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International Journal of Electronic Commerce
ISSN: 1086-4415 (Print) 1557-9301 (Online) Journal homepage: http://www.tandfonline.com/loi/mjec20
Electronic Commerce: Structures and Issues
Zwass Vladimir
To cite this article: Zwass Vladimir (1996) Electronic Commerce: Structures
and Issues, International Journal of Electronic Commerce, 1:1, 3-23, DOI:
10.1080/10864415.1996.11518273
To link to this article: http://dx.doi.org/10.1080/10864415.1996.11518273
Published online: 16 Dec 2015.
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Electronic Commerce: Structures and Issues
VLADIMIR ZWASS
ABSTRACT: Electronic commerce {E-commerce} is sharing business information, maintaining business relationships, and conducting business transactions by means of telecommunications networks. Traditional E-commerce, conducted with the use of information
technologies centering on electronic data interchange (ED!) over proprietary value-added
networks, is rapidly moving to the Internet. The Internet's World Wide Web has become
the prime driver of contemporary E-commerce. This paper presents a hierarchical framework of E-commerce, consisting of three meta-levels: infrastructure, services, and products and structures, which, in turn, consist of seven functional levels. These levels of
E-commerce development, as well as of analysis, range from the wide-area telecommunications infrastructure to electronic marketplaces and electronic hierarchies enabled
by E-commerce. Several nodal problems are discussed that will define future development in E-commerce, including integrating electronic payment into the buying process,
building a consumer marketplace, the governance of electronic business, and the new
intermediation. The paper also introduces the International Journal of Electronic Commerce, which will provide an integrated view of the new E-commerce.
KEY WORDS AND PHRASES: electronic commerce, electronic hierarchies, electronic
markets, information infrastructure, new intermediation, World Wide Web.
Introduction: From the Traditional
to the Web-Driven Electronic Commerce
As electronic commerce approaches the end of its beginning, and as it is
redefined by the dynamics of the Internet, it is time to take stock and to look
forward. This paper shall discuss a hierarchical framework for electronic
commerce within which the mutually reinforcing changes in business practices and in the underlying information technologies are surveyed analytically. Indeed, this is the role of the International Journal of Electronic Commerce,
which is being introduced with this article, both to analyze the fundamental
change and to extend the practice.
Electronic commerce (E-commerce) is the sharing of business information, maintaining business relationships, and conducting business transactions by means of telecommunications networks. In today's business
environment, where the operational boundaries between firms have become
fluid, it is often both pragmatically and analytically unfruitful to separate
interorganizational and intraorganizational business processes. Therefore, as
understood here, E-commerce includes the sell-buy relationships and transactions between companies, as well as the corporate processes that support
the commerce within individual firms.
Electronic commerce is a new and certainly a trendy name, but the practice it denotes originated about a half-century ago in the Berlin airlift.! This
practice became electronic data interchange (EDI), the computer-to-computer
International Journal of Electronic Commerce I Fall 1996. Vol. I. No. I. pp. 3-23
Copyright © 1996 M.E. Sharpe. Inc.
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4 ZWASS
exchange of standardized electronic transaction documents. Although what
can now be called traditional E-commerce has not been limited to ED! and
has included business practices built around computer-to-computer transmissions of a variety of message forms, bar codes, and files, the use of ED!
has arguably led to the most significant organizational transformations and
market initiatives (see, for example, [29]). Some well-known cases in point
are Wal-Mart, Levi Strauss, General Motors, and other companies that have
built new kinds of relationships with their suppliers and customers through
electronic linkages. Electronic integration, supported by ED! and other information technologies, drastically reduces the time and space buffers that
shelter a firm, but that also limit its competitive opportunities.
Electronic integration has led to dramatic shifts in the definition of a firm,
with the emergence of virtual companies whose capabilities to deliver their
products to the market are defined largely by their ability to organize and
maintain a network of business relationships, rather than by their ability to
manufacture a product or deliver a service. New business networks have
been formed by relying on this form of integration (such as the local and
global business communities' reliance on TradeNet in Singapore) and entire
industries are being radically changed (U.S. grocery retailing is an excellent
example). To understand an individual firm, it is necessary to study the business networks in which it is embedded [31].
The arrival of the commercial use of the Internet, driven by its World Wide
Web subset, has been defining the new E-commerce since 1993.2 E-commerce
is now emerging from the convergence of several major information technologies and business practices. Among the principal technologies directly
enabling modem E-commerce are: computer networking and telecommunications; client/server computing; multimedia (and hypermedia in particular); information retrieval systems; electronic data interchange (EOI); message
handling and workflow management systems; groupware and electronic
meeting systems; and public-key cryptography. In a broader sense, all the
major computer and telecommunications technologies, and database management in particular, undergird E-commerce. The set of technologies driving E-commerce is embodied (for a want of a better word) today in the
Internet. This conglomerate is a transformational technology [18] that has
challenged old assumptions and helped shape new workplaces, organizations, and markets.
It would be entirely wrong to interpret E-commerce as a purely technological development. This way of doing business can be understood as the deployment of information technologies together with the organizational and
management advances that pull the technology and are pushed by it in tum.
Team-centered work organization with international teams working around
the clock if desired, telework, moving products and operations to virtual value
chains, demassing the firm by building it around core competencies, and
transnational organizations are some of these advances. In Schumpeterian creative destruction, the use of transformational technologies challenges preexisting ways of doing business, of collaborating, and of competing. In a wider
realm, the underlying technology of global, accessible, and nonproprietary connectivity changes many aspects of our life in the public and private domains.
