Instituto Cultural Minerva

Author: Sérgio da Silveira Malta

Washington, DC

CONTENTS

ABBREVIATIONS AND ACRONYMS

INTRODUCTION

CHAPTER ONE: THE INTERNET PHENOMENON

- Waves of Change

1.2 - A Short Internet History

1.2.1 - Origins of the Internet

1.2.2 - The Initial Internetting Concepts

1.2.3 - CERN and The World Wide Web Development

1.2.4 - The Netscape and Microsoft Initial Strategy

1.3 - The Internet Size

CHAPTER TWO: ELECTRONIC PAYMENT TRANSACTIONS

2.1 - First Virtual

2.2 - NetBill

2.3 - Secure Electronic Transaction - SET

2.4 - Digicash's ecash

2.5 - NetBank

2.6 - MONDEX

2.7 - FSTC - Electronic Cleck Model

2.8 - Conclusion

CHAPTER THREE: THE UNITED STATES VISION ABOUT ELECTRONIC COMMERCE

3.1 - Principles

3.2 - Issues

3.2.1 - Financial Issues

3.2.1.1 - Customs and Taxation

3.2.1.2 - Electronic Payment Systems

3.2.2 - Legal Issues

3.2.2.1 - Uniformal Commercial Code for Electronic Commerce

3.2.2.2 - Intellectual Property Protection

3.2.2.3 - Privacy

3.2.2.4 - Security

3.2.3 - Market Acess Issues

3.2.3.1 - Telecommuinications Infrastucture and Information Technology

3.3 - Content

3.4 - Technical Standards

3.5 - Conclusion

CHAPTER FOUR: THE PRIVATE SECTOR POSITION

4.1 - Government Participation

4.1.1 - Taxition and Customs Matters

4.1.2 - Uniform International Commercial Principles

4.1.3 - Intellectual Property Protection and Rights

4.1.4 - Security

4.1.5 - Privacy

4.1.6 - Telecommunications Infrastructure

4.1.7 - Standards

4.1.8 - Regulation of Content

4.1.9 - Import and Export Regulations

CHAPTER FIVE: THE FUTURE OF COMMERCE

5.1 - Electronic Commerce Categories

5.1.1 - Business - Business

5.1.2 - Business - Consumer

5.1.3 - Business - Administration

5.1.4 - Consumer - Administration

5.2 - Supplier Opportunities and Customer Benefits

5.2.1 - Global Presence / Global Choice

5.2.2 - Improved Competitiveness / Quality of Service

5.2.3 - Mass Customization / Personalized Products and Services

5.2.4 - Shorten or Eradicate Supply Chains / Rapid Response to Needs

5.2.5 - Substancial Cost Savings / Substancial Price Reductions

5.2.6 - Novel Business Opportunities / New Products and Services

5.3 - Examples of Electronic Commerce

5.3.1 - Retail

5.3.2 - Finance

5.3.3 - Distribution

5.3.4 - Pre/post Sales Support

5.3.5 - Engeneering Design

5.3.6 - Business Support

5.3.7 - Publishing

5.3.8 - Professional Services

5.3.9 - International Contact

5.3.10 - Shared Business Processes

CONCLUSION

TABLES

TABLE 1: Opportunities and Benefits

BOXES

BOX 1.1: The WTO Negotiations

BOX 1.2: What is the Internet?

BOX 1.3: The ARPANET

BOX 2.1: Carnegie Mellon University

BOX 2.2: The First Announces of Secure Electronic Commerce

BOX 6.1: EDI

BOX 6.2: What Is Electronic Commerce?

