Department of Business Administration

College of Commerce

University of Illinois at Urbana-Champaign

m-shaw2@uiuc.edu

There is a revolution transforming the global economy. Web technology is transforming all business into information-based activity. The rate of technological change is so rapid that emerging electronic commerce already is making fundamental changes in the economic landscape, affecting every aspect of how business is and will be conducted. The Web has extended the reach of corporations. New business opportunities are growing incrementally because of the vast amount of business information made available by the global Web, which helps bring together the information passed between businesses, between a business and its customers, and among different departments of a business. It will no longer be possible operationally or strategically to ignore the information-based virtual value chains for any business. This paper reviews the scope, current applications, and the potentials of electronic commerce. It also develops a framework for identifying the significant opportunities and important research issues associated with electronic commerce. The emphasis is on taking an interdisciplinary view that integrates technology and business models.

(Electronic Commerce; Web Strategy)

We are witnessing a revolution in commerce and society primarily due to an explosion in information technology and the resulting rapid emergence of electronic commerce (EC). Transaction based commercial activities such as information gathering, shopping, trading, brokering, banking, accounting, auditing, auctioning, financing, negotiating, collaborating, marketing, supplying, partnering, training, meeting, scheduling, manufacturing, distributing, servicing, and retailing are experiencing rapid change due to the adoption of new information technology. In short, much of what we know about the everyday conduct of business will continue to change. All companies, large and small, will face inevitable challenges brought about by these technologically enabled developments. Fortunately, this change creates both risks and opportunities. Electronic commerce is in many ways an uncharted new frontier. Carefully thought-out business execution, strategy development, and research become important to understand all the shifting rules and to identify rising opportunities to develop new competitive advantages.

The information revolution is drastically reshaping global society and pushing the world toward an information-based economy. This revolution is touted as the beginning of a new era in which the majority of the value-adding activities in the economy will be shifted to cyberspace through globally connected electronic networks. There are many optimistic forecasts on how fast the electronic commerce market will grow. Most, including one from the U.S. Department of Commerce (Margherio, 1998), predict that the EC market will grow to hundreds of billions of dollars by early next century. A frequently quoted figure is that the total of volume of electronic commerce will reach $327 billion by 2003 (CyberStats, 1997; Business Week, 1998). These predictions paint a rosy picture for electronic commerce. However, even with all the optimism, how to capitalize on the full potential of electronic commerce is still an open question. With technology moving at a blazing pace, governments, businesses, and the general public all are struggling to catch up. On the other hand, the scope of electronic commerce is so broad and its reach so wide that efforts by the participants and the stakeholders need to be well coordinated. Multidisciplinary perspectives are therefore necessary to understand many of the issues involved.

The next section surveys the scope and the developments in electronic commerce along a host of dimensions, followed by a review of the critical issues, challenges, and opportunities involved. The objective is to lay out a framework for understanding the state and direction of the developments. Specifically, the following issues need to be addressed.

• The scope of electronic commerce, its components, and potential impacts.
• The consumer-oriented electronic commerce opportunities, the enhancement of electronic storefronts, and the development of new consumer processes.
• The strategy for developing online business and digital services.
• The transformation of business-to-business infrastructure and partnerships.
• The rising needs to address security, privacy, and legal concerns.
• The technology and infrastructure for EC, such as electronic payment systems.
• The Web strategy for coordinating channel partners and for streamlining their processes.

This chapter ends with a summary of the challenges and opportunities in Electronic commerce.

Electronic commerce covers a wide variety of perspectives. The technological enabler is the Web, including the globally connected networks, the universal networking interface and transmitting standard (based on TCP/IP), and the World Wide Web infrastructure that facilitates information storage, browsing, and retrieval. Statistics and success stories about the growth of the Internet and electronic commerce abound (the following statistics are based on an annual information technology survey in Business Week (June 22, 1998) and a report published by the U.S. Department of Commerce (Margherio, 1998).

• Fewer than 40 million people around the world were connected to the Internet during 1996. By the end of 1997, more than 100 million people were using the it. Some experts believe that there may be one billion people connected to the Internet by 2005.

• As of December 1996, about 627,000 Internet domain names had been registered. By the end of 1997, the number more than doubled to 1.5 million.

