CS 312 Project



CS 312 Project

Group A

"What Keeps E-Commerce from Booming?"

Steve Betser

William Pagán

Diana Akerman

Kuan-yen Yeh

Contrary to popular opinion, e-commerce is not merely shopping online. It is not holistically defined by pointing an Internet browser at or and ordering something. Web shopping is actually only a small part of e-commerce. The term also encompasses stock and bond transactions, buying and downloading software and business-to-business connections that make purchasing easier for big corporations. Also included are so-called microtransactions that allow people to access online content or games for a nominal fee (7).

Although there has been much talk about e-commerce, its significance is strikingly overshadowed when compared with the rest of the national economy. A survey from IntelliQuest's Worldwide Internet/Online Tracking Service indicates that only 15 percent of Netizens use e-commerce. Another survey, conducted by the research firm Computer Intelligence, interviewed 40,000 United States businessmen and found that less than 2 percent of the country's 4.8 million computerized business locations are involved in some kind of e-commerce. What is noteworthy about this, however, is that this figure is double the one reported the year before. Actually, Forrester Research estimates that by the year 2000, more than $546 billion will be spent online (8). However, despite such benefits as efficiency, convenience, and simplicity, there is a dark side to e-commerce. The soaring cost of setting up and advertising an online store, security, reliability, trust, and customer frustration are some of the obstacles that keep e-commerce from booming.

A survey by Ziff-Davis’ Infobeads of a random sample of 1,014 adults in the United States found that thirty two million US adults, which constitutes about half of the US adult online population, used the Web to gather information to make their holiday purchases. More than eight million of these adults used the Web to purchase gifts. Among the most popular items were books, music items, travel services, and toys. So, what happened to the twenty four million Web users who used the Internet to research their shopping but couldn’t quite press the “buy” button? Obviously, there are some major barriers remaining that don’t allow e-commerce to take off at its full speed. Some of these barriers or disadvantages include privacy and security issues, reliability of web sites, and inability of some web sites to provide adequate services for consumers. A survey conducted by Ernst&Young found that thirty eight percent of consumers surfing the Web buy online. This number is significantly smaller than fifty seven percent of people that search for products on the Web, and buy either by phone, fax, or at a retail store (16).

Security and privacy are perhaps the biggest deterrents for individuals interested in making online purchases. Most people fear giving out their credit card numbers, phone numbers or addresses through the Internet. They are much more willing to give their credit card numbers over the phone, but seem to be afraid to do the same from their home computers; and it’s not surprising. There have been a lot of cases of hackers targeting specific e-commerce servers in hopes of getting credit card numbers. This, of course, makes many people uncertain. Can online shopping be trusted? Greenfield Online, Inc. conducted research on behalf of BBBOnLine, a subsidiary of the Council of Better Business Bureaus. Participation was voluntary and a total of five hundred respondents were selected randomly from those who participated in the survey. Eighty three percent cited security of payments as the main concern about online shopping. Surprisingly, fifty percent of respondents reported using their credit cards to pay for their purchases. And this number will grow if the industry will be able to successfully overcome the security problems and provide safeguards for individual privacy.

In fact, there have been many standards, which have arisen to ensure the safety and confidentiality of user transactions. One such major standard that has been implemented is a protocol called SSL (Secure Sockets Layer). This protocol creates a secure connection to a server using public key encryption, one of the strongest schemes around, to protect data sent through the Internet. Netscape was the original developer of SSL, but the protocol has been published for public use. Another standard, implemented to help protect online shoppers, is SET (Secure Electronic Transactions). SET is an encoding scheme that encrypts credit card numbers stored on merchants' servers. This standard was developed by Visa and MasterCard and is widely supported throughout the banking community (9).

Digital or electronic cash is another innovation designed to combat privacy issues. Also called e-cash, it refers to any way that allows a person to pay for goods or services by transmitting numbers that represent real cash from one computer to another. A bank issues these numbers similar to the way numbers are assigned on a dollar bill. Digital cash also resembles real money in that it is anonymous and reusable. This is a key difference between e-cash and credit card transactions over the Internet (10). DigiCash Inc., a leading developer of e-cash payment solutions, states that e-cash “offers a secure, low cost and private payment option to consumers for payments of any amount.” DigiCash owns intellectual property consisting of a series of patents, protocols, and software systems that were designed primarily to be a privacy protection for consumers. This is important because online privacy is of growing concern. The ability to pay for products online privately and anonymously while avoiding the capture of personal transaction information for marketing or other subsequent uses is a benefit that has peaked the interest of consumers globally. DigiCash has already established e-cash payment solutions in Europe and Australia where it is currently in use by leading banks.

