4 Chapter 4 – E-Business and E-Commerce

Digital Technology and the E-Environment

Digital technology and the e-environment continue to change the way small and large businesses operate. Digital technology refers to a broad spectrum of computer hardware, software, and information retrieval and manipulation systems. The e-environment is a catchall term that includes e-business and e-commerce. The Internet in particular has had a powerful impact on the demands of customers, suppliers, and vendors, each of whom is ready—perhaps even expects—to do business 24/7.

Why Digital Technology?

With the advent of the personal computer and the Internet, small firms may be able to compete on a more equal footing with larger firms through their intelligent use of digital technologies. It would be impossible to list all the types of software that can enhance small business operations, so the focus will be on the major types of aids.

Today, even the smallest of firms can acquire a complete accounting system at a reasonable price. These packages can be tailored for specific industries and are designed to grow with the company. They not only generate standard accounting and financial reports but also assist with management decision-making. Information about accounting software for small businesses is easily available on the Internet.

Small-business operations have also benefited greatly from affordable software that can handle forecasting, inventory control and purchasing, customer relations, and shipping and receiving. In fact, the software has advanced to the point where a small firm can cost-effectively possess its own enterprise resource planning (ERP) system. Only a few years ago, ERP systems were out of reach for all but the largest firms. ERP systems integrate multiple business functions, from purchasing to sales, billings, accounting records, and payroll. These advances now give small firms the capability and opportunity to participate in global supply chains, thus broadening their customer base.

Broad Schematic of an ERP System

Broad Schematic of an ERP System - purchasing, shipping, accounting, sales, inventory control, and payroll

E-business

E-business is a term that is often used interchangeably with e-commerce, but this is not accurate. E-business uses the Internet and online technologies to create operational efficiencies, thereby increasing value to the customer.[1] Its focus is internal—for example, online inventory control systems; accounting systems; procurement processes; supplier performance evaluation processes; tools to increase supply chain efficiency; processing requests for machine repairs; and the integration of planning, sourcing, and manufacturing. Critical business systems are connected to critical constituencies—customers, vendors, and suppliers—via the Internet, extranets, and intranets.[2] No revenue is generated, but “e-business applications turn into e-commerce precisely when an exchange of value occurs.”[3]

E-business processes should be introduced wherever there is a process that is currently working but is costing unnecessary time and money to implement via paper. This would certainly apply to the small business that finds itself drowning in paperwork. Small businesses should always consider that e-business processes could improve their operational and cost efficiencies overall, so thinking about e-business implications should be part of many decisions. E-business can work for any small business “because it involves the whole business cycle for production, procurement, distribution, sales, payment, fulfillment, restocking, and marketing. It’s about relationships with customers, employees, suppliers, and distributors. It involves support services like banks, lawyers, accountants, and government agencies.”[4] The way you do business and your future profitability will be affected by e-business. Converting your current business into e-business may require some redesign and reshaping, depending on the size of your company. However, e-business integration should be seen as an essential element in the efforts of a small business to increase its agility in responding to customer, market, and other strategic requirements.[5]

E-Business Components

E-business involves several major components:[6] business intelligence (BI), customer relationship management (CRM), supply chain management (SCM), enterprise resource planning (ERP), e-commerce, conducting electronic transactions within the firm, collaboration, and online activities among businesses.

E-Business Components - business intelligence, customer relationship management, supply chain management, enterprise resource management, e-commerce, online activities between businesses, collaboration, and electronic transfer within firm

Business intelligence is about the activities that a small business may undertake to collect, store, access, and analyze information about its market or competition to help with decision making. When conducted online, BI is efficient and quick, helping companies to identify noteworthy trends and make better decisions faster. BI has been described as “the crystal ball of the 21st century.”[7]

Customer relationship management (CRM) refers to “…a customer service approach that focuses on building long-term and sustainable customer relationships that add value for the customer and the company.”[8] It is a company-wide strategy that brings together information from all data sources within an organization (and sometimes from external data sources) to give one holistic view of each customer in real-time. The goal is to reduce costs and increase profitability while providing customer satisfaction.[9] CRM applications are available for even the smallest businesses.

Every small business has a supply chain, a network of vendors that provide the raw components that are needed to make a product or deliver a service. The management of this network is known as supply chain management (SCM). SCM is about efficiently and effectively improving the way that a company finds those raw components and then delivers the product or the service to the customer.[10] SCM applications are now available for small businesses.

Enterprise resource planning (ERP) is about integrating all departments and functions across a company (sales, marketing, human resources, finance, accounting, production, engineering, etc.) into a single computer system that can serve the particular needs of each department. The objective is to provide information quickly and efficiently to those who need it. Small businesses have many vendor choices for ERP systems. There are more than thirty vendors in the field, and they are looking to small and midsize businesses as their primary growth market.[11]

E-commerce (a big focus of this chapter) is the marketing, selling, and buying of goods and services online. It generates revenue, which e-business does not. E-commerce is typically associated with e-marketing, but most of this chapter is dedicated to the operational, nonmarketing dimensions of e-commerce.

