4.1.1 Introduction

In the early days of computing, computers were seen as devices for making calculations, storing data, and automating business processes. However, as the devices evolved, it became apparent that many of the functions of telecommunications could be integrated into the computer. During the 1980s, many organizations began combining their once-separate telecommunications and information systems departments into an Information Technology (IT) department. This ability for computers to communicate with one another and to facilitate communication between individuals and groups has had a major impact on the growth of computing over the past several decades.

Computer networking began in the 1960s with the birth of the Internet. However, while the Internet and web were evolving, corporate networking was also taking shape in the form of local area networks and client-server computing. The Internet went commercial in 1994 as technologies began to pervade all areas of the organization. Today it would be unthinkable to have a computer that did not include communications capabilities. This chapter reviews the different technologies that have been put in place to enable this communications revolution.

4.1.2 Communications Process

Before delving into the details of networking, it is important to understand how data is communicated between computers. Data communication is the electronic transmission of encoded information to, from and between computers.  Data communication requires a number of devices in order for information to be transferred. The process begins when a computer sends an instruction to transmit information.

• A modem converts the format of the data so it may be transmitted between computers.

• A medium provides a path for signals to be transmitted. This can be in a physical format like copper cable, coaxial cable or fiber optics. It can also be radiated or wireless.

• The receiving computer accepts the transmission.

In communicating data, speed is important. The amount of data that can be transferred from one point to another in a certain period of time is referred to as bandwidth. Bandwidth can be narrow or broad, and it depends on the access technology. Broadband is when a high amount of data is transmitted simultaneously by digital subscriber line, cable and fiber optic technologies. Narrowband is when a limited amount of data is transferred over a specified time period.

4.1.3 Networks

Today most businesses use networks to deliver information to employees, suppliers, and customers. A computer network is a group of two or more computer systems linked together by communications channels to share data and information. Networks often link thousands of users and can transmit audio and video as well as data.

Networks include clients and servers. The client is the application that runs on a personal computer or workstation. It relies on a server that manages network resources or performs special tasks such as storing files, managing one or more printers, or processing database queries. Any user on the network can access the server’s capabilities.

By making it easy and fast to share information, networks have created new ways to work and increase productivity. They provide more efficient use of resources, permitting communication and collaboration across distance and time. With file-sharing, all employees, regardless of location, have access to the same information. Shared databases also eliminate duplication of effort. Employees at different sites can “screen-share” computer files, working on data as if they were in the same room. Their computers are connected by phone or cable lines, they all see the same thing on their display, and anyone can make changes that are seen by the other participants. The employees can also use the networks for videoconferencing.

Networks also make it possible for companies to run enterprise software, large programs with integrated modules that manage all of the corporation’s internal operations. We will discuss enterprise systems more in a later chapter.

Connecting Near and Far

A Metropolitan area network (MAN) spans a larger area like a city or region whereas a wide area network (WAN) connects computers at different sites via telecommunications media such as phone lines, satellites, and microwaves. A modem connects the computer or a terminal to the telephone line and transmits data almost instantly, in less than a second. Telecommunications companies, such as Rogers Communications, Bell Canada, or Telus Inc., operate very large WANs. The internet is essentially a worldwide WAN.

4.1.4 The Internet

The internet is a network of networks—millions of them, actually. If the network at your university, your employer, or your home has internet access, it connects to an internet service provider (ISP). Many, but not all, ISPs are big telecommunications companies like Rogers Communications, Bell Canada, or Telus Inc. These providers connect to one another, exchanging traffic, and ensure your messages get to other computers that are online and willing to communicate with you.

The internet has no center and no one owns it. That’s a good thing. The internet was designed to be redundant and fault-tolerant—meaning that if one network, connecting wire, or server stops working, everything else should keep on running. Rising from military research and work at educational institutions dating as far back as the 1960s, the internet really took off in the 1990s, when graphical web browsing was invented. Much of the internet’s operating infrastructure was transitioned to be supported by private firms rather than government grants. We will now explore this history in more detail.