FIGURES

FIGURE 1.1: Growth in The Number of Internet Host Computers

FIGURE 1.2: Growth in The Number of Web Servers

FIGURE 1.3: Distribution of Internet Users

LIST OF ACRONYMS AND ABBREVIATIONS

ARPANET Advanced Research Projects Agency Net

BBN Bolt Beranek and Newman

CERN Europian Laboratory for Particle Physics

CCR Command and Control Research

DARPA Defense Advanced Research Projects Agency

DNS Domain Name Server

DoD Departament of Defense

EC Electronic Commerce

ECU European Currency Unit

FNC Federal Networking Council

FTP File Transfer Protocol

GATT General Agreement on Tariffs and Trade

HTML Hyper Text Mark-up Language

http Hyper Text Transport Protocol

IBDR International Bank for Reconstruction and Development

ICCC International Computer Communication Conference

IETF Internet Engineering Task Force

IMF International Monetary Fund

IMP Interface Message Processor

IWNG International Network Working Group

MIT Massachusets Institute of Technology

NCP Network Control Protocol

NWG Network Working Group

OPEC Organization of the Petrolium Exporting Countries

PTO Public Telecommunication Operator

RFC Request for Comment

RPC Remote Procedure Protocol

SDRs Special Drawing Rights

SRI Stanford Research Institute

TCP/IP Transmission Control Protocol/Internet Protocol

UCLA University of California Los Angeles

UCSB University of California Santa Barbara

UDP User Datagram Protocol

UK United Kingdom

US United States

WTO World Trade Organizarion

INTRODUCTION

Electronic Commerce (EC), still in the early stages of its development, is already transforming our world. Over the next decade, advances of commerce on the Internet will affect almost every aspect of daily life. Disparate populations, once separated by distance and time, will experience these changes as part of a global community.

No single force embodies our electronic transformation more than the evolving medium known as the Internet. Once a tool reserved for scientific and academic exchange, the Internet has emerged as an appliance of every day life, accessible from almost every point on the planet. Students across the world are discovering vast treasure troves of data via the World Wide Web. Doctors are utilizing tele-medicine to administer off-site diagnoses to patients in need. Citizens of many nations are finding additional outlets for personal and political expression. The Internet is being used to reinvent our lives and our communities in the process.

As the Internet empowers citizens and democratizes societies, it is also changing classic business and economic paradigms. New models of commercial interaction are developing as businesses and consumers participate in the electronic marketplace and reap the resultant benefits. Entrepreneurs are able to start new businesses more easily, with smaller investment requirements, by accessing the Internet's worldwide network of customers.

Internet technology is having a profound effect on the global trade in services. World trade involving computer software, entertainment products (motion pictures, videos, games, sound recordings), information services (databases, online newspapers), technical information, product licenses, financial services, and professional services (businesses and technical consulting, accounting, architectural design, legal advice, travel services, etc.) has grown rapidly in the past decade.

An increasing share of these transactions occurs online. The Internet has the potential to revolutionize commerce in these and other areas by dramatically lowering transaction costs and facilitating new types of commercial transactions.

The Electronic Commerce will also revolutionize retail and direct marketing. Consumers will be able to shop in their homes for a wide variety of products from manufacturers and retailers all over the world. They will be able to view these products on their computers, access information about the products, visualize the way the products may fit together (constructing a room of furniture on their screen, for example), and order and pay for their choice, all from their houses.

"Trade and commerce on the Internet are doubling and tripling every year. In just a few years, the Internet will be generating hundreds of billions of dollars in sales of goods and services. If we establish an environment in which electronic commerce can flourish, then every computer can be a window open to every business, large and small, everywhere in the world."

Vice President Albert Gore, jr.

Many businesses and consumers are still wary of conducting extensive business over the Internet because of the lack of a predictable legal environment governing transactions. This is particularly true for international commercial activity where concerns about enforcement of contracts, liability, intellectual property protection, privacy, security and other matters have caused businesses and consumers to be cautious.

As use of the Internet expands, many companies and Internet users are still concerned that some governments will impose extensive regulations on the Internet and electronic commerce. Potential areas of problematic regulation include taxes and duties, restrictions on the type of information transmitted, control over standards development, licensing requirements and rate regulation of service providers.

On the other side, participants in the electronic marketplace are not only limited on digital product companies such as those in publishing, software, entertainment and information industries. The Digital Age and the digital revolution affect all of us by virtue of their process innovations. Through WebTV and digital television, the way we watch TV news and entertainment programs will change. Changes in telecommunication are affecting also the way we receive information, product announcements, orders, etc. As phones, fax machines, copiers, PCs and printers have become essential ingredients in doing business, so are emails, Web sites, and integrated digital communications and computing.

The New Era of Commerce is just appearing in many countries, whether by EDI, Internet, Web TV or any kind of digital systems.