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INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 5
This paper first presents a systematic view of the organization of the complex enterprise of E-commerce within a hierarchical framework, extending from
the networking infrastructure to global marketplaces. It then lays out some of
the nodal problems of E-commerce practice and research, relating them to this
framework, and it concludes by introducing the International Journal of Electronic Commerce as the first scholarly journal devoted to the integrated study of
E-commerce.
The Framework of Electronic Commerce
The established way both to analyze and to develop very complex systems,
such as that of E-commerce, is to visualize them as a hierarchical structure
comprised of several levels, with each of the lower levels delivering a welldefined functional support to the higher levels. Such a hierarchy is shown in
Table 1 (a part of which has been modified from [30]).
The framework recognizes that E-commerce consists of three meta-levels:
• Infrastructur~: the hardware, software, databases, and telecommunications that together deliver such functionality as the World
Wide Web over the Internet, or support EDI and other forms of
messaging over the Internet or over value-added networks;
•
•
Services: messaging and a variety of services enabling the finding
and delivery (on business terms, if desired) of information, as well
as negotiation, transacting business, and settlement;
Products and structures: direct provision of commercial services to
consumers and business partners, intraorganizational information
sharing and collaboration, and organization of electronic markets
and supply chains.
The individual levels that constitute these three meta-levels are now discussed, followed later by an examination of the issues engendered by their
functions.
Technological Infrastructure
The first three levels of the hierarchical framework form the technological
infrastructure of E-commerce. This foundation is the intermeshed network
of wide-area telecommunications networks, extended by the metropolitan
and local-area nets. Deploying both guided (such as fiber-:optic and coaxial
cable) and wireless transmission media (such as satellite microwave and radio) under computerized control, t~ese networks span the globe. Thus, Ecommerce is inherently global. Yet, there are, and will continue to be, major
differences in national and regional development of infrastructure, as well
as in the national governance of telecommunications, with government monopolies in a number of cotintries limiting development and imposing high
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Level
7
6
5
4
3
2
Function Examples
Products and Structures
Electronic marketplaces
and electronic hierarchies
Products and systems
Enabling services
Secure messaging
Hypermedia/multimedia
object management
Public and private
communication utilities
Wide-area
telecommunications
inFrastructure
Electronic auctions, brokerages, dealerships, and
direct search markets Interorgonizational supply
chain management
Remote consumer services Ishopping, banking,
stock brokerage)
Infatainment-on-demand Ifee-based content sites,
educational offerings)
Supplier<onsumer linkages
On-line marketing
Electronic benefit systems
Intranet-based collaboration
Services
Electronic catalogs/directories, smart agents
E·money, digital authentication services
Digital libraries, copyright-protection services
Traffic auditing
Smart card systems
EDI, E-mail, EfT
Infrastructure
World Wide Web with Java
Internet and value-added networks IVANs)
Guided- and wireless·media networks
Table 1. The Hierarchical Framework of Electronic Commerce
telecommunications costs. In Europe and, to a degree, in Latin America, a
movement toward privatization has produced, or is expected to produce,
beneficial effects on prices and services. In salutary cases of government intervention, such as that of Singapore, national development programs support the development of E-commerce.
Telecommunications capabilities are delivered for business use through two
essential means. The older order is that of proprietary value-added networks
(VANs), established by vendors to deliver services over and above those of
common carriers that are licensed by governments to provide communications
services to the public. The new order is that of the Internet, which has become
the principal vehicle of E-commerce. The history of the almost organic emergence of today's Internet from its U.S. Department of Defense-sponsored origins as a network for research support is well known. The salient features,
conditioned by the development path of this de facto global information infrastructure are: easy and relatively inexpensive public access; absence of centralDownloaded by [University of Pennsylvania] at 17:58 09 January 2016 
INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 7
ized control and consequent organic growth combined with limited security,
reliability, and bandwidth; reliance on an open and simple packet-switching
protocol suite (TCP /IP), and thus ease of linking additional networks with routers, with standardization managed by the Internet Society and its subsidiary
bodies, such as the Internet Architecture Board.
The Internet has become the driver for E-commerce thanks to the invention of the World Wide Web as a principal means of sharing information. The
Web has turned the Internet into a global, distributed, and hyperlinked multimedia database. By relying on the client/server architecture, the Web further builds on the decentralized model of the Internet. It is easy to join and it
is easy to organize an information space for a small or a very large group.
Internet communities can carve out the space that suits their purposes [53].
The Web can serve as a medium for presentation, distribution, and use-based
sale of passive or active (in the sense of software) information objects.3 Specialized platform-independent programming languages, such as Java, help
make the electronic pages of the Web a source of active software objects.
Services: Enablers of Interpersonal
Communication and Commerce
The meta-level of services consists of provision of secure messaging and of
enabling services for E-commerce. Taken together, these services provide the
business infrastructure for E-commerce.
