E-commerce is an integral component of electronic business (e-business), which is a broader process of change within and between enterprises. While recognizing that e-commerce involves the key functions that enable sales to be made and revenue generated, it is, ultimately, the total transformation to e-business that will unlock the promise of the Internet.

Common standards of access will be found throughout all the links of the commercial chain—between manufacturer and supplier, wholesaler and retailer, and buyers and sellers everywhere. As millions of individual employees are empowered by it, the Internet will emerge as an alternative to, and in some cases a replacement for, many of the tried and true mechanisms of commercial society.

In the Internet protocols (TCP IP and its derivatives) and in the World Wide Web, we have a standard for global data communication and the tools for electronic commerce on the Internet (ECI), and it encompasses a variety of technology uses in both public and private scenarios. While consumer access to the World Wide Web is the catalyst that has spurred this growth, we believe that the real impact of the Internet over the next decade will be the impact on businesses as they restructure themselves to survive and prosper in an electronic world.

The Evolution of Electronic Commerce

In the few short years since the arrival of the World Wide Web, there have been three overlapping phases of business use of the Internet related to electronic commerce. The first phase was a frenzy of Web site development, much of which was done without much concern for strategic value or return on investment. It was driven by advertising and marketing departments and focused on the consumer. Some companies, especially those in Internet-related businesses such as equipment manufacturers, vendors, software developers, and distributors, successfully promoted and sold products to business customers.

The second phase extended the use of the Internet for an organization’s internal purposes, referred to as Intranets. Information Technology managers are learning to use the Internet technology to break down internal barriers, allowing the free exchange of information among the companies’ data bases as well as extend the reach of its legacy systems, such as Electronic Data Interchange (EDT), to reach broader audiences of users. EDI had been introduced in the early 1980s with the goal of automating manual systems such as inventory and order entry, to increase the speed of the transaction, improve efficiency, and reduce the potency of human error.

But EDI did not result in critical mass among its audience. Despite two decades of operations, the majority of EDI proponents are large corporations and governments that use it to conduct business with large, known, and contracted trading partners. Approximately 100,000 company’s worldwide use EDI; a number that represents only 5 percent of all businesses that could benefit from the technology.’ This is due in large part to the high cost and complexity of installing and managing the operational facilities required at each EDI user’s site. With only 5 percent of companies equipped to operate EDT, it is not surprising that by late 1996, the major thrust of business-to-business electronic commerce had shifted toward finding ways to use the Internet to leverage the investment in EDI by increasing the number of trading partners that could access large EDT operators (“hubs”). Established EDT software vendors such as Harbinger, Premenos, and Sterling began to develop interfaces that would allow vendors, suppliers, and customers access to the EDT system via the Internet. At the same time, EDI network providers such as AT&T and GETS started to evaluate and engage the competitive threat posed by a shift of traffic to the Internet.

The primary focus of the third phase of evolution will be the development of ECI: secure, stable, and tested solutions for end-toned electronic commerce over the Internet. As ECI gets underway, we see Intranets and the early Internet/EDI solutions joining to form Extranets, which extend the private network beyond the boundaries of the corporation to known and trusted business partners. Successful business models are emerging based on efficient use of resources to reach business partners, faster sales-turnaround times, improved fulfillment cycles, and lowered costs. At the same time, governments and regulators are engaged in attempts to define and legislate for this changing environment. While Europe struggles to unify codes across a changing map of national boundaries, the U.S. government has proposed solutions such as a moratorium on taxes, to ensure that the Internet is not strangled by the individual attempts of fifty states to protect sources of income against changing methods of trading. The lack of a predictable legal environment is an inhibitor to ECI. The U.S. government is working with the United Nations Commission on International Trade Law (UNCI¬TRAL) to develop a model law that will underpin commercial contracts for electronic commerce internationally.

The stage is then being set for a fourth phase, beginning in the not-too-distant future, in which many layers of differentiated public and private “Nets” will be chained together and woven into an “electronic blanket” covering the globe. These Nets will incorporate new levels of security and positive personal identification that will allow them to be accessed, under controlled circumstances, by anyone with a browser. This will facilitate the emergence of the level playing field upon which all users known and unknown, contracted and ad hoc, business and consumer, will have access, in five or more years from now, to a singular and ubiquitous repository of commercial interaction at appropriate levels of privilege.