CHAPTER ONE

THE INTERNET PHENOMENON

Waves of Change

The telecommunications industry in the late 1990s is almost unrecognizable from that of a decade earlier. Tem year ago, mobile communications were restricted to a few consumers in a handful of countries; digitization programs were just beginning; and the majority of Public Telecommunication Operators (PTOs) were still stated-owned monopolies. Today, all this changed. Mobilephones are a familiar sight on the streets of the big cities of both the developed and developing world; digitization programs are on schedule for being completed in most countries by the turn of the century, and a majority of telecommunication traffic now passes over networks which are privately-owned and operated. During of 1998, when the World Trade Organization (WTO) Agreement on basic telecommunications (see Box 1.1) comes into force, more than 90 per cent of the global market for telecommunication services will be in countries that either allow competition, or have committed to allow competition in the near future.

The wave of change was initiated as long ago as 1969 when a network of computer networks – an Internet (see Box 1.2) – was first created, with four hubs to join together research centers across American. The wave gained momentum in the mid – 1970s when a common operating protocol – TCT/IP: Transmission Control Protocol/Internet Protocol – was defined to provide a common basis for communications between diverse networks. In the late 1980s, the wave washed through academic communities around the world, as electronic mail become a standard feature and as a new concept for creating hyperlinks between information stored in different computers around the world – the World Wide Web – was developed at the European Laboratory for Particle Physics (CERN) in Geneva. In the early and mid-1990s, the wave of change flowed into the commercial sector as the World Wide Web was given a multimedia interface through browsers which were provided, initially at least free of charge by companies keen to ride the wave and to capture a dominant position before the wave broke into the mass market. The Internet has sustained annual growth rates in excess of 100 per cent over the last ten years (Figure 1.1).

Box 1.1: The WTO Negotiations

On 15 February 1997, the WTO successfully concluded nearly three years of extended negotiations on market access for basic telecommunications services. A total of 71 governments tabled offer by the close of the negotiations and the commitments of 69 of these governments are to be annexed to the Fourth Protocol of the General Agreement on Trade in Services. The world's industrialized countries all participated in the deal. Over 40 developing countries large and small from virtually every region of the world also took part as did six of the Central and Eastern European economies in transition. The markets of the participants accounted for more than 91 percent of global telecommunications revenues in 1995.

The Internet can be interpreted as just the latest in a series of changes to hit the telecommunications sector, along with the growth of mobile communications, the spread of digital technology and the trend towards market liberalization and competition. The telecommunication industry has embraced these changes with confidence. They have brought fresh growth and opportunities to a profitable and dynamic industry. But the Internet might be different. The Internet may be about to challenge the very foundations of the telecommunications industry, both economic and technical.

Box 1.2: What is the Internet?

The question "what is the Internet?" is commonly heard, and often provokes intensive discussion among those that claim ownership of some part of the Internet or wish to be associated with its success in some way. In simple terms, the Internet can be described as a network of computer network, and that is the approach followed here. But for those seeking more precision, a resolution passed by the US Federal Networking Council (FNC) in October 1995 defined the Internet as: "the global information system that:

Is logically linked together by a globally unique address space based on the Internet Protocol (IP);

Is able to support communications using the Transmission Control Protocol/Internet Protocol (TCP/IP) suite, and other IP-compatible protocols, and;

Provides, uses or makes accessible, either publicly or privately, high level services layered on the communications and related infrastructure described herein."

1.2.1 Origins of the Internet

The first recorded description of the social interactions that could be enabled through networking was a series of memos written by J.C.R. Licklider of MIT in August 1962 discussing his "Galactic Network" concept. He envisioned a globally interconnected set of through which everyone could quickly access data and programs from any site. In spirit, the concept was very much like the Internet of today. Licklider was the first head of the computer research program at DARPA, starting in October 1962 (see Box 1.3). While at DARPA he convinced his successors at DARPA, Ivan Sutherland, Bob Taylor, and MIT researcher Lawrence G. Roberts, of the importance of this networking concept.

Leonard Kleinrock at MIT published the first paper on packet switching theory in July 1961 and the first book on the subject in 1964. Kleinrock convinced the MIT researcher of the theoretical feasibility of communications using packets rather than circuits, which was a major step along the path towards computer networking. The other key step was to make the computers talk together. To explore this, in 1965 was connected one computer in Massachusetts to another one in California with a low speed dial-up telephone line creating the first wide-area computer network ever built. The result of this experiment was the realization that the time-shared computers could work well together, running programs and retrieving data as necessary on the remote machine, but that the circuit switched telephone system was totally inadequate for the job. Kleinrock's conviction of the need for packet switching was confirmed.

