What is Ecommerce?

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Tutorial Overview

Topics covered in this tutorial (click link to jump to topic):

What is Ecommerce - an overview

In its simplest form ecommerce is the buying and selling of products and services by businesses or consumers over the World Wide Web.

People use the term "ecommerce" or "online shopping" to describe the process of searching for and selecting products in online catalogues and then "checking out" using a credit card and encrypted payment processing. Internet sales are increasing rapidly as consumers take advantage of

• lower prices offered by vendors operating with less margin than a bricks and mortar store
• greater convenience of having a product delivered rather than the cost of time and transport and parking of going to a store
• sourcing product more cheaply from overseas vendors
• great variety and inventory offered by online stores
• comparison engines that compare and recommend product
• auction sites, where they did for goods

The graph below shows increases in ecommerce spending in the last 4 years in Australia. This trend is set to continue with uncertain outcomes from traditional retailers.

Benefits of E-Commerce

E-commerce can provide the following benefits over non-electronic commerce:

• Reduced costs by reducing labour, reduced paper work, reduced errors in keying in data, reduce post costs
• Reduced time. Shorter lead times for payment and return on investment in advertising, faster delivery of product
• Flexibility with efficiency. The ability to handle complex situations, product ranges and customer profiles without the situation becoming unmanageable.
• Improve relationships with trading partners. Improved communication between trading partners leads to enhanced long-term relationships.
• Lock in Customers. The closer you are to your customer and the more you work with them to change from normal business practices to best practice e-commerce the harder it is for a competitor to upset your customer relationship.
• New Markets. The Internet has the potential to expand your business into wider geographical locations.

This tutorial is brought to you courtesy of Dynamic Web Solutions. Please contact Peter or Michael for a quote on a dynamic, mobile friendly web site with content management, Google analytics, hosting and web marketing support: (+61) 2 66993800.

B2C - business to consumer

In the Australian and New Zealand context B2C (business to consumer) trading activity has been slow to take off as at first consumers had doubts about the security of credit card transactions.

Initial B2C trading focused on music CDs, software and books - items which were compact and easily shipped and where prices could be slashed once the retailer's cut was taken out of the margin. The Amazon book store would be a good example of this. These products pushed the perimeters of the market out for goods bought on-line.

Books and CDs are relatively generic products. A CD bought in the US will have the same music and quality as one bought locally (the exception is the cover art) and so there is no doubt in the consumers mind exactly what the product is. This is not the case with clothing, where sizes can confuse the purchase decision... and where tactile senses figure strongly in the purchasing decision.

Ebay has really transform purchasing behaviour on the web. Many people have made their first ecommerce transaction on Ebay. Many people sell on Ebay too, given raise to the work-from-home/drop shipping model of ecommerce.

Interestingly though B2C transactions of previously localised or hard to find products can be extremely strong. If you have a unique product that is highly relevant to a niche audience, you are likely to do very well on the web.

Although sales are increasing rapidly on the Internet, the volume of turnover figures continue to fail short of industry estimates. But as retail web sites become more navigable and privacy policies are displayed, more people will be drawn to Net-based purchasing by lower prices and convenience.

B2B - business to business

On the Internet, B2B (business to business) is the exchange of products or services between businesses rather than between businesses and consumers.

Although early interest centered on the growth of retailing on the Internet, forecasts are that B2B revenue will far exceed B2C revenue in the near future.

According to studies published in early 2000, the money volume of B2B exceeds that of B2C by 10 to 1. Over the next five years, B2B is expected to have a compound annual growth of 41%.

Payment Gateways

Both PayPal and Paymate offer credit card to bank account payments. Using one of these services you can invoice a customer, they can pay on Paymate and the funds will be deposited in your bank account ... less a transaction fee.

Unlike a credit card merchant facility you will not have ongoing, minimum monthly fees... and the transaction fee is better than what most card companies offer small merchants. Additional these service are being backed into other ecommerce sites and shopping carts. Ebay for example uses Paypal to process some payments.

The Rise and Rise of Auction Sites

Auction sites such as Ebay and TradeMe have done an enormous amount to get ordinary people involved in online trading. Today many Ebay merchants are establishing their own web sites to avoid Ebay and Pay Pal fees. They have learnt about how to present their product in their Ebay store and what issues are important to their customers in purchasing their product and now they are ready to start their own web site.

Ecommerce Software

Get Shopped, developed in New Zealand, is a plugin to the popular (world's most installed) Wordpress content management system. Wordpress is open source, so no license fee is required, "free" in other words. Dynamic Web Solutions uses this plugin to make ecommerce web sites.