Another major concern of consumers is the reliability of companies that sell products on the Net. Eighty four percent of those surveyed by Greenfield Online, Inc. felt that recognition of online companies by a reputable third party (such as the Better Business Bureau) would make online shoppers more confident about their online purchases. Half of the respondents agreed that there are many disreputable companies offering products for sale on the Web. Seventy eight percent reported that they would shop more online if they could be assured that a company is reputable. In other words, a customer should be able to trust that an online merchant will provide satisfactory service. This is especially important when making international purchases. In such cases, customers cannot depend on physical proximity to resolve any disputes with the merchant.

“Convenience, convenience, and convenience!” cry out many advocates of e-commerce. But what if you point your browser to an e-commerce site and can’t navigate through it, not to mention make a purchase. Inability of some web sites to provide adequate services is yet another concern of online customers. A study conducted by Shelley Taylor&Associates analyzed fifty e-commerce sites. The sites varied in products and services that they offered and were analyzed based on 175 criteria. The study found that many sites lacked in navigation and ease of use. This is in spite of the fact that requirements such as “browser plug-ins, screen resolution, high-bandwidth pages, and RAM-intensive applications” (18) discourage many users, especially first-time users, from shopping online. Twenty five percent of the online stores surveyed lacked global navigation, which allows users to move between major sections of a site. Offline stores “use ‘you are here’ maps, kiosks, and signs to guide shoppers through their shops, and online stores should do the same” (18). Almost one-quarter of the online stores studied offered no pre-sale assistance, and thirty two percent failed to provide purchase instructions. Only two-thirds of the sites studied offered some product specifications, and only twelve percent provided third-party reviews. Only one site in the study offered a “features/benefits comparison” (18), and only thirty percent of sites in the study offered information about product availability prior to submitting the order.

Online stores have to keep in mind that “even though technology has changed, the way we humans process purchasing decisions has remained the same” (18). Some online stores fail to translate the lessons learned from centuries of “land base retailing and merchandising” into a successful online shopping experience (18). For example, Heather Chaplin shares her first online shopping experience: “If I found something I liked, it wasn’t in stock, and it took too long to figure out how to buy it. If I figured out how to buy it, the shipping charges made me reconsider” (19). Nicole Vanderbilt, a senior analyst at Jupiter Communications, a new media research firm, says that such a reaction is typical of new online shoppers who haven’t “become accustomed to the [medium’s] failures yet” (19). A study released in January of 1999 by Jupiter found that seventy four percent of online shoppers were satisfied with the experience. Sounds good, except for the fact that the number is fourteen percent lower than it was half a year ago. Vanderbilt points out that “the problem, ironically, stems from the very success of the medium” (19). As Internet shopping becomes an accepted part of the lives of consumers, they are less forgiving of technological glitches, and more expectant of a familiar shopping experience. Nicole Vanderbilt also strongly believes that “if retailers don’t alleviate technology issues and improve customer service, they risk losing the customers they spent so much to acquire” (19).

To make matters worse for online stores, online shoppers are becoming more sophisticated and savvier, according to the results of the Consumer Fulfillment Index (CFI). Data was collected from consumer surveys gathered from June 1997 to January 1999. The index compares customers’ expectations against the actual service they receive and evaluates responses in terms of five pre-sale and five post-sale attributes. The attributes include ease of ordering, Web site navigation and appearance, and on-time delivery. We are definitely seeing an e-commerce marketplace that is maturing. However, collected data indicates that “as more people continue to shop online, their expectations of online vendors rise” (20). The question now becomes: Can online vendors keep up with consumers expectations and provide them with efficient security, convenience, easy to use sites, and good selection of goods?

They can’t, unless they go easy on prices, claims Wayne Rash. As he points out, “there’s just no incentive to shop on the Internet” (4). Yes, it is convenient, but what are the rewards? When Rash tried to shop online for a jacket for his daughter, he got little motivation for making a purchase from some of the sites he visited. Rash says that he found the same prices as in the mail-order catalogs. Also, when he bought a book from , it turned out that it cost more than at his local bookstore. So why shop online, if you can just call the toll-free number? After all, you will have an opportunity to ask the operator some questions, to hear a real voice and not look at intangible online pictures.

So, what if online merchants just cut down the prices? In most cases, they can’t because of the way the products get distributed. Seeing e-commerce sites as potential rivals of old-fashioned retailers, manufacturers could charge more to online stores in order to protect their retailers. Despite that, Rash concludes that online stores should find ways to cut down the prices. “After all, most consumers feel that if they’re going to buy a product they haven’t seen and wait for delivery, they should at least get a price break” (4).