Conducting electronic transactions within a firm can occur through an intranet, e-mail, and instant messaging. An intranet is a private network within a business that is used for information sharing, processing, and communication. The goal is to “streamline the workplace and allow easy information exchange within an organization.”[12]

Collaboration can occur internally or externally, and it often involves business partners. The goal is to help teams or business partners communicate with each other more effectively and efficiently, manage projects and shared materials, save companies the costs of travel, and reduce travel-related productivity losses.[13] E-mail, instant messaging, newsgroups, bulletin boards, discussion boards, virtual team rooms, online meetings, and wikis are common means of collaboration. A wiki is a web page that can be viewed and modified by anybody with a web browser and access to the Internet unless it is password protected.[14]

Online activities between businesses focus on information sharing and communication via e-mail, online meetings, instant messaging, and extranets. An extranet is the part of an intranet that is made available to business partners, vendors, or others outside a company. It allows a business “to share documents, calendars, and project information with distributed employees, partners, and customers” and “it enables 24/7 private, secure access to collaborative tools with just an Internet connection.”[15] They make communication easier, eliminate redundant processes, reduce paperwork, increase productivity, provide immediate updates and information, and provide quick response times to problems and questions.[16] The result is money and time saved for employees, the company, vendors, and your customers. Commercial transactions typically do not take place on extranets.

As integral as e-business may be to many small businesses, however, there will be small businesses that choose not to go the e-business route. Small businesses that are nonemployers and/or are very small operations that choose to stay that way—for example, local delis, gift shops, restaurants, dry cleaners, and ice cream shops can be and are successful without having to make a commitment to e-business. Therefore, a small business can choose to incorporate all, some, or none of the e-business components. Given the ways in which the Internet continues to transform small businesses, however, it would be virtually impossible for a small business to operate totally outside the realm of e-business.

E-Commerce

E-commerce is the marketing, selling, and buying of goods and services online. It is a subset of e-business. It generates revenue, whereas other areas of e-business do not. E-commerce has experienced extraordinary and rapid growth and will continue to grab more market share.[17] The moment that an exchange of value occurs, e-business becomes e-commerce.[18]

E-commerce is the revenue generator for businesses that choose to use the Internet to sell their goods and services. Some small businesses rely on the Internet to grow and survive. Many small businesses also look to e-commerce for their own business needs, such as computers and office technology, capital equipment, and supplies, office furnishings, inventory for online sale, or other business-related goods.[19] This is not surprising considering the pervasiveness of the Internet for business transactions of all shapes and sizes.

In a survey of 400 small businesses, each with fewer than 100 employees, it was reported that the Internet had significantly improved growth and profitability while helping to reduce costs. Some businesses even indicated that they rely on the Internet to survive. Interestingly, the survey participants themselves took advantage of e-commerce to purchase computers and office technology online (54 percent), capital equipment and supplies (48 percent), and office furnishings (21 percent); one third bought inventory for online resale, and 59 percent purchased other business-related goods online.[20] E-commerce offers many benefits to small businesses, including the following:[21]

  • Lower business costs. It may not be necessary to maintain as much physical space and staff.
  • Greater accessibility. Customers can shop when they want to.
  • The ability to provide customized service. Like Amazon.com, companies can address their customers on a personal level by recognizing and greeting repeat shoppers.
  • Increased customer loyalty. Companies can give information to customers while offering something of value (e.g., a coupon for use on the next purchase or helpful hints about using a product).

These benefits make it possible for a small business to compete with, perhaps even overtake, larger companies that do not have the agility and innovation of a smaller company. The realities of Internet usage make a strong case for small businesses to integrate e-commerce into their operations, including the following:

  • Seventy-four percent of American adults use the Internet.
  • Eighty-one percent use the Internet for information online about a service or product they are thinking of buying.
  • Seventy-one percent buy products online.[22]
  • Sixty-six percent of adults have home broadband.[23]
  • American small businesses have embraced broadband.[24]
  • Fifty-five percent of American adults connect to the Internet wirelessly.[25]
  • All income groups have high Internet usage, from 65 percent (less than $30,000 per year) to 98 percent ($75,000 per year or more).[26]
  • Forty-six percent of small business owners plan to grow their businesses by creating or improving their company’s online presence.[27]
  • Almost half (49 percent) of online adults have used online classified ads.[28]

We live in a society of 24/7 immediacy, where the equivalent of foot traffic is increasingly becoming eyeballs on a website.[29] People and businesses turn to the Internet to solve problems and address the needs that they have. Embracing this change and moving existing small business practices to include e-commerce would not seem to be an option. Rather, it is increasingly becoming a requirement for survival. Even so, small business must think carefully about how to enter the e-commerce world or, if already there, how to best take advantage of the opportunities. Both situations will require careful and deliberate decision making that takes e-commerce implications into consideration regularly.

Key Takeaways

  • The creation of customer value must be a top priority for small business. The small business owner should be thinking about it every day.
  • Cash flow is a firm’s lifeblood. Without a positive cash flow, a small business cannot survive. All business decisions will have an impact on cash flow—which is why small business owners must think about it every day.
  • A cash-based accounting system is for small firms with sales totaling less than $1 million. Accrual accounting systems measure profits instead of cash.
  • Digital technologies are very important to small businesses. They can improve efficiencies, help create greater customer value, and make the business more competitive. Digital technology integration should be something that small business owners think about regularly.
  • It is not correct to use the terms e-business and e-commerce interchangeably. E-commerce is a subset of e-business.
  • E-business can work for any small business.
  • E-commerce generates revenue. E-business does not.
  • Moving existing small business practices to e-commerce is increasingly becoming a requirement for survival.