• The Internet is growing faster than any other technologies that have preceded it. Radio existed for 38 years before it had 50 million listeners and television took 13 years to reach that marks. The Internet crossed that line in just four years (since the wide distribution of World Wide Web browsers).

• Traffic on the Internet has been doubling every 100 days. In addition, according to the Internet Domain Survey (http://www.nw.com/zone/WWW/report.html), there were 1,776,000 host computers on the Internet in July 1993. By July 1998, the number was 36,739,000.
• In 1996, Amazon.com, the first Internet bookstore, recorded sales of less than $16 million. In 1997, it sold $148 million worth of books to Internet customers. Cisco Systems closed 1996 with just over $100 million in sales on the Internet. By the end of 1997, its Internet sales were running at a $3.2 billion in annual sales.
• In January 1997, Dell computer was selling less than $1 million of computers per day on the Internet. The company reported daily sales of $6 million several times during the December holiday period in 1997. In the meantime, Dell has developed its global supply chains into one of the most efficient, with the inventories turned around several times faster than its competitors.
• Online sales are growing in every category of goods. Between 1997 to 2001, financial services will grow to $5 billion from $1.2 billion, travel will grow to $7.4 billion from $654 million, computer hardware and software will grow to $3.8 billion from $863 million and books and music will grow to $1.1 billion from $156 million.
• Business-to-business (B2B) EC sales will grow from $8 billion in 1997 to $183 billion in 2001. It will account for 78% of the total spent on cyber transactions in 1998.
• EDI is used to exchange about $250 billion of worth of products in 1998, which is 14 times larger than business-to-business EC. But EDI is pricey and complex to use. Within five years, EDI and Web-based B2B EC markets will be about equal, at more than $450 billion annually. By 2003, more than 30% of EDI data is expected to traverse the Web.
• General Electric Co. brought $1 billion worth of supplies via the Web in 1997. That saved the company 20% on material costs. By 2000, GE expects to be buying $5 billion over the Web.
• By the end of 1997, the number of profitable Web sites – both for consumer and for inter-business transactions- jumped to 46%, ending three years of stagnation at 30%. And some 81% of the remainder expect to be profitable in a year or two (BusinessWeek, 1998, p.126).

Due to its broad scope, the focus of electronic commerce must be viewed from a number of perspectives to appreciate a particular functional emphasis fully. Several dimensional perspectives are explained in the following.

1. Technology. Electronic commerce is made possible by the global networks where business processes, inter-organization transactions, and market trading take place. The Internet is the major contributor, but other communications networks, such as value- adding networks for carrying out electronic data interchange, also play a role.
2. Marketing and "new consumer processes". Electronic commerce is the new channels to connect with customers and a new media to promote products. EC expands the boundaries of enterprises to reach out directly to their customers.
3. Economic. Electronic commerce is a new economy that is information-based and shaped by new institutional and industrial organizations (Stigler, 1968). EC creates new markets and economic activities that are characterized by instant information flows, the delayering of value chains, the emergence of new intermediaries, and the shifting economic rules and market dynamics (Choi, et al., 1997). The fundamental valuation has been transformed by these changes, leading to needs for new strategy and business models.
4. Electronic linkage. Electronic commerce provides new linkages to achieve more efficient economic activities, including: (a) the interface between businesses to consumers; (b) the linking of a business to its channel; and (c) the coordination of different units within a business.
5. Information value-adding. Electronic commerce accelerates the separation of the information-based value chains from the physical value-adding chains. The information-based or the virtual value chains (Sviokla,1998), create new ways to compile, synthesize, package, distribute, and market information as products and services.
6. Market-making. The global networks supporting electronic commerce have provided opportunities to form electronic markets to match buyers and sellers (Strader & Shaw, 1997; Bakos, 1998). This new market space features real-time information transmission, interactive communication, wide reach and connectivity, and rich content. These characteristics potentially can form more efficient markets for exchanging goods, resource allocation, and trading.
7. Service infrastructure. Electronic commerce needs a variety of services to support all potential functions, activities, requirements, and applications. These services need a coherent infrastructure to ensure integrity, uniformity, efficiency, and effectiveness. Examples of the infrastructure include infrastructures for public-key, payment and banking, information services for organizing, searching, retrieving, filtering, and summarizing information, and for processing business-to-business transactions, sharing supplier-catalog information, and supply-chain coordination.
8. Legal, privacy, and public policy. All the structural, institutional, process, and technological changes brought by electronic commerce necessitate a new framework for addressing the legal, privacy, and public policy needs. This is a difficult task due to the number and diversity of interest groups involved. Yet, this is the one dimension that needs to be taken into account early in the development of EC to protect the interest of the general public. Addressing the issues involved requires a balanced approach that takes into account the interests and potential conflicts among different parties.

