Electronic Commerce

AuthorElias Carayannis, Jeffrey Alexander, Hal Kirkwood

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Electronic commerce consists of the buying and selling of products and services via the Internet. It includes business-to-business, business-to-consumer, and consumer-to-consumer transactions. These transactions can include online retail sales, supplier purchases, online bill paying, and Web-based auctions. Electronic commerce utilizes a variety of technologies including electronic data interchange, electronic fund transfers, credit cards, and e-mail.

The term e-commerce is often used interchangeably with e-business. The common element is the effective implementation of business activities using Internet technologies. However, e-business is the broader, more encompassing strategy and related activities. In addition to retail sales it includes vendor-partner communication, electronic procurement, customer relationship management, data-mining, and numerous other business functions.


The development of the World Wide Web during the early 1990s dramatically changed the use of the Internet. The expansion of the Web, and along with it the Web browser, opened the Internet to anyone with basic computer experience and an online connection. As online activity increased, companies quickly saw the Internet's marketing potential. Subsequently, there was a rush to take products and services into this expanding electronic realm, and to redefine business itself.

According to studies demonstrating the growth of the Internet and electronic commerce:

Fewer than 40 million people around the world were connected to the Internet during 1996. By the end of 2002, more than 605 million were connected.

Approximately 627,000 Internet domain names had been registered as of December 1996. By the end of 2004 the number of domain names had reached 48 million.

Internet traffic doubled approximately every 100 days for three consecutive years in the late 1990s. It is expected to grow between 100 and 150 percent annually through 2007.

To meet this demand, representatives from numerous industries—including consumer electronics companies, media corporations, telecommunications companies, hardware suppliers, software firms, satellite system designers, mobile phone networks, Internet service providers, television broadcasters and cable companies, and electric utilities—made aggressive Internet-related investments.

The downside of this impressive expansion was the Internet stock market bubble of 1999–2000, which had a significantly negative impact on the development of e-commerce on the Internet. Hundreds of companies with an idea and a business plan were able to gain access to a tremendous amount of venture capital and initial public offer funding. This resulted in many poor ideas being sold as profitable businesses, including pet food and grocery delivery services, as well as numerous application service providers just to name a few. The expansion, hype, and subsequent crash cooled many on the power and value in e-commerce. Coupled with the

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recession that followed the September 11, 2001 terrorist attacks, it was not until nearly 2005 that the e-commerce market began to exhibit a more realistic, normal, and steady rate of growth.


According to Forrester Research, the U.S. e-commerce market for retail sales was more than $95 billion in 2003, with five-year projections exceeding $200 billion. In Europe the retail segment totaled $53 billion in 2004. This amount was projected to reach $177 billion. The European and Asian markets show significant growth potential. North America does as well, but at a slower rate. China is viewed as an especially lucrative market for Western companies to penetrate with goods and services, in spite of the potential hurdles and hazards.

Based on U.S. Department of Commerce data, in May 2003 the market research firm eMarketer revealed that business-to-business e-commerce revenues were at approximately $720 billion in 2003, and were projected to hit $1.3 trillion by 2005. Computers and peripherals, aerospace and defense, and health-care and pharmaceuticals were projected to be the largest industry segments.

Standard definitions of e-commerce must still be established. Current market research estimates of aggregate online retail trade generally purport to include only those transactions ordered and paid for online. However, they must rely on data supplied by individual companies that may not define it in the same way. Individual companies sometimes include as online sales transactions those that were conducted substantially online, but which also include a critical non-Internet component.

The Internet plays an...

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