February 11, 2009

The Strengths and Weaknesses of E-business Amazon.com


The Internet is a worldwide system of interconnected networks; it is the transport vehicle for the information stored in files or documents on another computer; it can be compared to an international communications utility servicing computers, and the Internet itself does not contain information (University of Kansas,2002). The concept of the Internet began in the early 1970s, when applications running under different network protocols needed to communicate with one another.  A protocol is a set of conventions that communicating entities use to structure their information exchanges (University of Kansas, 2002). Computers connected to the Internet use protocols from a large collection of such protocols called the Transmission Control Protocol/Internet Protocol (TCP/IP) suite (KU, 2002).


There are currently three major divisions of the Internet--commercial, governmental, and educational—which appear in a full network host name as com, gov, and edu (KU, 2002).  On the other hand, the World Wide Web (WWW) incorporates all of the Internet services above and much more (UC Berkeley Library, 2002). One can retrieve documents, view images, animation, and video, listen to sound files, speak and hear voice, and view programs that run on practically any software in the world, providing that the computer has the hardware and software to do these things (UC Berkeley Library, 2002).


Furthermore, the Internet is held together by bi- or multilateral commercial contracts (for example peering agreements) and by technical specifications or protocols that describe how to exchange data over the network. These protocols are formed by discussion within the Internet Engineering Task Force (IETF) and its working groups, which are open to public participation and review. These committees produce documents that are known as Request for Comments documents (RFCs). Some RFCs are raised to the status of Internet Standard by the Internet ArchitEBture Board (IAB). (www.encyclopedia.com)


Additionally, some of the most used protocols in the Internet protocol suite are IP, TCP, UDP, DNS, PPP, SLIP, ICMP, POP3, IMAP, SMTP, HTTP, HTTPS, SSH, Telnet, FTP, LDAP, and SSL. Some of the popular services on the Internet that make use of these protocols are e-mail, Usenet newsgroups, file sharing, the World Wide Web, Gopher, session access, WAIS, finger, IRC, MUDs, and MUSHs. Of these, e-mail and the World Wide Web are clearly the most used, and many other services are built upon them, such as mailing lists and web logs. The internet makes it possible to provide real-time services such as web radio and webcasts that can be accessed from anywhere in the world. (www.encyclopedia.com)


Basically, Donthu, N. & Garcia, A. (1999) stated that other popular services of the Internet were not created this way, but were originally based on proprietary systems. These include IRC, ICQ, AIM, CDDB, and Gnutella. Moreover, there have been many analyses of the Internet and its structure. For example, it has been determined that the Internet IP routing structure and hypertext links of the World Wide Web are examples of scale-free networks.


Understanding E-business

E-business is the generic term given to the process of conducting business electronically. In particular, it is the use of computers to facilitate communication between buyers and sellers; to reduce business overheads and to increase operational efficiency. Since the introduction of the World Wide Web, the term e-business has become synonymous with Web sites that provide their guests with facilities to order goods or services online. (www.encyclopedia.com)


In the early days, such facilities were provided via a simple e-mail link or online form that potential customers could use to place an order; but it soon became apparent that this particular method of conducting business was both costly and inefficient. As a result, staffs were forced to devote significant time to pricing orders; confirming them with customers and ensuring that the Web site's catalogue pages did not advertise lines that had sold out.


E-business History


From www.encyclopedia.com, the history of e-business history is directed on how Information Technology was integrated to business processes. Furthermore, some authors tried to track back the history of e-business to the invention of the telephone at the end of last century. Basically, EDI (Electronic Data Interchange) is widely viewed as the beginning of ECommerce if we consider ECommerce as the networking of business communities and digitalization of business information.


            On the other hand, the connotation of the term "electronic commerce" has changed over time. Originally, "electronic commerce" doomed the facilitation of commercial transactions by electronic means, frequently by technology similar to Electronic Data Interchange (EDI) to propel commercial documents like purchase orders or invoices electronically.


            Currently, electronic commerce includes activities more precisely termed as "Web commerce".  Web commerce refers to the buy of goods and services over the World Wide Web by means of secure servers (note HTTPS, a special server protocol which encrypts confidential ordering data for customer protection) with e-shopping carts and with electronic pay services, like credit card pay authorizations.



The Strengths of E-business Amazon.com


            Probably the general public is familiar with e-business (EB), but there tends to be an underestimation of its potential. The common idea about e-business is that it is only limited to buying stuffs at the internet. In fact, the term is considered to be synonymous with eBay or Amazon.com. Those were examples of e-business at work, but theres more to it than simple barter, buy, and sell on the web. E-business, as defined in e-business faq sheet, is the interchange of business related information through the use of Electronic Data Interchange (instead of paper documentation) and some other relevant technologies, which includes electronic mail, electronic fund transfer (EFT), electronic faxing, online database management, etc.