The scope of electronic commerce is depicted in Figure 1 (Shaw, et al., 1997), where, in addition to linking with suppliers (EC5) and distributors (EC4), it also includes the interface with consumers (EC3), and the management within the enterprise (EC1). Finally, electronic commerce also addresses the infrastructure issues (EC2), such as payment systems, network security, human-computer interface, and the information infrastructure. Electronic commerce provides unprecedented opportunities to integrate various types of communication networks, including the three primary types as depicted in Figure 2. These three types of networks have taken up their own specialization. (1) The Intranet for process, knowledge, and internal communication management, (2) The Extranet for external coordination and information sharing with channel partners such as suppliers, distributors, and dealers, and (3) The Internet for setting up electronic storefronts, providing customer services, and collecting market intelligence. In developing electronic commerce there is a constant need for new business models suitable for the new products (e.g., digital ones), new industrial organizations (e.g., virtual organizations), and new industrial organizations (e.g., information intermediaries).

Figure 1. The Scope of Electronic Commerce

Figure 1 and Figure 2 together summarize well the major impacts of the Web on managing a company. The Web provides the infrastructure for collecting, distributing, and sharing information. It serves as new channels for making sales, promoting products, and delivering services. Finally, it integrates the information organization for managing activities on all levels of the company and provides new electronic links for reaching out to the customers and supply-chain partners.

Figure 2. The Web Centric Enterprise

One of the first applications of electronic commerce involves the development of electronic storefronts. Companies such as Cisco (Clark, 1997) or Dell Computers (Hill, 1997) have developed their Web storefronts into major sales channels. High profile Internet companies such as Amazon.com and Auto-by-Tel have developed innovative business models using Web storefronts as their main channel. However, these early successes do not necessarily guarantee that the Web will become the dominant sales channel for every business. One of the critical aspects influencing the success of electronic commerce will be the effectiveness of the interface interacting with the consumers. To date, it is not clear what deciding factors will draw people to shop on the Web. What makes Internet shopping different from mail-order catalogues or TV shopping? There are a host of potential advantages associated with the use of Web storefront as the consumer interface. The Web can provide aggregate information and interactive transmission, for example, to make the presentation more interesting. It is especially good at achieving remote accessibility while delivering rich information content at the same time (Evans, and Wurster, 1997). However, there are still barriers against consumers using the Web for retail shopping. Yes, selling products such as books, music CDs, and computer equipment over the Web has been relatively successful, but the type of text-based interface design used by, say, Amazon.com may not be able to cope with products that have more variations. To make the Web the prime place for shopping, more efforts will be needed to make the Web a better interface for consumers.

Overcoming these barriers is essential. One enhancement to the human computer interface (HCII) incorporates virtual reality (VR) with 3D visual and audio displays to enrich the Web shopping experience. Some of the techniques and tools developed in this area can be useful in implementing virtual storefronts.

Imagine sitting in your living room browsing the Web from the VR Web TV. You search and retrieve a direct merchant’s catalogue of winter clothing. Different styles of coats are displayed on a three-dimension digital model made to resemble your body. You can select the specific color combination and adjustment that fits your taste. While in this VR environment, you may also want to test the utility of the coat by walking around, getting into your car, and going to the office, to test its quality and suitability under various circumstances of use. In this way, a good VR interface could lead to the implementation of mass customization. You could interact with the VR display of the goods to select desirable features until you are satisfied and place the order through the Web to receive a highly customer specific product.