Box 1.3: The ARPANET

A climate of pure research surrounded the entire history of the ARPANET. The Advanced Research Projects Agency was formed with an emphasis towards research, and thus was not oriented only to a military product. The formation of this agency was part of the U.S. reaction to the then Soviet Union's launch of Sputnik in 1957. ARPA was assigned to research how to utilize their investment in computers via Command and Control Research (CCR).

In late 1966 Roberts went to DARPA to develop the computer network concept and quickly put together his plan for the "ARPANET", publishing it in 1967. At the conference where he presented the paper, there was also a paper on a packet network concept from the UK by Donald Davies and Roger Scantlebury of NPL. Scantlebury told Roberts about the NPL work as well as that of Paul Baran and others at RAND. The RAND group had written a paper on packet switching networks for secure voice in the military in 1964. It happened that the work at MIT (1961-1967), at RAND (1962-1965), and at NPL (1964-1967) had all proceeded in parallel without any of the researchers knowing about the other work. The word "packet" was adopted from the work at NPL and the proposed line speed to be used in the ARPANET design was upgraded from 2,4 kbps to 50 kbps.

In August 1968, after Roberts and the DARPA funded community had refined the overall structure and specifications for the ARPANET, an RFQ was released by DARPA for the development of one of the key components, the packet switches called Interface Message Processors (IMP's). The RFQ was won in December 1968 by a group headed by Frank Heart at Bolt Beranek and Newman (BBN). As the BBN team worked on the IMP's with Bob Kahn playing a major role in the overall ARPANET architectural design, the network topology and economics were designed and optimized by Roberts working with Howard Frank and his team at Network Analysis Corporation, and the network measurement system was prepared by Kleinrock's team at UCLA.

Due to Kleinrock's early development of packet switching theory and his focus on analysis, design and measurement, his Network Measurement Center at UCLA was selected to be the first node on the ARPANET.

All this came together in September 1969 when BBN installed the first IMP at UCLA and the first host computer was connected. Doug Engelbart's project on "Augmentation of Human Intellect" (which included NLS, an early hypertext system) at Stanford Research Institute (SRI) provided a second node. SRI supported the Network Information Center, led by Elizabeth Feinler and including functions such as maintaining tables of host name to address mapping as well as a directory of the RFC's. One month later, when SRI was connected to the ARPANET, the first host-to-host message was sent from Kleinrock's laboratory to SRI. Two more nodes were added at UC Santa Barbara and University of Utah. These last two nodes incorporated application visualization projects, with Glen Culler and Burton Fried at UCSB investigating methods for display of mathematical functions using storage displays to deal with the problem of refresh over the net, and Robert Taylor and Ivan Sutherland at Utah investigating methods of 3-D representations over the net. Thus, by the end of 1969, four host computers were connected together into the initial ARPANET, and the budding Internet was off the ground. Even at this early stage, it should be noted that the networking research incorporated both work on the underlying network and work on how to utilize the network. This tradition continues to this day.

Computers were added quickly to the ARPANET during the following years, and work proceeded on completing a functionally complete Host-to-Host protocol and other network software. In December 1970 the Network Working Group (NWG) finished the initial ARPANET Host-to-Host protocol, called the Network Control Protocol (NCP). As the ARPANET sites completed implementing NCP during the period 1971-1972, the network users finally could begin to develop applications.

In October 1972 was organized a large, very successful demonstration of the ARPANET at the International Computer Communication Conference (ICCC). This was the first public demonstration of this new network technology to the public. It was also in 1972 that the initial "hot" application, electronic mail, was introduced. In March Ray Tomlinson at BBN wrote the basic email message send and read software, motivated by the need of the ARPANET developers for an easy coordination mechanism. In July, Roberts expanded its utility by writing the first email utility program to list, selectively read, file, forward, and respond to messages. From there email took off as the largest network application for over a decade. This was a harbinger of the kind of activity we see on the World Wide Web today, namely, the enormous growth of all kinds of "people-to-people" traffic.

