ELECTRONIC COMMERCE

Electronic commerce, e-commerce or ecommerce
consists primarily of the distributing, buying, selling,
marketing, and servicing of products or services
over electronic systems such as the Internet
and other computer networks. The information
technology industry might see it as an electronic
business application aimed at commercial transactions.
It can involve electronic funds transfer, supply
chain management, e-marketing, online
marketing, online transaction processing, electronic
data interchange, automated inventory
management systems, and automated data–collection
systems. It typically uses electronic communications
technology such as the Internet,
extranets, e-mail, Ebooks, databases, and mobile
phones. (Electronic commerce, n.d.)
It is fitting that this entry begins with the definition
of e-commerce from a free encyclopedia, self-described as
“the largest encyclopedia in history, in terms of both
breadth and depth,” entirely created by the voluntary contributions
of the Internet community—for that is a very
good indication of the revolutionary basis upon which ecommerce
has thrived. The entry on e-commerce in the
previous edition of this work also began with a quote, but
one in which it was seen more as a promise than a reality:
“No single force embodies our electronic transformation
more than the evolving medium known as the Internet.
Internet technology is having a profound effect on the
global trade in services” (“The U.S. Government’s Framework,”
1997). At that time Forrester Research, a market
research company, estimated that e-commerce would
increase to $1,444 trillion by 2003. In reality, e-commerce
in the United States totaled $1,679 trillion in 2003, having
met that earlier forecast several years ahead of schedule
(see Figure 1).
John Maynard Keynes (1883–1946). Keynes defined the
theory of a “mixed economy,” in 1941. © BETTMANN/CORBIS

230 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
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And e-commerce, which encompasses both business
to business (B2B) and business to consumer (B2C), is no
longer a purely U.S. phenomenon. For example, Internet
sales in the United Kingdom in 2004 totaled £71.1 billion
in 2004, an increase of 81 percent from 2003, while purchases
by consumers totaled £18.1 billion in 2004, a
tripling in three years. On the other hand, the European
Union had notably less e-commerce activity, when one
excludes the United Kingdom. Thus contrast the thriving
business to consumer growth in the United Kingdom and
the United States with the astonishingly low numbers in
the first quarter of 2003—in France of just 75 million
euros and in Spain of a mere 40 million euros. Obviously
the story of e-commerce is one of mixed success, which
indicates that the barriers to its growth are no longer technological,
but the economic, legal, social, and perhaps
even cultural infrastructure needed to support it.
As this illustrates, the basis of e-commerce is the
extraordinary power of the Internet as a transformative
force not just on business and the economy, but of the
human imagination itself. It serves not just as a medium
for the communication of information, but for bringing
together like-minded people with a degree of transparency
and economy never contemplated before. The above
works on the assumption that many heads are better than
one: that information that is aggregated through evolution
is more than the sum of its parts. The same is true of
e-commerce. At its most basic, e-commerce is simply an
“electronic storefront” that replicates the printed catalog
of the pre–Internet age. At its most innovative, though, ecommerce
makes full use of the power of the Internet to
create a unique type of commerce that has never existed
before.
The quintessential example of the latter is eBay
(http://www.ebay.com), which began, as its name suggests,
as an online extension of the familiar American tradition
of the garage sale. But it rapidly grew to become an
institution because of the realization that this was a mechanism
for people with even the most esoteric tastes to
meet and exchange with each other for profit in a way that
Electronization of business
Payment
Delivery
Auditing
Sale
Inventory
Purchasing
Manufacturing
Pre-sale-care
Marketing
Advertising
E-care
Web-based
Cash register
Shopping carts
Click paths
E-Catalog
Web-based
Credit card
E-cash
Micropayments
Tracking
Tracking
E-Catalog
Bitable
Non-bitable
Continuous
Automatic Confirmation
VRS
Auto Responder
Continuous
ERPSs
New Paradigms
Tech support
Lead follows
Help desk
Web advertising
Customization
Banners
B2B Purchasing
Open EDI
Extranets
Individual targeting
Spamming
Virtual communities
Customer party lines
Figure 1

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 231
Electronic Commerce
was not feasible, let alone economic, before. Today it is the
site of choice for anyone looking for the most unlikely of
items that previously could be found only by searching
through obscure shops. But eBay is far more than a boon
for collectors, as it exploits a key driver of e-commerce:
the economic externality of the network effect.