Although sales on the Internet through the electronic storefronts have met only limited successes to date, there are reasons for optimism. The bandwidth of the network infrastructure is improving to the extent that the information content presented in the Web storefront is getting richer. Statistics show that there is good potential for growth of this type of commerce. Each year about 55% of U.S. households purchase products from catalogs and about 7% purchase from TV (Burke, 1998). When the Web interface is better designed, catalog shoppers may be the first to consider electronic shopping.

Whether virtual-store shopping will take off or not certainly depends on more than the interface design. Users’ acceptance of a new technology is always difficult to predict. Ease of use, prices, costs, sense of community, trust, search efforts needed, information richness, among other factors, will likely play a role. There are still plenty of uncertainties. For example, Proctor and Gamble, with a global advertising budget around $3 billion, is seriously developing interactive marketing through their Web storefront. Yet their advertising spending on the Web is only a very tiny portion of the total advertising budget. Their executive for global advertising recently lamented that "the current state of Web advertising just isn’t effective enough to warrant any truly meaningful investment from us (Beausejour, 1998)." Other than the technical constraints and the need for more reliable measurement, the third reason he cited, which he emphasized was the major reason, was that marketing companies like Proctor & Gamble really don’t know how to use the Web effectively yet. Questions on how to develop meaningful relationships with consumers, whether brand name will play a significant role in the virtual shopping world, and what the consumers’ perception is about purchasing from virtual storefronts still are mostly unanswered.

The rapid adoption of personal computers and greater accessibility of Internet infrastructure continues to fuel the digitization of products (e.g. newspapers) and services (e.g. voice communications) -- commonly referred to as digital interactive services (DIS). Many companies in entertainment, creative content, news distribution, communications, computing, and financial services are seizing the DIS opportunity by aligning capabilities and assets through mergers and acquisitions, resulting in the consolidation of the information industries.

Consumer online services demand that diverse inputs must be combined to create and deliver value. No single industry alone has what it takes to get DIS off the ground. Success in DIS requires inputs from diverse industries that have only been peripherally related in the past. In order to seize the opportunity, a company from one of the related industries would have to exploit its own capabilities and make cooperative and collaborative arrangements with companies in complementary industries. Schlueter and Shaw (1997) provide a detailed representation of the value chain of digital interactive services. They describe the value-added stages of online industries and markets. As shown in Figure 3, the model consists of six core processes: (1) content direction, (2) content packaging, (3) market making, (4) transport, (5) delivery service, and (6) interface and systems. In electronic publishing, for example, strategic choices will evolve among online networks, community organizers, interactive studios, agencies, and platform providers. They are described in Figure 4.

Figure 3. The Strategic Framework for the Interactive Digital Interactive Services

Business-to-business (B2B) electronic commerce is projected to constitute the largest portion of the whole electronic commerce market for the next five years. Some estimates put B2B to be close to 78% of the overall EC market (Business Week, 98). It should not be difficult to understand why that is the case. While much media attention has been paid to buying books, music CDs, or flowers over the Web, behind the scenes companies are purchasing their computers, raw materials, and other supplies from one another as never before over the Web. For a multinational corporation such purchases can easily reach billions of dollars annually.

Figure 4. Intermediaries in the DIS Industry (Schlueter & Shaw, 1998)

Figure 5. Three Types of Buyer-Supplier Communication Structure

With the Web, major vendors have begun to put their product catalogs online. Buyers can thus conduct the procurement process directly through the Web. The Web-based electronic catalogs are fundamentally changing business-to-business procurement. Physical catalogs are cumbersome to use, require large storage areas, become dated soon after being published, and make searching and comparison very difficult. While putting catalogs on CD-ROM eliminates these problems, they too become obsolete soon after publication. Furthermore, CD-ROMs still require physical storage and either replication for each user or some means of remote access and control. The interactive possibilities of Web-based electronic catalogs remedy these deficiencies by eliminating the need for physical storage and making continuous updating effective and efficient. Web-based electronic catalogs also simplify comparison shopping, and keeping the catalogs up to date, while making it easier to locate and evaluate a supplier’s goods.