Types of E-Commerce

Every Internet business is either pure-play or brick-and-click. A pure-play business, such as Amazon and Zappos, has an online presence only and uses the capabilities of the Internet to create a new business. Brick-and-click businesses, such as Barnes and Noble and Vermont Country Store, combine a physical presence with an online presence. These businesses use the Internet to supplement their existing businesses.[30] There are several different types of e-commerce. A common classification system is with respect to the nature of transactions or the relationships among participants.[31] There are seven major types of e-commerce:

  1. Business-to-business (B2B), where e-commerce businesses focus on selling to other businesses or organizations, is the largest form of e-commerce.[32] Cisco, Staples, and Spiceworks (information technology [IT] and IT networks for the small- and medium-sized business) are all B2B companies.
  2. Business-to-consumer (B2C) is the earliest form of e-commerce, but it is second in size to B2B. It refers to retail sales between businesses and individual consumers. Consumers gather information; purchase physical goods, such as books and clothing; purchase information goods, such as electronic material or digitized content, such as software; and, for information goods, receive products over an electronic network.[33]
  3. Consumer-to-consumer (C2C) e-commerce is where consumers sell products and personal services to each other with the help of an online market maker to provide catalog, search engine, and transaction-clearing capabilities so that products can be easily displayed, discovered, and paid for. The most well-known C2C business is eBay, but there are many other online market makers as well. Craigslist is an extremely popular small e-commerce business for placing classified ads.
  4. Business-to-government (B2G) e-commerce can generally be defined as transactions with the government. The Internet is used for procurement, filing taxes, licensing procedures, business registrations, and other government-related operations. This is an insignificant segment of e-commerce in terms of volume, but it is growing.
  5. Consumer-to-business (C2B) e-commerce is between private individuals who use the Internet to sell products or services to organizations and individuals who seek sellers to bid on products or services.[34] Elance is an example of C2B where a consumer posts a project with a set budget deadline and within hours companies and/or individuals review the consumer’s requirements and bid on the project. The consumer reviews the bids and selects the company or individual that will complete the project. Elance empowers consumers around the world by providing the meeting ground and platform for such transactions.[35] Priceline.com is a well-known example of C2B e-commerce.
  6. Mobile commerce (m-commerce) refers to the purchase of goods and services through wireless technology, such as cell phones, and handheld devices, such as Blackberries and iPhones. Japan has the lead in m-commerce, but it is expected to grow rapidly in the United States over the next several years. eMarketer predicts mobile content revenues will grow to more than $3.53 billion in 2014, a compound annual growth rate of nearly 20 percent for the period 2009–2014, with the fastest growth coming from mobile music.[36]
  7. Peer-to-peer (P2P) technology makes it possible for Internet users to share files and computer resources directly without having to go through a central web server. P2P began with Napster offering free music downloads via a file-sharing system. Tomago [37] launched the world’s first P2P commerce system in 2005, which allowed people to sell every type of digital media directly from their computers to customers all over the world. People who publish videos, photos, music, e-books, and so forth can earn royalties, while buyers earn commissions for distributing media to others.[38]

E-Commerce Business Models

The decision to engage in e-commerce is an important one. The advantages are clear: lower business costs; 24/7 accessibility anywhere; the potential for stronger customer service; the ability to introduce a niche product; the ability to reach global markets on a more equalized basis with larger firms, making mass customization possible; and greater customer loyalty. But the risks are there as well. Internet problems, website problems, security and privacy breaches, intellectual property theft, legal liability, product and/or service failure, customer deceit, and customer dissatisfaction are but a few of the risks. Therefore, the choice of an e-commerce business model must be made carefully. Each model will have different implications in terms of business planning and strategy. An e-commerce business model is the method that a business uses to generate revenue online. “The business model spells out how a company makes money by specifying where it is positioned in the value chain. Some models are quite simple. A company produces a good or service and sells it to customers. If all goes well, the revenues from sales exceed the cost of operation and the company realizes a profit. Other models can be more intricately woven.”[39] Another way to look at a business model is that it “reflects management’s hypothesis about what customers want, how they want it, and how the enterprise can organize to best meet those needs, get paid for doing so, and make a profit.”[40] There are many models to choose from, and new models will continue to emerge as technology evolves and businesses look for new and creative ways to generate revenue. Some of the many e-commerce business models are as follows:[41]

  • The virtual merchant model is used by online retailers that operate over the Internet only. FreshDirect is a small business that offers fresh food and brand-name groceries for home delivery in New York. Amazon is another example of a virtual merchant.
  • The brokerage model brings buyers and sellers together and facilitates transactions. Mint.com (now part of Intuit) is a business that connects users to companies that provide financial services. 
  • The incentive marketing model is a “customer loyalty program that provides incentives to customers such as redeemable points or coupons for making purchases from associated retailers.”[42] The long-standing Entertainment Book (now online) would be a good example.

Because the business model will be at the center of the business plan, the model must be designed carefully. If a successful model is to be built, the model should effectively address the eight key elements seen in the table below. Although value proposition and the revenue model may be the most important and easily identifiable aspects of a company’s business model, the other six elements are equally important.[43]

Components Key Questions
Value proposition Why should the customer buy from you?
Revenue model How will you earn your money?
Market opportunity What market space do you intend to serve, and what is its size?
Competitive environment Who else occupies your intended market space?
Competitive advantage What special advantages does your firm bring to the market space?
Market strategy How do you plan to promote your products or services to attract your target audience?
Organizational development What types of organizational structures within the firm are necessary to carry out the business plan?
Management team What kinds of experiences and background are important for the company’s leaders to have?
Source in the footnotes[44]

E-Commerce Trends

For businesses already engaged in e-commerce and for those that are thinking about it, being aware of the latest e-commerce trends is important because they could have a long-term influence on the future of a company’s market. This influence, in turn, could mean life or death for your e-commerce operations. Several general e-commerce trends can be identified, and they are relevant to all e-commerce operations.