NETWORK EFFECT
When a good or service possesses a network effect, then its
value to a consumer depends on the number of other consumers
who also purchase that item. Indeed, Metcalfe’s
law states that the total value of a good or service that possesses
a network effect is roughly proportional to the
square of the number of customers already owning that
good or using that service. When eBay brings together
potential consumers for one product, then they also serve
as a potential market for other products. One consequence
of this effect is that there is a tendency for a natural
monopoly to be created, with anyone wishing to
auction a product having little to gain and a lot to lose
from going to an auction site other than the one with the
most customers. EBay is now widely used by large businesses
for B2B, as well as by auction houses for rare art
and such high-value items as automobiles, boats, and even
real estate, a far cry from its garage-sale origins.
Many dot-coms during the Internet boom of the
1990s claimed to be exploiting network effects, even to
the extent of sacrificing current profits in order to buy the
“eyeballs” needed to reach a critical mass of users. While
much of that turned out to be illusory, there is little doubt
that network effects are a fundamental driver of e-commerce,
taking advantage of the Internet’s abolition of time
and distance to bring together large numbers of customers
in one place. Sites such as Amazon.com take that effect
into account when they use buyer recommendations as
the selling point for their products. Allowing for the
inclusion of such comments creates an online community
in which potential buyers and owners can compare experiences.
Similar practices are used to police buyers and
sellers on eBay, or to rank the integrity of sites and products
on epinions.com, illustrating again the tremendous
variety of the Internet when driving commerce.
A MAINSTAY OF THE ECONOMY
As e-commerce has matured and become ubiquitous, it
has attracted attention as a mainstay of the economy
rather than as a novelty. Thus e-commerce sales are
watched as closely as in-store sales for the health of the
retail economy, with the traditional “black Friday” (the
day after Thanksgiving) sales being followed by the “black
Monday” the following week when workers allegedly use
their office Internet connections to do their holiday shopping
online. Moreover, e-commerce is now the subject of
extensive academic research, which is archival rather than
speculative as it was in the late 1990s.
One of the most interesting findings of this research
is that relating to why consumers buy books from Amazon.
Professor Erik Brynjolfsson of the Massachusetts
Institute of Technology has shown that the reason is not
predominantly lower prices. Rather it is the variety of
books that Amazon sells, especially of hard-to-find titles
that dwarf on all dimensions what can be found at even
the largest brick-and-mortar bookstore. “[Consumers] got
about 10 times as much value from the selection as they
got from the lower prices and competition.… more value
was created from the increased choice and selection,” said
Professor Brynjolfsson (quoted in Postel, 2004, p. C11).
In other words, value comes not just from the lower
prices that more transparent competition allows on the
Internet, but from the combination of greater choice and
easy searching. These effects, Internet-based versions of
economies of scale and scope, undoubtedly exist for many
other e-commerce applications, from business-to-business
marketplaces to online recruiting, music downloads, and
even Internet dating. Evidently the dot-com collapse in
2000 has fulfilled its Darwinian purpose in winnowing
out from e-commerce those firms that had no coherent
business plan for the Internet, leaving behind firms that
have a compelling logic in being online.
B2B E-COMMERCE
Although this discussion has focused thus far on examples
from B2C, businesses are some of the most highly valued
users of eBay and even Amazon. It needs to be kept in
mind that B2B is really where all the action is, even if it
does not receive the publicity of B2C. In 2003, 94.3 per-
Technology World Wide Web
Services
Delivery
Escrow
Price Comparisons
Business Model
E-Catalog
Auctions
Name your price
The three factors and illustrations
Figure 2

232 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
Electronic Mail
cent of all e-commerce activity in the United States was
B2B, with a figure of 75 percent for the United Kingdom
in 2004.
Businesses have found the Internet the ideal platform
for conducting supply-chain management, fostering competition
in suppliers, and reaching their sophisticated
business buyers. This is especially the case since in today’s
economy what firms are mainly selling to each other is
information, not just in the case of services such as banking
and digital applications, but even when the product
concerned is a physical product; the real value added
comes from optimizing price and specification, as
opposed to the physical transfer of the product. That is
the role of the huge B2B marketplaces created by large
companies, or even entire industries, which can be
roughly described as eBay’s for businesses (indeed, many
firms have simply outsourced to eBay itself ).