Secure messaging for business-transaction processing has to feature the
following attributes: confidentiality (generally accomplished through encryption, but secure key logistics remain a problem even in the public-key systems); message integrity (achieved with hash totals or similar tokens
accompanying the message); authentication of both parties (generally via a
digital signature and possession of a private key); and nonrepudiation by
either party (achieved through a combination of the means mentioned before). Some transactions require additional attributes; thus, generation of electronic cash requires anonymity of the receiving party (accomplished with a
blinding factor during the encryption). A number of secure protocols are
being actively considered [7], with security, and especially perceived security, remaining a fundamental obstacle to E-commerce. In particular, by making it necessary to separate the settlement from the informational steps in an
acquisition, the security concern is perhaps the most serious obstacle to consumer-oriented E-commerce.
The principal messaging services include EDI, electronic funds transfer
(EFf), and E-mail; voice messaging and telefacsimile are also available. The
basic motivation for implementing EDI is economy. Corporations spend an
average of $150 to process a paper order, but only about $25 to process an
electronic order [58]. Beyond economy, companies seek strategic benefits,
such as a compressed business cycle and intensified relationships with business partners. Time-based competitive moves of quick-response retailing by
"pulling in" demanded products from the supply chain and just-in-time
manufacturing with close-to-zero inventories are enabled by ED!.
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Traditional EDI relies largely on the hub-and-spoke model, with a dominant business partner (the hub) gradually surroun~ing itself with the spokes
of its supplier, customer, and collaborator firms. This form of ED! is still
largely VAN-based, with proprietary standards and relatively high costs of
bundled-in services. While industry standards have emerged in such segments as groceries or railroads, the international EDIFACT standard has met
with only limited adoption. At this time, many leading companies are moving their EDI communications to the Internet, seeking the benefits of lower
costs and seamless global connectivity [1]. This move will have important
consequences for industries and entire economies, even more so when combined with a semantically enriched open-ED!. Such open-EDI will offer public international standards for common business scenarios. The objective is
to interact spontaneously with a new trading partner, without a prior agreement on a common protocol of interaction. Global business-to-business Ecommerce is expected to benefit hugely by moving forward from the simple
transaction sets of the traditional EDI, which are basically electronic equivalents of paper forms, to far more elaborate and customizable open-EDI busineSs scenarios [33].
Another form of messaging is a special type of secure EDI used in electronic funds transfer systems (EFfS) that enable interbank funds transfers in
the form of information. Electronic mail (E-mail) has become a ubiquitous
means of communication, often with profound organizational effects.4 E-mail
remains the most popular use of the Internet. It may be expected to remain
such as it incorporates the transmission of multimedia documents and combines with other services, such as negotiation tools and smart software agents.
The most turbulent technological and entrepreneurial activity is taking
place at the level of enabling services. These services facilitate searches for
business information as well as for business partners, negotiating and maintaining a business relationship, as well as consummating business transactions by financial settlements. This E-commerce level includes (or will include)
digital libraries [20], electronic catalogs and directories, smart agents helping to seek out a desired good or service, electronic authentication services
helping to establish the bona fides of a partner, copyright-protection services
(possibly relying on digital watermarks), traffic auditing to establish the worth
of an electronic site for advertising purposes (still the dominant revenue source
for most of the sites that do have revenue), and a variety of other services
that are being invented even as you read this.
The development of electronic money (E-money) is the subject of a lot of
work and popular excitement. Called reengineering of money by some [12],
it may be expected to further limit the role of cash in the economy. E-money
in its various forms is expected to become a substitute for credit (e.g., credit
cards) and debit instruments (e.g., checks or debit cards), or for banknotes
and coins, which offer anonymity to the owner (within certain legal limits in
the United States) at the considerable expense of handling to the commercial
organizations. At presen~, the money supply of the United States surpasses
$4 trillion, but only one-tenth of that-$400 billion-exists in the physical
form of bills and coins. Moreover, two-thirds of even that amount has been
taken out of circulation, largely in the form of $100 bills, by various agents
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INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 9
(many of them abroad) with little interest in banking [22]. Thus, most of the
currency extant today in the United States and other developed countries
already exists only as a magnetized domain in the secondary storage of a
computer system. Many agents beyond buyers and sellers have a vested interest in the development of E-money, including the vendors of the new instruments, but also the banks of issue, regulators, and agencies entrusted
with national security and law enforcement.
Products and Structures of Electronic Commerce
Products and structures of E-commerce cover its three categories: consumeroriented commerce, business-to-business commerce, and intraorganizational
business. All three are experiencing vigorous developments, albeit with differing economic outcomes at this time.
The most highly touted applications of E-commerce are consumer-oriented.
They include remote (or home) shopping, banking, and stock brokerage, accompanied by (and, in most cases so far, paid for by) on-line advertising.
The audience for this market has not reached a critical mass, although its
immense potential is driving much of the interest in E-commerce, as expressed, for example, by the stock-market capitalization. of a number of companies that intend to provide services for it. The fact that the relatively
successful vendors are so well known is a testimony to their dearth. These
vendors include Virtual Vmeyards, a storefront-free supplier of wines and
gourmet foods, and Amazon.com, a bookseller with a huge-since virtualinventory, a large following, and, as yet, no profits. A number of smaller
traditional vendors derive incremental revenues from E-commerce. For a
chance of success in this marketplace, the firm must identify an actual customer need and the firm's relationship with the customer must build on the
key feature of the medium, namely interactivity [27].