  • E-commerce will continue to grab more market share.[45]
  • It is expected that, in some way, the web will influence 53 percent of all purchases made in 2014.[46]
  • The lines between online and offline commerce will become less defined. If somebody buys from a mobile device in your store, is that a web sale or a store sale? Retailers need to think of some new ways that they can take the web’s influence into account.[47]
  • B2B e-commerce will continue to significantly outpace B2C e-commerce, representing more than 85 percent of all e-commerce.
  • M-commerce is the fastest-growing segment of visitors to e-commerce websites. If a business does not allow customers to both browse its catalog and conduct transactions on a mobile device, customers will seek out other brands that offer such an experience.[48]
  • Many businesses have increased their social marketing initiatives through a combination of Facebook pages, Twitter tweets, YouTube fan videos, and blogs. Any business that sells its products or services online without having a social strategy will suffer.[49]

The following e-commerce trends specifically apply to small businesses:

  • The Internet will continue to create opportunities for small businesses. It is now possible to buy a wide range of specialized products and services that are not available elsewhere. The Internet has provided a lifeline for many small producers and has allowed entrepreneurs to enter retailing without having to invest heavily in physical outlets.[50] Small businesses can easily enter the e-commerce arena as pure-play businesses. Take Socrata, an online service that makes it easy to share data—anything from crime statistics to football schedules. This small start-up business discovered that federal agencies were the site’s biggest users. “It became clear that a really good place for our technology was helping government organizations share data in the interest of transparency.”[51]
  • Broadband and wireless networks will be everywhere. Small businesses will need to factor in the effect of the broadband revolution on their businesses.[52] Consider the case of the small, ten-person shop in Seattle that engraves plaques and trophies. Today, 60 percent of its business is conducted online, with customers who live outside the Seattle area.[53]
  • The Internet will continue to be a platform that provides small businesses with a wide range of new tools, services, and capabilities. Small businesses will find new ways to use the Internet, contributing to the blurred distinctions between the physical and the virtual worlds.[54]
  • Small business relationships will become increasingly virtual as online social networks expand.[55] Many small businesses are promoting their presence on Facebook and Twitter. Westbrook Lobster and Arisco Farms are both small businesses in Connecticut that have an online social presence. Naked Pizza in New Orleans has a presence on Twitter that has proven to be a boon to its business.[56]

Is E-Commerce for All Small Businesses?

Despite the popularity and pervasiveness of e-commerce, not all small businesses may be interested in pursuing e-commerce as a part of their businesses. Many small businesses survive without an online presence. However, business analysts have agreed for a long time “that for any company larger than a local mom and pop store, e-commerce is now a business requirement.”[57]

Key Takeaways

  • E-business and e-commerce are not synonymous terms. E-commerce generates revenue. E-business does not.
  • E-business and/or e-commerce may not be of interest to all small businesses. However, using technology well is proving to be one of the most prominent drivers of business success.
  • E-business consists of several major components, one of which is e-commerce.
  • Every Internet business is either pure-play (an Internet presence only) or brick-and-click (having both a physical and an online presence).
  • The seven major types of e-commerce are B2B, B2C, C2C, B2G, C2B, m-commerce, and P2P.
  • An e-commerce business model is the method that a business uses to generate revenue online. Some models are very simple; others are more complicated. New business models are being introduced all the time.
  • E-commerce will continue to grab more market share, and the line between online and offline commerce will become less defined.

Other E-commerce Issues

Legal

There is nothing easy about the law. It is complex under the best of circumstances, but it is necessary to protect the rights and privileges of people and businesses. Companies that choose to engage in e-commerce must be aware of the legal environment because “a lack of awareness…can lead to missteps as well as missed opportunities….”[58] However, the focus here is on three areas: electronic transactions, intellectual property, and jurisdiction.
Issue Description
Jurisdiction The ability to sue in other states or countries.
Electronic transactions All transactions that take place online.
Liability The use of multiple networks and trading partners makes documenting responsibility difficult. How can liability for errors, malfunctions, or fraudulent use of data be determined?
Identity fraud The Identity, Theft, and Assumption Deterrence Act of 1998 makes identity fraud a federal felony carrying a three- to twenty-five-year prison sentence.
Defamation Is the Internet service provider liable for material published on the Internet because of services it provides or supports? (Usually not.) Who else is liable for defamation? What if the publisher is in another country?
Intellectual property law Protects creations of the human mind.
Digital signatures Digital signatures are recognized as legal in the United States and some but not all other countries.
Regulation of consumer The United States allows the compilation and sale of customer databases. The European Union does not.
Time and place An electronic document signed in Japan on January 5 may have the date January 4 in Los Angeles. Which date is considered legal if a dispute arises?
Electronic contracts If all the elements to establish a contract are present, an electronic contract is valid and enforceable.
Taxation Taxation of sales transactions by states is on hold in the United States and some but not all other countries. Expect this issue to be revived because the potential for increased revenue to the states is significant.
Source in footnotes[59]

Electronic transactions are the many kinds of transactions that take place online, including contractual dealings, buying and selling of goods and services, information exchange, financial transactions (credit card payments; payor services, such as PayPal; and money transfers), and communications. When developing a website, the small business owner must ensure that all online business transactions will be secure, particularly those involving money. This discussion must take place with whomever is developing your website.