4.1.5 History of the Internet

In the Beginning: ARPANET

The story of the internet, and networking in general, can be traced back to the late 1950s. The United States was in the depths of the Cold War with the USSR as each nation closely watched the other to determine which would gain a military or intelligence advantage. In 1957, the Soviets surprised the U.S. with the launch of Sputnik, propelling us into the space age. In response to Sputnik, the U.S. Government created the Advanced Research Projects Agency (ARPA), whose initial role was to ensure that the U.S. was not surprised again. It was from ARPA, now called DARPA ((Defense Advanced Research Projects Agency), that the internet first sprang.

ARPA was the center of computing research in the 1960s, but there was just one problem. Many of the computers could not communicate with each other. In 1968 ARPA sent out a request for proposals for a communication technology that would allow different computers located around the country to be integrated together into one network. Twelve companies responded to the request, and a company named Bolt, Beranek, and Newman (BBN) won the contract. They immediately began work and were able to complete the job just one year later.

The Internet

Over the next decade, the ARPANET grew and gained popularity. During this time, other networks also came into existence. Different organizations were connected to different networks. This led to a problem. The networks could not communicate with each other. Each network used its own proprietary language, or protocol to send information back and forth. A protocol is the set of rules that govern how communications take place on a network. This problem was solved by the invention of the Transmission Control Protocol/Internet Protocol (TCP/IP). TCP/IP was designed to allow networks running on different protocols to have an intermediary protocol that would allow them to communicate. So as long as your network supported TCP/IP, you could communicate with all of the other networks running TCP/IP. TCP/IP quickly became the standard protocol and allowed networks to communicate with each other.

The 1980s witnessed a significant growth in internet usage. Internet access came primarily from government, academic, and research organizations. Much to the surprise of the engineers and developers, the early popularity of the internet was driven by the use of electronic mail. People connecting with people was the killer app (see a later chapter) for the internet.

The World Wide Web

Initially, internet use meant having to type commands, even including IP addresses, in order to access a web server. That all changed in 1990 when Tim Berners-Lee introduced his World Wide Web project which provided an easy way to navigate the internet through the use of hypertext. The World Wide Web gained even more steam in 1993 with the release of the Mosaic browser which allowed graphics and text to be combined as a way to present information and navigate the internet. Many times the terms “Internet” and “World Wide Web,” or even just “the web,” are used interchangeably. But really, they are not the same thing.

The Internet and the Web – What’s the Difference?

The internet is an interconnected network of networks. Services such as email, voice and video, file transfer, and the World Wide Web (the web for short) all run across the internet. The web is simply one part of the internet. It is made up of web servers that have HTML pages that are being viewed on devices with web browsers. To see an interactive map of the world’s major submarine cable systems go to TeleGeography’s Submarine Cable Map. A snapshot of the interactive map can be seen below.

The Dot-Com Bubble

In the 1980s and early 1990s, the internet was being managed by the National Science Foundation (NSF). The NSF had restricted commercial ventures on the internet, which meant that no one could buy or sell anything online. In 1991, the NSF transferred its role to three other organizations, thus getting the US government out of direct control over the internet and essentially opening up commerce online.

This new commercialization of the internet led to what is now known as the dot-com bubble. A frenzy of investment in new dot-com companies took place in the late 1990s with new tech companies issuing Initial Public Offerings (IPO) and heating up the stock market. This investment bubble was driven by the fact that investors knew that online commerce would change everything. Unfortunately, many of these new companies had poor business models and anemic financial statements showing little or no profit. In 2000 and 2001, the bubble burst and many of these new companies went out of business. Some companies survived, including Amazon (started in 1994) and eBay (1995). After the dot-com bubble burst, a new reality became clear. In order to succeed online, e-business companies would need to develop business models appropriate for the online environment. E-business is explored in later chapters.

The Generations of the Web

In the first few years of the web,  creating and hosting a website required a specific set of knowledge. A person had to know how to set up a web server, get a domain name, create web pages in HTML, and troubleshoot various technical issues. Since then the web has evolved. This evolution has been referred to as different phases.

