasticsNet.com, etc.
Chemdex.com serves as an online source of life science products such as biological chemicals and reagents. Buyers can browse through online catalogs and place orders online, which are transmitted electronically to the suppliers. Chemdex receives a commission from the sellers for each concluded transaction.
b. Auction model
This model is suitable where non-standard products need to be bought or sold among businesses that have very different perceptions of value for the product. The typical examples of this model are iMark for used capital equipment and auction for perishable online and print advertising inventory.
c. Exchange model
This model creates significant value in markets where demand and prices are volatile by allowing businesses to manage excess supply and peak-load demand. In an exchange suppliers and customers come together at a single site and arrive at a mutually acceptable price. PaperExchange in paper and e-Steel in steel are good examples of exchange models.
4. Business to Consumer ("B2C") segment
This segment comprises marketplace transactions where customers learn about products through online advertising, buy goods or services using credit cards, debit cards etc and receive post-purchase support through online services. The B2C segment can be used for advertising and selling products, ranging from books or CDs to T-shirts or even computers. The business models operated in the B2C segment are as follows:
a. Portals
A portal is the web version of a successful conglomerate that offers everything from search engines, e-mail and chat to travel, stock quotes and shopping. A portal commands the best, stickiest and highest eyeball aggregates on the net (that is the highest number of visitors who spend sufficient time on the site and have higher recollection of the site), a junction where all congregate to move out to different places.
The business model followed by a portal is simple:
Create a site that offers easy entry points for Internet surfers to different themes and topics;
Use it to draw a large number of customers;
Serve them up to the advertisers;
Also offer them your products to generate e-revenues; and
Retain the flexibility to do anything and everything the netizens may need tomorrow.
Yahoo!, Altavista, Go and MSN have redefined what portals can do on the net. Rediff.com, indiaworld.com, indiainfo.com, 123india.com, etc have gained popularity as the most suave Indian portals.
b. Vortals
Portals that are industry specific or service a niche on the net are known as ‘Vortals’. Vortals offer facilities similar to portals such as search engines, chats, discussions etc but remain restricted in scope to a particular industry/ domain, e.g. CNet.com, lexsite.com, etc.
CNet.com caters to the computing and technology industry targeting buyers and sellers of electronic products. Lexsite is a vortal targeted towards the legal community in
c. E-tailing
E-tailing is emerging as the fastest growing segment of e-commerce. Some of the major players in the e-tailing segment include amazon.com, jaldi.com, fabmart.com, etc.
The trendsetter in this segment has been amazon.com which is an online superstore dealing in books, music, video, software, toys, games, etc. It claims over 13 million customers.
The e-retailing model is already steadily disintermediating second rung retailers in the real world.
d. Infomediaries
These are e-commerce models having the essential characteristic of providing specialised and precise information to customers. Its simplest manifestation is a search engine.
For instance, CharlesSchwabb.com is the largest online broker in the world providing services such as investment planning tools, industry and company analysis, daily price charts and company headlines. Its clients include domestic and international individual investors, investment managers and institutions and its revenues include commission from online trades.
Naukri.com is the leading employment infomediary in India handling nearly 10,000 job advertisements in India. Its revenues include hosting charges paid by recruiting companies, resume hosting and circulation charges paid by job seekers, commission from placement agencies and resume development charges.
e. E-banking
E-banking offers remote banking facility electronically. It enables the web user to make purchases online and pay for the same using an online banking facility. This system has been only recently introduced in India. For instance, ICICI.com has launched "Infinity", an internet banking service that offers services such as account information, funds transfer within accounts, bill payment, requests and intimations for cheque books, stock payment instructions etc, communication with account manager etc.
f. E-broking
The capital markets have also been impacted by e-commerce with sites such as E*Trade, Ameritrade, etc facilitating online broking. As per Goldman Sachs study, more than US$ 1.5 trillion of assets shall be managed on line by end 2002.
5. Customer to Business (‘C2B’) segment
C2B sites enable consumers to set prices and business enterprises bid to offer products and services. The dotcoms that best describe this model are priceline.com and milkar.com. In the Priceline model, customers quote the price that they are willing to pay for a product or service. The products include airline tickets, hotel bookings, car rentals, new vehicles, home finance etc. The quotes are provided by Priceline to participating sellers and in case there is a willing seller, the transaction is concluded.
The Milkar.com business model aims at facilitating cheaper buying, by aggregating individual purchasing power to get volume discounts. The products offered range from electronics, home and kitchen appliances, luggage, automobiles, fitness equipment, jewellery, software etc.
6. Consumer to Consumer ("C2C") segment
This model typically comprises auction sites where sellers can place their products for sale and buyers can bid for them. Both sellers and buyers need to be registered with the auction site. While the sellers need to pay a fixed fee to sell their products, the buyers can bid without a fee. The site brings the buyers and sellers together to conclude deals and charges a commission on the sale proceeds. Some typical e-auction sites include, ebay.com, auctionindia.com, baazee.com, napster, etc.
SOURCES OF ONLINE REVENUES
The major sources of online revenues are as follows:
a. Access charges
Dial-up access charges tend to be the most significant source of revenue for most ISP business models in the initial stages. It is also similar in many ways to the business model of telephone companies.
If we consider the example of an independent ISP, viz an ISP that is not a part of the telephone company, its main source of revenues is the access charges paid by each customer to be online.
These charges are typically either on a flat rate monthly basis or per minute usage basis. The access charge that an ISP customer pays is in addition to any costs needed to have a telephone line available to make the connection to the ISP, in the case of dial up access.
b. Online advertising
Online advertising offers much more targeted and effective advertising than conventional advertising, thereby resulting in ever growing online advertising revenues. The main reason for this is that the Internet synthesises a society of potential customers no matter what their physical location is and therefore allows advertisers to deliver direct messages to the desired audience, cost effectively.
c. Customer revenues
The main category of online customer revenue earners is the e-retailers. They specialise in providing products and services to online customers and therefore form an integral part of the B2C transactions.
These online customers serve as a source of revenue for the e-retailers. The e-retailers aim at providing not only a great shopping experience but also leverage the process to offer additional value to online shoppers, especially online features like customisation and product differentiation/ classification.
d. Commission
The main earners of commission revenues are the info-intermediaries, which serve as a guide to the online customers in finding the location desired by them. They provide the customers with an automated search service that dissects the entire web in order to provide the customer the required information. These intermediaries in general take the form of search engines and portals.
The info-intermediaries can earn revenues from customers who pay the info-intermediaries subscription charges for gaining access to information and from sellers who reward the info-intermediaries for routing the customers to their sites and away from their competitors. The sellers may also pay for referring prospective buyers to them.
e. Surrogate revenues
Surrogate revenues refer to revenues earned through payments for hyperlinks and commission on sales undertaken through hyperlinks. These revenues typically arise in a situation where one portal has links established to other portals. Since the linking portal, also known as the ‘click through’ portal, serves as an advertising medium for the linked portals, it shares part of the revenues generated by such portals.
For instance, Yahoo! provides ‘click through’ links to other search engines, portals and sites.
f. Transaction revenues
In a transaction-based model, products or services are sold on the web site and the consumers are charged on a per transaction basis or a fixed fee basis. Stockbrokers and finance houses are among the typical businesses that use this model to perform transactions on behalf of their customers.
g. Information subscription revenues
These revenues essentially arise from subscribing to the web site/ portal. Typically, the media industry offers subscriptions of magazines and newspapers to its customers either on an unlimited access or time-based access.