The following are the strengths of e-business Amazon.com (Reynolds:2002):

·        reduce business cycle time – Before marketing or selling the product, the first consideration is producing the goods. It can't be denied that personnel responsible for locating the right product and the right supplier that's best suited for the requirements of the company, takes a long time to accomplish this task. E-business supports easy procurement queries based on search criteria. When an e-catalog system is employed by the company, this would mean a probable volume of orders, but can it all be handled all at once? E-business supports easy handling of large number of orders through automated customer info/orders retrieval into online database. E-business supports a lot of EDI functions that transform the business processes into paperless operation, which speeds up business process without sacrificing accuracy, reliability and efficiency.

·        Enhance customer service – Through a B2C e-business, which deals with business to customer connection unlike B2B (to be discussed later), the company will be able to serve customers efficiently and simultaneously. There is a term called "disintermediation", which means that the selling skipped the usual channels, and the product or service was retailed directly to the customer instead of going through a middleman. By browsing a specially designed e-business site, a customer will find inquiring about products, ordering, and payment transactions are so much easier, faster, and more convenient since they could do it without even leaving their offices/homes.

·        Facilitate customization of products and services – as business to consumer relationship would be more enriched thanks to EB, the company, by using customer suggestions posted on the site or specifications indicated on the online order form, will have more idea and time to work out a product/service modification to fit the demands of the customer and the market. 

·        Improve empowerment of employees and support team working – a company applying EB can expect that the connectivity between business locations using the EB infrastructures enables the remote sites to be able to function and handle situations even in the absence of a management team. What's required is just a constant instruction-result report exchange. This can also be applied at department levels, such that a push of button connects departments, giving authorized user access to data or processes needed from the other departments. This promotes employee confidence and improves workers relationship with each other.

·        Improve Company finances – The company would see cost reduction because of the lower transaction cost (to be explained in details in the EB models below), lower communication cost since e-business feature seamless interchange of data more advanced than phone calls and lower operation overhead due to the reduced cycle time. The company would gain improved revenue due to a larger market and accelerated cash flow.


The Weaknesses of E-business Amazon.com


With the increase in usage of the Internet, certain concerns about security arise. Privacy violations, pornography, transaction security breaches, unsolicited e-mail (Kopowski, 1995) and other questionable or illegal activities being conducted on-line have become hotly debated issues. Some see regulation as the only answer to protection from unwelcome intrusion; but due to the universal nature of the Internet, regulation will be extremely difficult, if not impossible (Peeples, 2002).


According to a survey conducted by Udo (2001), security concerns are a major reason that users give for not shopping online. Many consumer organisations and government agencies provide tips on how to transact safely on the Internet by providing key information such as its return policy and privacy practices (Udo, 2001). In theory, consumers could choose not to patronize sites that fail to provide key information, but in practice, consumers do not search for this information, if at all, until after they have spent considerable time investigating a site's product offerings (Udo, 2001).


The purpose of Udo's (2001) study was to investigate the privacy and security concerns of online IT users in order to establish a consensus among them. The survey data used in this study came from 158 participants. As indicated by the study findings, the majority of the online IT users today have serious concerns about their privacy and security while shopping on the Internet. They are also concerned about the safety and confidentiality of their e-mails. IT users do not only lose confidence in the technology but they also have very little hope that the government is capable of significantly reducing their concerns in the near future.


The majority of the online IT users who participated in Udo's (2001) study believed that the advancements in such technology as encryption and other security features are not sufficient to reduce their privacy and security concerns. Based on the responses of those who took part in the study, an overwhelming majority of employees prefer the organization to have policies for e-mail and Internet use and to also notify the employees of the policies.


Consumer privacy issues are not new (Rubin, 1995). Consumers have worried for years about how personal data are used by the government and, more recently, by businesses (Rubin, 1995). The consumer privacy issue is taking on greater magnitude, as the number of people accessing the Internet's information resources grows exponentially and the public becomes more technologically savvy (Rubin, 1995). According to a 1999 report from the USA Federal Trade Commission (1999), information is gathered on the Internet both directly and indirectly. When a user enters a chat room discussion, leaves a message on a bulletin board, registers with a commercial site, enters a contest, or orders a product, he/she directly and knowingly sends information into cyberspace, The report further states that data can be gathered indirectly, without the user's knowledge (Udo, 2001).


Individuals are now using e-mail as a major means of transacting businesses (Reynolds, J., 2000)). Like other technological developments, e-mail has both advantages and disadvantages, along with controversy (Reynolds, J. 2000). Despite new developments in encryption and despite new legislation, e-mail privacy has proved to be of major concern to the users (Udo, 2001).


