eCommerce FAQs

eCommerce FAQs

What can a small business do to get started in electronic commerce without a lot of money to invest?

As the Internet and digital economy continue to shift, vendors and service providers will continually try to find unique ways to provide low-cost services to small businesses. One quick example is the numerous websites offering free development and hosting. For example, the sites offer a web development application in a "wysiwyg" (what-you-see-is-what-you-get) style that allows each person the ability to create their own type of website. Other options include participation in an online marketplace. These mechanisms are roughly designed to simulate a real marketplace that will attract customers due to a shop-at-once mentality instead of surfing the Internet for different goods and services. A fast developing theme among new and old participants in the digital economy is the use of ASPs (application service providers). These service providers allow you to purchase many of the off-the-shelf operating applications that you may use to run your business (finances to human resource management to inventory processing) at a much lower cost as well as have someone else manage and host the data. It also reduces the time and labor force necessary to run such types of operations. A final recommendation is the notion of partnering. Finding similar organizations that can share resources and expenses can help you achieve your goals in the digital economy. The key role of the digital economy and electronic commerce is to help streamline your traditional organizational processes and daily routines and automate them through the Internet. Sharing the burden of making that happen can help minimize the expense and difficulty and stimulate a potential relationship for furthering business behavior.

What quick advice can you give on marketing a small business in the digital economy?

First and foremost, put your URL (or website address) on all of your organization's correspondence. That includes business cards, stationery, posters, flyers, e-mail headers, or footers and any other advertisement activity. Remember, you never know who may read or run across information about your company. Make sure they have the ability to reach you. Second, you have to do your research. No matter what location you're in, most likely your local government has some sort of economic development office as well as a Chamber of Commerce. Both are great resources to ask about events, promotions, and other activities that will allow you to get your name out. Another great resource is the U.S. Small Business Administration's national resources. From regional offices to local business development centers, the SBA is ready to help you out by providing contact information or counseling you on a particular business endeavor. Third, work on all of your vendor and partner relationships. The best marketing technique still remains word-of-mouth. And who is better at telling potential customers about your organization that those who already do business with you. In today's digital economy, that can also mean other types of help. For example, many business partners work with one another on listing each other's URL (website address), know that the other person's site is another avenue to attract customers otherwise foregone. Be cautious, though, in working with linking agreements. You don't want to water down your site with too many links. The goal should always be to link to another site if it builds or provides value to your clients.

How often should a website be updated?

This question refers to the Internet term of versioning, or the reformatting of an organization's website. Similar to a company's advertising strategy, new ideas built on customer response and organizational direction must be put in place or an organization can be viewed as aging. There is no standard time related to how often a new version of a website should be established. However, the market indicates that most companies are making substantial changes every two to three months on average. Most of these changes reflect better service to the customer and the roll out of a new product or service. Others are based on keeping the customer interested or entertained enough to come back to the site. One particularly interesting piece of advice is that organizations can use an advisory board or group to provide feedback on their site. This group is open to suggest changes to the current structure based upon personal use as well as by comparison to competitors' sites.

What is Electronic Commerce (the ‘EC’ part of EC/EDI)?

Electronic Commerce (EC) is the paperless exchange of business information using Electronic Data Interchange (EDI) and related technologies. You are probably familiar with Electronic Mail (E-Mail), computer bulletin boards, facsimile machines (faxes), Electronic Funds Transfer (EFT), and the like. These are all forms of EC. All EC systems replace all or key parts of paper-based workflow with faster, cheaper, more efficient, and more reliable communications between machines. In today's Defense Department procurement arena, however the most important EC technology to know about is Electronic Data Interchange, or EDI.

When did the age of electronic commerce begin?

Business-centered electronic commerce began more than two decades ago with the introduction of electronic data interchange (EDI) between firms (sending and receiving order, delivery and payment information, etc.) Even consumer-oriented electronic commerce has a rather long history: each time you use automatic teller machines or present your credit cards, you transact business electronically. These EDI and ATM, however, operate in a closed system; they are of a more convenient communications medium, strictly between the parties allowed in. The World Wide Web (WWW), the Internet's client-server, opened up a new age by combining the open Internet and the easy user interface. WWW was created at the CERN Lab for Particle Physics in Geneva in 1991 (with its Mosaic, the predecessor of Netscape). It took two years for Mosaic to penetrate the Internet, and another two years before businesses and the general public took notice of its potential.

Is EC here to stay? Will it be here but gone tomorrow?

EC and the Internet, are not fads because of their widespread effects. Some may find it useless to open a web store, but web stores do not make electronic commerce or the digital economy. There will be new types of interfaces (browsers and protocols) and new (privatized) networks, but what the WWW represents is our march toward the digital economy and knowledge-based society. Technologies, the Web and other processes are but a means of achieving that goal.

Will EC be limited because not many people can afford PCs and/or access to the Internet?

Today's EC processes are based on personal computers because of their origin within the Internet, a network of computers. First stage of EC expansion is that within the installed base of computer users (more connected users). The second wave will come when more people get access to computers (via lowered computer prices or cheaper devices). The third and more important, expansion is predicted to be from those with non-computer access to the global network: through broadcast TVs, cable TVs, telephone networks and new appliances. A widespread use of these cheaper access media represents the phase of bringing workplace computers into the living room. However, the affordability of these devices, the easiness of use or the mode we access the network is less of an issue than how we will use these devices. Turning the computer into a convenient device like a TV is a goal in itself. For example, the speech-to-text technology will eventually make manual inputting unnecessary. In terms of productivity, it is hard to convince that computer hardware and software have met our expectation for making our work and life easier or more productive during the last decade. But what will we do with new gadgets when we get them? Delivering the same information but more conveniently? Selling the same entertainment and TV programs but with more pizzazz? The limiting factor will be our limited vision about the electronic future.

Why should one care about electronic commerce?

