Chapter 1.

Brief Historical Background and Introduction to E-commerce.

\1 )

Chapter -1 Date-

History of Internet.

The Internet has revolutionized the computer and communications world

like nothing before. The invention of the telegraph, telephone, radio, and

computer set the stage for this unprecedented integration of capabilities.

The Internet is at once a world-wide broadcasting capability, a

mechanism for information dissemination, and a medium for

collaboration and interaction between individuals and their computers

regardless of geographic location.

This history revolves around four distinct aspects. There is the

technological evolution that began with early research on packet

switching and the ARPANET (and related technologies), and where

current research continues to expand the horizons of the infrastructure

along several dimensions, such as scale, performance, and higher-level

functionality. There is the operations and management aspect of a global

and complex operational infrastructure. There is the social aspect, which

resulted in a broad community of Intemauts working together to create

and evolve the technology. And there is the commercialization aspect,

resulting in · an extremely effective transition of research results into a

broadly deployed and available information infrastructure.

Introduction - 1

The seed of Internet was sown in early 1960. The USA administration

was in search of an effective mode of communication even after the

aftermath of a strong war. It was popularly believed that Rand

Corporation was the sole figure in devising this networking system. But

the fact of the matter is that the RAND group had written a paper on

packet switching networks for secure voice in the military in 1964. It

happened that the work at MIT ( 1961-1967), at RAND ( 1962-1965), and

at NPL ( 1964-1967) had all proceeded in parallel without any of the

researchers knowing about the other work. The word "packet" was

adopted from the work at NPL and the proposed line speed to be used in

the ARPANET design was upgraded from 2.4 kbps to 50 kbps.

In August 1968, after Laurence Roberts of MIT and the DARPA

funded community had refined the overall structure and specifications

for the ARPANET, an RFQ was released by DARPA for the development of

one of the key components, the packet switches called Interface Message

Processors (IMP's).

University of California Los Angles (UCLA) was s~lected to be the first

node on the ARPANET. And Stanford Research Institute (SRI) was

provided a second node. One month later, when SRI was connected to

the ARPANET, the first host-to-host message was sent from Kleinrock's

laboratocy to SRI. 1\vo more nodes were added at UC Santa Barbara and

Introduction - 2

University of Utah. These last two nodes incorporated application

visualization projects, with Glen Culler and Burton Fried at UCSB

investigating methods for display of mathematical functions using

storage displays to deal with the problem of refreshing over the net, and

Robert Taylor and Ivan Sutherland at Utah investigating methods of 3-D

representations over the net. Thus, by the end of 1969, four host

computers were connected together into the initial ARPANET, and the

budding Internet was off the ground. Even at this early stage, it should

be noted that the networking research incorporated both work on the

underlying network and work on how to utilize the network. This

tradition continues to this day.

Computers were added quickly to the ARPANET during the following

years, and work proceeded on completing a functionally complete Host­

to-Host protocol and other network software. In December 1970 the

Network Working Group (NWG) working under S. Crocker finished the

initial ARPANET Host-to-Host protocol, called the Network Control

Protocol (NCP). As the ARPANET sites completed implementing NCP

during the period 1971-1972, the network users finally could begin to

develop applications.

In October 1972 Kahn organized a large, very successful

demonstration of the ARPANET at the International Computer

Communication Conference (ICCC). This was the first public

Introduction - 3

demonstration of this new network technology to the public. It was also

in 1972 that the initial "hot" application, electronic mail, was introduced.

Since then E-mail remained the most used application on Internet. The

ARPANET's original standard for communication developed by Mr. Cerf

and Bob Khan, was known as Network Control protocol (NCP). But as

time passed and the technique advanced, NCP was superceded by a

hig~er level, more sophisticated standard known as Transmission

Control Protocol/Internet Protocol (TCP /IP). Networks that make use of

this protocol became known as Internets. Joined together they form the

Internet.

By 1983, ARPANET was being used by a significant number of defense

R&D and operational organizations. The transition of ARPANET from

NCP to TCP /IP permitted it to be split into a lVIILNET supporting

operational requirements and an ARPANET supporting research needs.

Thus, by 1985, Internet was already well established as a technology

supporting a broad community of researchers and developers, and was

beginning to be used by other communities for daily computer

communications. Electronic mail was being used broadly across several

communities, often with different systems, but interconnection between

different mail systems was demonstrating the utility of broad based

electronic communications between people.