The other principal consumer-oriented segment is "infotainment-on-demand." This segment builds on the Web as a new communication medium
whose nature is still being explored. Infotainment ranges from education,
through the delivery of specialized information, to entertainment. Manyeducational offerings can respond to just-in-time, specialized requirements. Some
of the educational programs and courses may be expected to bear appropriate accreditation and degrees; virtual universities are being formed [16]. The
segment also includes "webzines" (such as HotWired and Slate), electronic
newspapers and books, and access to analytical reports, expert opinions,
and to the experts themselves. Legitimation of expertise, packaging of knowledge and information from several sources, preservation of intellectual property, and use-based payments (including micropayments for chunks of
information) are issues to be resolved through further research and development. The entertainment side, overlapping with the informational one, includes
several categories of webzines and electronic books, as well as video-on-demand, virtual-reality experiences on demand, and games that can provide an
engrossing and continuing experience to multiple players. The consumer-oriDownloaded by [University of Pennsylvania] at 17:58 09 January 2016 
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ented category is expected to expand in many ways, only some of which can be
predicted. For example, electronic benefit systems can be used to distribute
government transfers over the Internet, which can then be employed for direct
payments; a variety of electronic interactions with "live" creators of infotainment
may be expected to complement their creations.
The business-to-business supplier-OlStomer linkages maintained with EDI
are the best-established category of E-commerce application. U.S. companies
are currently estimated to buy $500 billion worth of goods electronically each
year [58]. This category is likely to expand very significantly with the new Ecommerce, leading in many cases to interorganizational supply-chain
management (discussed below). Business-to-business commerce is facilitated
by consortia such as CommerceNet and by firms that organize industrial
marketplaces on the Web, such as Industry.Net. Business-to-business and
consumer-oriented marketing is one of the most important areas of Ecommerce.
The fastest-growing area on this level of E-commerce is intranet-based
information sharing and collaboration. Intranets support the opening of the
organizational databases and data warehouses, as well as geography-independent team-oriented collaboration within the corporate firewalls. A typical intranet employed by Morgan Stanley displays on the globally accessible
Web site automatically generated up-to-the-minute data summarizing the
company's investment positions. This is the solution of the business problem
the firm had long grappled with unsuccessfully by other means [54]. More
active uses of intranets are being developed, including on-line collaboration
on common projects via electronic documents and videoconferencing. Thus,
Ford Motor Company has used an intranet to link its design centers in the
United States, Asia, and Europe, enabling engineers to develop on-line electronic prototypes of automobiles and components. By including a rich variety of non-numeric information, the intranets can also be expected to become
a new form of support for organizational memory [55].
At the apex of the E-commerce framework are the electronic marketplaces
and electronic hierarchies that facilitate business relationships and transactions between firms. Electronic marketplaces are created to facilitate transactions over telecommunications networks between multiple buyers and
multiple suppliers. Electronic hierarchies are long-lasting supplier-customer
relationships between firms, maintained with telecommunications networks
and coordinated largely by management, rather than by market forces.
Market-based coordination can be classified into four categories (as in
[21]): direct-search markets (where the future partners seek out one another),
brokered markets (with the brokers assuming the search function), dealer
markets (with the dealers holding inventories against which they buy and
sell), and the auction markets. Industry.Net is an example of an established
direct-search market for industrial products; Onsale Inc. provides an electronic auction market [47]. Lee and Clark [32] offer several further examples
of the electronic brokerage and auction marketplaces.
The formation of interorganizational electronic hierarchies is being supported by the fashioning of integrated supply chains, promoting just-in-time
manufacturing, pulled by the actual customer orders. The partners' value
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INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 11
chains are integrated to a significant extent with the use of information systems and telecommunications networks. The visibility of stocking levels
throughout the supply chain helps to minimize inventories and to reduce
working capital. This mode of operation imposes tight constraints on intraand interorganizational coordination, in which both the intranets and the
Internet may be expected to playa significant role. Indeed, the reliance by
both on the same fundamental technology package is vital for integration.
The hierarchies of individual firms and the open marketplaces may be
interpreted as the two ends of a continuum of business governance, with
electronic hierarchies situated in the middle. As the next section elaborates,
the spreading of the new E-commerce will alter comparative advantage between hierarchy-based and market-based coordination, and among the various ways of structuring the market. Many and serious questions about the
effects of E-commerce on business governance remain open.
The Problematic of Electronic Commerce
The business, societal, and research problematic of E-commerce spans
an immense range, which reflects the depth of change caused by this
rapidly expanding mode of doing business (any business, including those
of governing and educating). It is, of course, possible here to point only
to some nodal issues within the hierarchical framework we have discussed. The role of the International Journal of Electronic Commerce is to
address the problems that emerge at the intersection of business and
policy with information techFlOlogy from an analytical perspeCtive. This
discussion of the issues of E-commerce shall move up the hierarchy of
Table 1 from the infrastructure to the business governance.
Limitations and Asymmetries of Infrastructure
Although we should be wary of a technology-centered, "field-of-dreams"
view of success factors, an appropriate infrastructure is necessary for the
development of E-commerce. The infrastructure of the Internet, the current
equivalent of a global information infrastructure/has acknowledged problems. The issues hinge on the provision of sufficient bandwidth for the surging use that is also moving to multimedia transmissions, and on the problems
fostered by the Internet's decentralized nature. The provision of sufficient
bandwidth of the telecommunication infrastructure is considered a serious
limitation by many (although not all-see [49]). The current Internet 2.0 backbone operates at 45-155 megabits per second, enabling the World Wide Web
[5], but not sufficient for the massive use of video-on-demand, for example.