• Web 2.0 is also referred to as the social web and occurred between 2000-2010. During this time there was a shift from read only to read and write, which allowed individuals to be content creators.  Social networking with apps such as Facebook, Twitter, Youtube, and personal blogs have allowed people to express their own view points and share content.

• Web 3.0 is also referred to as the semantic web and is the time after 2010 when the web evolved again to allow individuals to read, write and execute. This means that the web is more intelligent and is able to interact with users. For example, algorithms that can personalize search results.

• Web 4.0 is the future of the web, which is referred to as the intelligent web and will involve the Internet of Things and connected devices.

There’s Another Internet?

Internet2 is a research network created by a consortium of research, academic, industry, and government firms. These organizations have collectively set up a high-performance network running at speeds of up to one hundred gigabits per second to support and experiment with demanding applications. Examples include high-quality video conferencing; high-reliability, high-bandwidth imaging for the medical field; and applications that share huge data sets among researchers.

4.2.1 Introduction

As we learned in a previous chapter, the internet has had a massive impact on the way we communicate and how businesses operate. Businesses have found new ways to reach customers, expand markets, and transact more efficiently in digital formats. Changes in technology have allowed new business models to flourish while also making it difficult for some industries to keep pace. In general, electronic business has created a revolution in business practices. However, if organizations are going to take advantage of electronic technologies, they must take a strategic perspective. Corporate strategy must align with the company’s e-commerce strategy. In this chapter, we will discuss definitions of electronic business and categories of e-commerce, as well as discussing the trends in e-commerce.

4.2.2 Definitions

E-Business & E-Commerce

Electronic business or e-business, in a broad sense, is the use of computer networks to improve organizational performance. Increasing profitability, gaining market share, improving customer service, and delivering products faster are some of the organizational performance gains possible by doing business electronically. E-business is more than ordering goods online, it involves all aspects of an organization’s electronic interactions with its stakeholders.

E-business includes activities such as establishing a webpage to support investor relations or communicating electronically with employees. It involves the use of information technology to enhance communications and transactions with all of an organization’s stakeholders. Such stakeholders include: customers, suppliers, government regulators, financial institutions, managers, employees, and the public at large. E-business involves several major components: business intelligence (BI), customer relationship management (CRM), supply chain management (SCM), enterprise resource planning (ERP), e-commerce, conducting electronic transactions within the firm, collaboration, and online activities among businesses.

E-business and e-commerce are often used interchangeably, but they are not the same thing. E-commerce is the marketing, selling, and buying of goods and services online. It generates revenue, while e-business does not. The facilitation of commerce on a website, such as the ability for customers to order products online, to get questions answered about products, and for the company to introduce new products and ideas is considered e-commerce.  E-business refers to all aspects of operating an online business while e-commerce refers specifically to the transaction of goods and services.

The history of e-commerce begins with the first ever online sale on August 11, 1994. A man sold a CD by Sting to his friend through his website NetMarket, an American retail platform. This is the first example of a consumer purchasing a product from a business through the internet. Since then, e-commerce has evolved to make products easier to discover and purchase through online retailers and marketplaces.  Independent freelancers, small businesses, and large corporations have all benefited from e-commerce, which enables them to sell their goods and services at a scale that was not possible with traditional offline retail.

1. Aston, J., Vipond, O., Virgin, K., & Youssouf, O. (2020, July 24). Retail e-commerce and COVID-19: How online shopping opened doors while many were closing. Statistics Canada. https://www150.statcan.gc.ca/n1/pub/45-28-0001/2020001/article/00064-eng.htm ↵

4.2.3 E-Commerce Advantages & Disadvantages

It is important to understand the advantages and disadvantages of this model compared to traditional brick-and-mortar businesses. Businesses need to understand their customers and their needs as well as the value of this model.

Advantages

Expanded Markets

Businesses with an online presence are not limited to servicing customers in their immediate geographic area only, and can broaden their market to serve customers at greater distances, even globally. The business would be limited only by shipping methods and costs and would need to consider this in their setup.

