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“ A modern business methodology ... to cut costs while improving the quality of goods and services and increasing the speed of service delivery .”. What’s Electronic Commerce?. Frontiers of Electronic Commerce Ravi Kalakota, and Andrew B. Whinston. Evolution of Electronic Commerce.

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A modern business methodology ... to cut costs while improving the quality of goods and services and increasing the speed of service delivery.”

What’sElectronic Commerce?

Frontiers of Electronic Commerce

Ravi Kalakota, and Andrew B. Whinston

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Evolution of Electronic Commerce

From VANS to Internet

Electronic Commerce has, so far, meant electronic data interchange (EDI) over Value added Networks (VANS) used by corporate organisations. That was computer-to-computer exchange of routine business documents in a standard format. Now, it has the scope to use the Internet too as the medium. The Internet enables customers, partners and users to access a company’s EDI network, which earlier was closed to smaller companies, simply because of the costs involved.

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Evolution of Electronic Commerce

From VANS to Internet

  • While the Internet speeds up transaction times, another advantage it has over EDI transactions conducted over a private network is the connect charges applicable. Traditionally, VAN providers charge for EDI on a per-transaction basis. Organisations that use EDI therefore tend to send transactions in a batch to their customers once a day. Over the Internet where all connect charges are fixed, Organisations can well afford to send transactions at any time they want to, thus enabling real time commerce.

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How can E-commerce be used?

  • Community-based services: Payment of utility bills, traffic fines, donations to charity etc.

  • Shopping: Buying and selling goods and services

  • Communication: E-mail, Net telephony products can be commerce-enabled and serviced via the Net.

  • Biz-to-Biz applications where the purchase orders are generated and seamlessly integrated with EDI systems.

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Electronic Trade

  • A recent report by the Organisation for Economic Co-operation and Development (OECD) predicts Internet trading will grow from today’s estimated $500 million to $5 billion by 2001. In keeping with the trend worldwide, India has entered into over 50 tax treaties to follow the flow of the increasingly seamless worldwide electronic trade.With emerging payments standards such as the Secure Electronic Transaction (SET) protocol, E-Commerce practises are reportedly reaching the end of usefulness rapidly.

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Trends in Electronic Commerce

  • Even though fewer than one in five of the largest retailers in the U.S. sell their wares on the Internet, consumers managed to spend more than $10 billion shopping on the Web in 1997. Over 10% of that was spent at a single Website--NetMarket, an online discount service created for its dues-paying members by CUC International. NetMarket handled over $1.2 billion in sales last year.

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  • The Internet will augment electronic commerce already being conducted between businesses--at a much lower cost--as well as will dramatically increase electronic commerce conducted with consumers. Critical issues such as how to handle electronic payment, security, privacy, and fraud prevention are being addressed with reliable commercial software, and businesses are beginning to use information technology on the Internet to exploit the advantages of conducting business electronically. Increasingly, business people are discovering important bottom-line benefits on the Web, including:

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Speedier, more accurate transactions through customer self-service

  • The Internet can save time and money and improve accuracy by eliminating middlemen who offer little added value. We will eventually see complex, multiparty transactions conducted over the Internet with no human interaction at intermediate levels whatsoever. As a result of one click by the end-consumer, the order will be placed, paid for, the product depleted from inventory, the shipment arranged, replacement components ordered from suppliers, and a replenishment order initiated. As an example, an airline's Web site may perform the simplest duties of a travel agent--provide access to timetables and fares, and make single-provider reservations--thus removing the agent as an intermediary.

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Broader reach, larger potential customer base

  • Retailers who embrace the Web enjoy the potential--and challenge--of selling to an ever-growing community of well-informed shoppers. Geographic boundaries become all but irrelevant (although state taxes and import duty can still apply) and operating hours are limited only by the software and hardware behind the Web site. As has often been observed, the Web is a great equalizer for businesses just starting up and facing very large competitors. For example, in the case of an on-line bookstore like www.amazon.com, the vastly larger population of potential customers on the Web renders it feasible for that single "store" to house a physical inventory not otherwise practical for a startup operation, and thus offers what previously only the "big guys" could.