Participants in the electronic marketplace are not limited to so-called digital product companies such as those in publishing, software, entertainment, and information industries. The Digital Age and the digital revolution affect all of us by virtue of their process innovations. At the least, through WebTV and digital television, the way we watch TV news and entertainment programs will change. Changes in telecommunication will affect the way we receive information, product announcements, orders, etc. As phones, fax machines, copiers, PCs and printers have become essential ingredients in doing business, so will be emails, websites, and integrated digital communications and computing. While today's office business machines are not integrated (e.g. faxed orders have to be typed in on computers), the much talked about convergence will drive all these equipment into one digital platform, whether it be a computer connected to the Internet and intranets, or a new kind of device capable of interacting with other devices, because that device will prove to be mo re efficient and productive. (Although, will it be easier to use? That depends on how developers and industry leaders promote interoperability and standardization.) Even seemingly mundane bookstores face different challenges in the electronic marketplace by virtue of having digital processes in their business operations. The case of vs. Barnes & Noble shows that the very definition of stores has to be re-evaluated. This also touches upon the issue of taxable nexus and sales tax collection on the Internet. Distributing books require numerous local outlets (local bookstores) to provide convenient access to customers. At the same time, mail order distribution has been used for many decades through various book clubs. Taking this direction into the Internet, has become the leading online bookstore, billing itself as the "largest bookstore" on earth not by opening numerous branch stores but via the Internet. The "biggest bookstore," Barnes & Noble with a towering share of revenues and physical book stores, has been forced to respond to's challenge by opening its own Web store as well as by bringing a law suit against its challenger. (See insert: The Fight Between the Biggest and the Largest) What are competitive strategies of these two bookstores? Will any business selling physical products be facing a similar competition?

What Buzzwords Do I Need to Know?

eCommerce is rife with buzzwords and catchphrases. Here are some of the current terms people like to throw around: Digital or electronic cash: Also called e-cash, these terms refer to any of several schemes that allow a person to pay for goods or services by transmitting a number from one computer to another. The numbers, just like those on a dollar bill, are issued by a bank and represent specified sums of real money. One of the key features of digital cash is that it's anonymous and reusable, just like real cash. This is a key difference between e-cash and credit card transactions over the Internet. For more information, see PC Webopaedia. Digital money: This is a grab-bag term for the various e-cash and electronic payment schemes on the Internet. Yahoo lists 21 companies offering a form of digital money. Disintermediation: Disintermediation is the process of cutting out the middleman. When Web-based companies bypass traditional retail channels and sell directly to the customer, traditional intermediaries (such as retail stores and mail-order houses) may find themselves out of a job. Electronic checks: Currently being tested by CyberCash, electronic checking systems such as PayNow take money from users' checking accounts to pay utility and phone bills. Electronic wallet: This is a payment scheme, such as CyberCash's Internet Wallet, that stores your credit card numbers on your hard drive in an encrypted form. You can then make purchases at Web sites that support that particular electronic wallet. When you go to a participating online store, you click a Pay button to initiate a credit card payment via a secure transaction enabled by the electronic wallet company's server. The major browser vendors have struck deals to include electronic wallet technology in their products. Extranet: This extension of a corporate intranet connects the internal network of one company with the intranets of its customers and suppliers. This makes it possible to create eCommerce applications that link all aspects of a business relationship, from ordering to payment. Micropayments: transactions in amounts between 25 cents and $10, typically made in order to download or access graphics, games, and information, are known as micropayments. Pay-as-you-go micropayments were supposed to revolutionize the world of eCommerce. One early scheme, for example, let visitors to ESPN SportsZone use their CyberCash CyberCoin accounts to buy a $1 day pass to the site's premium content, without having to spring for a full month's subscription, but many potential customers have been unwilling to play along with micropayments.

How Can Small Businesses Take Advantage of eCommerce?

Large companies pour millions into fancy ecommerce sites, but even mom-and-pop shops can make money on the Web with a simple, no-frills site. Sometimes, all it takes to succeed is the promotional savvy to get noticed by customers. Word of mouth, postings in newsgroups, and registration with search engines may be enough to get the customers rolling into your site. Kevin Donlin is a writer and Web developer who opened Guaranteed Résumés on the Internet back in 1994. Now, he gets about 100 visitors each day and draws half his income from his resume-writing business. Donlin succeeds by keeping his costs down: the site sits on the server of his local ISP, and customers, who come from Japan and Europe as well as the United States, pay with a credit card via phone, fax, and even email. Instead of subscribing to an expensive, third party payment system to handle the credit card transactions online, he enters all the purchases into a swipe terminal that he leases for $30 per month. Although most businesses can benefit from a home page on the Web, eCommerce isn't for everyone. Firms likely to profit most are those offering unique products or services that are not readily available locally. A small bookstore such as Moe's Books in Berkeley might want to advertise readings by authors and tell its customers about specials, but it would not want to compete with But onlyGourmet -a Web-based business that sells premium coffee, chocolate, and specialty foods--might find new customers in small towns around the country, where people can't find lemongrass or Swiss bitter chocolate at the corner store.

What Are the Biggest Barriers to eCommerce?

According to a survey conducted by CommerceNet, shoppers don't trust eCommerce, they can't find what they're looking for, and there's no easy way to pay for things. Other than that, it's smooth sailing. Customers are worried about credit card theft, the privacy of their personal information, and unacceptable network performance. Most shoppers still aren't convinced that it's worthwhile to hook up to the Internet, search for shopping sites, wait for the images to download, try to figure out the ordering process, and then worry about whether their credit card numbers will be filched by a hacker. To convince consumers, e-merchants will have to do a lot of educating. However, Gail Grant, the head of CommerceNet's financial research arm, predicts that most buyers will be won over in just a few years. Grant says that if Web pages were labeled with tags giving product and pricing information, it would be easier for search engines to find stuff to buy online. That hasn't happened yet, she adds, because merchants want people to find their products but not their competitors'--especially if another company's goods are cheaper. As for business-to-business systems, the issues are less emotional but still serious. Businesses do not yet have good models for setting up their eCommerce sites, and they have trouble sharing the orders and information collected online with the rest of their business applications. Many companies continue to grapple with the idea of sharing proprietary business information with customers and suppliers--an important component of many business-to-business eCommerce systems. The key to solving the business model is for merchants to stop relying on fancy Java applets and to restructure their operations to take advantage of eCommerce, says Grant. "eCommerce is just like any automation—it amplifies problems with their operation they already had."