SEE ALSO E-Marketing
BIBLIOGRAPHY
Electronic commerce. (n.d.). Retrieved February 17, 2006, from
Wikipedia Web site: http://en.wikipedia.org/wiki/
Electronic_commerce
Metcalfe’s useful equation. (n.d.) Retrieved November 11, 2005,
from Killer-apps Web site: http://www.killer-apps.com
/contents/booktour/metcalfes_useful_equation.htm
Postel, V. (2004, April 22). Selection in ranks above price among
the benefits of shopping online. The New York Times, p. C11.
U.K. National Statistics. (2006, February 9). Information and
communication technology activity of UK businesses, 2004.
Retrieved February 17, 2006, from
http://www.statistics.gov.uk/downloads/theme_economy
/ecommerce_report_2004.pdf
U.S. Department of Commerce. (2005, May 11). E-stats.
Retrieved February 17, 2006, from http://www.census
.gov/eos/www/papers/2003/2003finaltext.pdf
The U.S. government’s framework for electronic commerce.
(1997). Retrieved March 1, 2006, from http://www
.technology.gov/digeconomy/framewrk.htm
VisaEurope. (2003, May 20). Online spending in Europe doubles
[Press release]. Retrieved February 17, 2006, from
http://www.visaeurope.com/pressandmedia/press154
_pressreleases.html
Miklos A. Vasarhelyi
Michael Alles
ELECTRONIC MAIL
Electronic mail (e-mail) is mail that is sent electronically
from one electronic mailbox to another. E-mail differs
from postal mail in the areas of speed of delivery, privacy,
security, and access. Other issues relating to e-mail include
organization, etiquette, junk mail and fraud attempts,
legal matters, and trends.
SPEED OF DELIVERY
One of the biggest attractions of e-mail is the speed with
which a message may be sent. When a message is sent
from a computer in Houston, Texas, it arrives instantly in
London and New Zealand. E-mail has been a true factor
in making the global business environment a smaller
place. A virtual team can communicate across the globe.
Sending an e-mail message across the ocean before leaving
work one day can result in a response from another time
zone before one’s next workday begins.
Postal mail requires several days for a message to
arrive and additional time for a response. The speed of
delivery of e-mail has had negative effects as well as positive
ones. For example, those sending the message expect
a very fast response. Frequently if the response is not fast
enough, a second message is sent asking why there has
been no response. So, patience in communication has
become an issue. Because a fast response is demanded,
sometimes the response is rushed, incomplete, and less
tactful and or politically polished than it should be.
Advantages of e-mail are the elimination of telephone tag
plus the convenience of reading and responding to e-mail
at the recipient’s convenience.
As the popularity and expectations for e-mail have
increased, so have the daily demands to read and respond
to e-mail. Many employees find that they spend hours
each day responding to their e-mail.
Instant Messaging. Instant messaging (IM) is frequently
viewed as the upstart, even speedier cousin of e-mail.
Those who use IM often employ abbreviations and codes
to quickly get their messages across. The advantage of IM
is the interactive nature of the messages, which work
much like a written telephone call. While early IM systems
were not always linked to the corporate communication
paths, IM was considered the same as a conversation.
Employees were not necessarily careful with what they
said or how they said it. Now, however, companies have
the ability to capture IM if they wish, so it is no longer a
quick, safe way to complain about the boss or colleagues.
PRIVACY
Mail from the U.S. Postal Service comes with a guarantee
of privacy. If a third party opens mail intended for someone
else without the addressee’s permission, that person
has committed a crime punishable by law. No such privacy
exists in e-mail. Courts have held that employees
sending e-mail on company computers, with company

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 233
Electronic Mail
accounts and software, and using company time have no
expectations of privacy. Companies feel free to examine an
employee’s e-mail. In addition, e-mail has been summoned
on court cases to prove work environment status.
Employees should never write anything in an e-mail
that they would not say face-to-face to the concerned parties.
E-mail is not like private letters that are received in
the mail, torn up, and thrown away. E-mail is backed up,
placed on other servers, and will be retrievable for a long
time. Also, the person to whom e-mail is sent may decide
to forward it to others without the sender’s permission.
SECURITY
E-mail is now available in many venues. Checking e-mail
on office or home computers is no longer the only option.
E-mail can be transmitted to personal digital assistants,
pagers, and cell phones. These media frequently use wireless
networks. Wireless signals have more security issues
than wired systems. Just as a cell phone call can be intercepted
and heard by others, so can the related e-mail be
compromised. When dealing with issues that should be
secure, how the e-mail will be received should be considered.