Increased Availability

Online operations allow businesses to interact and transact with customers all day every day,  and are no longer limited to traditional bricks and mortar operating hours. This makes it easy for customers to make their purchases at a time that is convenient for them. As well, the automation of the online site means that a business can expand operating hours without necessarily increasing labour costs. As well, there are no limitations on shelf space making it possible to expand product offerings.

Reduce Costs

There are many ways that online technology can be utilized by businesses to reduce costs. For a traditional brick and mortar business, by moving online they can save on all of the infrastructure costs of having a physical presence, such as rent, utilities, and maintenance. As well, since online businesses are not limited to shelf space, they can provide expanded product offerings to their customers without the added costs of stocking in store. For businesses that manufacture goods they can use an online site to transact directly with their customers and remove any need for a retailer (intermediary). The elimination of an intermediary is referred to as disintermediation. An example of this is Dell Direct. As well, instead of drawing employees from their local area, organizations can now hire people from the global labor pool. This allows organizations to pay a lower labor cost for the same work based on the prevailing wage in different countries.

Improved Efficiency

When processes are done online or digitally as opposed to more traditional approaches like paper based, the business benefits through efficiency. For example, online ordering allows customers to create accounts and enter in their own information which can reduce errors and speed processes like ordering and payment. This allows the business to track their customers and their shopping habits which can benefit them in the future.

Improved Customer Service

Customers are able to connect with businesses online in different ways which can improve customer satisfaction. Some businesses even have chatbots that allow customers to ask questions and receive immediate answers based on similar questions asked before. As well, customers can leave reviews and have the opportunity to provide feedback to businesses online about their satisfaction with their products and services. Some businesses have made the online return process fairly simple by automating the process and allowing customers to print return labels and drop in the mail.

The amount of data collected digitally on customers as they are interacting with the website is extremely valuable as well. This information can be used to help encourage further purchases or to help target new customers. Many sites use algorithms to suggest similar products when purchasing online to upsell the customer.

While e-commerce provides a number of advantages there are also some disadvantages with this method of doing business.

Disadvantages

Technical & Accessibility issues

Around the world customers may still experience bandwidth issues that prevent them from being able to efficiently interact with businesses online. Bandwidth and access issues will not be a problem in the future as more infrastructure is built.

Security & Privacy Issues

Customers may still be wary about shopping online especially when large privacy breaches have been well publicized. According to the Canadian Internet Use Survey looking at the online shopping habits of Canadians in 2020,  for those Canadians who don’t shop online, close to a quarter stated that it is due to security and privacy reasons. [1]

Establishing Customer Trust & Satisfaction

Trust is about believing that someone will do what they say and that they will not intentionally do something to hurt you. Trust in business is essential and it is easier to establish in the physical world as customers receive cues from the environment as well as body language from the sales staff. In the online environment,  businesses can help build trust by ensuring customers have a good experience by making their online platform easy to navigate and use. Their website presentation should also be high quality and free from errors.  They can also provide reviews on other customers experiences.

To build trust, businesses should also make sure the product or service meets the customers expectations. Customers may be dissatisfied especially when ordering products online if the product is not reliable, or different than expected. Meaning that the display and description of the product on the website is not what they received. Online retailers should provide a complete and realistic description of the product and its benefits—with high-quality pictures and perhaps even demonstration videos if possible, appropriate, and affordable—along with product availability and likely ship dates. Customers should be notified by e-mail of order acceptance, and the anticipated delivery date with phone and e-mail contacts for any needed assistance.

1. Statistics Canada. (2021, June 22). Online shopping by Canadians in 2020: Results from the Canadian Internet Use Survey. https://www150.statcan.gc.ca/n1/pub/11-627-m/11-627-m2021048-eng.htm ↵

2. Marciano Jonathan Marciano, J. (2021, August 10). Fake online reviews cost $152 billion a year. Here's how e-commerce sites can stop them. World Economic Forum. https://www.weforum.org/agenda/2021/08/fake-online-reviews-are-a-152-billion-problem-heres-how-to-silence-them/. ↵

4.2.4 Online Strategy

Every business needs to consider the extent of their online presence. There are two key factors to be considered when considering an online strategy:

1. How many existing or potential customers are likely to do business online?
   If a significant portion of a company’s customers are internet users, and the search cost for the product or service are reasonably, even moderately high, then an organization should have a considerable online presence; otherwise, it is missing an opportunity to inform and interact with its customers. If a company does not have a website, then there is the risk that potential customers will flow to competitors who have a web presence.