Who Stands to Lose From Businesses Moving Online?

The companies most directly threatened by eCommerce include travel agencies, entertainment ticket operations, mail-order catalogs, and retail stores--particularly software stores. eCommerce is already successfully invading their territories. A recent Forrester Research report predicts that sales of entertainment and travel tickets on the Internet will climb from $475 million in 1997 to more than $10 billion by the year 2001. Forrester says that figure represents 8 percent of all travel tickets. As Bill Gates puts it, eCommerce is about to eliminate the middleman. The buzzword of the day is disintermediation, a way of saying that anyone between the seller and the buyer is in big trouble. But a closer look reveals that eCommerce may be creating of a new kind of middleman. Some of the most talked-about eCommerce success stories, such as and Virtual Vineyards, are really a new kind of intermediary. doesn't publish books, after all, and Virtual Vineyards doesn't make wine. They are simply online distributors. But these e-middlemen must demonstrate that they add value to the buying process, through marketing, customer service, or some other method. If they don't, customers will vote with their modems and cut them out of the loop.

What Is the Future of eCommerce?

What Is the Future of eCommerce? Rest assured, there is a bright future for eCommerce. Once the details of online commerce are worked out, it and the Internet in general could reshape the structure of the business world. The huge growth of virtual communities--people getting together in ad hoc interest groups online - promises to shift the balance of economic power from the manufacturer to the consumer. At least, that's the view of John Hagel and Arthur Armstrong, a pair of analysts at McKinsey & Company, an international management consulting firm. These virtual communities are already making their presence felt. Investment site Motley Fool lets members exchange investment advice without the benefit of a stockbroker. ParentsPlace is a meeting ground for parents that gives smaller vendors an avenue to reach potential customers for products such as baby food and shampoo. Virtual communities erode the marketing and sales advantages of large companies. A small company with a better product and better customer service can use these communities to challenge larger competitors--something it probably couldn't do in the real world. In Net Gain: Expanding Markets Through Virtual Communities, published by Harvard Business School Press, Hagel and Armstrong argue that rather than fight the trend, smart companies will help build such communities and use them to reach customers.

Where can I get news about the Internet, surveys, and reports?

Keeping up with net happenings is a full-time job. Here are some sites that provide information about Internet events. Nua Internet Surveys. This email newsletter gives concise summary of most surveys and market research results. To subscribe to free, weekly reports, send an email to: with the word "subscribe" in the body of the message. Check also its Surveys webpage. Forrester Research Internet News by Cowles/Simba (Merklermedia) Jupiter Communications

Why is the Internet different from other computer and network technologies?

Computers and networks are nothing new. They have existed and business applications such as LAN and EDI are well established long before the World Wide Web took over. Then, why the sudden talk of the Digital Age and the advance of electronic commerce? Two things make the Internet quite different from any other existing communications media. Unlike broadcasting media, the Internet allows two-way communications and is built around open standards. A two-way communication means targeting audience and the possibility of feedback. Broadcasting sends out messages to no one in particular and without knowing quite who has gotten the message. (What do Nielson and a horde of market research firms do for their living?) An open standard (e.g. TCP/IP) means interoperability and the advantage of a large market and the possibility of integrating one product or process with another. Both of these characteristics are being challenged. To the WebTV generation, the digital future looks like another version of the passive one-way broadcasting. The new media sums up how publishers and media companies view the digital medium. We are so accustomed to receiving random messages that we often forget the fact that broadcasting was a 20th century phenomenon. Even interactive television envisioned by today's media is a way of providing a more lively entertainment, offering more information related to existing contents (e.g. detailed information about characters, plots, and commercials shown on TV). Multichannel, digital TV broadcasting may very well be a model for future entertainment, but it needs to be remembered that it is only one application of the digital communications network. The commercialization of the Internet is forcing businesses to differentiate their products from others by making products incompatible. Unlike the public Internet where standards were open, firms attempt to capture and dominate the market with their proprietary products. In such an environment, TCP/IP would have had a very slim chance of becoming a standard and opening up the digital, networked economy. Whether markets driven by private interests can bring about a better result (e.g., more efficient, technologically superior, etc. system) is still a concern left for arguments. Perhaps telephone networks are quite similar to the Internet (and indeed most Internet traffic goes through telephone networks). But unlike telephones, the Internet's user interface (computers) is much more sophisticated and flexible. Because of its beginning as a public research network, the Internet has no pricing regime of telephone companies. The worldwide connection, then, may be considered to have been an accident. When usage-based, long-distance charges are implemented, the Internet may look quite similar to the telephone network.

Do we have a truly worldwide network?

The ultimate goal of a global network like Teledesic is to make the globe into your home base. Currently, local ISPs provide subscribers with local access telephone numbers for dial-up. This means that you have to pay for long distance calls when you are checking your email from different cities. Roaming services often offer Internet access at cheaper prices than long distance calls. A few service providers have point of presence (POP) in many cities. Smaller ISPs can join an alliance so as to cover a larger number of POPs worldwide. For example, iPass Alliance covers over 1,000 POPs in 150 countries. Any ISP allied with iPass will offer its own pricing schedule. (E.g. HomeGate). AimQuest is another collection of about 80 ISPs including Netcom which has its own 1,500 POP in 70 countries. Find out whether your ISP offers roaming service and if so get 800 numbers before you head out. Also in the work is Cencert Internet Dial Roaming Service, a joint venture by MCI, BT and Japan's NTT Data Corp.