Intellectual property is “a creation of the mind, such as inventions, literary and artistic works, and symbols, names, images, and designs, used in commerce.”[60] Music, photos, videos, digital news, and artwork are forms of intellectual property that can be transmitted over the Internet. All small business owners need to be concerned about the theft of intellectual property. They are afforded multiple protections, which are summarized in the table below:

Law Protection Provided by the Law
Intellectual property law Protects creations of the human mind
Patent law Protects inventions and discoveries
Copyright law Protects original works of authorship, such as music and literary works and computer programs
Trademark law Protects brand names and other symbols that indicate source of goods and services
Trade secret law Protects confidential business information
Law of licensing Enables owners of patents, trademarks, copyrights, and trade secrets to share them with others on a mutually agreed-on basis
Law of unfair competition dealing with counterfeiting and piracy Protects against those who try to take a free ride on the efforts and achievements of creative people
Source in footnotes[61]

It is important to protect intellectual property because businesses will not realize the full benefits of their inventions and would be inclined to focus less on research and development. Additionally, without intellectual property protections, “exporters face unfair competition abroad, non-exporters face counterfeit imports at home, and all businesses face legal, health and safety risks from the threat of counterfeit goods entering their supply chains.”[62] Unfortunately, US small businesses are at a disadvantage because:[63]

  • They may lack the knowledge, expertise, or resources necessary to prevent the theft of their ideas and products.
  • Many small businesses do not have personnel and operators overseas, so they do not have the necessary eyes and ears needed to be vigilant. The theft of their ideas and products often goes undetected.
  • Small businesses generally do not have the kinds of access and resources that are likely available to larger companies (e.g., specialized legal counsel).

Because of the complexities of intellectual property protections, this area requires the services of an attorney, preferably one experienced and knowledgeable in cyberlaw.

Jurisdiction refers to the right and power that a court has to interpret and apply the law in a particular geographic location.[64] “A court must have jurisdiction over the litigants and the claims before it entertains a lawsuit. In the context of Internet commerce, this issue erupts when a dispute arises between businesses from different states [or countries].”[65] Many small businesses will be selling products online in other states and in other countries, so it is important to understand the jurisdictions that might be applicable to any online transaction. “In many cases, laws from the customer’s state are the ones that will apply in the event a problem arises. This is equally true regarding the laws of other countries.”[66] From the perspective of any business, but particularly a small business, it would be much easier from both a time and a money perspective to have an issue litigated in the home state of a business. Although there are no guarantees, these steps can be taken to increase the chances of a dispute being settled in the home state of a business:[67]

  1. If using a contract with another party, make sure the contract says that any dispute must be filed in your home state and that both parties to the contract agree to jurisdiction in that state.
  2. When a customer is purchasing an item on the website of a business, one of the terms and conditions of the transaction should be that the customer agrees to jurisdiction in the home state of that business. This can be done with a check box next to the statement. Make the customer check it off before completing the purchase.
  3. A less effective way is to include a disclaimer on the website that any transaction will convey jurisdiction to the home state of a business, and any dispute must be heard by a court of competent jurisdiction in the home state of the business.

All these steps should also be considered when selling to other countries. However, the laws in other countries will undoubtedly introduce complications into protecting the US-based business. Take the example of Yahoo! and the sale of Nazi memorabilia on one of its auction websites. A French court ruled that such sales breached French law against the display of Nazi items. Yahoo! took steps to remove and ban all such hate paraphernalia from its auction sites, but it continued to fight jurisdiction of the French ruling in American courts.[68] It would be very easy for a small business to inadvertently find itself in a similar situation. That is why a business needs to be careful when selling outside its home country. Be familiar with foreign laws. This is not an easy task because the minute a business website goes live, the business goes global. The laws of the world suddenly become relevant.

Security and Privacy

Website security (the protection of a company, its suppliers, its customers, and its employees from criminal activity) is a critical consideration for any small business engaged in e-commerce. The Internet is a global playground for criminals. It is less risky to steal online because “the potential for anonymity on the Internet cloaks many criminals in legitimate-looking identities, allowing them to place fraudulent orders with online merchants, steal information by intercepting e-mail,…shut down e-commerce sites by using software viruses,”[69] and steal financial information and money. This new type of crime is referred to as cybercrime, and it is a serious threat to e-commerce.

Cybercrime refers to any criminal activity that is done using computers and the Internet,[70] and it includes a wide range of offenses. Downloading illegal music, stealing from online bank accounts, stealing credit card numbers and personal information, stealing identities, posting confidential business information on the Internet, and creating and distributing viruses on other computers are only some of the thousands of crimes that are considered cybercrimes.[71] Cybercrimes can take place anytime and anyplace. It has cost American companies a median loss of $3.8 million a year, and data protection and information technology (IT) practitioners from 45 US organizations from various sectors reported that, across their companies, 50 successful attacks were experienced over a four-week period.[72]