Web-based procurement systems also create electronic links between suppliers and buyers, as does EDI (Choudhury and Konsynski, 1998; Kemerer, 1998; Sirinivasan, 1994; Wang & Seidmann, 1995). These links can be organized in different ways. As shown in Figure 5, buyers and suppliers can either form direct connections without any intermediary (a), with intermediaries (b), or acquire the goods through electronic markets (Strader and Shaw, 1997) (c). Current EDI systems are mostly implemented in forms (a) and (b) through value added networks or private lines. Web-based catalog systems enable the buyers to check the online catalogs of a pool of (selected) suppliers and then submit purchase orders electronically. Therefore, Web-based systems tend to be more market oriented, which can translate into lower costs. It is interesting to note whether there are still opportunities for intermediaries, such as the integrated suppliers, to play a role in the supply chains.

Eventually, interoperable electronic catalogs will emerge and change the dynamics of the industry (CommerceNet, 1997). Buyers will be better served with inter-operable catalogs because they can then query multiple catalogs concurrently. Retailers and distributors will benefit because they can use interoperable electronic catalogs to reposition their products and services. For large manufacturers the interoperable electronic catalogs infrastructure provides them with direct links to reach out to more customers, although it is likely that they will lose some of their pricing power. Before B2B electronic commerce reaches that stage, however, there will have to be a standard for describing product and item classification.

Consumer polls have shown that privacy is overwhelmingly the mostly critical factor in deciding whether to purchase over the Web. Yet there are tensions between the interests of businesses, the government, and consumers in addressing issues related privacy. For instance, large databases are increasingly available to companies for building consumer profiles, information on spending patterns and demand volumes and to enable companies to target their products and services much more effectively. To strike a balance between the openness of the Web and the privacy concerns of the general public, it is important that an agreed-upon practice or standard be adopted globally to govern information-collection in electronic commerce. The emerging framework is based on the concept of notification and consent. A company must notify individuals about their information-collection practices. Once they have obtained consent, companies would be free to use collected personal information for stated purposed. This approach should also allow the flexibility of having multiple levels of privacy for the individual.

An example of why there should be coordination internationally in moving electronic commerce forward is best illustrated by the recently issued European Union Data Directory, which went into effect in October 1998. The goal of the European Law is to prohibit companies from collecting data, including through the Web, from their customers without the consent of their customers. The Directory can affect the electronic commerce effort in the U.S. because a key provision is that companies are prohibited to transmit data to countries that does not guarantee comparable data protection (http://www.privacy.org/). The U.S. on the other hand is taking a more voluntary system. It is essential for the U.S. and Europe to reach an agreement that guarantees privacy in cyberspace, so that global electronic commerce can progress without disruption.

The payment transaction of electronic commerce -- as opposed to cash, personal checks, credit cards, etc. used in the traditional forms of face-to-face transactions– is carried out by a form of digital financial instrument, such as electronic cash, (encrypted) credit information, prepaid smart cards, or electronic checks. These digital financial instruments are backed by a bank, an intermediary, or legal tender.

Currently, the most common means of payment is submission of credit card information through a secured Web transmission. While it is not new, there are several potential problems with this method. First, when purchasing over the Web a consumer rarely knows the merchant selling through an electronic storefront. Without a better financial instrument, this exposure of risks and the common perception of them can limit the growth of electronic commerce. Secondly, a substantial portion of electronic commerce involves digital products, which can be divided and repackaged in an many and nontraditional ways. A consumer may, for example, want to know the score for a particular professional ball game from a pay-per-view Web site. The charge for such online purchases may be very small. This type of so-called micro-payments in electronic commerce is not economical for credit cards but needs new kind of digital financial instruments.

A third reason for new electronic payment systems is the lack of privacy because the consumer’s behavior can be tracked through the credit card number. In the world of electronic commerce the consumer should have the option of using digital cash to pay for a online purchase without providing any personal information or leaving any record linking the transaction to the buyer. To meet their stated functional requirements, electronic payment systems must be (1) secure enough to fend off any fraudulent attempt to interfere the Web system, (2) cost-effective for low-value transactions, (3) protective of the privacy of the users, and (4) convenient for Web purchasing. There are a number of commercial electronic payment systems developed to meet these requirements, such as First Virtual, CyberCash, Mondex, NetBill, NetCheque, and DigiCash (Chaum, 1988, Lynch and Lundquist, 1996; Medvinsky and Neuman, 1993). For Web-based credit processing, Visa and MasterCard have

developed the Secure Electronic Transaction (SET) protocol. Although the volume of transactions is still relatively small, the projected rapid growth of EC will urgently require a more uniform standard for electronic payment systems to ensure the integrity, security, and effectiveness of the payment systems.