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Better and richer information for the business, partners, suppliers, and consumer customers

  • The Web delivers text, images, voice, and video to WAN-and LAN-connected users, organized onto hyperlinked HTML pages. This wide range of options enable the consumer or purchasing agent to view and interact with the business in the most appropriate, polished, appealing, and information-rich way. For example, a sophisticated Web server can personalize the catalog a given inquirer sees. Better and more consistently than any user registration card can, a Web site can capture and analyze the buyer's behavior for future planning, dynamic personalized marketing, and loyalty schemes. It can involve customers, partners, and suppliers in ways previously thought to be difficult or impossible (e.g., accept customer-furnished book reviews, support chat and e-mail for user groups, dynamically and automatically launch a sale based on the past 24-hours' buying patterns, etc.). A net-connected consumer, business customer, or supplier can train the business' Web site to keep special interests in mind and proactively notify the buyer via e-mail of relevant business changes.

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E-Commerce and India

  • While some blame the high cost of implementation, others worry about the lack of security. The systems needed to transact over the Net are in the early stages of development and are still costly and complicated for Indian Businesses to use. But it’s clear that E-Commerce is in, and the combination of the Internet and the EDI (Electronic Data Interchange) is the next step in building competitive advantage.

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If we consider some of the goals of businesses with regards to electronic commerce: higher revenues through exposure to additional customers; cost reduction; lower product cycle times; faster customer response; and improved service quality, we see how dramatically a company's bottom line can be influenced with the addition of electronic commerce. A number of pioneering firms are implementing electronic commerce solutions today and are finding new ways to save and make money.

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Success stories...Lucent TechnologiesBusiness-to-Consumer Electronic Commerce

  • Lucent Technologies is using Oracle Universal Server and Oracle Web Application Server to power a high-traffic Internet commerce site for marketing and selling its business communications products. The site allows Lucent customers to browse up-to-the-minute information and images representing more than 1,000 Lucent products and place orders securely on-line.

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Success stories...Lucent Technologies-2

  • Built in only six weeks, Lucent launched the site in July 1996 at www.lucentdirect.com and has been continually upgrading the site without any performance hits. Lucent product managers are able to easily make updates on-line, such as price increases or product description changes, by simply entering the system through their browser, using a password, and making changes instantaneously to Lucent's electronic catalog in a word-processor format. The system's complexity is transparent to Lucent product managers who, with the proper security checks, can maintain their own content in a timely manner. This avoids involving an HTML programmer who would have to make those changes for the entire company.

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Success stories...Lucent Technologies-3

  • "Our customers and employees don't need to know the technology behind the site. The consumer wants to know that the information they are getting is correct and they don't want to wait for it; otherwise, they will buy somewhere else. Because our product managers are able to maintain their own product content on the site, updates are made quickly and easily. That functionality helps to keep Lucent's site successful and directly connects us with a whole new market, saving us considerable time and money."

    • Tom Catani, general manager of electroniccommerce, Lucent Technologies

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Success stories...In FocusBusiness-to-Consumer Electronic Commerce

  • In Focus® is the world-wide leader in manufacturing and developing multimedia projection products and services that make it easy to project the power of multimedia in business and sales presentations, software demos, education and training, and interactive workgroup meetings. The company uses Oracle Applications (Financials and Manufacturing) as the backbone of its business and uses the Web Customers module to allow its distribution partners (resellers) to track the progress and status of orders. In Focus was able to install and customize Web Customers in only eight weeks.

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Success stories...Chrysler Corp.

Chrysler Corp., by linking to its suppliers through a Web-based network, reportedly saved more than $1billion in cost of materials in 1997. By 2000, Chrysler’s estimated annual average savings will amount to $2 billionThe Internet is a tempting channel for a Bank which can conduct an online transaction for five paise versus RS 1.50 through a teller.The biggest challenge for companies involved in electronic commerce isn’t the technology-it’s changing the corporate culture. “It requires an organisation to be bold.”

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Success stories...Cisco

The Cisco Connection Web Site, now available in 14 languages and with 49 country pages, is claimed to be the largest Internet Commerce Site.John Chambers, President and CEO, Cisco Systems Inc., predicts that E-Commerce will be the primary means by which business will be conducted in the next 10 years.

Cisco’s sale through the Web has touched $ of a total of $ billion.

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Success stories...

Dell Computers

  • Dell Computers made waves in industry circles when they announced that they sold over a billion dollars worth of Personal Computers directly off the Web in 1997.

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Lessons learnt from theDell Experience

  • Increasing margins and revenues. Dell understood that the web could take the place of their customer call center replacing sales representatives and technical support staff. Phone and material costs decreased while also speeding up the sales process.