Many online shoppers are not satisfied with e-commerce, but is this the reason why not many businesses are involved in it? The high cost of setting up an online store might be the answer. AT&T tried to make starting your own online shopping Web site look as though it were cheap and easy in a recent TV commercial. In this commercial, two young women come up with an idea for flexible sunglasses. Having no problems designing and manufacturing this new product, they are having a hard time finding any retailers for distributing those “innovative rubber shades” (1). No problem says AT&T. With help from the company’s Web Site Services department, the women set up an online store and are able to sell their flexible sunglasses directly to customers.

This story may seem attractive to many people but it has some serious drawbacks conveniently overlooked by the commercial. “We never were shown the women of Rubbereyes [a fictional company] having to sign multimillion-dollar distribution deals with the likes of AOL, Yahoo, or Excite – the portals that dominate Internet traffic” (1). You see, nowadays, opening an online store without being advertised by a portal site is like opening a retail store in the middle of the desert. Of course, it will have lower prices but who is going to know about it?

Companies once thought that the Internet provided a quick and easy way to sell their products and increase their share of the market. Today, however, this has become but another e-commerce myth. For example, many companies were shocked in June of 1998 by a $25 million deal involving DLJDirect, E*Trade Securities, and Waterhouse Securities on one side and AOL on the other. The goal of those brokerage companies was getting “prime real estate in the finance area of AOL’s service” (1).

So, how much should a company expect to pay to its portal partner? It used to be that such popular portal sites as Yahoo and AOL would agree to make a “revenue-sharing” (1) deal. In other words, they would advertise an online merchant and ask for the money when it generates some revenue. Today, however, portals demand hard cash up front.

In order to give you some sense of what an online retailer is expected to pay to its portal partner, let’s consider an example. Our fictional company, Rubbereyes, is willing to pay $10 per customer. A popular portal site agrees to make a deal for $100,000, assuring Rubbereyes of attracting ten million Web surfers to its business section. Based on the typical industry numbers, only 1% of those customers will actually get to the Rubbereyes' web site, and only 2% of that 1% will make a purchase. Thus, the company will gain 2,000 customers paying, in fact, $50 a head. This is five times more than the originally expected number of $10 a head. So, what should an online merchant do in such a situation?

There are basically two choices. One is to pay as much as necessary to survive the competition. “The rationale is that the Internet will emerge only once, and players that pay up today will be the ones standing when the dust settles” (1). The second choice is to hold off on making any expensive deals and wait for your competitors to go bankrupt, spending too much on advertisement. Although both choices have their own risks, today’s trend seems to be to acquire as many customers as possible and worry about profits later.

Spending a lot of money on publicizing your site is only part of the problem. One also needs to consider the costs involved in setting up the hardware, buying the software, and maintaining the site. Some inexpensive solutions may cost several thousands, such as Yahoo Store or JumboMall. But for large companies, wanting to have a fully automated and customized system, the solutions from Trilogy, Ariba, and Commerce One may cost from tens of thousands to millions (2). As a matter of fact, W.A. Dean & Associates estimates that to set up a good, revenue-generating site may cost between $200,000 and $500,000, in addition to $40,000 a month to support the maintenance staff of 15-20 people.

High cost is not the only obstacle in the way of e-commerce. The need for better software may also hold back the booming of e-commerce. For a long time the companies have been waiting for so-called application server middleware. It provides a missing link between the front-end applications, usually written in Java, and the existing server software, such as a back-end database. As a result, in February of 1998, Microsoft teamed up with NetDynamics, a leading provider of application server middleware (3), for integrating NetDynamics’ software with Windows NT. Microsoft also agreed to work on optimizing NetDynamics 4.0 for running under Microsoft Java VM. To keep up with its primary rival, Netscape acquired Kiva Software. Kiva’s application server would allow one to link Netscape’s SuiteSpot software with external front-end Java applications. So, in order to access a back-end database, you would go from a Java client through Kiva’s middleware down to Netscape’s SuiteSpot server bundle (3).

Despite the disadvantages described above, e-commerce has brought both sellers and buyers many benefits, such as efficiency, convenience, and simplicity. Right now, almost anything can be bought online. Books can be purchased at or . At these sites, it is possible to search through over a million titles, book forums, editor's picks, live events, etc. Computers can be purchased at or at auction sites such as . Many sites allow the purchase of music online such as and . These sites allow users to preview albums via hundreds of thousands of audio clips. 1-800- enables people to send flowers anywhere and browse through more than 150 flower and gift products without leaving their desk (11).