Trust

Trust is about believing—believing that someone will do what they say and that they will not intentionally do something to hurt you. Trust is an important part of all business relationships. Without trust, all e-commerce would come to a halt. “Trust is central to establishing successful e-commerce ventures and to ensure the continued success of this business paradigm into the future.”[73] Trust will improve competitiveness, reduce the costs of doing business, build loyalty, and increase the effectiveness of websites. In short, trust can be an important source of competitive advantage. Trust is essential. In the physical world, trust is much easier to develop. Physical cues from spaces and buildings, face-to-face voice and body language, and salesperson effectiveness can translate easily into trust relationships. In the online world, however, trust develops as a result of the complex interaction of multiple factors that have design implications for the website. Here are some examples of trust: [74]

  • The customer observes the seller to be honest, fair, responsible, and benevolent.
  • The customer expects that the company behind the website will not engage in opportunistic behavior.
  • The customer is confident about the site’s security and privacy protection (security and privacy having been shown to be an important determinant of a customer’s willingness to buy online).
  • The customer perceives the company’s website as appealing (linked to layout, typography, font size, and color choices)—the belief being that an appealing website reflects a company has the capabilities and resources to fulfill its promises.
  • The customer experiences a site that is easy to use (i.e., easy to navigate, easy to search, easy to gather information) and has relevant content, interactivity, site consistency, and site reliability.
  • The customer perceives presentation flaws (e.g., poor style, incompleteness, language errors, conflicting colors, delay, and confusing terminology) as indicators of a low-quality, untrustworthy website.

Another element of trust is order fulfillment. Order fulfillment is all about meeting expectations, and some argue that this is the most important element of trust.[75] Delays in the delivery of a product, the delivery of the wrong product, and the hassles of returning merchandise are stresses that can contribute to a less-than-satisfactory Internet buying experience. Such experiences contribute to a lack of trust. In contrast, satisfied consumers express themselves this way:[76]

  • “Products at this site are a bit pricey, but it is worth purchasing from this site since you get what you order and within the promised delivery time.”
  • “I keep purchasing from this site because they always have the items I want in stock.”

Buying some products online, such as clothing, furniture, and toys, does not offer buyers the opportunity to touch and feel the product before buying. As a result, order fulfillment becomes even more important to customer satisfaction. Linked closely to order fulfillment is product reliability. Product reliability refers to “the accurate display and description of a product so that what customers receive is what they thought they ordered.”[77] Online retailers should provide a complete and realistic description of the product and its benefits—with high-quality pictures and perhaps even demonstration videos if possible, appropriate, and affordable—along with product availability and likely ship dates. Customers should be notified by e-mail of order acceptance, and the anticipated delivery date with phone and e-mail contacts for any needed assistance.

Cybercrime

Cybercrime is more profitable than the illegal drug trade (more than $100 billion globally per year). Every three seconds an identity is stolen, and without security, an unprotected PC can become infected within four minutes of connecting to the Internet.[78] A Microsoft security intelligence report maintains that cybercrime is fast maturing as a profession, with cybercriminals becoming more sophisticated and packaging online threats that can be sold to others.[79]

The Computer Crime & Intellectual Property Section of the US Department of Justice keeps a running list of press releases related to cybercrimes. Here are three examples.

  1. A Miami man pled guilty to one count of conspiracy to traffic in and possess unauthorized credit card numbers with intent to defraud, and one count of trafficking in unauthorized credit card numbers.
  2. A Rhode Island man pleaded guilty to Internet sales of unregistered, unlabeled pesticides for cats and dogs while infringing on the trademark of two well-known national brand names, “Frontline” and “Frontline Plus.” The man-made more than 3,500 sales through eBay.
  3. A Canadian man was sentenced to 33 years in prison for selling counterfeit cancer drugs using the Internet.

Cybercrime hurts the bottom line of any business, but small and medium-sized businesses are the new cybercrime target. “Hackers and computer criminals…are taking a new aim—directly at small and midsize businesses…Smaller businesses offer a much more attractive target than larger enterprises that have steeled themselves with years of security spending and compliance efforts.”[80] Small businesses are potentially very lucrative targets for several reasons:

  • Nearly one-fifth of small businesses do not use antivirus software.
  • Two-thirds of small businesses do not have a security plan in place.
  • Sixty percent of small businesses do not use encryption on their wireless links.
  • Only about 60 percent of mom-and-pop shops have met the credit card industry’s data security standards for protecting credit card data. Compliance at the smallest businesses is even worse.
  • Two-thirds of small and medium-sized businesses believe that large companies are the main target for cybercrime,…yet 85 percent of the fraud seen in business occurs in small and medium-sized businesses.[81]

The cybercriminal is looking to steal and disrupt. Securing a website should be a top priority for any company—small, medium, or large—that uses the Internet to conduct its business.

The scope of failure in protecting customers’ personal information can be potentially devastating because of the global reach of the Internet; the effect can easily reach millions of people.[82] Heartland is a payment processor responsible for handling about 100 million credit card transactions every month. They disclosed in June 2009 that thieves had used malicious software in its network in 2008 to steal an unknown number of credit card numbers.[83] Fortunately, the theft of credit card and other personal information originating from websites accounted for only about 11 percent of the identity theft or fraud that affected 11 million Americans in 2009.[84] This is why the act of providing credit card information on a website for a purchase is still considered by some people to be so risky that they refuse to conduct any Internet transactions. This has obvious implications for any small company that hopes to do business online. Fortunately, there is a very straightforward way to provide the security and privacy that online customers seek: the use of Secure Sockets Layer (SSL), a security protocol that is used by web browsers and web servers to help users protect their data during transfer.[85] Companies like VeriSign offer SSL protection certificates and the placement of its icon on a website can offer security and privacy assurances to online customers. The inclusion of SSL protection should be discussed with your website designer.