Increasingly, network organizations of specialized units coordinated through electronic networks will replace the traditional hierarchical organization. Because of their agility, these network organizations can be configured and reconfigured rapidly to exploit small but profitable windows of business opportunity. The Web also provides new ways to coordinate workflow, manage documents, and enhance group work. Issues of inter-process coordination, client-server computing, and the design of firewalls are important.

Figure 6. Web-Directed Supply-Chain Network Management

It is clear that through the combining of data mining technology with vastly improved data collection and communications capabilities, an enterprise-wide "sense and response" system for rapid deployment is emerging as the new paradigm for best utilizing new capabilities made possible by the availability of market data. The analytic outcomes will trigger the necessary product and process decisions. The ability of a company to develop a globally wired business network and its implementation as well as managerial components will determine its competitive position. This requires fully integrating the customer front-end with the supply-chain operations (Figure 6). Following this framework, the Web provides an additional channel for making sales and delivering services. Along with it comes the issue of having multiple channels competing with one another. The printed version of a magazine, for instance, may compete with its electronic edition. The Web site of a multinational manufacturing firm may provide services which are traditionally only provided by its dealers. What is needed is a coherent marketing strategy that best utilizes differentiating pricing, cross promotion, and the unique features of the media to make them mutually enhancing. Moreover, in today’s markets, where demand for a product can suddenly shift, a manufacturer needs to be able to configure and reconfigure a supply-chain network quickly to meet changing demand. This involves the ability to integrate the underlying information infrastructure and business processes quickly. This requires interoperability and adaptability.

Figure 7 Component-Based Supply-Chain Networks

With the Web providing the links for sharing information among channel partners and the component technology providing the interoperability to integrate business processes, companies will use more outsourcing in their business model. As a result, companies will concentrate on their specialized products while working closely with the suppliers. The ability to manage supply-chain networks will thus determine the competitive advantage of a company. Supply-chain networks represent the emergent behavior (Holland, 1995, Schlueter and Shaw, 1998) among a group of business units working together to exploit the underlying adaptability, collective capabilities, and market opportunities. The Web helps facilitate coordination among the units, reducing the inventories and the cycle-times. The networked nature of the Web forms a natural infrastructure to support and transform supply chains.

The use of the component paradigm goes beyond software development. It has been applied to product design based on the concept of modularity (Baldwin and Clark, 1997). Increasingly, it will be applied to the design of business processes, and corporations. Most PC companies today, for example, do not make most components of their products. They organize the supply chains and deliver the final products to the customers. They not only share product and manufacturing information with their suppliers, they increasingly are letting the suppliers adopt parts of their business processes to enhance the coordination. If this trend continues, we will see more highly modularized companies with each unit specialized in its core competency but always prepared to link up with business partners (Figure 7).

With all its promise, electronic commerce is still in its infancy. Whether it can fulfill its potential depends to a great extent on what happens over the next several years. The various issues addressed and their complexity help highlight the challenges ahead in bringing electronic commerce to its full potential. Often, these issues are complicated to resolve because of the broad scope of electronic commerce and the scale of the changes it brings. The following is a summary of the more prominent challenges.