In 1985, recognizing this lack of information availability and

Introduction - 4

appropriate training, Dan Lynch in cooperation with the lAB arranged to

hold a three day workshop for ALL vendors to come learn about how

TCP /IP worked and what it still could not do well. The speakers came

mostly from the DARPA research community who had both developed

these protocols and used them in day to day work. About 250 vendor

personnel came to listen to 50 inventors and experimenters. The results

were surprising on both sides: the vendors were amazed to find that the

inventors were so open about the way things worked (and what still did

not work) and the inventors were pleased to listen to new problems they

had not considered, but were being discovered by the vendors in the

field. Thus a two way discussion was formed that has lasted for over a

decade.

After two years of conferences, tutorials, design meetings and

workshops, a special event was organized that invited those vendors

whose products ran TCP /IP well enough to come together in one room for

three days to show off how well they all worked together and also ran

over the Internet. In September of 1988 the first Interop trade show was

born. 50 companies made the cut. 5,000 engineers from potential

customer organizations came to see if it all did work as was promised. It

did. Why? Because the vendors worked extremely hard to ensure that

everyone's products interoperated with all of the other products - even

with those of their competitors. The Interop trade show has grown

Introduction - 5

immensely since then and today it is held in 7 locations around the

world each year to an audience of over 250,000 people who come to learn

which products work with each other in a seamless manner, learn about

the latest products, and discuss the latest technology.

The ARPANET officially ceased to be a research tool and became

just another network in 1990. In the mean time, other networks such as

the NSFNET, developed by the National Science Foundation and the

backbone of today's Internet, had come into being, linking newer faster

shiner supercomputers through thick faster links. Commercial traffic

was allowed in 1991.

In the same year Tim Berners-Lee created the World Wide Web, the

software that allows users to exchange information at CERN, the

European particle Physics Laboratory near Geneva. It was originally

designed to help scientist to share online information using a single

united interface.

It soon became clear that the web was useful not only to scientist

but also to people in almost any sphere of human life. It started around

mid 1993 when Marc Andreesen, then a student of University of Illinois

(USA) created a program called Mosaic. It made web surfing easier than

ever before, web surfing turned into just pointing and clicking at pictures

that were hyper linked. This started the true web revolution, the web

started to grow in leaps and bounds. In 1990, the Internet contained

Introduction- 6

300,000 hosts and 1,000 news groups. By 1992, there were 1 million

hosts and 4,000 news groups. The United Nations went online in 1993.

Shopping malls and banks arrived on the Internet in 1994. In 1994, the

Internet contained 10,000 WWW sites and 10,000 news groups. By 1997,

there were 1 million WWW sites and over 70,000 news groups.

This was just the beginning of revolution that is yet to take shape;

that is what futurologists and thinkers have to say. Futurologist like

Alvin Toffler opines that Internet revolution is the biggest revolution since

the invention of the wheel.

THE REVOLUTION IS JUST BEGINNING

E-commerce, as we now know it today did not exist in 1994. Today,

just a few years later, more than thirty million American consumers are

expected to spend about $65 billion purchasing products and services on

the Internet's World Wide Web (Dykema, 2000). Businesses in 2001 are

expected to spend about $4 70 billion purchasing goods and services on

the Web from other businesses (Jupiter Media Metrix, 2001). From a

standing start in 1995, this type of commerce, called electronic commerce

or e-commerce, has experienced growth rates of well over 100% a year

and become the foundation for the first digital electronic marketplace.

And even more impressive than its spectacular growth is its future

Introduction - 7

predicted growth. By 2006, analysts estimate that consumers will be

spending around $250 billion and businesses about $5.4 trillion in

online transactions (Dykema, 2000; Jupiter Media Metrix, 2001).

It is important to realize that the rapid growth and change that has

occurred in the first five to six years of e-commerce represents just the

beginning - what could be called the tip of the ice~berg called

e-commerce revolution. The twenty-first century will be the age of a

digitally enabled social and commercial life, the outcomes of which we

can barely perceive at this time. It appears that e-commerce will

eventually impact nearly all commerce, or that all commerce will be

e-commerce by the year 2050.

