Internet Shopping

Chen-Hsuan Kuan (Editor: Nancy Stubbs)

Shopping on the Internet is a relatively new shopping mode forming in 1993. Consumers can use home computers to strike online deals without ever visiting a showroom. Because of the many advantages such as convenience, high-efficiency, and low cost, Internet shopping has flourished. According to a study conducted by market researcher Jupiter Communications, consumers spent $2.3 billion shopping on the Internet in 1997, and it is estimated that by the year 2000, electronic commerce sales will reach $6.6 billion (Green et al.1998). It seems like another gold rush.

TECHNOLOGY: HOW TO MAKE AN ELECTRONIC STORE ONLINE?

It is not difficult to open an online store, at least it is much easier than opening a bricks-and-mortar shop, and much less expensive. There is a new class of software on the software market helping people set up electronic stores online. The software is called ‘online store-builders.’ The basic elements of an online store-builder are a database for dispensing catalog data, HTML authoring tools to help create the pages the customer will see, and a variety of tools to handle accounting, order processing, payment, and other back-office functions—with enough integration to make sure these work together effectively. Most of these products can be run under Windows or Windows and Unix. Their prices are between $1,000 and $10,000 (King 1997).

THE ELECTRONIC PAYMENT SYSTEM

Internet shopping is a two-way electronic system. Two-way means interactive systems that allow the user to request specific information and to conduct transactions from a computer terminal (Strauss 1983).

Because using a computer to do shopping is not a person-to-person business, how to pay is a big problem. There are many different types of electronic payment systems. The summary of them is shown in Table 1 (attached).

The most common method of paying, since Internet shopping emerged, is customers giving their credit card numbers to the merchants. However, many customers worry that their credit card information will be divulged over the net or misappropriated by the merchants. Therefore, software developers, banks, and credit card companies are pushing to deliver transaction systems that are trusted, affordable, and easy to use.

THE SET STANDARD

Since 1994, there have been many electronic payment systems or specifications such as First Virtual, CyberCash, IC Verify and Secure Socket Layer (SSL) developed and operated in the market. Nevertheless, there is still no uniform standard to protect the process of electronic commerce. In 1995, VISA and MasterCard cooperated to create a standard protocol for secure credit card transactions on the Web. Microsoft, Netscape, GTE, IBM and VeriSign also joined this project to set a standard (Zgodzinski 1997). The specification they fostered is called Secure Electronic Transaction (SET), which published its first version in February 1996, and was planned to begin rolling out its system on the market in February 1998. However, in February 1998, VISA and MasterCard announced that roll-out of SET will be delayed until late 1998, because it has been very complicated to get an agreement on the specification and to get deployment and interoperability (Roberts 1998).

In a SET transaction, the buyer has the equipment of an electronic wallet. In the electronic wallet, the buyer may have many different electronic credit cards issued by different banks. When the buyer wants to purchase something on the Internet, he can choose any of his credit cards to pay. (Actually it means that he chooses a credit card number to pay, but on the computer screen, he can see his different virtual credit cards.)

Buyers also have digital IDs for each SET-enabled credit card—provided by the bank that issued the card. When a purchase is made, the transaction details, the buyer’s card information and digital ID, and the merchant’s digital ID are encrypted and sent to the merchant’s bank. A verification check is made from the merchant’s bank to the issuing bank. Confirmations are sent back to all parties down the line and the goods are then shipped (Zgodzinski 1997).

Transactions via SET are encrypted all the way from the customer to the bank, so merchants do not see the customer’s identity, nor do the malefactors who might lurk on the Net who pry on credit card information.

APPLICATION: WHAT IS BEING PURCHSED ON THE INTERNET

‘Internet shopping’ can be defined in many diverse ways. In this essay, as online shopping products are defined as products or services on the Internet which consumers will pay for. According to this broad definition, the products that consumers can purchase on the Internet can be divided as following categories:

Physical products: such as computer hardware and software, books, CDs, sporting goods, etc. They dominate the online shopping market.

Information products: including online news stories, online magazines, software that you can download from the Internet, etc.

Transaction: including many kinds of services such as booking tickets, renting cars and reserving hotels, etc.

Entertainment and communication: such as online movies, online games, chat, etc.