The poor performance experienced by users, however, often stems from the
equipment limitations as well as from the connectivity limitations of their
access providers, rather than from the limited backbone bandwidth. Significant asymmetries exist between the bandwidth actually available to the larger
organizations and that available to small businesses and homes (where the
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consumers are). Solving the last problem, known as the "last mile problem"
or "fiber to the home," outside urban centers by using the existing technology is prohibitively expensive. The issues pale in comparison with the fact
that the fifty least developed countries currently run only twenty-three
Internet host machines [41], out of a total of about 9.5 million hosts around
the world counted in January 1996 [34J.
Marketplace solutions, in some cases stimulated by government intervention, are in view in the developed and rapidly developing countries. A number of U.S. corporations are acquiring the requisite bandwidth on parallel
for-profit networks with premium high-bandwidth links, as well as accessing commercial duplicate Web sites [lSJ. The trend, which splits the issue of
public access from the open systems, may be expected to expand. The future
development of the multimedia Internet 3.0 backbone that would be able to
carry data, video, and voice communications simultaneously is a wide-open
issue. Aside from financial risk and technological problems, public policy
questions of access are sure to arise. Regulatory changes may be expected to
attempt to facilitate funding, and the necessary expertise has to be provided
for the regulation.
A number of limitations are apparent on the W~b level of the infrastructure, and they do translate into business problems. Many of the integration
solutions are provided by middlewar~that is, systems placed between the
client and the server software. Because of the sessionless nature of the
hypertext transfer protocol (HTIP), you need to identify yourself to. every
electronic site during a single session in order to do business. There is no
built-in way to establish who is calling the site and perhaps make the caller
another offer next time he or she dials in. This limitation clearly highlights
the business effects of the technological limitations and their unintended consequences, which in this case is privacy. "Dropping a cookie" into a caller's
system is a way to circumvent this limitation, but is highly invasive of the
user's privacy.
Major infrastructural questions remain: Assuming that the Internet will
further evolve into the global information infrastructure, will it remain fundamentally decentralized? How do we create a protected, secure business
environment in a decentralized infrastructure? Is the limited bandwidth a
real barrier for the consumer? What infrastructure can be provided to enhance the ability of vendors to differentiate their offerings and the ability of
customers to compare them? ([4] is one such attempt.) Will an inexpensive
network computer or a WebTY, marketed as a nonthreatening appliance, bring
about a true consumer marketplace?
Integrating Electronic Payment into the Buying Process
The consumer should be able to pay for a purchase on the Web easily and
with a feeling of security. Although the overall shopping experience, product
perceptions, and customer service on the Web today lead to significant dissatisfaction among potential customers [28] and require the attention of marketers and researchers, the problem of settlement is one problem that is capable
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INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 13
of a systemic solution. As stated above, electronic equivalents of all the payment instruments in use today are appearing on the Web (see, for example,
[42]).
The most excitement is occasioned by the development of electronic cash,
the informational equivalent of physical banknotes and coins. Electronic cash
can offer such benefits as buyer anonyIriity, global acceptance, and divisibility that can cost-effectively go beyond real cash in the case of so-called
micropayments (such as paying $0.025 for the one-time use of a software
object). Widespread use of electronic cash would have serious implications
for the national banking systems and the banks of issue.5
At this time, an electronic cash system (E-cash) is being implemented by
Digicash (of Amsterdam) together with the Mark Twain Bank of Missouri
(http://www.digicash.com); other banks have adopted a posture of watchful
waiting, accompanied by internal research. A cash-like system relying on a
smart card, Mondex, has been tested with mixed acceptance results in
Swindon (United Kingdom) and will be introduced in the United States by
AT&T and Wells Fargo & Company (http://www.Mondex.com). The NetCheque
system developed at the Information Sciences Institute of the University of
Southern California allows its registered users to "write" electronic checks
(http://nii-server.isi.edu/infolNetCheque). On the other side of the issue are the
financial intermediaries, such as First Virtual Holdings, which facilitate settlements for E-commerce transactions by external means, without the financial
tokens (such as credit-card numbers or bank-account information) ever appearing on the Internet (http://www.fv.com). The proponents of this mode of
operation consider the Internet fundamentally insecure for financial transactions [8, 52]. At this time, the apparently prevalent opinion is that financial
transactions on the Internet are no less secure from the consumer's point of
view than today's "physical-world" transactions, with the admixture of fear
that "a big hit from cyberspace" is possible because of the complexity and
the distributed nature of the system.
Clearly, opinions and points of view are not enough. The issue of electronic banking calls for a great deal of research on the acceptability of various solutions to consumers, the apportioning of the risk, the institutional
framework, the economic effects of electronic cash, and, certainly not least,
making electronic settlement transactions secure.
Building a Consumer Marketplace
Some would argue that the main question of E-commerce today is how to
convert Web-surfers from browsers into consumers by creating an encompassing market space for information, services, and goods. The statistics
describing the phenomenal growth of the Internet (with an estimated 16.4
million users in the United States in the fall of 1995 [26]) and of its Web
segment in particular (an estimated 11.5 million users) have to be counterbalanced by the statistics of actual consumer buying-approximately $132
million in 1995 [37].