Business fortunes are made - and lost - in periods of extraordinary

change such as this. The next five years hold out extraordinary

opportunities - as well as risks - for new and traditional businesses to

exploit digital technology for market advantage. For society as a whole,

indeed for the world's societies, the next few decades offer the possibility

of extraordinary gains in social wealth as the digital revolution works its

way through larger and larger segments of the world's economy, offering

the possibility of high rates of productivity and income growth in an

inflation-free environment.

Introduction- 8

WHAT IS E-COMMERCE?

E-commerce - the use of the Internet and the Web to transact

business. More formally, we focus on digitally enabled commercial

transactions between and among organizations and individuals. 'Digitally

enabled transactions' include all transactions mediated by digital

technology. For the most part, this means transactions that occur over

the Internet and the Web. 'Commercial transactions' involve the exchange

of value (e.g., money) across organizational or individual boundaries in

return for products and services. Exchange of value is important for

understanding the limits of e-commerce: Without an exchange of value,

no commerce occurs.

THE DIFFERENCE BETWEEN E-COMMERCE AND E-BUSINESS

There is a debate among consultants and academics about the meaning

and limitations of both e-commerce and e-business. Some argue that

e-commerce encompasses the entire world of electronically based

organizational activities that support a firm's market exchanges -

including a firm's entire information system's infrastructure (Rayport and

Jaworksi, 2001). Others argue, on the other hand, that e-business

encompasses the entire world of internal and external electronically

Introduction - 9

based activities, including e-commerce (Kalakota and Robinson, 2001).

While studying it has been found that textbooks make it an important

issue to make a distinction between e-commerce and e-business and

they believe they refer to different phenomena. In the words of Laudon

and Traver (2000) "the term e-business refers to primarily to the digital

enablement of transactions and processes within a firm, involving

information systems under the control of the firm. For the most part, in

our view, e-business does not include commercial transactions involving

an exchange of value across organizational boundaries. For example, a

company's online inventory control mechanisms are a component of

e-business, but such internal processes do not directly generate revenue

for the firm from outside businesses or consumers, as e-commerce, by

definition, does. It is true, however, that a firm's e-business

infrastructure can also support e-commerce exchanges. And e-commerce

and e-business systems can and do blur together at the business firm

boundary, at the point where internal business systems link up with

suppliers, for instance. E-business applications tum into e-commerce

precisely when an exchange of value occurs." The author illustrates the

differences and complex relationship between e-commerce and e­

business with the help of a diagram given at the end of the chapter.

(But in our study we have found that not only can the concept of e­

commerce and e-business blur, but also often it needs to get blurred to

Introduction - 10

be a success. When e-commerce really started taking shape in the early

90s often companies gave it a stepson like treatment. It is never

integrated to the whole system. But here in this study not only we

suggest that e-commerce and e-business should get mingled together but

also we often use it synonymously as is the trend with modem

researchers.)

WHY STUDY E-COMMERCE?

Why are there college courses and textbooks on e-commerce when there

are no courses or textbooks on "1V Commerce," "Radio Commerce,"

"Direct Mail Commerce," "Rail-Commerce" or "Highway Commerce," even

though these technologies have had profound impacts on commerce in

the twentieth century and account for far more commerce than e­

commerce? The reason, as we shall see, is that e-commerce technology is

different and more powerful than any of the other technologies we have

seen in the past century.

Prior to the development of e-commerce, the process of marketing and

selling goods was a mass-marketing and salesforce-driven process.

Consumers were viewed as passive targets of advertising "campaigns"

and branding blitzes intended to influence consumers' long-term product

perceptions and immediate purchasing behavior. Selling was conducted

in well-insulated "channels." Consumers were considered to be trapped

Introduction - 11

by geographical and social boundaries, unable to search widely for the

best price and quality. Information about prices, costs, and fees could be

hidden from the consumer, creating profitable "information asymmetries"

for the selling firm. (Information asymmetry refers to any disparity in

relevant market information among parties in a transaction.)

E-commerce has challenged much of this traditional business

thinking. There are eight unique features of e-commerce technology that

both challenge traditional business thinking and explain why we have a

high interest in e-commerce. (Laudon and Traver, 2000)

EIGHT UNIQUE FEATURES OF INTERNET TECHNOLOGY

E- COMMERCE TECHNOLOGY

DIMENSION

Ubiquity: - Internet/ Web

BUSINESS SIGNIFICANCE

The marketplace is extended

technology is available everywhere: beyond traditional boundaries and

at work, at home and elsewhere via is moved from a temporal and

mobile devices, anything. geographic location "market space"

Introduction - 12

is created; shopping can take place

anywhere customer convenience is

enhanced and shopping costs are

reduced.