With recent Internet technology, sellers are no longer confined to fixed size, limited operation time, and finite stock. In the electronic world, there is virtually no physical boundary. Anyone can set up a store as long as he or she has access to the product sources and the Internet. Of course, web publication technology is another requirement. With these three prerequisites met, one can start his or her own business in no time. Once the store is opened, it is open twenty-four hours a day, seven days a week. It closes only when it either goes out of business or the network server is down. Moreover, when the store is open, the owner does not have to be around all the time. He or she can leave almost everything to the server that is in charge of the shop. This allows the owner to have a very flexible time schedule.

It would be pointless to set up a store if there are no customers. In order to attract customers, there must be some benefits for purchasing merchandise online. Online stores do make an effort to provide customers with various benefits. As mentioned before, the electronic world allows its visitors to go around without any physical constraints. People no longer have to leave their houses to buy things they want. All that is required is a personal computer connected to the Internet. Roper Starch found out that 70 percent of those surveyed cited that traffic, crowds, and a lack of parking spaces are the main reasons for putting off holiday shopping (12). Also, since the online store is open 24 hours a day seven days a week, customers can shop at any time. This offers lots of flexibility to those who work almost all day long and just cannot find time for shopping. “Online merchants are increasingly offering features that bring value to customers – things that catalogues and brick-and-mortar retailers don't have the ability to do,” (13) said Ken Cassar, digital commerce analyst for Jupiter Communications. Services such as gift matching, one-on-one interactions, and one-stop checkouts are all designed to attract more customers to shop online (13).

There are both benefits and disadvantages to e-commerce that keep it from booming. On the seller’s side, it is way too expensive to set up a high-quality, revenue-generating e-commerce site. In addition, it is even more expensive to advertise it on one of the portals. The need for middleware, the so-called missing link in server software, is yet another obstacle in the way of setting up an online store. On the customer’s side, such issues as security, frustration, and unsatisfactory prices may keep many web surfers from buying online. However, despite these obstacles, Forrester Research Inc. reports that e-commerce will be a trillion dollar industry by 2003 (5). To keep up these high revenues, online merchants must be sure to reach new customers, ensure customer loyalty, and consistently demonstrate new and innovative thinking (6).

Works Cited

1. Gurley, W. “The Soaring Cost of E-Commerce,” Fortune, 3 August 1998, .

2. Tweney, D. “When taking measure of e-commerce, don’t forget about the costs,” InfoWorld, 30 November 1998,

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3. Hickman, Angela. “E-Commerce: The Missing Link,” PC Magazine Online, 13 February 1998, .

4. Rash, W. “There’s Just No Incentive To Shop On the Internet,” Internet Week, 16 November 1998, .

5. Frook, John E. and Richard Karpinski. “Electronic Commerce: Poised For Critical Mass,” Internet Week, 11 January 1999,

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6. “The Secrets to E-Commerce Success Survey Reveals Top Strategies,” CyberAtlas, 2 February 1999,

7. “What is e-commerce?” , .

8. “How big is e-commerce?” , .

9. “Are there any technology standards for e-commerce?” , .

10. “What buzzwords do I need to know?” , .

11. “What can I buy online right now?” , .

12. “Convenience Draws Online Shoppers: Amazon, eBay Among Most Popular Sites,” CyberAtlas, 23 December 1998, .

13. Tedeschi, B. “Holiday Shopping Season Puts E-Commerce to the Test,” The New York Times, 24 November 1998, .

14. “Online Trends: holiday shoppers click to retail stores,” Netsavvy Communications, 15 December 15 1998, .

15. Colkin, E. and Clinton Wilder “E-Commerce Market Could Hit $3.2 Trillion By 2003,” CMPnet, 6 November 1998, .

16. “Research Proves Holiday Shopping Boomed,” CyberAtlas, 14 January 1999, .

17. “Consumers Concerned with Reliability: Payment Security Also an Issue,” CyberAtlas, 27 January 1999, .

18. “Online Stores Lacking: E-Tailers Should Follow Lead of Offline Shops,” CyberAtlas, 25 February 1999, .

19. Chaplin, H. “E-commerce: Don’t Believe the Hype,” Salon, 22 January 1999, .

20. “Online Consumers Getting More Savvy: Merchants Must Work to Satisfy Shoppers,” 24 February 1999, CyberAtlas, .

Conclusion Based on Survey Results

Although this paper describes e-commerce from two different points of view (consumer’s and seller’s), our survey was primarily aimed at people who shop online. By surveying online shoppers, we tried to prove or disprove our hypothesis on the factors that keep e-commerce from booming. After all, consumers are the final recipients of the e-commerce technology, and their reaction toward it will dictate its further development.