What choices do I have to connect to the Internet locally?

The way our computers connect to the global network varies greatly. At work, computers are commonly hard-wired maintaining constant connection (i.e., through local area networks using Ethernet). Dial-ups establish temporary connections, typically through modems and via some telecommunications networks. These include the plain old telephone system, coaxial cables used for cable TV, wireless and cellular networks and satellite networks. Any of these connections may be constant if the line is dedicated to that purpose. The physical link from your home to trunk lines (where the traffic coming out of individual users is aggregated and carried by high-capacity coaxial and fiber optic cables) is referred to as the last mile. The sheer number of individual users and the complex switching equipment required to manage traffic make the last mile relatively costly (representing between a quarter and a third of the total networking costs). At the same time, various telecommunications players are converging into this market. This will intensify competition among last-mile players. Will this competition lead to cheaper and better networking options for consumers?

Is the Internet secure?

The proper question will be: Is the Internet secure enough, enough for commercial uses? Despite the reliable encryption and other technologies, which are sometimes superior to telephone and other communications networks, non-digital media are full of hypercritical view of the Internet security. While it is unwise to play down known security risks, it is also unnecessary to imagine a doomsday scenario for every occasion. Does the Internet need to provide more security than physical markets? Probably so because the electronic marketplace lacks some elemental safeguards available in physical markets. For example, buyers have certain assurance about a seller with a retail store although that seller might be operating a bogus shop that particular moment. But bogus operations are more difficult to recognize on the Internet. Indeed, any online trading partner cannot be sure about the identity of the other person. Technologies and legal frameworks are needed to address such problems, e.g. nation-wide digital IDs.

How do I start selling online?

From cheap and simple to expensive and complex, there's a wide range of products designed to get your eCommerce site up and selling in a matter of days or weeks. Small businesses may not have to look beyond their local Internet service providers for a bare-bones solution. For example, Brooklyn-based Forman Interactive offers Internet Creator for less than $150. The software uses a series of wizards to help you create secure pages for selling your product. Plus, if your pages reside on Forman's servers, the company handles electronic payments via CheckFree. If you're ready to step up, you can use Yahoo's Yahoo Store, which lets you create a transactional business Web site from your browser. Yahoo hosts the site, and the cost is based on number of items--$100 per month for a store selling 50 items and $300 per month for up to 1,000 items. However, most eCommerce development tools targeted at small and midsize businesses cost $5,000 to $10,000. They generally include templates for online catalogs and databases, so it's easy to change items and prices. Dynamic database searches can serve different information when an item is out of stock or on special, and they can be hooked up to existing back-end systems for order fulfillment and a range of automatic payment options. Companies that have a high volume of sales--especially those that deliver soft goods such as articles, reports, software, or music over the Net--require industrial-strength solutions costing anywhere from $10,000 to $100,000 or more. See the More Resources column at right for examples of tools from all price ranges. Of course, the software sticker price is only a small fraction of what it costs to run an eCommerce site. Many high-end eCommerce products are used by third-party companies to provide services for individual merchants. Most companies take advantage of eCommerce hosting services run by the likes of AT&T, MCI, and GTE's BBN Planet. "This is a low-risk, low-cost way of finding out how to do it," says Karl Lewis, vice president of production at Proxicom. Proxicom is a Web consulting company that recently set up an eCommerce site for Day-Timer and an extranet for Mobil Oil and its distributors.

What is intranet? Extranet?

Intranets and extranets have become en vogue. Intranets and extranets share the common protocol (TCP/IP) and Web technologies with the Internet. Intranet is a closed, business-wide network, but it uses open standards such as TCP/IP instead of proprietary protocols traditionally used for LANs (local area networks, usually hard-wired) and WANs (wide area networks, usually LANs connected by cable, telephone and wireless networks). Extranet is a private WAN running on public protocols. That is, an extranet is a virtual private network among private parties based on open network and protocols. To assure security and privacy, an extranet relies on secured channel using tunneling protocols and digital ID. In a way, extranet is a private street built on public land (although costs may be borne by private parties).

What’s the difference between physical stores and Web stores?

Web storefronts integrate various functions such as physical presence as a store, sales representatives, ordering and payment functions (combined cash register, credit card reader, etc.), backoffice supports and various data interchanges (for inventorying, supply ordering, etc.)

Should Web pages be jazzy or content-oriented?

Those accustomed to the old text-based Internet seem to favor simple, information-driven Web sites with not much fancy graphics. New generations of Web designers prefer graphic-rich, jazzy layouts. This is not surprising since they come predominantly from graphics professionals, and newspaper and magazine layout artists. In fact, most fancy Web sites decidedly look a lot like a magazine or a front page of a newspaper. As both these print media and screen-restricted Web page have the same spatial limitation and the need to grab eyeballs, this jazzy approach seems to make a lot of sense. Furthermore, popular sites tend to have jazzy graphics. However, are jazzy sites drawing more visitors, or do (already) popular sites tend to employ a lot of graphics? That is, New York Times Online does have the definite advantage of being well known so that even if its Web site is text-oriented, easy to navigate, and well classified for organization, it might still draw heavy traffic. Greater emphasis on contents than on appearance will reduce congestion and unnecessary delay. Too much emphasis on graphics and multimedia (although that may be interesting and act as a drawing factor) but not enough contents will ultimately convince us that the Internet is indeed as shallow as the media we have known all along is.

Should websites sell advertisements?