Global Reach: the technology Commerce is enabled across

reaches across national cultural and national boundaries

boundaries, around the earth.

Local: Serving the local

customers.

Universal Standards: - there is

seamlessly and without

modification. "Marketspace"

includes potentially billions of

consumers and millions of

business worldwide.

Internet is a perfect vehicle to

reinforce local physical presence

and local person-to-person

business relationship.

There is one set of technical

one set of technology standard, media standard across the globe.

namely Internet standards.

Richness: - Video, audio, and Video audio and text marketing

text messages are possible. messages are integrated into a

single marketing message and

consuming.

Introduction - 13

Interactivity: The technology Consumers are engaged in a

works through interaction with the dialogue that dynamically adjusts

users.

Information Density: - The

the experience to the individual

and makes the consumer a co­

participant in the process of

delivering goods to the market.

Information processing, storage,

technology reduces informational and communication costs drop

costs and raises quality. dramatically while currency,

accuracy and timeliness improve

greatly. Information becomes

plentiful, cheap and accurate.

Personalization/ Personalization of marketing

Customization: - the technology messages and customization of

allows personalized messages to be products and services are based on

delivered to individuals as well as individual characteristics.

groups.

Introduction- 14

EIGHT UNIQUE FEATURES OF E-COMMERCE TECHNOLOGY

Each of the dimensions of e-commerce technology and their business

significance listed in the above table deserves a brief exploration, and

comparison to both traditional commerce and other forms of technology­

enabled commerce.

Ubiquity

In traditional commerce, a marketplace is a physical place we visit in

order to transact. For example, television and radio are typically directed

to motivating the consumer to go some place to make a purchase. E­

commerce is ubiquitous, meaning that it is available just about

everywhere, at all times. It liberates the market from being restricted to a

physical space and makes it possible to shop from our desktop, at home,

at work, or even from our car, using mobile phones (often named as

mobile commerce). Companies all over the world up to the smallest and

in the remotest comer can be accessed electronically. What it results is

called a marketspace - a marketplace extended beyond traditional

boundaries and removed from a temporal and geographic location. From

a consumer point of view, ubiquity reduces transaction costs - the costs

of participating in a market. To transact, it is no longer necessary that

we spend time and money traveling to a market. At a broader level, the

ubiquity of e-commerce lowers the cognitive energy required to transact

Introduction - 15

in a marketspace. Cognitive energy refers to the mental effort required to

complete a task. Humans generally seek to reduce cognitive energy

outlays. When given a choice, a person will choose the path requiring the

least effort - the most convenient path (Shapiro and Varian, 1999;

Tversky and Kahneman, 1981).

Global Reach

E-commerce technology permits commercial transactions to cross

cultural and national boundaries far more conveniently and cost

effectively than is true in traditional commerce. As a result, the potential

market size for e-commerce merchants is roughly equal to the size of the

world's online population (over 400 million in 2001, and growing rapidly,

according to the Computer Industry Almanac). The total number of users

or customers an e-commerce business can obtain is a measure of its

reach (Evans and Wurster, 1997).

In contrast, most traditional commerce is local or regional - it

involves local merchants or national merchants with local outlets.

Television and radio stations, and newspapers, for instance, are

primarily local and regional institutions with limited but powerful

national networks that can attract a national audience. In contrast to

e-commerce technology, these older commerce technologies do not easily

cross national boundaries to a global audience.

Introduction - 16

Local Reach

The idea that Internet can make us globally present has almost

overshadowed the fact that it can help to reach the local customers too.

As Timmers (2000) points out that " Let us not forget that most buying -

at least on the part of the consumers - happens locally ....... this

certainly holds for the mass of small businesses that still have to go

online and for many of the services that will continue to have a strong

local dimension (restaurants and catering, legal services, housing and

construction repairs and installation, electronic shops etc.)"

(This is very true, later in the strategic dimensions and while studying

the successful factors of e-business moves, we have taken the help of the

case study of BestBuy.com to illustrate the point how local and existing

customers can benefit from online marketing.)