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Lessons learnt from theDell Experience

  • Value-added for the customer heightened the web experience. The web also offered new ways to help people choose computers and price them without sending faxes of information. Pricing and comparing configurations became easier.

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Lessons learnt from theDell Experience

  • Synergies with current business systems. Even if the user doesn’t buy over the web, the percentage of voice calls into Dell show that a very high percentage did their pre-sales “shopping” by visiting their web site! Customers needed to spend less time with representatives on the phone saving even more money.

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Lessons learnt from theDell Experience

  • The perfect target market for consumer sales. The web demographics of young professionals who already are computer literate and disposed to a computer (by being on the web) was a marketing match made in heaven.

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Lessons learnt from theDell Experience

  • The perfect way emerged for business sales. Business users can also find their way onto Dell’s site and Dell is now providing internal “virtual” web stores within large corporate Intranets to aid the purchasing process. This is a new growth segment for Dell’s web-based sales.

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How do you Buy On-Line?

  • World Avenue, IBM’s electronic shopping mall on the Web, being beta tested, has been used to generate 5,500 orders from 200,000 online customers, for some $275,000 worth of caps, mugs and other Olympics merchandise.

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How do you buy Online?

  • As you browse through the store, that runs an ‘e-commerce server’, such as the HP domain commerce server or is part of an ‘electronic mall’, such as IBM’s Net.Commerce, the server helps you select an item (say an Olympic souvenir mug), and place an order. Such servers carry software to verify transactions, perform accounting duties, guarantee payments, and even create digital money.

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How Do you pay Online?

  • Wishing to pay for the item, you send an enciphered request for payment to your bank/third-party payment provider. Your bank will then remit to you, a secure packet of ‘e-cash’. Using Cybercash’s wallet application , you send an enciphered payment request to Cybercash’s server. Once the credit is authorised by Cybercash over secure lines to your bank, ‘money’ in Wallet is used to complete the purchase.(contd...)

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How Do you pay Online?-2

  • You then send the exact amount of e-cash needed to buy the Olympic souvenir to the virtual store. The server at the store then sends that packet of cash to its bank. The merchant bank then sends a request for transfer of funds to your bank, which the latter, after verification, performs. This is where actual funds are transmitted from your bank to the merchant bank.

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Buying Books Online

All you do is to select the books you want to buy, and place an order for them. You could then either pay for them through your credit card, or pay for the books when you receive them. Buying books from Amazon.com is thus much like buying items from a catalogue. What’s more you can view the book, and maybe read part or whole of it.This Online Bookstore has become so popular, that not only is it the number one bookseller on the web, but the number three bookseller overall.As many as 2,260,000 surfers who visited the web site bought books this quarter, an increase of nearly 50 percent from 1,510,000 customers account at the end of the fourth quarter 1997, and an increase of 564 percent from 340,000 customers accounts at the end of the year ago first quarter.

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E-Commerce : How a Transaction Takes Place-1

Here is an example of how an e-commerce transaction takes place. Consider the following case study

  • Musba Book Suppliers has a large and good selection of computer books; reference and computer-based training materials. Sales are effected through the bookstore and an on-line virtual bookstore at www.books.com.

  • Musba Book Suppliers wants to set up a web site in which everything, from the moment a customer placed an order to shipment of that order, was fully automated.

  • The challenging aspect was that the company ships some 200 books a day, and numerous transactions are called for

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E-Commerce :How a Transaction Takes Place-2

  • A customer order triggers a MS-Access stored query. The customer sees real-time stock status on a HTML page. As new titles arrive in the warehouse, a Microsoft Visual Basic module loads incoming stock to the websites’ database. Another Visual Basic module copies the order to the customer service database and removes the order information from the web, for security reasons. A separate Visual Basic Module processes the order; handles customer service needs, and exports the information to a system that calls the company’s credit card. This same application also prints a packing slip, which goes to the warehouse.

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E-Commerce :How a Transaction Takes Place-3

  • Warehouse staff pull the books ordered and type the reference number into the shipping system, which is linked by an ODBC connection directly to the customer database. With the reference number, the shipping system knows who the customer is and where the books are going. The warehouse staff attaches shipping labels which goes to the shipping dock. A Visual Basic-based application recognizes that the order has been shipped and creates a “shipping confirmed” mail message that is automatically sent to the customer. The cycle is complete

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Consumer finds something she wants to buy at a “shop” on the Net


Verification and remittance of actual funds


Consumer sends on enciphered request for payment to her bank


The electronic bank sends back a secure packet of e-cash

Consumer’s Bank


Consumer Public Key

Merchant Server

The shop sends the packet of cash to its bank


Consumer sends the e-cash to the shop



Merchant Bank

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Agents and Intermediaries

To help organisations conduct business on the Web without having to set up costly servers and devote dedicated personnel to monitor orders and deliveries and other transactions, a new breed of Agents or Internet E-commerce Solution providers have sprung up.