Payment Options

Nowhere are security, privacy, and trust more necessary than at the point of payment. Without this transaction, there is no e-commerce, so it is imperative that small businesses selling online take the necessary steps to reduce customer concerns about shopping online. A recent survey found that retailers operating online may have lost more than $44 billion dollars over a one-year period as a result of transaction problems on their websites; in addition, 27 percent of online shoppers would turn to an offline or online competitor if they encountered an online transaction issue.[86] More specifically, online shoppers who encountered a transaction problem would react as follows:[87]

  • Sixty-six percent would contact customer service, including
    • Fifty-three percent calling customer service; and
    • Thirty-six percent e-mailing or logging a web complaint with customer service.
  • Thirty-two percent would abandon the transaction entirely, including
    • Twenty-seven percent turning to an online or offline competitor.

To make matters even worse, the potential for lost revenue when customers have a negative online shopping experience is amplified by the rising use of social media like Facebook and Twitter; the voicing of displeasure on social networks can significantly damage a company’s reputation.[88] The message is clear. Online transactions must run smoothly. But there is another important issue: the number of payment options that are offered to the customer. Research shows that the more payment options customers have, the more likely they will complete their purchase.[89]

  • Merchants offering multiple payment methods have lower cart abandonment rates.
  • If you can afford it and maintain your profit margin, offering multiple payment options is a means to increase your sales by increasing customer confidence and convenience.
  • North American online businesses with four or more options for payment see an average sales conversion rate of 72 percent. The sales conversion rate is the percentage of site visitors that make a purchase.
  • Each new payment option added at the point of checkout results in a sales increase of 5–20 percent.

Customers shopping online expect convenience and a variety of payment options. Credit cards are by far the most popular means for making an online payment, with one survey indicating that 70 percent of online consumers used this payment method.[90] Any small business that does not have its website set up to accept credit cards will lose 60–80 percent of its potential orders. Further, offering a credit card option will increase the number of orders, and those orders will be substantially larger because credit cards enable impulse buying, reassure customers of your legitimacy, and simplify your billing.[91] Consistent with credit cards being the online payment method of choice, it has been reported that 99 percent of online businesses offer a general-purpose credit card, which includes Visa, MasterCard, American Express, and Discover.[92] However, debit cards are growing in popularity ahead of other payment alternatives.

Payment Options Consumers Used to Make Online Purchases in 2009

Payment Option % Used
Major credit card usable anywhere 70
Major debit card usable anywhere 55
Online payment service, such as PayPal or Google Checkout 51
Gift card good only at a specific merchant 41
Store-branded credit card good only at the merchant that issued the card 27
Prepaid card or payroll card usable anywhere 17
Online credit service such as BillMeLater 17
Store-branded debit card good only at merchant that issued the card 16

The implications of this for small business are that credit cards should be the first payment method that should be set up for online sales. Additional payment methods should be added as quickly as the budget allows because it is clear that more payment options translate into a greater likelihood of purchase. However, the choice of alternative payment methods should be in keeping with the growth strategy of the business. It may be that offering one method of payment provides a satisfactory level of sales, thereby eliminating the need for additional methods for sales growth.

Key Takeaways

  • It is important to protect intellectual property.
  • Ethics influence consumer purchases.
  • Small businesses are the new target for cybercrime. As a result, small businesses must pay attention to their website security because it will protect the business and influence customer trust.

E-commerce Platforms

An e-commerce platform is the software that makes it possible for a business to sell online. In general, the core e-commerce platform should support basic requirements such as custom styling, search engine optimization (SEO), credit card processing, promotions, catalog management, analytics, product browsing, checkout, and order management. Additionally, e-commerce platforms should provide self-service content management systems (CMS), support multiple languages, and support multiple stores.[93] These requirements may vary slightly depending on which type of e-commerce is being conducted. Analytics refer to the tools that can track the different ways people use your website and then make sense of the data.[94]

The all-in-one e-commerce platform solution has become more popular with online merchants. This solution provides everything: the core e-commerce platform plus hosting, accounting, analytics, and marketing tools such as e-mail management. Because all the tools are integrated, they work together.[95] It has also been reported that e-commerce platforms are now enabling online retailers to better reach consumers through mobile devices and social media sites.[96] This is great news for the small business that wants to tap into these growing markets.

The list of e-commerce software providers is always growing, but there are many products that are tailored specifically for small to medium-sized businesses. Some of the names that come up frequently for small business are BigCommerce, Magento, Affinity Internet, ProStores (for the smaller merchant), and Miva Merchant. However, this list is not exhaustive, and new products enter the marketplace all the time.

Customer Relationship Management

Customer Relationship Management (CRM) refers to “a customer service approach that focuses on building long-term and sustainable customer relationships that add value for the customer and the company.”[97] Some small businesses may wonder whether they really need the added complexity of a small business CRM solution. The answer will depend to a large extent on the size of the business and its growth objectives. However, it has been observed that there is no small business out there that, “sometimes in spite of themselves, didn’t benefit from implementing a…CRM or its watered-down equivalent—a simpler Contact Management software solution.”[98] Recent studies have revealed that CRM applications account for the following:[99]

  • Revenue increases of up to 41 percent per salesperson
  • Decreased sales cycles of over 24 percent
  • Lead conversion rate improvements of over 300 percent
  • Customer retention improvements of 27 percent
  • Decreased sales and marketing costs by 23 percent
  • Improved profit margins of over 2 percent

It has also been noted that companies can boost their profits by almost 100 percent by retaining just 5 percent of their customers.[100] What does this mean for the small business that chooses to go with a CRM solution? As long as the solution is well implemented and actually used, there should be an immediate payoff and productivity improvement throughout the company. Additionally, choosing to engage in e-commerce makes the selection of a CRM solution even more important because the quality of customer relationships is so important to online success.