Universal Standards

One strikingly unusual feature of e-commerce technologies is that the

technical standards of the Internet, and therefore the technical

standards for conducting e-commerce, are Universal Standards - they

are shared by all nations around the world. In contrast, most traditional

commerce technologies differ from one nation to the next. For instance,

television and radio standards differ around the world, as does cell tele-

Introduction - 17

phone technology. The universal technical standards of e-commerce

greatly lower market entry costs - the cost merchants must pay just to

bring their goods to market. At the same time, for consumers, universal

standards reduce search costs - the effort required to fmd suitable

products. And by creating a single, one-world marketspace, where prices

and product descriptions can be inexpensively displayed for all to see,

price discovery becomes simpler, faster, and more accurate (Bakos, 1997;

Kambil, 1997). Withe-commerce technologies, it is possible for the first

time in histo:ry to easily find all the suppliers, prices, and delive:ry terms

of a specific product anywhere in the world. Although this is not

necessarily realistic today for all or many products, it is a potential that

will be exploited in the future.

But sooner or later it will be so because the uses of e-commerce are

immense, it lowers the costs due to the ability to bypass many of the

intermediaries in the retail distribution value chain (Wigand & Benjamin,

1995; Wigand, 1997). It has the ability to rapidly respond to changes in

the market, through price adjustments, which can be almost in real time

(Bailey, 1998), and as well changes in product mix and marketing

approach. It also has the ability to easily capture and use market

relevant data generated during routine interactions with customers

(Steinfield et al., 1993). Many smaller local businesses are unlikely to

have equivalent capabilities.

Introduction- 18

Richness

Information richness refers to the complexity and content of a

message (Evans and Wurster, 1997; 1999). Traditional markets, national

salesforces, and small retail stores have great richness: They are able to

provide personal, face-to-face service using aural and visual cues when

making a sale. The richness of traditional markets makes them a

powerful selling or commercial environment. Prior to the development of

the Web, there was a trade-off between richness and reach: the larger the

audience reached, the less rich the message. But with multimedia (i.e.

text, graphic, animation, audio, and video) Internet has turned to a killer

application that has the potential to unlock the worldwide network of

informational services. (Please refer to the graph at the end of the

chapter "The changing trade off between richness and reach")

Interactivity

Unlike any of the commercial technologies of the twentieth century,

with the possible exception of the telephone, e-commerce technologies

are interactive, meaning they allow for two-way communication between

merchant and consumer. Television, for instance, cannot ask the viewer

any questions, enter into a conversation with a viewer, or request

Introduction - 19

customer information be entered into a form. In contrast, all of these

activities are possible on an e-commerce Web site.· Interactivity allows an

online merchant to engage a consumer in the way similar to a face-to­

face experience, but on a much more massive, global scale.

Thus it can deliver the following advantages:

• Retention of customer attention, which translates into increased

sales opportunities;

• More knowledge about the customer-profile (demofsocio­

graphics, preferences), providing opportunities for better

targeting (including one-to-one-marketing) and repeat sales.

• Customer feedback, for example to improve product design and

presentation and increase customer involvement and loyalty;

• Customer self-navigation, where customers guide themselves to

what is most relevant and interesting, saving sales costs

• Customer self selection, enabling the interaction offer to be

tuned to the type of customer (from unassisted to full personal

assistance), again saving sales costs and increasing chances for

customers retention. (Timmers, 2000)

Information Density

The Internet and the Web vastly increase information density- the

total amount and quality of information available to all market

Introduction - 20

E. U. LIBRARY

·'--T- ~~\ Dite- 1

participants, consumers, and merchants alike. E-commerce technologies

reduce information collection, storage, processing, and communication

costs. At the same time, these technologies increase greatly the currency,

accuracy, and timeliness of information-making information more

useful and important than ever. As a result, information has become

more plentiful, cheaper, and of higher quality.