In our attempt to research consumers’ feelings and reactions toward online shopping, we put our survey online at our group’s web site. In order to let people know about it, we provided links to the survey at several e-commerce communities and discussion groups. As a result, we received a fair amount of responses that helped us to shed some light on people’s reaction toward online shopping.

The survey results indicated that popularity of e-commerce is very wide – 84% of our respondents shopped online! Moreover, now people go online not only to research products, but to purchase them as well. Also, most respondents do think that online stores can really compete with department stores by offering lower prices and making global navigation easier. However, security remains a major concern of most customers and therefore, a major obstacle for e-commerce. Also, even with the increasing popularity of e-commerce, a good portion of respondents would still prefer traditional ways of shopping.

As to the ease of navigation, the majority of our respondents (80%) don't have any problems browsing online stores. This contradicts the results of the study by Shelley&Associates, which was mentioned above (p. 4). The study, as you might recall, found that the majority of web sites surveyed lacked in navigation and ease of use. This, however, seems to be changing since most respondents find online stores easy to navigate. This was indicated by the Consumer Fulfillment Index (CFI) mentioned earlier (p. 6). That is, it was determined that most online stores do make an effort to improve their web sites’ global navigation. As a result more and more people are able to find what they need in a short period of time, i.e. by going through fewer links.

When it comes to the reputability of online stores, the picture gets a bit gloomier. Although in the study by Greenfield Online, Inc. (p. 4) 50% of the respondents agreed that there were many disreputable companies, our results indicate that as many as 72% of the people surveyed find most online stores reputable. Interestingly enough, this might have been one of the factors that encouraged more and more people to shop online. Indeed, as Greenfield’s survey indicates, as many as 70% of the respondents said that they would shop more online provided an e-commerce site is reputable.

Another interesting result that we were able to get out of our survey has to do with prices offered online. An overwhelming 88% of the respondents think that online stores offer better prices than department stores do. This is not surprising since most e-commerce sites try to acquire as many customers as possible at this relatively early stage of online shopping.

However, when it comes to easiness of shopping online as compared to shopping at a department store, the results are not so encouraging. Only 56% of the respondents find shopping online easier. In fact, one of the unsatisfied online shoppers pointed out to us how much trouble it was for him to return a product purchased online.

As we expected, most customers, 88% of them, are still concerned about the security of online stores. Hackers targeting specific e-commerce servers, information poorly encrypted or not encrypted at all, U.S. government limits on the complexity of encryption algorithms are all the factors that force online shoppers to think twice before typing in their credit card number and submitting the order.

As many as 76% of the respondents were able to easily find products online. This, of course, is directly related to the ease of global navigation that online merchants strive to provide. As was indicated earlier, 80% of the people surveyed found online stores easy to navigate. Thus, we see a correlation between the results we obtained for two different questions. This is very important since it makes us more confident about our survey results.

Although many respondents felt that online stores offered competitive prices, only 60% of them were able to clearly determine what they will be charged before actually making a purchase. Unfortunately, online stores as well as regular stores try very hard to convince potential buyers that they offer the lowest prices around. Sometimes, customers are presented with a reasonably low price for a product, but are not shown the shipping and handling charges until the end of the transaction. In other words, a customer does not know the shipping charges until he/she provides a credit card number. This fools many people who just want to compare prices without actually buying something. Another typical scenario is providing a link that details all the hidden charges to customers. However, such links are usually buried at the bottom of the page with the hope that many won’t bother looking for them. This, however, only works for newcomers to the site. Experienced users already know all the tricks for finding the best price.

Although our survey provided us with some interesting insights into the world of e-commerce, there are lots of opportunities to extend it. An obvious one is to survey the companies who sell products online and hear what they have to say.

Survey on On-Line Shopping

General Information

1. What is your age? 12-17 18-23 24-29 30-37 38-45 46-55 56-more

2. What is your gender? Male Female

3. What is your occupation? Employee Student Self-employed Unemployed

4. What are your interests?

5. Have you ever shopped or attempted to shop on-line? Yes No

Specific Information

|Are you concerned about the security of on-line stores? |Yes No |

|Were you able to find products easily? |Yes No |

|Were you able to clearly identify the prices (including shipping and handling)? |Yes No |

|Were on-line stores easy to navigate? |Yes No |

|Do you think the prices you found on-line were competitive? |Yes No |

|Do you think that most on-line stores you have visited are reputable? |Yes No |

|Do you find shopping on-line easier than in the department stores? |Yes No |

6. Additional comments about your on-line shopping experience:

Thank you for filling out our survey!

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