The latter three items do not have as much market share as the physical products do, but they are growing.

HOW TO FIND THE PRODUCT ON THE INTERNET?

Traditionally, consumers can search the products according to the brands or types of items through the net search engine. Some web sites such as Yahoo! and Excite even provide the shopping tools that allow users to ask multiple retailers simultaneously about pricing and other data (Andrews 1997). The consumer can decide from which retailer he will buy according to the offering price, availability, shipping information, etc. In other words, each merchant can compete on a different criterion. Electronic merchants have also improved so-called cybershopping carts that let the consumers put the products they want in a virtual basket. Therefore, shoppers can continue browsing the site rather than having to pay for each product before selecting the next one on that site (Green et al. 1998).

BUSINESS: THREE MAJOR ROLES OF INTERNET SHOPPING—CONSUMERS, MERCHANTS & THE THIRD PARTY

Consumers: The number of Internet shoppers is growing rapidly. If the problem of the security of transactions can be overcome, there will be more people willing to try online shopping.

Merchants: There are two kinds of electronic merchants. One is specialty stores, such as Amazon.com, the most popular bookstore on the Net. The other is called the ‘mall,’ where several stores are administered together. Each category has its own feature and different managing strategies.

The third party: Both the credit card company and the banker belong to the third party. Because shopping on the Internet needs to use credit cards, the third party plays an important role. Most banks and credit card companies will promote online shopping heavily until SET is fully launched, which may be in late 1998 (Moran 1997).

COSTS AND REVENUES

Generally speaking, the cost to run an electronic store is much less than to run a bricks-and-mortar store because the overhead is very low and there is no need to rent a storefront. As for the revenue, there are three major resources: sales of products, subscription fees, and advertising.

Sales of products: According to Jupiter Communications, Net merchants in 1997 sold $2.3 billion worth of goods (Rebello 1996). Total cybersales could swell to $6.6 billion by 2000. The revenue seems very satisfactory so many merchants want to enter this market.

Subscription fees: Purchasing online information products is a kind of Internet Shopping. However, at the heart of the Internet culture has been the belief that ‘information wants to be free.’ That is why few content providers have tried to collect fees. Still, a few pioneers have shown that if they have the right and useful information, the customers will pay. For instance, on September 21, 1997, the Wall Street Journal began charging for an electronic version of the daily paper posted on the World Wide Web. If the concept ‘customers will pay for good content’ is true, by 2000, the total sales of subscription services on the Web is expected to be $966 million (Rebello 1996).

Advertising: On the shopping Web site, advertisers have a much greater capacity to aim their messages at people they know are buying. Moreover, when a consumer clicks on the ad and is sent to the Web site of the ad product, advertising is going to become transactions. For this advantage, advertisers are willing to invest much more money putting ads on the shopping Web site. Spending on Web ads hit $312 million in 1997, and is predicted to grow to $5 billion by 2000 (Rebello 1996).

POLICY: TAX THE WEB?

A very important advantage that the shoppers enjoy today is that Internet shoppers pay no sales tax. The issue ‘should the government tax the Web?’ grows. The Clinton administration recommended that the federal government enacts no national e-commerce tax scheme, because they think electronic commerce is to be encouraged. However, the Clinton’ administration’s guidelines do not address state government taxes. Many state departments of revenue simply expanded their existing definition of sales and use taxes to cover Internet access or content. The situation arouses some legislators’ oppositions, and they are trying to stop state-based taxation of Internet commerce. The reason is that the tax burden in each state is uneven. The other problem is how goods and services purchased across state borders over the Net can be taxed.

On February 1998, President Clinton announced his latest Net policy aimed at promoting tax-free commerce on the Internet. Clinton supported a bill introduced in Congress that would bar state and local governments from enacting taxes on the Internet until 2004. Clinton will conduct a long-term discussion to develop a uniform approach to tax commerce on the global computer network (http://www.news.com/News/Item/0,4,19506,00.html/dtn.head, 1998).

DRIVING FORCES: THE ADVANTAGES AND DISADVANTAGES OF INTERNET SHOPPING

The most important advantage of Internet shopping is convenience. People usually do online shopping from their homes or offices to save the time and the hassle of going to the mall. Online stores are open for 24 hours, so consumers can go shopping whenever they want. This is a very good point for the very busy modern people. That is also why E-commerce is growing so rapidly.