The balance between advertising revenues and subscription fees are puzzling content sellers on the Internet. In the end, the choice between the two is a moot issue because both ad-based and subscription-based selling is viable options. The question is which method is good for what products. Our experience with broadcast and print media will not help to answer that question because broadcast and print media are fundamentally different from the digital medium. For example, commercial-ridden television came about because there was no sure way of charging audience for what was being broadcast randomly over the air with no one targeted in particular. Printed newspapers and magazines are constrained by the economics of mass production in pricing, in content selection and in distribution. These factors are non-existent on the Internet. Simply abstracting from traditional media will lead to wrong conclusions. Innovations will make things more complex. For example, commercials and advertising are indeed information goods so that there are some who are willing to pay to receive them. Why not charge for advertisements. That is indeed what CyberGold and other pioneers are attempting to experiment. The electronic marketplace presents a unique opportunity to improve the way we disseminate product information (i.e. advertisements), charge consumers (and ultimately integrating the process into market research, product development and the next stage of marketing in a seamless process). The problem with spam is not only that they are distributed randomly but also that they have no market prices (or ways to transact). If there is a way, some spam receivers may be paid to receive advertisements; others may be willing to pay to receive them. The legacy of the broadcast and print media has been that of artificially coupling advertisements with contents because of inability to charge or the economics of physical market. An efficient market will allow prices of these two different products to be determined separately.

What questions should I ask when selecting a web designer?

You don't really want a college student who has just learned HTML. You need a website design firm that will take time to understand your business, and has previous experience. Here are some important questions: What are the names and phone numbers of other small business clients you have served? You'll learn a lot by asking these references, "Would you hire this person to work for you on another project?" What are the URLs of some websites you have designed? Then ask your web-savvy friends to evaluate the sites with you. What kind of website do I really need to accomplish my objectives as a business? Unless the designer knows how to accomplish business purposes with a website, she is of no use to you. Do you have a contract that outlines our agreement? Get it in writing. What will this cost, how long will it take, and at what points will various payments be due? Define what will be accomplished before each payment is made. Will you register the site with search engines and perform any other marketing tasks? If this isn't included in their services, learn to do it yourself or find where to outsource it. A website without marketing is like a car without gasoline - nice to admire, but of no use at all.

What is a cookie and how does it help an e-business?

A cookie is a small amount of information that is stored on your computer when you visit a website, see a banner, purchase something at an online store, etc. Cookies help the e-business identify you the next time you come to the site so it can greet you by name, show you a banner you haven't seen yet, remember your username and password, etc. Cookies can also track how a visitor got to your website, so when he makes a purchase you can pay a commission to the affiliate who sent him. Some people see cookies as an insidious breach of privacy - and it can be when connected with databases like DoubleClick's whose information collection spans many thousands of websites. Cookies smooth eCommerce for both the customer and the business. Now if they could just perfect a way of e-mailing me a chocolate chip cookie for every site I visit, I would be really happy.

What is the electronic marketplace?

Electronic markets ordinarily refer to online trading and auction, for example, online stock trading markets, online auction for computers and other goods. The electronic marketplace refers to the emerging market economy where producers, intermediaries and consumers interact electronically or digitally in some way. The electronic marketplace is a virtual representative of physical markets. The economic activities undertaken by this electronic marketplace collectively represent the digital economy. Electronic commerce, broadly defined, is concerned with the electronic marketplace. The electronic marketplace resembles physical markets (the one we know) in many aspects. As in physical markets, components of the digital economy include: players (market agents such as firms, suppliers, brokers, shops and consumers) products (goods and services;) and processes (supply, production, marketing, competition, distribution, consumption, etc.). The difference is that, in the electronic marketplace, at least some of these components are electronic, digital, virtual or online (whichever term you may prefer). For example, a digital player is someone with an email or a Web page. Purely "physical" sellers may be selling a digital product, e.g. digital CD-ROM. One that sells physical products at a physical store may offer product information online (thereby allowing consumers to "search online"), while production, ordering, payment and delivery are done conventionally. Currently, the emphasis is on the core of the electronic marketplace where everything (i.e. all value chains or business activities) is online. But, if any aspect of your business or consumption dwells upon the digital process, you are already part of the electronic marketplace. That is, almost all of us are already players in the electronic marketplace!

How is the electronic marketplace different from physical markets?

Answer: The answers to this question provide us with a preview to what we try to achieve in this FAQ: comparing the digital economy with the physical economy, and coming up with a better understanding of the new market. Business strategies must be based on a sound understanding of the market dynamics, for which we rely on standard economics. More in-depth discussion is presented in our book, "The Economics of Electronic Commerce". Is the electronic marketplace a perfect, frictionless market? Will transaction costs become zero? Will the market be perfectly competitive, yielding lowest possible prices? Should the market be left alone to march toward those predictions? On the surface, the electronic marketplace appears to be something of a perfect market, where there are numerous, worldwide sellers and buyers, who in turn have bountiful information about the market and products, and where no intermediaries are necessary. Such a market is very competitive and efficient (with no need to regulate or intervene arbitrarily). However, closer looks indicate that consumer searches are not very efficient (due to the cost of having a complete, easily searchable database, and because sellers may not provide all information necessary). Although wholesalers and retail outlets may not be needed, other types of intermediaries appear to be essential for the electronic market to function adequately (e.g. certification authorities, electronic malls who guarantee product quality, mediators for bargaining and conflict resolution, etc.). All these brokers add transaction costs. Will prices be lower? Digital products are highly customizable due to its transmutability, i.e. easy to revise, reorganize and edit. With information about consumer tastes, products will be differentiated (or customized, e.g. custom news). The number of potential sellers may be low, or even only one, in a highly differentiated and segmented market, and the price will tend to approach the maximum price the buyer is willing to pay. (In economic terms, sellers practice first degree or perfect price discrimination, which is exact opposite to the result we get in a perfectly competitive market.) How about the often heard zero marginal cost argument that digital products will be priced at zero (given out free) because their reproduction costs will be minimal? The price will approach zero only if (1) the marginal cost is really approaching zero and (2) there is effective competition among sellers. We will discuss the microeconomics of digital products in Section D1 in detail. In short, the marginal cost of a digital product may be substantial. Even when it is close to zero, prices in a non-competitive market will be determined more by demand (or the buyer's willingness to pay) than by marginal cost. Unless we think all information and digital products are of no value, they will never be priced at zero by sellers with market power. (Giving out free products today does not mean that sellers are doing it because the costs are zero nor that they will continue to do so when they monopolize the market.)