1. Privacy - How to protect the privacy of consumers in executing Web-based transactions.
2. Valuation – How to evaluate effectively the potential values of investments on the Web.
3. Security - How to enforce the security of Web-based transactions.
4. Trust and authenticity – How to increase the level of trust and ensure the correctness of information distributed across the Web.
5. User acceptance - How to develop EC systems that are affordable and easy to use.
6. Pricing – How to price digital products and services, which seemingly follow different economic dynamics than traditional ones.
7. Legacy systems – How to integrate with and make the transition from corporate legacy systems when setting up EC systems.
8. Structural changes – How to implement and cope with structural changes brought by EC in organizations and in industrial value-adding chains.
9. Inter-operability – How to make different components of EC inter-operable (e.g., between suppliers’ procurement systems and vendors’ catalogs, or between a consumer’s electronic payment software and that of the merchant).
10. Bandwidth limitation – How to get the breakthrough in communications bandwidth so multimedia information can be exchanged over the Web with greater ease and speed.
11. Information overload – How to cope with the vast amount of data generated (e.g., through data mining or intelligent agents).
12. Knowledge management – How to use the Web to enhance knowledge management in organizations.
13. User interface – How to design a better electronic commerce interface that can improve the effectiveness of EC.
14. Measurement – How to measure the effectiveness of commercial Web sites, electronic catalogs, and Internet Advertising.
15. Payment – How to establish a payment method with a comprehensive infrastructure that ensures security, privacy, and legal concerns.
16. Channel competition – How to make the Web and the traditional channels mutually enhancing rather than competing.
17. Legal framework – How to establish a legal framework to address new needs brought by EC.
18. Standards – How to establish standards on the presentation, transmission, and processing of EC transactions while coordinating the efforts of different participants.
19. Global coordination – How to promote global EC while reducing the conflicts between the efforts on the national level.
20. Changing business models - How to cope with shifting business models due to rapidly advancing technology.

As with previous technological breakthroughs that have changed the social fabric and the life style of human beings – be it the telephone, the railroad, or electricity – electronic commerce has already led to many innovations and a major transformation of the world economy. Although some of the changes in the economy have already taken place, this shift to electronic commerce is still in the beginning stage. The more significant business concepts used in electronic commerce include:

1. Integrated, ubiquitous consumer interface. The Web has expanded the reach of companies while distance has become less significant. At the same time, the Web makes it easy to present assembled information from different sources.
2. New channels for direct, interactive marketing. Through their electronic storefronts, companies have new channels to reach out to their customers for product promotion, information distribution, and making the sale. The Web can also be the channel for collecting demographic information and customer feedback.
3. Plug-and-play inter-operability and modularity. As the economy moves toward a mostly information based, the plug-and-play modularity (Baldwin and Clark, 1997) and interoperability of computer software will be applied to processes, systems, and organizations. The expertise, business processes, information systems, and even the supporting personnel of companies are increasingly modularized and ready to be integrated with those of other companies.
4. The "click here" economy. As consumers have access to more direct purchasing channels at their fingertips, the increasing purchasing choices and lower search costs give them more bargaining power. The same logic applies to business-to-business transactions, where electronic catalogs and direct electronic links are changing business procurement practices.
5. Virtual online communities and consumer participation. As the Web accumulates the critical mass of users, communities of focused interests began to emerge. Advertisers have started to focus their efforts on these existing or potential virtual communities for product and service promotion (Armstrong and Halel, 1996).
6. Agent-assisted Web services. While the Web has provided an unprecedented amount of information, the sheer volume of it can become a problem. Software agents (Genesereth and Ketchpel, 1994) are being developed to assist Web users to search, navigate, retrieve, synthesize, and process information.
7. From data mining to Web mining. The difference between mining and searching is that in data mining, there is less knowledge about what one is looking for. As the Web becomes an important source for collecting business intelligence, data mining techniques can be extended to Web mining to extract useful information.
8. Sense-and-respond as opposed to make-and-sell. The focus is to sense market needs and to organize the enterprise for responding quickly to demand. This strategy is in sharp contrast to the more traditional make-and-sell model (Bradley and Nolan, 1998).
9. Mass customization and digital personalization. With the digitization of product information and interactive consumer interfaces, merchandise can now be sold to each consumer to his or her exact specification, custom made.
10. Customer-centric, "friction-free’ global supply-chains. With the connectivity of the global Web and the manufacturing capacity available around the world, components of most products can be made in different parts of the world, quickly assembled and shipped to customers.
11. Rapidly deployed virtual organizations. Increased communication capabilities make it possible to assemble an organization quickly from units possibly residing in different locations, to explore a window of business opportunities (Davidow & Malone, 1992).
12. Business-To-Business Partnership through channel integration and information sharing. Companies in the same value-adding chains, i.e., channel partners, are linking with one another to share information concerning demands, inventories, production scheduling, shipments, etc., so that supply-chain activities can be well integrated to keep the inventories low and the cycle-times down.
13. Web as a metaphor for intra- and inter-organizational structures. The Web is a network of knowledge resources that are constructed through individual initiatives. Collectively it uses hyperlinks, universal interface, and a common transport standard to achieve great synergy. This has been used as a paradigm to organize and manage knowledge within an organization. By the same token, companies can be interconnected just like the individual nodes in the Web to achieve the same type of integration and synergy (Ware et al., 1998).
14. Unbundling of the physical and virtual value chains. Since companies started to connect with one another and process business transactions electronically, virtual value chains have arisen that provide new ways for value creation (Benjamin and Wigand, 1995).
15. Information assets treated as real estate, with access rights, designated portals, destination sites, and advertising space being charged at a premium. As the Web started to attract new businesses, the accessibility and amount of traffic visiting each site become a much-coveted competitive advantage. Search engines, online services, electronic markets, and browser tools all concentrate on building their sites up to attract as much traffic visiting their sites as possible.
16. Network economics and increasing returns of electronic commerce business. Network externalities and increasing returns characterize the dynamics of EC business. A viable explanation is that an EC business typically requires investing an infrastructure, building a user community, and climbing over a learning curve before successfully establishing product brands (Upshaw, 1995) and services.
17. Digital products, services, and their value chains. Digital products and services follow different economic rules. They change economies of scale, economies of scope, and are characterized by the infinite ability to divide into smaller units, reorganize content, transport to remote locations electronically, and duplicate into multiple copies. Business decisions involved in product pricing, property leasing, service delivery, payment collection, packaging, or shipping all need to be rethought.
18. Dynamic market making, brokering, and electronic auctioning. The Web can help form a market for any merchandise and sell it to the interested buyer. The simultaneous delivery of rich information and wide connectivity has resulted in more efficient markets in terms of the availability of market information and participation.
19. Specialized information vendors, intermediaries, and "trusted third parties." With all the delayering of the value chains, new segments are beginning to appear in the virtual, information-based value chains. An example is the Certificate Authority established for verifying the identity of EC users and authenticity of documents over the Web (Froomkin, 1996).
20. Component-based economy. Knowledge, business processes, enterprise systems, expertise, software, or any other types of digital products are broken down into components. Inter-operable interfaces and operational standards make it possible for these components to be assembled and integrated in different forms from different places.