A number of business consequences have resulted from the growth in

information density. In e-commerce markets, prices and costs become

more transparent. Price transparency refers to the ease with which

consumers can find out the variety of prices in a market; cost

transparency refers to the ability of consumers to discover the actual

costs merchants pay for products (Sinha, 2000). But there are

advantages for merchants as well. Online merchants can discover much

more about consumers; this allows merchants to segment the market

into groups willing to pay different prices, and permits them to engage in

price discrimination - selling the same goods, or nearly the same goods,

to different targeted groups at different prices. For instance, an online

merchant can discover a consumer's avid interest in expensive exotic

vacations, and then pitch expensive exotic vacation plans to that

consumer at a premium price - knowing this person is willing to pay

extra for an exotic vacation, while pitching the same vacation plan at a

lower price to more price-sensitive consumers (Shapiro andVarian, 1999).

Introduction - 21 /

Personalization/ Customization

E-commerce technologies permit personalization: Merchants can

target their marketing messages to specific individuals by adjusting the

message to a person's name, interests, and past purchases. The

technology also permits customization - changing the delivered

product or service based on a user's preferences or prior behavior. Given

the interactive nature of e-commerce technology, a great deal of

information about the consumer can be gathered in the marketplace at

the moment of purchase. With the increase in information density, a

great deal of information about the consumer's past purchases and

behavior can be stored and used by online merchants. The result is a

level of personalization and customization unthinkable with existing

commerce technologies. For instance, you may be able to shape what you

see on television by selecting a channel, but you cannot change the

contents of the channel you have chosen. In contrast, the Wall Street

Journal Online allows you to select the type of news stories you want to

see first, and to be alerted when certain events happen.

Now, let's return to the question that motivated this section: Why

study e-commerce? To reiterate, the answer is simply that e-commerce

technologies - and the digital markets that result - promise to bring

about some very fundamental, unprecedented shifts in commerce. One

Introduction - 22

of these shirts, for instance, appears to be a very large reduction in

information asymmetry among all market participants· (consumers and

merchants). In the past, merchants and manufacturers were able to

prevent consumers from learning about their costs, their price

discrimination strategies, and their profits from sales. This becomes

more difficult with e-commerce, and the entire marketplace potentially

becomes very price competitive.

On the other hand, the unique dimensions of e-commerce

technologies listed in the table earlier of this chapter, also suggest many

new possibilities for marketing and selling - a powerful set of

interactive, personalized, and rich messages are available for delivery to

segmented, targeted audiences. E-commerce technologies make it

possible for merchants to know much more about consumers and use

this information more effectively than was ever possible in the past.

Potentially, online merchants could use this new information to develop

new information asymmetries, enhance their ability to brand products,

charge premium prices for high-quality service, and segment the market

into an endless number of subgroups, each receiving a different price. To

complicate matters further, these same technologies make it possible for

merchants to know more about other merchants than was ever true in

the past. This presents the possibility that merchants might collude on

prices rather than compete and drive overall average prices up. This

Introduction - 23

strategy works especially well when there are just a few suppliers

(Varian, 2000b).

TYPES OF E-COMMERCE

For the most part, the very basis of differentiation exists on the nature

of the market relationship - who is selling and to whom. The exceptions

are P2P and m-commerce, which are technology-based distinctions. Here

in the following table we present the basic type of E-commerce.

Type of E-Commerce

B2C- Business to consumer

B2B - Business to Business

C2C - Consumer to Consumer

Introduction - 24

Example

Amazon.com 1s a general

merchandiser that sells consumer

products to retail consumers.

Esteel.com is a steel industry

exchange that creates an

electronic market for steel

producers and users.

Ebay.com creates a market

space where consumer can

auction or sell goods directly to

other consumers.

P2P - Peer to Peer Gnutella lS software

application that permits

consumers to share music with

one another directly without the

intervention of a maker as in C2C

e-commerce.

M-Commerce - Mobile Wireless mobile devises such

Commerce as PDAs (Personal Digital

Assistants) or cell phones can be

used to conduct commercial

transactions.

B2C. The most commonly discussed type of e-commerce is Business­

to-Consumer (B2C) e-commerce, in which online businesses attempt to

reach individual consumers. Even though B2C is comparatively small

(about $65 billion in 2001), it has grown exponentially since 1995, and it

is the type of e-commerce that most consumers are likely to encounter.

Within the B2C category there are many different types of business

models viz. portals, online retailers, content providers, transaction

brokers, market creators, service providers, and community providers.