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Agents and Intermediaries

Another similar service provider’s site looks like this:

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Good News, Bad News

Like any other technology, there’s good and bad news.Thegood news is that E-Commerce is a round the clock advantage for the customer. It will eventually become standard. What’s more, e-commerce allows fast and flexible execution and response to market opportunities. The Web enables a company to introduce a new product, get immediate customer reaction, refine and perfect it, all without incurring huge investments in a physical distribution infrastructure. Companies betting on E-Commerce have begun to learn about their customer’s online buying habits.

The bad news is that customer reaction may actually be in jeopardy. Led to believe they’re transacting in real-time, they could become disillusioned and take their business to competitors or back to the offline world if their order is not fulfilled quickly.

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How do you pay Online

How safe would it be to use yourCredit Card Online

While such a concern is shared by many users, the risk has now been reduced. This has come about due to the development of Secure Internet Protocols and Payment Systems, and Server solutions that can handle electronic transactions.The Secure Electronic transaction (SET) initiative that major Credit-Card issuers Visa International and Master Card are backing is expected to solve such security risks. The SET project, obtaining assistance from Microsoft Corp., IBM Corp., Netscape Communications Corp., SAIC, GTE, Teresa Systems and Verisign, aims to deliver a transparent encryption system suitable for all electronic transactions using PCs. The use of Public Key encryption may also go a long way in allaying users fear of safety.

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How do you pay Online

Pay Cash over the Net

The type of solutions available today include third-party payment organizations and credit card payment system on the Net. Digicash, France, was the first third party payment organization, in 1994, to implement a virtual money system, with which clients and merchants could transact business in relative safety. Digicash and later third-party payment organizations developed payment and merchant systems based on the RSA security system for transmitting encrypted data over the Internet. Taken in conjunction with the development of secure internet protocols (Netscape Secure Sockets Layer, Enterprise Integration Technologies’ Secure-HTTP, Master-Card and Visa International’s SET and the Joint Electronic Payment Initiative), third-party organizations have attracted banks and Credit Card Companies to the Internet.

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How do you pay Online


Some of the third party payment offerings now available are CyberCash, Ecash, First Virtual Payment System and Clickshare.CyberCash is a realtime secure, digital signature-based credit card authentication service, developed by CyberCash Inc. It acts as an intermediary between the consumer, the merchant and the credit card clearing house. Ecash on the other hand is digital money that is downloaded by an Ecash client from a participating bank and stored on a customer’s local computer. Ecash can be spent at merchant systems that accept it; accepting merchants, in turn, must deposit Ecash receipts at a participating bank.Of the credit card payment systems available now on the Net, ICVERIFY, from ICVERIFY Inc. is the most popular. ICVERIFY processes and authorises credit card transactions online.

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Duty Free on the Net

Last month, the World trade Organization came to a decision to keep global electronic commerce duty free, and agreed to evolve a programme to deal with its development on the Internet. The new agreement, involving trade ministers of 132 countries, bars governments from collecting any tariffs on such transactions for atleast a year. It ofcourse has incurred wrath from non-governmental organizations since such an exercise would benefit corporates of developed countries; governments, by the way, would lose the option of a revenue earning source.The Global Internet Project(GIP) presented the European Union (EU) with its recommendations on e-commerce last month. EU wants to develop a global charter covering technical standards, illegal content, licenses, encryption and data privacy on the Internet and other Electronic networks.

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Major components of E-COM

Shopping Cart(commerce server)

  • An application which helps the shopper to browse through the product list and place an order. Application should be capable of maintaining the state information about the shopper purchase details and his ID.It should also be able to maintain the product list.(Usually this is implemented with the help of components(COM OBJECTS)). The components interact with the database for transaction processing.ASP provides support for this.(Cookies too can be used for this).

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Major components of E-COM

Payment module(Payment server)

  • Shoppers can make payments through credit cards. Credit card No. is sent to the server which can be stored in the database which can be verified against a bank manually later.