Shopping remains relatively uncommon as a principal motivator for Web
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use, and it is believed that ease of access should ultimately determine the
success of Web shopping [24]. Poor consumer interface can be a potent disincentive. However, new ways to market have to take advantage of the new,
interactive, marketing medium [6]. Multinational corporations may find themselves effectively challenged on the Web by small upstarts and need to review their business models [43]. A variety of the possible commercial sites
for Web presence are analyzed by Hoffman et al. [27]; Web-enabled selling
techniques are discussed by Gogan and Applegate [23]. Selling on the Web
can tap into the well-formed and committed communities of interest and
provide on-line demonstration, consultation, and assistance. Yet, the nature
of many electronic communities is antithetical to commerce and a pull-model
of doing business has to be built. A number of firms are being formed to
market information-based products, such as software, over the Internet (for
example, Cybermedia, TestDrive, and Tuneup.com); the software-over-theWeb market alone is projected by Forrester Research to reach a volume of
$750 million in 1999 [58].
An emblematic experience of a small merchant on the Web is that of
GolfWeb, based in Cupertino, California [11]. GolfWeb has painstakingly built
up a following on its electronic site before trying to sell anything. By providing extensive golf-related features and information, GolfWeb has been able
to attract some 500,000 hits a day to its 25,000 pages. Until recently, the firm
has relied on advertisers for its revenue; it has just started a virtual pro shop
to produce sales. The firm treats the Web as a new medium by providing
such interactive features as virtual equipment fitting for customers. Yet, questions remain: Will smaller firms, encountering a relatively low entry threshold ($1.7 million of venture capital in the case of GolfWeb), make money on
the Web? Will the business model such as that of GolfWeb ultimately lead to
profits? What are the successful business models for the Internet? And how
do we measure what is actually happening on the Internet? (See, for example,
[26].)
Moving Supply Chains and Products into the Market Space
It is recognized that networked infrastructure offers new opportunities for
adding value by moving the stages of corporate value chains into the realm
of information processing, saving money and time in the process [45]. We are
witnessing the virtualization of value-chain segments, and, in the future,
perhaps also of an increasing number of products. Business processes can be
moved into the virtual, informational value chains, be they paperless transaction processing or electronic proto typing (with the development of the
Boeing 777 aircraft a well-known example). As they move from the purely
informational to collaborative use, corporate intranets can serve as vehicles
for these virtual elements of value chains. Corporate intranets are being
opened to business partners, suppliers, and customers [39]. In the future,
they can become secured extensions of the Internet in interorganizational
market space networks.
Many questions regarding the relative economic efficiency of the physiDownloaded by [University of Pennsylvania] at 17:58 09 January 2016 
INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 15
cal-versus-virtual organization of work and product delivery need to be formulated and researched. What goods and services can be converted to information that can be moved around and traded over the electronic marketplace?
Rayport and Sviokla offer an example of the answering machine [46]. Cash is
another example of a good (albeit a special kind of good) that can be
virtualized; videocassettes are another such good, and retail services are already delivered over the Web instead of physical stores (e.g., by VIrtual Vmeyards). Moreover, many personal computers may be converted to appropriate
over-the-network services. After all, a network computer-the appliance
whose concept is promoted, for example, by Oracle Corporation-will be
such an attempt.
Business Governance
Our understanding of a firm as a monolith has been problematized by
Coase's milestone paper [14]. Transaction cost economics that arose from
this work helps us see the boundary of the firm as defined by the equilibrium between the advantages of the lower transaction costs of internal production, on the one hand, and the lower agency costs (such as the costs of
management) and economies of scale and scope of outside procurement, on
the other [60]. In other words, the costs of conducting marketplace transactions-namely, information seeking, negotiating the terms, and settle~entdefine to a large extent what a firm will buy, instead of making it. Since these
coordination costs are lowered in E-commerce, a general agreement exists (following the analysis in [35]) that more outsourcing-buying rather than making
in-hause-will take place. There is considerable evidence that the use of information technologies is indeed associated with the emergence of small firms as
the result of outsourcing of noncore activities [9]. Will the Internet reaffirm
and amplify this trend? Will the Internet become an equalizer that will enhance the opportunities for smaller firms, and if so, to what extent?
Going beyond the "boundaries-of-the-firm" analysis, the electronic market hypothesis offered by Malone et al. [35] suggests that the development of
interorganizational systems based on telecommunications networks will move
governance toward the market end of the spectrum, with increased transaction-oriented buying from multiple suppliers. Yet the "move-ta-the middle"
hypothesis of Clemons et al. [13] postulates that outsourcing will go only as
far as long-term collaboration with a limited number of suppliers. Likewise,
Bakos and Brynjolfsson [3] argue that the consideration of coordination costs
needs to be combined with incentives for noncontractible investments, which
suppliers need to make to maintain a relationship with a buyer. These relationship-specific investments have to be made to ensure, for example, the
appropriate quality control, the implementation of information-sharing systems, and the modification of business processes. This consideration leads
the authors to postulate the "move to the middle" as well.
The evidence available at this time tends to support the second hypothesis.
For example, a study of loan-origination systems found no move to the market [25]. A study of the effects of the French Teletel system, whose Minitel
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16 ZWASS
terminals are a part of the landscape in that country (40 percent of the
nonretired population has access), found stable customer-supplier relationships as a result [56]. However, the new E-commerce relies on tools that are
radically different from, for example, the French Teletel (whose technology
is outdated), and the developments surrounding the Internet (e.g., open-EDI)
are certain to lead to further analyses of the issue.