2. What is the information intensity of the product?
   An information-intense product is one that requires considerable information to describe it completely. The two parameters, number of customers on the web and product information intensity, can be combined to provide a straightforward model (see Exhibit 1) for determining which companies should be using the internet. Organizations falling in the top right quadrant are prime candidates because many of their customers have internet access and their products have a high information content. Firms in the other quadrants, particularly the low-low quadrant, have less need to invest in a website.

Strategic Challenges

Now that we have explored how businesses are leveraging the internet to sell their products and services and the benefits and concerns, it is important to understand the strategic challenges of doing so. Companies often face three critical strategic challenges:

Every internet business is either pure-play, or brick-and-click. A pure-play business, such as Amazon and Well.ca, has an online presence only and uses the capabilities of the internet to create a new business. Brick-and-click businesses, such as Indigo and Canadian Tire, combine a physical presence with an online presence. These businesses use the Internet to supplement their existing businesses. [1]

There are several different types of e-commerce that can describe almost every transaction that takes place between consumers and businesses.

M-Commerce

Mobile e-commerce (m-commerce) refers to the purchase of goods and services through wireless technology, such as cell phones and handheld devices. M-commerce is growing fast with an estimated 73% of all e-commerce sales being done via a mobile device. [2] This can be attributed to the fact that many people now own smartphones, and they are using them all the time. This has made it convenient to be able to leverage this technology to shop online.

Growth in M-Commerce

M-commerce transactions continue to grow as a result of the following:

• The number of global mobile users is steadily increasing every year, resulting in an increased demand for mobile websites and applications.

• The rapid adoption of e-commerce means that evolving customers are looking for more options across more devices.

• Improved technology has given mobile devices advanced capabilities and faster internet access enabling m-commerce to be available on even the most affordable devices.

• Broadband technology and lowering data costs mean more consumers have access to m-commerce even on affordable devices and data plans.

• Mobile users are looking for instant gratification online; this includes their online shopping needs. Increase in m-commerce for fast food, fresh produce and basic household items have been driven by this need for customers to get what they need when and where they want it.

Benefits of M-Commerce

Peer to Peer (P2P)

Peer-to-peer is a form of e-commerce comprised of an online platform that connects individuals looking to transact with one another.  Some examples of P2P are Etsy, Uber, Airbnb and TaskRabbit.

1. Krishnamurthy, S. (2003). E-Commerce Management: Text and Cases. p.73. ↵ ↵

2. Loesche, D., & Richter, F. (2018, March 6). Infographic: Mobile e-commerce is up and poised for further growth. Statista. https://www.statista.com/chart/13139/estimated-worldwide-mobile-e-commerce-sales/. ↵

4.2.6 E-Commerce Models

An e-commerce business model is the method that a business uses to generate revenue online. E-commerce can take on a variety of forms involving different transactional relationships between businesses and consumers.

The Business to Consumer Cycle

In the B2C e-commerce cycle a customer visits a website and peruses the products offered. They choose a product and place an order which then gets added to their online shopping cart. Once they have completed their selection, they navigate to their shopping cart and choose a shipping address and make a payment. Payment options are explored in detail later in the chapter.

On the other end, the business fulfills the order and prepares it for shipping. The order is then shipped, and the customer is notified of this step. The customer can follow up with customer service if there are any issues with the order or shipment. The customer is also sometimes asked to provide a review of the product so that future potential customers can benefit from this experience. If a customer is unhappy with their product, they can reach out to customer service and explore their options. Some companies, like Amazon, allow customers to return their orders online, and a return label is automatically created for printing. The customer simply has to package the item and return it via Canada Post or another shipping company.