Although there was a time when CRM solutions were not feasible for small businesses, they are available today for even the smallest businesses. These CRM solutions are priced and designed with the small business in mind.

Going Mobile

As defined earlier in this chapter, mobile e-commerce (m-commerce) refers to the purchase of goods and services through wireless technology, such as cell phones and handheld devices. It consists of two primary components: “…the ability to use a wireless phone or other mobile device to conduct financial transactions and exchange payments over the Internet…and the ability to deliver information that can facilitate a transaction—from making it easy for your business to be ‘found’ via a mobile Web browser to creating mobile marketing campaigns such as text promotions and loyalty programs.”[101]< It is predicted that in 2015 m-commerce revenues will make up 8.5 percent of all US e-commerce revenue and 20 percent of global e-commerce revenue. In the United States, that will represent only one-half of 1 percent of all retail revenues.[102] However, even though m-commerce is lagging behind other mobile uses, wireless devices and m-commerce are expected to create another revolution in e-commerce. The most important thing that online retailers can do is to “…take action soon because the mobile environment is adapting much more quickly than the web.”[103]

Small businesses need to sort out the hype from what’s real. What’s real are the facts and the trends.[104]

  1. From the second quarter 2009 through the second quarter 2010, Amazon’s customers around the world used mobile devices to buy more than $1 billion in products. This is a trend that any small business with an e-commerce website should watch closely.
  2. Mobile devices connected to the Internet are reshaping the way people are going about their personal and professional lives.
  3. One of the fastest growth areas in e-commerce will be using mobile devices to make online purchases.
  4. Close to 80 percent of organizations plan to have mobile websites by the end of 2011. Online retailers without an m-commerce strategy will be in the minority.
  5. Handheld devices are increasingly being used to research products, compare prices, and buy online while shopping.
  6. A central driver to m-commerce growth is smartphone ownership and the corresponding mobile Internet use.
  7. Nearly 58 percent of Americans have researched a product or a service online.
  8. Among cell phone owners, 11 percent purchased a product or a service using their phones.

Web 2.0

There is no agreement about an exact definition of Web 2.0 but, in general, it refers to websites that are more interactive, engaging, and interesting than before. A Web 2.0 site is one where visitors can engage with you, your business, and your site by doing things like the following:[105]

  • Posting comments on your blog or your articles or chatting in a forum
  • Retweeting your content, sharing it on Facebook, or Digging it
  • Watching a video, listening to a podcast, or participating in a webinar
  • Taking a quiz or responding to a poll

Web 2.0 is about having a conversation with your customers. This is very different from Web 1.0, where websites were static and all you could do was read. Web 2.0 sites are collaborative and interactive. The small business that creates a site that engages and interacts with people, that makes people want to stick around, will be giving people more of a chance to create a connection with the business.[106] These closer ties will increase customer awareness and consideration of the company’s products and services, improve customer satisfaction, increase the chances of loyalty, increase the chances for sales, and add to the bottom line. There will also be significant benefits realized between the small business and its suppliers and partners: lowering the costs of communication and doing business.

A much smaller percentage of small businesses have adopted elements of Web 2.0 as compared to large enterprises and midsize companies.[107] However, many small businesses are using Web 2.0 in a variety of positive ways.[108]

  • One business owner operated a Facebook group, attracted interest in the business, and developed loyalty through the group.
  • Another business routinely put press releases online and attested to their value at getting the company’s website found in search engines.
  • The owner of a product company reported good results with videos that were loaded on YouTube and on the company’s website. The video attracted people to the site and also engaged existing visitors on the site.
  • A small real-estate company has a Facebook page, a blog, and a property value calculator that allows homeowners to calculate an approximation of their home’s value without having to speak with a realtor. The information is then sent via e-mail.

As Web 2.0 keeps evolving, the value and opportunities it will bring to small businesses will continue to grow. “The increased flow of two-way information between business and customer, the increase in information distribution through blogs and wikis, and the increased participation of customers in product improvement and even design will continue. By adopting Web 2.0 technologies and tools, small businesses can improve market share, profit, and reputation, now and in the future.”Sang-Heui Lee, David DeWester, and So Ra Park, “Web 2.0 and Opportunities for Small Businesses,” Service Business 2, no. 4 (2008): 335–45.

Key Takeaways

  • E-commerce platforms make it possible for businesses to sell online. The all-in-one platform solution has become more popular with online merchants. There are many platforms that are tailored specifically for small and medium-sized businesses.
  • Small businesses should think about CRM. CRM solutions are now available for even the smallest of businesses.
  • Even though m-commerce is lagging behind other mobile uses, wireless devices and m-commerce are expected to create another revolution in e-commerce.
  • Web 2.0 is important. It is about having a conversation with your customers. Small businesses need to learn about it and strongly consider incorporating it into their e-commerce strategies.
  • Web 2.0 keeps evolving, so the value and opportunities it will bring to small businesses will continue to grow.
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