How do I choose keywords and summaries that will get my site more hits?

On every webpage you can place META tags in which you specify keywords and descriptions that some search engines use to index and display your webpage. (We're talking about HTML tags here, so if your eyes glaze over, I understand.) While there's a whole science to optimizing pages for search engines, here are some simple steps. First, try to determine the words that your potential customers are likely to use to find your kind of business in search engine. Make a list of 10 or 20 of the top such words or phrases. Second, make sure your TITLE tag is descriptive AND includes as many of the keywords as are appropriate. Not "Acme Manufacturing" but "Acme Manufacturing - bicycle seats, handlebars, and safety reflectors". Should be between 5 and 20 words. Third, list the keywords in your keyword META tag, separating words and phrases with commas. Example: Use plural instead of singular, and don't repeat the same word twice in a row. Keyword spamming may get you removed from the search engine. Fourth, compose a description that uses as many of your keywords as possible, while eliminating throw-away words that will never be searched on, such as "the, and, that." You don't need to repeat the words in the title, but it won't hurt. Example: About 25 words is a good length. Some search engines display this description if you've included it on your page. Not all search engines consider keyword and description META tags, but if you consistently take these steps with each page, you WILL place higher on search engines and receive more targeted traffic.

I am searching for government grant money to finance a new business, a non-profit group or business enterprise. How do I go about finding

available grants?

A good place to start for grant information is: Catalog of Federal Domestic Assistance ( The Catalog of Federal Domestic Assistance (CFDA) is a government-wide compendium of federal programs, projects, services, and activities, which provide assistance or benefits to the American public. It contains financial and non-financial assistance programs administered by departments and establishments of the federal government.

All these electronic payment systems, are they any different?

There are dozens of electronic payment systems proposed or already in practice. But they can be grouped into three based on what information is being transferred online. The first type uses a trusted third party that maintains all sensitive information (such as bank account and credit card numbers) for its clients, which include both buyers and sellers. When there is a transaction, order information is transmitted along with information about payment confirmation and clearing, all of which do not include sensitive information. In effect, no real financial transaction is done online. The primary example of this type is First Virtual. In this type of system, the information need not be encrypted since financial transactions are done completely off-line. The second type is an extension of the conventional notational fund transfer. In credit card or check transactions, sensitive information is being exchanged. For example, you give your credit card to a merchant, who sends the card number through phone line and receives confirmation. Banks meanwhile receive the same information and adjust buyer and merchant's accounts accordingly. The information being transmitted online in this case is encrypted for security. The primary example is the use of digital credit cards (e.g. CyberCash and VISA/Mastercard's SET-based transactions). This type is becoming the mainstay of online payment methods because consumers are familiar with this system and current players have vested interest in extending that system to the Internet. The problem with transactional security has been overly played on the traditional media, but with proper caution and encryption, the Internet may be more secure than phone lines for this same old payment methods. (Can you encrypt your voice when you give your credit card number over the phone? Can you be sure who the other person is?) The third type includes variations of digital cash, electronic money and coins. What distinguishes these systems from the other two is not simply the anonymity they afford, but the fact that what is being transferred is value or money itself. With the second type described above, some one can commit fraud by lifting your message (credit card number) by running up the charge on your account. With digital currency, intercepting a message is an outright theft of your property, not just information.

What's the deal with digital currency? Do we need them?

Digital money, currency or coins are but an encrypted serial number representing money, but money in all sense since they are convertible to real money (e.g. U.S. dollar) if desired. (Just as U.S. dollar bill is only a paper with funny graphics.) It took hundreds of years before people accepted paper money (and checks) as payment. Digital currency will become dominant when paper-based economy finally turns into the digital economy. In the short run, digital money is just a convenient form of existing money since digital money is created against existing money. However, in the long run, digital money may be created on its own if users accept it on its face value, which will be determined by how dependable its issuers are. All monies are only as good as their issuers. Why do we need digital currency? Not because it is the ultimate in anonymous money. Rather, digital money is necessary if we are to operate fully in the digital marketplace. Non-currency electronic payment systems will be sufficient for some transactions; for others, digital currency will be more efficient, e.g. microtransactions as well as anonymous trades. Furthermore, digital currency is very flexible since it can be made to behave like electronic checks or anonymous cash as situation warrants. Electronic checks or digital credit cards become useless if their sensitive payment information is erased, or become costly if that information is hidden and calls for an elaborate process of verification.

Smart cards, what are they good for?

The smart card will emerge as the ultimate interface device for the mobile digital economy. It will hold your cash, ID information, house and office keys, subway tokens, all types of preference files (for house temperature setting, driver seat setting, etc.) and other information. You will exchange these information and digital products with other people, transact business, present to police officers, check into a hotel or a sports arena, and all other things yet to be imagined.

I want to accept credit cards at my website, but I don't want to pay for a merchant account. Where can I find inexpensive credit card

processing on a secure server?

You'll probably have to get a merchant credit card account AND credit card processing on a secure server. Here's how it works.

* You secure a merchant account with a bank, and the bank contracts with a firm that processes credit card transactions for them.

* You contract with a web hosting service for a secure server for your order pages.

* You contract with a payment gateway company (such as that provides an Internet bridge from your order pages to the bank's processing company.

Sometimes, however, you can find a service that combines (2) and (3) together. While it is possible to pay a company to handle the merchant credit card transactions for you, they may take an 8% to 15% chunk of the total transaction, and in some places this kind of "factoring" is illegal. If you plan to sell much over the Web, secure your own merchant account. Start with your own bank. If they don't favor Internet businesses, try Wells Fargo Bank (, Heartland Payment Systems (, or First Bank of Beverly Hills ( Independent sales organizations may promise to get you a merchant account, but be careful of high commissions ("application fees"), hidden fees, or penalties if your business folds before their "lease period" is over. Be careful you aren't sold the wrong services for your needs. Shop carefully.