Within market governance, profound changes can be expected. For example, global reach and the low access cost of the Internet can be expected to
promote the growth of auction markets.6 Electronic auction companies that
are able to tap into an enthusiastic user community, such as Onsale Inc.,
which sells on-line overstocked and refurbished PC products and consumer
electronics, are almost instantaneously successful [47]. This naturally leads
to the next question: Will there be a role for business intermediaries in a
business world where the ultimate agents-the buyer and the seller-can
seek each other out, negotiate the terms, and settle the trade over the Internet
or a similar global open network?
New Intermediation
It is commonly argued that the greater reliance on telecommunications networks for doing business will lead to disintermediation-the disappearing
role of an intermediary, such as a dealer or a broker. Indeed, perceptible
pressure can be felt on the role of car dealers, for example [40]; likewise, new
electronic commodity and stock exchanges can be created, squeezing out
trade intermediaries. Powerful social and organizational barriers counteract
many of these developments [32]. Beyond that, intermediaries play an important economic role in business exchanges by limiting the risk to the trading parties and by creating economies of scale and scope. It may even be
argued that their role will be reinforced in E-commerce [48].
New types of intermediaries can become valuable. They can facilitate product search, evaluation, and distribution in the form of virtual malls or online auctioneers. Buyer search costs are an important factor in market behavior
and in allocation efficiency [2], and intermediation may be necessary for products of more complex description. New intermediaries can provide packaging and enhancement of information-based goods, for example, by delivering
customized targeted multimedia information packages, with use-based payments to the holders of intellectual property rights, and with the access to
the authors as a premium service. Suppliers receive the efficiency of a single
payment; customers save on search costs and get a more focused and comprehensive product. Intermediaries can track the copyrights and licensing
payments, for example, enforcing site-license agreements. If, in the future,
persistent software copies will not need to be made for many products (they
will simply be downloaded for each use), appropriate billing can be provided by an intermediary. Intermediaries can also handle support services
and updating of information-based products. At the same time, those traditional publishers and resellers of information-based products that cease to
provide value in the new constellation may indeed be made obsolete. The
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INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 17
revenue stream extracted by the new intermediary will depend on the value
added, which may be hypothesized to correlate with the level in the framework of Table 1 at which the intermediary operates?
. An excellent example of a territory being carved out by a new intermediary is Healtheon, a company recently formed by Jim Clark, the founder of
Silicon Graphics and Netscape Communications [19]. Healtheon expects to
sell its services to insurers and health maintenance organizations, which will
use the firm's software to present their own services to employers and to
register their employees. The firm will also provide health-plan management
for these employers. It will use the Web as the platform for its operations.
Health plans representing eight million customers have already been signed.
Multiple questions present themselves: How can traditional intermediaries become new intermediaries? What will be the categories and the role of
the new intermediaries? How will the profits and welfare be redistributed
among the parties in the business transactions? How will the supply chains
of industrial segments change?
The International Journal of Electronic Commerce
As one may readily conclude from the above discussion, the study of Ecommerce has to span a wide range of disciplines. The International Journal of
Electronic Commerce is the first scholarly publication entirely devoted to Ecommerce and will provide an integrated view of its subject. Contributions
from the vantage point of management information systems, marketing, management and organizational studies, computer science, economics, legal studies, sociology, and other disciplines will be at home on these pages. Both
practitioners and researchers will benefit from these multiple perspectives.
Papers reporting empirical results, interpretive works, as well as discussions
of paradigmatic designs will be published in the journal. We intend to study
E-commerce and to help it realize its promise.
The present issue of the journal is opened by a special section that illustrates the diversity of E-commerce research with three papers selected from
the many presentations made at the annual conference on E-commerce held
in Bled, Slovenia. Over the years, this pioneering conference has been able to
attract diverse and important work on the subject. Introduced by guest editors Roger Clarke and Joze Gricar, the papers in the special section concentrate on the meta-level of services of the hierarchical framework of Table 1.
Their authors show, respectively, how to model the procedures of open-EDI,
how to organize a semantically rich business directory, and how to rigorously assess the benefits of EDI investments.
In the first article of the special section, Ho Geun Lee and Theodore H.
Clark analyze more closely the top level of our framework, specifically concentrating on the dynamics of the introduction of electronic brokerages and
electronic auctions. Using a rich set of examples, the authors employ an argument based on transaction cost economics, yet also show how a variety of
extraeconomic barriers can lead to failure in the introduction of electronic
markets.
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In the first paper of the general section, Sirkka L. Jarvenpaa and Blake
Ives mine a rich theoretical base to offer lessons for the introduction of transformational technologies that can be learned from the implementation of the
World Wide Web in two major organizations. The propositions they develop
are instructive for those who wish to exploit organizationally the commercial potential of the Web and are important for further theory building in the
area of information technology implementation.
The papers to appear in forthcoming issues investigate, among other subjects, electronic payments systems, the Web as a consumer marketplace, a rational-choice model for network crime prevention, developing a marketplace for
quantitative knowledge, and the design of artificial negotiation agents.