Electronic commerce affects almost every aspect of how business is conducted. It fundamentally changes organizational and industrial infrastructure. While there are many challenges ahead, there is no question that it will very rapidly be operating globally. Companies are creating entirely new businesses and tapping markets not reachable to them before. Uncertainties in consumers’ acceptance, the lack of adequate business models, and bandwidth limitations have limited the consumer electronic commerce. Whether electronic commerce will break those barriers depends on a host of factors. High on the list are issues such as privacy, costs, security, friendly consumer interface, and the social value it provides. Ultimately, the breakthroughs probably will come from the sheer creativity of some entrepreneurs who develop applications that everyone wants to use. Given the current momentum, there are plenty of reasons to be optimistic.

In the business-to-business area, fully realizing the potential of B2B electronic commerce still requires coordinated efforts among supply-chain partners, who usually have conflicting objectives. When successfully implemented, inter-operable electronic catalogs and more inter-organizational information sharing will make supply chains more efficient.

The Web provides the infrastructure for sharing and collecting information. What ought to be the focus of attention in this information revolution, as argued by Peter Drucker, is how to manage the information. That is, the emphasis should shift from the "T" in IT to the "I" (Drucker, 1998). The increasing importance of information value-adding activities will lead to drastic changes in industrial organizations. The emerging component-based economy will lead to more emphasis on specialization, modularity, and outsourcing. New intermediaries will arise to broker information, knowledge, and services.

The combination of more information, electronic links, and channels will give the buyers more choices, resulting in a shift of bargaining power to the buyers. Consequently business processes and supply-chains will increasingly focus more on the customers by putting the emphasis on capabilities such as efficient order fulfillment, high service level, and quickly responding to market demands. To that end, the key to a successful electronic comerce strategy is to realize those capabilities by integrating the Web with the supply chains.

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