Shopify is a complete ecommerce solution that allows you to set up an online store to sell your goods. It lets you organize your products, customize your storefront, accept credit card payments, track and respond to orders.

Magento is an American open-source content management system for e-commerce web sites developed with assistance from volunteers.

Volusion based on the Drupal CMS, a "complete online store builder. Start selling quickly with our ecommerce software including website, shopping cart and secure hosting."

EPages is a fully integrated ecommerce software package that gives the web site owner control of ALL aspect of the web site, not just a product catelogue. It is however proprietory software and therefore monthly license fee is required. It integrates with Ebay and Google's shopping portal, Froogle.

OSEcommerce is an open source ecommerce software solution. It covers most of the basics and is free, but there is no support other than documentation and forums. Many php developers are available for customisation.

Eway offers "real time" payments from your web site to your bank account - the "glue" if you like between between your web site and bank. Let's say you have a web site that can take secure orders over SSL, you get the credit card number and put through a manual debit. Eway takes away the manual debit part of the circle.

Mals-e.com offers a free shopping cart with customisable freight and payment options. Great for small stores.

Security

On the Internet, security is handled by passing "keys" between Internet server and client browser. When entering a secure site your browser is passed a public key by which transactions between you and the web server are encrypted. The servers key is always kept private.

On your web site security can be handled two ways - depending on your budget. You can "piggyback" on someone else's "key" or you can register and pay for your own key or SSL certificate at Thwate or Verisign.

Generally today businesses who host web sites offer access to a secure server and you can use their server and secure certificate for less than if you registered and paid for your own key.

However the person browsing your site will notice the URL change to one they do not recognise - or trust. This may put your customers off (although there is no evidence of this). Therefore one of the advantages of buying your own key would be to have a URL for your secure pages that is consistent with the rest of your site.

Presently, in Australia, Verisign may sell you a key for over $800 while foreign ecommerce providers like Instant SSL can sell it for $150. Although Verisign will argue that their key comes with a range of value add benefits, the bottom line is the product, i.e. the key, is the same.

Credit Card Security

The credit card companies are constantly evolving more secure credit card purchasing on the Internet.

• Often you will be asked to give a three digit verification code on the reverse of your card. This is to prove you have the card in your hand at the time you made the purchase.
• Card companies also monitor your card activity to check for suspicious or out of ordinary purchases. They will contact you to verify it is you creating the usually break in the purchasing pattern.
• A range of biometric security measure have been proposed for credit cards. None are in widespread use at this time.
• Smartcards house a chip that has extra data in it about the card holder or carry an public key.

To give customers confidence in purchasing on the Internet however card companies generally stand by customers who have had their card or card number stolen. This is not exactly the case for merchants though. The card company will alert the merchant to stolen cards and fraudulent transaction but do not indemnify the merchant from losses.

Finding an ecommerce Provider/Partner

Generally your web developer will advise you on the various security options. Their recommendation will consider things like

• volume of sales
• amount of data that needs to be captured per sale
• number of products in your store
• how often you need to change the product prices or other details
• your special freight requirements
• whether ordering has to interface with your banking/accounting system and so on

Smaller businesses generally only required a secure form that returns results to the business owner, while a larger company with multiple products and locations will require a solution that takes the order, banks the money and sends a message to outwards goods to dispatch the goods. Who you choose as an ecommerce provider is therefore very much dependent on the size of your business and the range of your products.

Banks

Banks were slow at first to embrace Internet technologies citing security fears. More recently though in the drive for higher profits and greater shareholder return they have been moving more and more of their business online.

Mostly this transition has gone smoothly. The only real difficulty is phishing scams where people are tricked into logging into a web site designed to look like their bank, but instead traps their login details. Banks have warned people not to click links in their email to login into the bank's web site, but to type the URL into their browser window every time.

In Australia banks will soon issue a usb device required in conjunction with a PIN to access a bank account. This will tighten security further.

Integration

Imagine a web site that would allow your customers to place an order for your goods and when they sent their order to you, your stock or inventory database was updated immediately, outwards goods were notified and the customer was sent an advice from packing staff when the goods were shipped.

Many businesses do each of these things but few join them together or "integrate" them. As businesses become familiar with the Internet, it won't take long for business people to see that their order-taking, stock control and delivery systems should be merged into one seamless function.

Indeed Microsoft Retail Manager offers precisely this function. Maintain one database in your store and synchronise it in real time with your online database... meaning your web site is constantly up to date.

Other Resources

Wikipedia on Ecommerce

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24-May-2008
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