Commerce, Electronic

• Author: Jeffrey Lehman, Shirelle Phelps

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Any sales transaction that takes place via computer or over the INTERNET.

In 1990, nobody would have predicted that by the end of the twentieth century people could conduct nearly all of their commercial transactions electronically. Today, a person with a simple Internet connection can purchase anything from clothing to books to jewelry to stereo equipment online. It is possible to purchase insurance, pay one's telephone bill, and buy groceries over the Internet. Banking transactions such as transfers from one account to another can be accomplished online quickly and efficiently. Although most commerce is still conducted in person, more than one-third of adults in the U.S. made at least one purchase online in 2002.

Electronic commerce (or e-commerce) has its origins in the 1960s, with the introduction of a computerized check-processing system called

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the Electronic Recording Machine?Accounting (ERMA). Banks used ERMA to process billions of checks each year, making it possible for nine employees to do the work of 50. During the 1970s, companies began using Electronic Data Interchange (EDI) to process purchase orders, invoices, and shipping notifications. Although EDI could save time and money, it was an expensive and somewhat cumbersome system, and small to mid-size businesses could not afford it.

The introduction of the Internet in the mid 1990s opened electronic processing up to companies of all sizes; anyone with a computer could connect to a global system that reached into countless businesses and homes.

The first major "virtual" company to appear on the Internet was Amazon.com, founded by Jeff Bezos in Seattle. Amazon.com began doing business in July 1995. Its premise was simple: People could purchase books online through Amazon.com for less money than the same books would cost at a local bookstore. Because Amazon.com had no actual retail stores (the books were stored in a warehouse), it could afford to keep prices lower than the competition. If Amazon.com had a buyer's order in stock in its warehouse, it could be delivered within two to three days. In some bookstores, a special order for an out-of-stock book could take weeks. (Today, Amazon.com sells a wide variety of products in addition to books.)

Not long afterward, in September 1995, Pierre Omidyar and Jeff Skoll founded eBay, an online auction service. Essentially, eBay allows sellers and potential buyers to deal online; as with a live auction, various buyers bid for an item, and the seller accepts the highest bid.

In the ensuing years, Amazon.com, eBay, and similar virtual companies...