Most companies would not want third parties to be
able to easily glance at a cell phone display and see proprietary
company information.
ACCESS
E-mail is of value only if it is sent to a valid e-mail address
where it will be reviewed by the person one is attempting
to contact. Addresses may be changed and if an address is
not current, the e-mail will not be delivered, resulting in a
communication delay. One cannot communicate effectively
if one is missing e-mail addresses or has bad
addresses, the other parties do not use e-mail, or the other
parties are not checking their e-mail.
ORGANIZATION
In order to keep up with a barrage of e-mail arriving daily,
it is a good idea to organize one’s e-mail. E-mail is received
in chronological order, but most e-mail software will let
users sort the chronological list by name of sender or subject.
This way users can find that message they remember
getting but cannot see in their mailbox at first glance.
Another option is to move messages one is finished with
to specific folders. Users can even designate that certain
incoming messages be sent directly to a folder or mailbox
rather than their inbox. Users do have to remember to
check their e-mail in that special folder or mailbox,
though.
Handling e-mail in a prompt and effective manner is
increasingly important as the volume of e-mail continues
to build. Accuracy in responses, as well as attention to
important message details such as grammar and spelling,
will indicate professionalism in corporate communication.
ETIQUETTE
When communicating with e-mail, etiquette is an important
convention that should not be overlooked. E-mail
lends itself naturally to brief messages. A message can be so
brief, however, that it is terse and may seem both rude and
abrupt to the receiver. Tone, therefore, is an important
issue of etiquette. This is especially true in communicating
with international audiences who may expect a more
extensive exchange of courtesies in the e-mail message.
Correct use of e-mail etiquette includes such courtesies
as asking a message sender for permission before forwarding
the sender’s message to others, using an
appropriate and clearly understood subject line, and sending
messages only to people who have an interest in receiving
them.
Some message senders use emoticons or symbols to
indicate nonverbal communication cues, for instance, :-)
(which indicates happiness). Reviews are mixed on whether
emoticons are acceptable in the business use of e-mail.
JUNK MAIL AND FRAUD ATTEMPTS
Along with receiving a large volume of e-mail is the issue
of junk mail including spam, viruses, and phishing. Spam
is unsolicited e-mail that is delivered usually in mass mailings
to the electronic mailbox. The sheer volume of spam
can cause systems to crash. In 2003 the CAN-SPAM Act
was passed in an attempt to better regulate spam. Spam
filters have been taking a bite out of spam by excluding
suspicious e-mail messages and sending them to a quarantine
area. The e-mail reader should go to the quarantine
area periodically to see if important messages have been
sent there by accident. Because the spam filter looks for a
wide variety of subject lines, care must be taken to include
an explicit and appropriate subject line. Using something
such as “hi” or “it’s me” might send messages straight to
the receiver’s quarantine box.
Viruses can be attached to e-mail messages, usually
through attachments. A good plan is to scan attachments
with a current virus scanner before opening any that
might be suspicious. As more computer users use strong
antivirus programs, this issue may become less important
in the future.
Phishing occurs when a message is received that purports
to be from an entity e-mail readers would know,
such as their banks, popular shopping sites, or auction
services. If the message is not examined closely, the screen
image and presentation may seem authentic. The message
is phishing for information by trying to get users to reveal
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234 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
E-Marketing
and passwords that the phisher can use for schemes
involving fraud and identity theft.
LEGAL ISSUES
Increasingly, e-mail is becoming involved when legal
issues arise. When a company is the subject of a lawsuit, a
subpoena for e-mail and IM is often served. Having a
responsible program to track and save e-mail and IM is
critical to a company’s success. Some companies have even
made the decision to outsource the management of electronic
resources including e-mail and IM to ensure that an
acceptable program exists in case of legal issues. Companies
should have policies concerning electronic communication
so that employees will know what kind of messages
are acceptable and what are not. Regular training for
employees will result in increasing quality of messages.
TRENDS
Trends in e-mail include better filters and restrictions on
spam in the workplace, control and accountability for
both e-mail and newer technology such as IM, an escalation
in the demand to supply e-mail records when legal
issues arise, and more ways to use e-mail in the future. The
ability to manage e-mail effectively will be increasingly
important as a workplace skill.