The fourth phase will mark the ability of enterprises and consumers to participate in true Web-enabled commerce. This will emerge from:

• the convergence of secure technologies and access discriminators;
• major investment in Intranets, Extranets, and linkages to legacy systems;
• widespread availability of high-speed, high-bandwidth delivery systems on a global scale; and
• a stable political and regulatory cyber-environment.

Increased technical and regulatory stability combined with the lessons of five or more years of Internet use will break through the remaining barriers of consumer trust and confidence and provide the basis for electronic commerce to move to the mainstream.

Redesigning the Internet

Behind all this predicted growth and societal change is an infrastructure that was not designed for the task. The whole environment is in the process of being redesigned for commercial traffic, and the Internet community must deal with many issues—technical, societal, regulatory, and political—before it will be fully developed and capable of delivering the levels of privacy, security, and reliability necessary to evolve to the fourth phase. We are dealing in an imperfect and rapidly changing world that is still finding self-definition and establishing its modus operandi. The initial focus of the Commerce Department, of industry consortiums like the banking community’s Banking Industry Technology Secretariat (BITS), and of many major corporations is the elimination of issues that keep consorters from using the Internet for commerce; issues such as privacy of information and secure payment mechanisms. At a different level, these same issues are defining the evolution of Intranets and Extranets.

Although individual companies may be scrupulous in the way they handle confidential information, access to corporate applications will not be opened up, nor will transactions take place, unless all parties are confident that the information they provide is not available to unauthorized users and that the transaction will be completed correctly. One of the strengths of EDT is the ability to track the path of a message and to ensure its secure passage from end to end. This path is not clear for ECI. Concerns among businesses and consumers regarding security on the Internet still linger.

While these fears may be exaggerated by media hype and industry self-interest, there are legitimate concerns that face anyone transferring payment information or funds, whether it be between a consumer and a merchant or between a business customer and a supplier. Enormous efforts are being made to allay fears on all fronts. Firewalls are being deployed and secured servers, employing a variety of encryption techniques, arc being used to create defenses around the networks to protect data from attack. New and more sophisticated server software offer additional levels of user identification and authentication of access. To be realized, the fourth phase depends on robust solutions to these concerns. And the practical considerations must be matched by sincere and demonstrable efforts to address the perceived insecurity of the environment. At this stage, user qualms are as real a barrier as the threat of physical attack.

One company that is pushing ahead in spite of these concerns and demonstrating how the Web can enhance relationships between trading partners is IBM. As a supplier of computer hard drives to customers such as Compaq, Dell, and Gateway computers, IBM is following the creed “Feed the Web.” A business decision was made to put low-level manufacturing systems on the Web. The decision was made because the Web was simplest to implement and easiest to use. The unanticipated outcome is that most of the customers that purchase the hard drives can access relevant data that enable them to understand IBM’s internal processes, such as how production operates, what quality-control standards are applied, and how products were tested. This increases confidence in IBM as a supplier, gives it a competitive edge, and increases sales. The information that. was the subject of this particular Web-centric decision has gone from being a manufacturing necessity to becoming a sales asset positively impacting revenue and profits without incur-ring security issues.

Creating Secure Payment System

In addition to corporate security concerns, significant efforts are also under way to create a secure payment system for Internet commerce. These have resulted in a wide range of proposed solutions, concluding :

1. MasterCard and VISA’s much heralded but elusive Secure Electronic Transaction (SET) protocol, which promises to secure credit-card transactions and address allowance of purchases.
2. Hardware-based debit-card and smart-card systems from companies such as VeriFone, ISED Corporation, and Innovonics.
3. Cyber-wallets, smart cards, and digital cash and tokens from Cyber Cash, Digicash, Mondex, and Verisign.
4. The use of the telephone bill or other utility bills to collect payments. (e.g., echarge’)

None of these payment systems has yet to be accepted as the standard, or even “the answer.” Some are more appropriate for the consumer than for business use. In the world of Extranets, the users are known and often under contract, and/or have an account with each other, so the need to use a real-time payment system such as a credit card is less urgent. The increasing use of procurement cards, and the urge to complete the total purchasing-and-payment cycle electronically, will mean that this is a continued area of concern well into the fourth phase.

Organizations such as Commerce.net have emerged to galvanize the industry, to commission research, and to offer solutions to these issues. Mechanisms such as Truste.org have proposed security guidelines and standards to be voluntarily adopted by the industry.