B2B. Business-to-Business (B2B) e-commerce, in which businesses

focus on selling to other businesses, is the largest form of e-commerce

with about $700 billion in transactions in 2001. In 2001, there was an

Introduction - 25

estimated $12 trillion in business-to-business exchanges of all kinds,

online and offline, suggesting that B2B e-commerce has significant

growth potential. The ultimate size of B2B e-commerce could be huge. At

first, B2B e-commerce primarily involved inter-business exchanges, but a

number of other B2B business models have developed, including e­

distributors, B2B service providers, matchmakers, and infomediaries

that are widening the use of B2B e-commerce.

C2C. Consumer-to-Consumer (C2C) e-commerce provides a way for

consumers to sell to each other, with the help of an online market maker

such as the auction site eBay.com or in India Bazee.com. The size of this

market is estimated to be over $5 billion and growing rapidly (eBay.com,

2001). In C2C e-commerce, the consumer prepares the product for mar­

ket, places the product for auction or sale, and relies on the market

maker to provide catalog, search engine, and transaction-clearing

capabilities so that products can be easily displayed, discovered, and

paid for.

P2P: Peer-to-Peer technology enables Internet users to share files

and computer resources directly having to go through a central Web

server. In peer-to-peer1S purest form, no intermediary is required. For

instance, Gnutella, like KaaZa is a peer-to-peer freeware software

Introduction - 26

application that permits users to directly exchange musical tracks,

typically without any charge. Since 1999, entrepreneurs and venture

capitalists have attempted to adapt various aspects of peer-to-peer

technology into Peer-to-Peer (P2P) e-commerce. Napster.com, which was

established to aid Internet users in finding and sharing online music files

known as MP3 files, is perhaps the most well-known example of peer-to­

peer e-commerce, although purists note that Napster is only partially

peer-to-peer because it relies on a central database to show which users

are sharing music files. In 2000, the Recording Industry of America, a

trade organization of the largest recording companies, successfully sued

Napster for violating copyright law by allowing Napster members to

exchange copyrighted music tracks without compensation to the

copyright holders. (A detailed case study of Napster.com is incorporated

in the later part of this dissertation.)

M-commerce: Mobile commerce, or m-commerce, refers to the use of

wireless digital devices to enable transactions on the Web. These devices

utilize wireless networks to connect cell phones and handheld devices

such as the PalmVIIx to the Web. Once connected, mobile consumers can

conduct many types of transactions, including stock trades, in-store

price comparisons, banking, travel reservations, and more. Thus, m­

commerce is used most widely in Japan and Europe (especially Finland),

where cell phones are more prevalent than in the United States, but, as

Introduction - 27

discussed in the next section, it is expected to grow rapidly in the United

States over the next five years.

GROWTH OF THE INTERNET AND THE WEB

The technology juggernaut behind e-commerce is the Internet and the

World Wide Web.

Without both of these technologies, e-commerce as we know it would

be impossible. The Internet is a worldwide network of computer networks

built on common standards. Created in the late 1960s to connect a small

number of mainframe computers and their users, the Internet has since

grown into the world's largest network, connecting about 350 million

computers worldwide. The Internet links businesses, educational

institutions, government agencies, and individuals together, and provides

users with services such as e-mail, document transfer, newsgroups,

shopping, research, instant messaging, music, videos, and news.

The graph at the end of this chapter entitled ("The growth of Internet

measured by number of Internet Hosts") illustrates one way to measure

the growth of the Internet, by looking at the number of Internet host

computers [Web server computers with an Internet address). In 2000,

there were over 70 million Internet host computers in over 245 countries,

with the number growing at about a rate of 45% a year (Tehan, 2000)

The Internet has shown extraordinary growth patterns when

Introduction - 28

compared to other electronic technologies of the past. It took radio 38

years to achieve a 30% share of United States' households. It took

television 17 years to achieve a 30% share. Since the invention of a

graphical user interface for the World Wide Web in 1993, it has taken

only seven years for the Internet/Web to achieve 30% share of United

States household.