Conclusion
Over time, new E-commerce will present countless opportunities and challenges to our economies and societies. Expansion of commerce and technological innovations are two of the levers of economic growth [38]. These forces
are combined in the progress of E-commerce. The macroeconomic effects of
E-commerce on the national and regional economies, and on international
trade and its terms, will need to be assessed and analyzed. The traditional
institutions, such as banks of issue, commercial banks, universities, established business intermediaries, the media, and publishing companies, will
find it necessary to redefine their roles in the new environment. Intellectual
property that can be converted to on-line content may find itself revaluated
in the global marketplace.8 Traditional distinctions, such as those between a
publisher and a reader, may be redrawn.
The tension between the transactional efficiency of spot purchasing facilitated by electronic markets and the need for long-term relationships of trust
and forbearance, enabled by electronic hierarchies, will persist and call for much
study. The geographical limitations that have bound the place of residence to
the place of work-already eroded by the growth of telework-may be expected to be even less binding. Indeed, the possibiliti~s of the loss of rural space
to the new ex-urbanites are already causing environmental alarms [51]. The
new working arrangements will be studied from multiple perspectives.
The protean capacity of the global information infrastructure serving as a
communication medium and as a powerful business tool has yet to be understood. What are the possible business consequences of rapid social amplification of news, as in the case of the flawed Pentium chip in the fall of
1994? What is the value of the information that is there for the taking and yet
whose source mayor may not be tainted? What laws are binding on those
acting in cyberspace? All of these issues will require further experience, observation, analysis, and research.
Although it is impossible to encompass the extraordinarily rich domain of
E-commerce in a single issue of the journal, we expect to come close to this
within its first annual volume. Like any journal, the International Journal of
Electronic Commerce will depend on the cooperation of its readers, contributors, referees, and the Editorial Board.
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INTERNA TIONAL JOURNAL OF ELECTRONIC COMMERCE 19
Acknowledgments: Numerous members of the Editorial Board have contributed
advice and encouragement, for which I am grateful. It is my special privilege and
pleasure to acknowledge the contributions and the involvement of Roger Clarke,
Eric Clemons, Dorothy Denning, Martin Goslar, Joze Gricar, Varun Grover, Blake
Ives, Robert Kauffman, Simha Magal, Peter Mykytyn, Donn Parker, Avi Seidmann,
and Paula Swatrnan in the preparation of the Journal.
NOTES
1. A fascinating story of the EDI technology emerging from the airlift organized
to supply Berlin when the city was blockaded by the Soviet Union in 1948 is told in
[50].
2. The World Wide Web, which has brought people to the Internet, was devised
by TIm Berners-Lee in 1989 as a collaborative means for the physicists working
on the projects of the international research center CERN. However, it is actually
the first popular Web browser, NCSA Mosaic (originally designed by Marc
Andreessen, not much later a founder of Netscape) that began to bring people to
the Web in the spring of 1993. That year can serve as the beginning point of the
new E-commerce.
3. To some, the Web is the e~bodiment of such visions as Vannevar Bush's
memex, or, very far beyond that, when taken with the humanity using it in
the future, Pierre Teilhard de <;:hardin's noosphere (a collective mind, the
thinking layer of the biosphere), or Vladimir Vernadsky's ultimate holistic
interactions of the spheres of existence and consciousness. The visionary
statements are [10, 57, 59].
4. According to John Gage, ,the director of the science office of Sun Microsystems: "Your E-mail flow determines whether you're really part of the organization; the mailing lists you're on say a lot about the power you have. I've been
part of the Java group at Sun for four or five years. Recently, by mistake, someone removed my name from :the Java E-mail list. My flow of information just
stopped and I stopped being:part of the organization, no matter what the org
chart said .... The best way tq understand what's happening in a company is to
get its alias file-the master list of all its E-mail lists" (from an interview with
John Gage in [44]).
5. In November 1995, I w~s queried quite extensively on the issue by the head
of the central bank of one of'the smaller countries of the European Union, who
appeared to have been highly sensitized to the problem.
6. An interesting system that shows the potential of almost frictionless auction
markets has been developed at Xerox Corporation. The system auctions off cool or
hot air in a building to the ~dividual rooms. Software agents track the temperature in the rooms and bid a~cordingly for heating or cooling. The system holds
about 1,500 auctions a day, more than one a minute. The "market-based" system
was found to distribute warm and cool air throughout the building better than
traditional, "hierarchical" systems [36].
7. Here is an example of a trajectory to the new intermediation. Andrew Klein,
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founder and president of Spring Street Brewing Company, was the first to complete the initial public offering (!PO) of his company's stock on the Internet,
disintermediating the investment bankers. He has now launched WIT Capital
Corporation, an investment bank that will specialize in Internet IPOs. He justifies
the need for the new intermediation thus: "There is a tremendous amount of risk
that [an Internet !PO] won't work" [17]. One can speculate that by moving the
function of IPO from the top level in Table 1 to levelS, he will be able to extract a
smaller surplus than the traditional intermediaries.
8. It is a claim of Esther Dyson, a well-known analyst of the information
industry and society, that the market value of the intellectual property will be eroded
with the expansion of the Web (expressed, for example, in an interview in The New
York Times Magazine, July 7, 1996). A different claim may be made: With the advent of
electronic payment schemes (including rnicropayments) and copyright protection
techniques, the global penetration of the new medium can polarize the content
providers into the winners of new riches and those drawing no attention.