  • Another method is to use payment servers which allows on-line verification of credit card numbers with the bank. It also provides mechanisms for checksum verification.

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Major components of E-COM

Security issues(security server)

  • Payments to the server is enabled with the help of a number of security mechanisms

  • Browser-to-Web server data encryption and integrity with SSL 3.0

  • Browser to database password authentication by use of encrypted digests (Kerberose,Identix,Cybersafe)

  • Protection for corporate databases with protocol-enabled firewalls proxying and authenticating user connection requests (Oracle has supplied sql*net proxy to all firewall vendors).

  • Web Application Server to Browser authentication by use of digital signatures.

  • Security Server provides a Certificate Authority (CA) function, including generation of public key/private key pairs and issuance of industry-standard X.509 certificates.

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Players in E-Commerce

Netscape is not the only player to move towards facilitating its customers in e-commerce. IBM Corp is also gearing itself up to provide ‘e-business’ solutions. Other players such as Hewlett-Packard Co. and Compaq-Tandem have launched servers (hardware/software) that will cater to electronic commerce. Cognos Inc., a leader in business intelligence tools, has developed Data merchant that allows corporates to access business intelligence data from anywhere around the globe, anytime they want it.Finally, Microsoft and Sun Microsystems are also not far behind, as both their technologies - ActiveX and Java - are capable of providing solutions for developers with security strategies to base their products on.

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Players in E-Commerce

  • Software companies that have made a mark for themselves in providing E.Commerce solutions out of the box are:

    • OpenMarket (LiveCommerce, Transact, ShopSite)

    • Sterling Commerce

    • iCat (Commerce Publisher, E.Commerce Suite)

    • Microsoft (Commerce Server)

    • Netscape (

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IsE-Businessall about the Internet?

  • No, the basic foundation for e-business can be laid without the Internet. It’s all about connecting your offices, suppliers, retailers and streamlining your processes. It’s about letting your left hand know what your right hand is doing and extending it to your customers. That’s it. Later when you feel you’re ready or interested in reaching millions of customers, the Internet may be your answer.

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But is it for me?

  • Of course, Today you can buy garments, music, magazines, movie tickets and even vegetables on the net. Many companies keep their branch offices and employees informed of the latest developments whether internal or external through an intranet or even simple E-mail. No matter what the nature and size of your business, companies like IBM, Oracle etc.have ready solutions which will make it more cost effective.

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Is it safe?

  • Nobody would want to get into something that wasn’t secure. So when you are ready for e-business you’ll find that many organisations have developed solutions like Real Time Intrusion Detection and Anti Virus software. These along with personal codes and passwords make sure that any transaction that takes place or any information that is shared is seen only by the people it’s meant for.

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Will I have to change my existing setup?

  • Certainly not! There’s only no problem even if you are using different hardware and software systems to do your work today. There are companies that will help them all work together, using cross-platform technologies like Java to build smoothly integrated, open e-business solutions that work with both IBM and non-IBM technology. Of course, it would be easier for you if your system is scalable. Because then you can add to it as your business grows.

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What the Future Holds

Ricardo H. Dujua, general manager of EDINet Philippines, speaking at the Supermarket Show 97 last year predicted that soon more and more shoppers will use the Internet as the medium of Business. The Electronic system will eliminate the need to set up physical stores, warehouses and carry inventory.It is also probable that not only will the greater adoption of e-commerce change the way retailers conduct business, it may also bring pressure to bear on them to be more responsive to customers needs.The World is becoming increasingly networked, changing our methods of working and lifestyles. Once the hypes are cleared and the mist lifts, usage would be fun, business easy.

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In Future

  • While E-Commerce may not completely replace other forms of Commerce, it is likely to be the dominant mode of the commercial transactions in the future.

  • Colleges and Schools including Business Schools should reflect this trend in the curriculum to train the future generation of Managers.

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Consumer Applications and Social Interaction

  • In the long run, the e-commerce application winners will be those that can change the way consumers think and the way they do business. One example might be applications oriented toward social interaction. Lessons from history indicate that the most successful technologies are those that make their mark socially.

  • The TV and the Telephone are examples.

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In Sum

  • In sum, the most successful marketplaces are expected to be those that cater to consumer's loneliness, boredom, education and career. For instance, look at the success of on-line chats and home shopping channels.

  • But debates rage over whether interactive TV or on-line computer services will become pivotal medium for solving consumer loneliness.