The World Wide Web is the most popular service that runs on the

Internet infrastructure. The Web is the "killer application" that made the

Internet commercially interesting and extraordinarily popular. The Web

was developed in the early 1990s and hence is of much more recent

vintage than the Internet. The Web provides access to over one billion

pages or documents created in a language called HTML (HyperText

Markup Language). These HTML pages contain information- including

text, graphics, animations, and other objects made available for public

use. One can find an exceptionally wide range of information on Web

pages, ranging from the entire catalog of Sears Roebuck, to the entire

collection of public records from the Securities and Exchange

Commission, to the card catalog of your local library, millions of music

tracks (some of them legal), and video clips. Even entire videos are

available. The Internet prior to the Web was primarily used for text

communications, file transfers, and remote computing. The Web intro­

duced far more powerful and commercially interesting, colorful

Introduction - 29

multimedia capabilities of direct relevance to commerce. In essence, the

Web added color, voice, and video to the Internet, creating a

communications infrastructure and information storage system that

rivals television, radio, magazines, and even libraries.

Web content has grown exponentially since 1993. A variety of groups

have estimated there are between one billion and two billion Web pages

in 2000. Each day about seven million new Web pages are added. By the

end of 2001, at this rate of growth there will be about four billion Web

pages (Cyveillance, Inc. 2000; Inktomi 2000). The graph at the end of the

chapter entitled "The Growth of Web Ccontent" describes the growth of

Web content in the form of Web pages.

The following is the opinion of - A. Border; R. Kumar; F Maghoul; P

Raghaven; S Rajagopalan; R. Sata; A Tomkins and J Wiener; unlike

others, the authors are of the opinion that the internet is not a web but a

bow tie:

THE BOW TIE WEB

The World Wide Web conjures up images of a giant spider web where

everything is connected to everything else I and you can go from one

edge of the web to another by just following the right links. Theoretically,

that's what makes the Web different from a typical index system: You

can follow hyperlinks from one page to another. In the "small world"

Introduction - 30

theory of the Web, every Web page is thought to be separated from any

other Web page by an average of about 19 clicks. The small world theory

was supported by early research on a small sampling of Web sites. But

recent research conducted jointly by scientists at IBM, Compaq, and

Alta Vista found something entirely different. These scientists used

AltaVista's Web crawler "Scooter" to identify 200 million Web pages and

follow 1.5 billion links on these pages.

The research discovered that the Web was not like a spider web at all,

but rather like a bow tie (Please refer to the graph at the end of this

chapter entitled Bow Tie). The bow-tie Web has a "strongly connected

component" (SCO composed of about 56 million Web pages. On the right

side of the bow tie is a set of 44 million OUT pages that you can get to

from the center, but cannot return to the center from. OUT pages tend to

be corporate intranet and other Web site pages that are designed to trap

you at the site when you land. On the left side of the bow tie is a set of

44 million IN pages from which you can get to the center, but that you

cannot travel to from the center. These are recently created "newbie77

pages that have not yet been linked to by many center pages. 43 million

pages were classified as "tendrills," which are pages that do not link

to the center, and cannot be linked to from the center. However, the

tendril pages may be linked to IN and OUT pages. Occasionally, tendrils

Introduction - 31

link to one another without passing through the center (these are called

"tubes"). Finally, there were 16 million pages totally disconnected from

everything.

The picture of the Web that emerges from this research is quite different

from earlier reports and claims. The notion that most pairs of Web pages

are separated by a handful of links, almost always under 20, and that

the number of connections would grow exponentially with the size of the

Web, is not supported. In fact, there is a 75% chance that there is no

path from one randomly chosen page to another. With this knowledge it

now becomes clear why the most advanced Web search engines only

index about six million Web sites, when the overall population of Web

sites is over 70 million. Search engines cannot find most Web sites

because their pages are not well-connected or linked to the central core

of the Web. Because e-commerce revenues in part depend on customers

being able to find a Web site using search engines, Web site managers

need to take steps to ensure their Web pages are part of the connected

central core of the Web. One way to do this is to make sure the site has

as many links as possible to and from other relevant sites, especially to

other sites within the sec.

Source: " Graph Structure in the Web " by A. Border; R. Kumar; F Maghoul; P Raghaven; S Rajagopalan; R. Sata; A Tomkins and J Wiener, Proceedings of the 9th International World Wide Web Conference, Amsterdam, The Netherlands, Pages 309-320. Elsevier Science May 2000. ; Study Reveals Web As Loosely Woven, " by Ian Austen New York Times May 18 2000; "The Bowtie Theory Explains Link Popularity" By John Heard, www. Searchenginespositions.com/articleslbowtie.html.

Introduction - 32

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