An e-commerce platform is a way to build and create an online experience that allows a company to make sales and fulfill orders. While most people think an e-commerce platform is just a tool that provides a list of products and accepts payments online, a true e-commerce platform is much more than that. It is a complete business command center that controls everything from inventory to marketing. It should support basic requirements such as custom styling, search engine optimization, credit card processing, promotions, catalog management, analytics, product browsing, checkout, and order management. Some examples of e-commerce platforms are Shopify, Wix and BigCommerce.

To make an online store accessible to the public it requires a hosting solution. Hosting stores information on a server, which allows internet users to visit a company’s site and view all of the content. Every website is hosted somewhere, meaning it has dedicated server space from a provider. Some e-commerce platforms have hosting built in, while others require self-hosting or open-source hosting.

Instead of going with an e-commerce platform, businesses can also hire a full-service web developer to provide design, programming, support, hosting, search engine optimization, and more. Any combination of the services can be selected. Having the developer perform all the services would be the most expensive alternative. The ultimate cost for a website will be a function of its size, complexity, and the level of design. No two projects will cost the same. Part of the process of building a website, however, should be conducting some research and talking with website designers. The Internet offers a variety of sources on how to determine how much a website should cost. WebFX.com offers a historical perspective on website costs, a cost calculator to find out how much a web project would cost, and examples of specific web design and website development projects with cost figures.[1]

Search Engine Optimization

It is important when creating a website to consider search engine optimization (SEO). Search Engine Optimization (SEO) refers to the techniques that help a website rank high in organic search results (such as on Google and other search engines). There are the two types of listings that appear when using a search engine: organic search and paid search. SEO aims to make a website more visible to people looking for specific information or a particular product or service via search engine. SEO falls under the umbrella of Search Engine Marketing(SEM). SEM is a form of internet marketing that involves the promotion of websites by increasing their visibility in search engine result pages primarily through paid advertising.

Payment Methods

Security, privacy, and trust are most important when considering the payment function. Without this transaction, there is no e-commerce, so it is imperative that businesses take the necessary steps to reduce customer concerns about shopping online. It is also important for merchants to offer multiple payment methods to provide flexibility and ensure customers complete their purchase. See the following types of payment methods. Credit cards are by far the most popular payment method for online transactions.

Electronic Payment

E-payment is any payment done electronically. This form of payment includes debit cards, credit cards, gift cards, e-transfers, email payments, mobile wallets, and cryptocurrency.

e-Transfers

Electronic transfer or e-transfer is the ability to send money from your bank account held at a Canadian financial institution through the Interac Corporation. With e-transfers the sender logs-on to their bank account and chooses a recipient to send money to. The recipient’s email or phone number is provided for notification of the transfer. A security question can be added so that only the recipient with the correct password can process the transaction. The popularity of e-transfers is growing with 57 percent of the country’s population registering for the service by the end of 2018. Most e-transfers happen on mobile phones.[2]

E-Mail based methods (PayPal)

PayPal is a form of an email based payment method where members are able to send money to any registered person. Registration requires the user to set up an account with their e-mail address.  A notification is sent to those individuals who are to receive funds but are not registered. PayPal accounts are tied to the registrants credit card or bank account.  Paypal also has a mobile application that can be used for contactless payment through the use of QR codes.

Mobile Wallets

A mobile wallet is an application on your mobile device that stores your payment information to allow for contactless payments. It is like a regular wallet where you keep your credit, debit or prepaid cards. You can use your mobile wallet when shopping in-person or online. Your financial institution or the merchant may set limits on how much money you can spend using a mobile wallet. There are concerns about how financial information is stored on mobile wallets, and what happens if you were to lose your phone.  To learn more about Mobile Wallets and the safety of them, go to the information page by the Financial Consumer Agency of Canada.  Some examples of mobile wallets in Canada are: Apple Pay, Google Pay, Samsung Pay.

1. WebFx. (2022). How Much Should a Web Site Cost? www.webpagefx.com/How-much-should-web-site-cost.html ↵ ↵

2. Interact Corporation. (2021, May 15). Why 2018 was another banner year for Interac e-Transfer. Interac In The Know. https://www.interac.ca/en/content/business/why-2018-was-another-banner-year-for-interac-e-transfer/. ↵