Although much of the publicity about Internet security has focused on the potential risks to consumers who use credit cards to make purchases electronically, payment fraud is also a major threat to Internet-based merchants (Murphy, 1998). Security threats not only consist of break-ins and technology disturbance, but also stalking, impersonation, and identity theft are serious issues that everyone should be concerned about (Janal, 1998). According to Udo (2001), computer hacking is another serious problem; it can be either a benign or a malicious activity. Moreover, fraudulent or non-creditworthy orders account for as much as one-sixth of all attempted purchases on the Internet (Udo, 2001).

The computer's ability to gather and sort vast amounts of data and the Internet' s ability to distribute it globally has magnified the concern of privacy and anonymity on the Web (Lynch, J. 2000). Once an individual has ventured into cyberspace, it is hard to remain anonymous (Udo, 2001). According to the Electronic Frontier Foundation (1999), maintaining privacy is partly the responsibility of the user. EFF (1999) also provides ways to protect the user's privacy online: do not reveal personal information inadvertently; turn on cookie notices in the Web browser; keep a ``clean'' e-mail address; do not reveal personal details to strangers or just-met ``friends''; realize one may be monitored at work, avoid sending highly personal e-mail to mailing lists, and keep sensitive files on the home computer; do not reply to spammers, for anything; be conscious of Web security; be conscious of home computer security; examine privacy policies and seals; remember that you decide what information about yourself to reveal, when, why, and to whom; and use encryption.


According to Peeples (2002), transaction security has kept many customers from purchasing products on the Internet. Much resistance has come from privacy issues such as giving credit card number and personal information. There are continual reminders of how unsafe these practices can be, even though secure software programs have been developed and continue to become more protective.

Reducing the cost of information gathering represents perhaps the most obvious and immediate benefit of the Internet (Larsson and Lundberg, 1988). However, we argue below that transactional integrity in online markets is undermined by difficulties in evaluating information gathered online--difficulties that are inherent to online markets, originating as they do in fundamental information asymmetries exacerbated by low entry and exit costs.


            Information problems impede the efficient execution of many transactions in the Economy because information is often asymmetrically distributed between buyer and seller. Information asymmetry is heightened further in e-business markets, encompassing not only the "usual" problem of private information regarding product attributes (Akerlof, 1970) but also potential uncertainty about the very identity of one's trading partner.  Fundamentally, all one needs to enter e-business is a website. This lowering of entry barriers is often touted as one of the great promises of e-business; ease of entry and exit reduces market power and can bring lower prices. But minimal barriers to entry are not an unequivocal plus. When firms can effectively change identity at a moment's notice, traditional forms of fraud become easier and entirely new dimensions of fraud appear.


            One novel type of Internet fraud involves "page-jacking"--misdirecting web surfers to false copies of legitimate businesses and tricking them into revealing passwords and personal identification numbers, or diverting them from seemingly benign sites to online pornography sites from which they cannot escape (Biersdorfer, 1999). In a twist on the old international pay-per-call scam, America Online subscribers recently received an e-mail apparently confirming an order for unspecified goods, and notifying them that their credit card would be billed for the amount due (over $300). Since no return e-mail was given, thousands of subscribers called the customer service phone number listed--which was actually a number in Dominica, West Indies, connected to an X-rated recording-and were charged $3 or more for the call (Washington Post, 1999),


            Even for legitimate businesses, Web technology makes it simple to change the name and appearance of the company, in order to shake off a bad reputation or escape the consequences of unethical behavior. Thus "entry" and "exit" take on quite different meanings than in traditional product markets; a disreputable company may exit the business and reenter with a different identity at very low cost, with no perceptible break in activity. This magnifies information asymmetries. Information is easier to gather, but its quality and reliability suffer.


            The global reach of e-business is also double-edged in its impact on consumers. While e-business can bring far-flung and highly competitive suppliers to the buyer's doorstep, this may be at the cost of uncertain recourse in the event of a dispute. Tracking down a delinquent trading partner and pursuing litigation in a different state or a foreign country may be prohibitively costly, particularly if the value of the transaction is relatively low. Digital River--a U.S.-based online wholesaler selling software and music worldwide-has resorted to using software that tracks the national origin of prospective customers, in order to evaluate the potential for fraud. CIO Randy Womack reported that the system thwarted more than $13 million in attempted fraud in 1999, by identifying and giving extra scrutiny to potential buyers from countries that are responsible for a high proportion of online scams (Dalton, 1999).


            In conclusion, the Internet Economy created the illusion that money came from wonderful qualities: imagination, hard work, creativity, etc. The Economy now gives a rather different impression: money comes from luck. People who were lucky enough to get in and out early got rich; everyone else got hammered. If getting rich is largely a matter of luck, it's no longer so easy to admire for its own sake.








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