How should we protect identifiable information about us?

Computer technologies enable sellers to find out more about their customers while at the same time they enable buyers to search and receive product information. The balance is certainly in favor of sellers since product information are proprietary, implying they are offered only if sellers want to. On the other hand, information about online consumers seems to flow easily to sellers if technologies are not employed to block such transfer. Since there are sizable gains to be made from refining consumer demand information, collecting information about consumer preferences is widely promoted, and electronic commerce provides a unique opportunity for this. However, while this information is clearly helpful to the sellers and researchers, a standard must be established to protect consumers. Presently, simple notification and disclosure to consumers are all that is needed for information collectors to use such consumer information. Rather than relying on regulatory solutions, however, innovative concepts are being tested in electronic commerce. One new idea is to give consumers the right to sell their own information. As discussed in Section 8.3, this market-based solution turns personal information into a marketable commodity. Many online services are offered in return for divulging personal information. In that case, the price for that information will be equal to the value of the service offered. Some consumers may use the service heavily, implying a high price for their information. Others may give out their information for a service they seldom use, signaling a low value for their personal information. Going beyond reporting names and addresses, consumers may be willing to sell all types of consumption data in the future if the price is right. In a way, consumers will become information sellers by participating in market research or focus groups.

Why should I care for privacy?

At least in one sense, selling personal consumption data may be detrimental to consumer welfare. In electronic commerce, such data will be directly linked to purchasing and price negotiation. With demand known, sellers may refuse to lower prices below what they think is a consumer's valuation. However, rather than going back to a market with imperfect demand and inferior product quality, the market may be able to produce an equitable and efficient result. For example, the potentially higher sale price can be partly compensated by a higher payment for personal information. This also demonstrates a reason why consumer information may have to be priced and traded in the market. A slew of economic questions arises regarding prices and the efficiency in such a market. Perhaps, the vigor evidenced in the debate on privacy and anonymity among legal scholars, government officials and free speech activists might guide economists to this task in the future.

Is eCommerce safe?

Although Internet security breaches have gotten a lot of press, most vendors and analysts argue that transactions are actually less dangerous in cyberspace than in the physical world. That's because retail sales employees who handle card numbers cause a great deal of credit card fraud. eCommerce systems remove temptation by encrypting the numbers on a company's servers. For merchants, eCommerce is actually safer than opening a store that could be looted, burned, or flooded. The difficulty is in getting a customer to believe that ecommerce is safe for them. Consumers don't really believe it yet, but experts say eCommerce transactions are safer than ordinary credit card purchases. Every time you pay with a credit card at a store, in a restaurant, or over an 800 number - and every time you throw away a credit card receipt-you make yourself vulnerable to fraud. But ever since the 2.0 versions of Netscape Navigator and Microsoft Internet Explorer, transactions can be encrypted using Secure Sockets Layer (SSL), a protocol that creates a secure connection to the server, protecting the information as it travels over the Internet. SSL uses public key encryption, one of the strongest encryption methods around. A way to tell that a Web site is secured by SSL is when the URL begins with https instead of http. Browser makers and credit card companies are promoting an additional security standard called Secure Electronic Transactions (SET). SET encodes the credit card numbers that sit on vendors' servers so that only banks and credit card companies can read the numbers. No eCommerce system can guarantee 100-percent protection for your credit card, but you're less likely to get your pocket picked online than in a real store.

What should be in a copyright statement on the website I've created?

I can give general advice, but consult your attorney about your country's specific copyright laws. By US law, an article is protected by copyright when it is published, whether or not you list copyright information. You can register your documents with the Library of Congress, though few do this for websites. The following statement should be adequate for most purposes: "Copyright © 2000, by John B. Doe. All rights reserved." The primary purpose of your copyright statement is to put readers on notice that this is your property. Since websites are so easy to copy, I usually go further and say, "Text, graphics, and HTML code are protected by US and International Copyright Laws, and may not be copied, reprinted, published, translated, hosted, or otherwise distributed by any means without explicit permission." It's difficult to enforce your copyright in court -- the legal costs would be excessive. However, it's usually sufficient to send violators a stiff note demanding that they remove your copyrighted documents from their site immediately. If they don't, contact their web hosting service. For a hosting service to knowingly host stolen materials saddles them with legal liability. Few are willing to risk it, so they usually force their subscribers to remove the offending materials immediately.

I am interested in federal government procurement with respect to becoming a vendor for the agencies that use Electronic Commerce to conduct business. Where can I find more information?

Vendors interested in providing products or services to the federal government should learn more about the General Services Administration's Federal Supply Schedule. Under the schedules program, GSA enters into contracts with commercial firms to provide supplies and services at stated prices for given periods of time. Orders are placed directly with the schedule contractor, and deliveries are made directly to the customer. To learn more, visit

What is Electronic Data Interchange (EDI)?

Electronic Data Interchange (EDI) is the computer-to-computer exchange of business information by means of standardized transaction sets that have been developed and used over the years in the private sector. Through the use of EDI, transactions can be completed more cheaply and accurately than is possible through the exchange of paper documents.

What are the Benefits of Using EDI?