In addition, the miracle of databases is a very significant reason for Internet shopping to flourish. Through the databases, consumers can find hard-to-find information, hard-to-find CDs and out-of-print books and consumers can search for what they want without visiting the stores near their houses.

Despite of the advantages of Internet shopping, some industries with traditional managing ways view the Internet as a threat to their survival. For example, buying a car over the Net is a new business. Many of these sites are designed to give consumers one-stop shopping—where consumers can check prices, buy insurance, and arrange financing. This is welcomed by consumers who don’t like to spend time driving from dealership to dealership. However, only 10 per cent of dealers view the Internet as a positive development; almost half view the Internet as a threat to their survival (http:// www.latimes.com/HOME/NEWS/BUSINESS/t000016509.html, 1998).

The disadvantage of online shopping is that the computer image of the products can hardly compare with miles of racked and shelved clothes that can be touched for quality and tried on for comfort. Furthermore, Internet shopping cannot provide the social interaction and the sense of community. This is not completely unpleasant, but many people still need and enjoy the social experience.

SOCIETAL CHANGES AND DRIVERS

Societal drivers are moving corporate organizations to a more consumer-oriented enterprise model. The traditional business model of mass marketing, mass production, and undifferentiated products and services provided by large corporations supported by a homogeneous infrastructure have evolved. Recently, distinct heterogeneous groups with different needs and consumer preference have come into existence and can be identified (Technology Forecast: 1997).

OPPORTUNITIES, PROBLEMS AND PRSPECTS

Women’s activity, as Web consumers, trails men’s. Women do not do a lot of shopping in cyberspace because of lack of money and lack of time (Murphy 1995). If the electronic merchants take note of this market, it could become a very profitable market.

Consumers are still concerned about the security of the payment process. If the problem can be solved, there would be more customers doing serious shopping on the Internet, therefore, the appearance of SET is the key point. This universal standard is likely to facilitate competition among many technology vendors to provide online merchants and their banks with secure working commerce systems. When this happens, prices will drop and quality will improve.

REFERENCES

Andrews, W. (1997) ‘Yahoo, Excite help users do comparison shopping’, Web Week, December.

Green, H., DeGeorge, G. and Barrett, A. (1998) ‘The virtual mall gets real’, Business Week, 26 January.

King, N. (1997) ‘Open for business’, Internet World, October.

Moran, S. (1997) ‘A new service electric payment option for those being hosted’, Web Week, February.

Murphy, K. (1995) ‘Why online shops need women’s touch’, Web Week, December.

Rebello, K. (1996) ‘Making money on the Net’, Business Week, 23 September.

Roberts, B. (1998) ‘Slow roll-out of SET has some asking if standard is needed’, Internet World, February.

Strauss, L. (1983) Electronic marketing: emerging TV and computer channels for interactive home shopping, New York: White Plains.

Technology Forecast: 1997, Price Waterhouse World Firm Services BV, Inc.

Zgodzinski, D. (1997) ‘Click here to pay’, Internet World, September.

http://www.news.com/News/Item/0,4,19506,00.html/dtn.head 26 February 1998.

http://www.latimes.com/HOME/NEWS/BUSINESS/t000016509.html 19 February 1998.

Table 1: Different Types of Electronic Payment Systems

Payment Type

Description

Open Exchange

The most widely used payment method today. Credit card information is provided to a merchant via e-mail or Web page response without encryption or protection.

Secured linkage or presentation

Encryption transmission of information between buyers and sellers over the Internet providing authentication by means of common software.

Trusted third party

A trusted intermediary such as a bank provides credibility for both buyer and seller, manages Internet based transaction accounts, and provides for the transfer of funds between accounts.

Digital check

A network-based replacement for the paper check that uses existing inter-bank clearing system.

Digital cash

The uses of digital tokens that represent secure currency and allow direct buyer-to seller transfer of value.

Smart cards

Plastic cards the size and shape of a standard credit card with a tiny memory chip embedded in them. They can be inserted into smart-card readers located on laptop or desktop computers. Consumers can use smart cards to store electronic cash or pay for goods or services on the Internet.

Source: Technology Forecast: 1997

 

 

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