Doing business electronically can result in many benefits for your organization, including enhanced strategic relationships, reduced purchase prices and procurement costs, better customer service, shorter lead times and lower inventory levels. By automating communications between your organization and your trading partners, electronic data interchange (EDI) can help you realize these benefits and position your company for a competitive advantage. The benefits of EDI fall into two categories: (1) tactical, enabling your organization to cut operating costs and increase efficiency; and (2) strategic, putting distance between your organization and the competition. Specific tactical benefits, which can arise from the successful implementation of EDI, include: Reduced purchase prices, procurement and inventory costs Delivery of documents in seconds instead of days with far less likelihood of them getting lost or damaged, thus improving customer service and reducing postage and express delivery service costs Shortened order lead times while eliminating clerical tasks and possible keying errors The ability to electronically send invoice and receive financial transactions such as invoices and payments directly to and from your organization's accounting system A broad choice of system configurations, from PC-based to mainframe-based systems customization of forms to meet your needs and the needs of your trading partners Communication across industry sectors with one common standard The ability to electronically communicate with thousands of companies without concern for hardware compatibility complete auditing, billing and security functions. Strategic benefits stem from: The ability to serve customers better, which for private sector firms can raise the value of their products or services and help increase market share. Government agencies can increase the effectiveness of customer service within current budgetary limitations The capability to track market trends as they develop, leading to focused, more responsive market strategies for private firms and the ability for governments to anticipate future constituent needs or take advantage of efficiency or cost reduction opportunities.

How do we successfully implement EDI in our company?

Executive commitment is the most important factor in determining the success of an EDI program. By its very nature, EDI can change the way an organization does business. To enable such beneficial changes the executive driving a company's EDI program must build a common understanding regarding EDI among all affected departments, divisions and other organizational units. An EDI implementation consists of an internal and an external phase. During the internal phase, your organization selects and implements the necessary translation and communications software and services, accomplishes the appropriate applications integration and determines what procedures and guidelines are needed to support electronic business practices. The external phase involves motivating your trading partners to participate in your program. Although the number of companies using EDI is constantly growing, you may still have to sell EDI to your trading partners. Moreover, you will need to coordinate your program with those of your trading partners, agree on EDI terms and conditions and test your systems. In selecting an EDI VAN and translation software, you should consider the requirements of both phases. Your EDI vendor not only should be able to provide solutions for your internal EDI implementation, but also should be able to support your trading partner enabling/implementation efforts.

What is the Central Contractor Registration (CCR)?

The CCR is a central database with information about Department of Defense (DoD) trading partners. This allows DoD purchasing agents, contracting officers, and accounting officers to quickly and consistently find information about DoD trading partners. The CCR was created so that businesses would not have to register with each and every DoD agency they wished to do business with. By having their information in one central database, trading partners need only inform the contracting or purchasing officer that they are CCR registered and that officer can then look out the information they need to do business with them.

What are enabling technologies?

The electronic marketplace is where information-age commodities (digital, knowledge-based products) are produced, exchanged and consumed. For the market to function, it requires substantial investments in market infrastructure that is capable of supporting transactions efficiently. The market infrastructure includes telecommunications networks (telephone, cable, wireless, etc.) that provide communication and delivery services. Another key component is that of interface devices and technologies such as computer hardware, software and digital appliances. Network and computer technologies in turn enable various EC applications and other support services such as electronic payment systems. In this sense, networks and computers are enabling technologies of electronic commerce. Enabling technologies will change and improve: messages have been delivered by person, postal service, telephone, fax, and now by email. Transportation and product delivery systems have been innovated over time. Just as likely, today's Internet and computing platforms will change. But these changes will not affect the fundamental nature of the digital economy. The electronic commerce revolution happened on the Internet because of its advantages such as open, distributed networking. Although technologies will determine the boundary of what processes can be implemented at a given time, it is the process we find useful that will shape the future of these technologies and the economy.

What is the convergence?

Both telecommunications networks and computer technologies are heading toward the convergence. In short, the convergence is a process that allows hitherto incompatible devices to talk to each other (interoperable), products to be interchangeable and processes to be integrated. The underlying impetus for convergence is the digital technologies or digitization; its effect is much wider than a simple network convergence we are aware of today. Product Convergence Today, digital products include voice signals, TV programs, musical CDs, videos, books, magazines, news and all types of paper-based information, database, computer software and games. Room and access keys are digital, stored on a smart card; IDs and personal information are digital; and money is digital. All these digital products are essentially made up of ones and zeros (the on-and-off dual states of an electronic charge), capable of being transported via a telecommunications network. Network (Infrastructure) Convergence Telephone, coaxial cable, broadcast, satellite and wireless networks are all capable of sending and receiving the same digital signals. When a telephone network is busy, one can re-direct the voice to cable or wireless networks. Market Convergence Suddenly, several regulated monopolies are facing potential competition from those who used to be in different markets: telephone companies and cable TV operators are potential competitors. Internet service providers and TV broadcasters may be fighting for Internet access. The convergence in products and networks has resulted in breaking down old market boundaries, in addition to lowering geographical market boundaries. (Of course, this potential competition will become real only if these firms do indeed compete. Another type of convergence, i.e. mergers, or artificial market boundaries will sustain monopoly status.) Process Convergence We use process convergence in the sense of integration where different processes (or phases in a value chain) are integrated into a seamless process. For example, online advertising gets an immediate feedback from its recipients, which is then used to modify production process (customization). In broadcasting, advertising is almost separated from market research or any other business processes. The convergence brings about new opportunities as well as uncertainties. As products are digitized, they acquire new characteristics increasing their appeal. For example, a CD-ROM version of an encyclopedia provides search and link capabilities far exceeding the cross-indexing features provided by book versions. New products mean new uses, new customers and new ways of doing business. Many focus on the opportunity to expand their business, but the novelty also creates uncertainty. For example, as the telecommunications infrastructure converges, traditional boundaries among telephone companies, cable operators and satellite operators become unclear. These companies are experimenting video-on-demand services, interactive television, cable modems, online shopping, video dialtone, etc., to gage consumer response and the future profitability in their widening playing field. Not knowing consumer demand and competitors' strategies, however, they are hesitant to plunge into the unknown. On the other hand, Bill Gates of Microsoft, Craig McCaw, w


Successfully managing a business requires specific management skills in addition to knowledge of key business practices. Within this section you’ll learn about leadership traits, decision-making skills, and how to manage your employees. Additionally, we’ll walk you through a host of important topics to manage your business including: marketing basics, setting prices, filing your business taxes, legal considerations, forecasting for future growth, and financing options.

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