1.2.2 The Initial Internetting Concepts

The original ARPANET grew into the Internet. Internet was based on the idea that there would be multiple independent networks of rather arbitrary design, beginning with the ARPANET as the pioneering packet switching network, but soon to include packet satellite networks, ground-based packet radio networks and other networks. The Internet as we now know it embodies a key underlying technical idea, namely that of open architecture networking. In this approach, the choice of any individual network technology was not dictated by a particular network architecture but rather could be selected freely by a provider and made to interwork with the other networks through a meta-level "Internetworking Architecture". Up until that time there was only one general method for federating networks. This was the traditional circuit switching method where networks would interconnect at the circuit level, passing individual bits on a synchronous basis along a portion of an end-to-end circuit between a pair of end locations. Recall that Kleinrock had shown in 1961 that packet switching was a more efficient switching method. Along with packet switching, special purpose interconnection arrangements between networks were another possibility. While there were other limited ways to interconnect different networks, they required that one be used as a component of the other, rather than acting as a peer of the other in offering end-to-end service.

In an open-architecture network, the individual networks may be separately designed and developed and each may have its own unique interface, which it may offer to users and/or other providers, including other Internet providers. Each network can be designed in accordance with the specific environment and user requirements of that network. There are generally no constraints on the types of network that can be included or on their geographic scope, although certain pragmatic considerations will dictate what makes sense to offer.

The idea of open architecture networking was first introduced by Kahn shortly after having arrived at DARPA in1972. This work was originally part of the packet radio program, but subsequently became a separate program in its own right. At the time, the program was called "Internetting". Key to making the packet radio system work was a reliable end-end protocol that could maintain effective communication in the face of jamming and other radio interference, or withstand intermittent blackout such as caused by being in a tunnel or blocked by the local terrain. Kahn first contemplated developing a protocol local only to the packet radio network, since that would avoid having to deal with the multitude of different operating systems, and continuing to use NCP.

However, NCP did not have the ability to address networks (and machines) further downstream than a destination IMP on the ARPANET and thus some change to NCP would also be required. (The assumption was that the ARPANET was not changeable in this regard). NCP relied on ARPANET to provide end-to-end reliability. If any packets were lost, the protocol (and presumably any applications it supported) would come to a grinding halt. In this model NCP had no end-end host error control, since the ARPANET was to be the only network in existence and it would be so reliable that no error control would be required on the part of the hosts.

Thus, Kahn decided to develop a new version of the protocol which could meet the needs of an open-architecture network environment. This protocol would eventually be called the Transmission Control Protocol/Internet Protocol (TCP/IP). While NCP tended to act like a device driver, the new protocol would be more like a communications protocol.

Kahn began work on a communications-oriented set of operating system principles while at BBN and documented some of his early thoughts in an internal BBN memorandum entitled "Communications Principles for Operating Systems". At this point he realized it would be necessary to learn the implementation details of each operating system to have a chance to embed any new protocols in an efficient way. Thus, in the spring of 1973, after starting the internetting effort, he asked Vint Cerf (then at Stanford) to work with him on the detailed design of the protocol. Cerf had been intimately involved in the original NCP design and development and already had the knowledge about interfacing to existing operating systems. So armed with Kahn's architectural approach to the communications side and with Cerf's NCP experience, they teamed up to spell out the details of what became TCP/IP.

The first written version of the resulting approach was distributed at a special meeting of the International Network Working Group (INWG) which had been set up at a conference at Sussex University in September 1973. Cerf had been invited to chair this group and used the occasion to hold a meeting of INWG members who were heavily represented at the Sussex Conference.

The original paper on the Internet described one protocol, called TCP, which provided all the transport and forwarding services in the Internet. Kahn had intended that the TCP protocol support a range of transport services, from the totally reliable sequenced delivery of data (virtual circuit model) to a datagram service in which the application made direct use of the underlying network service, which might imply occasional lost, corrupted or reordered packets.

However, the initial effort to implement TCP resulted in a version that only allowed for virtual circuits. This model worked fine for file transfer and remote login applications, but some of the early work on advanced network applications, in particular packet voice in the 1970s, made clear that in some cases packet losses should not be corrected by TCP, but should be left to the application to deal with. This led to a reorganization of the original TCP into two protocols, the simple IP which provided only for addressing and forwarding of individual packets, and the separate TCP, which was concerned with service features such as flow control and recovery from lost packets. For those applications that did not want the services of TCP, an alternative called the User Datagram Protocol (UDP) was added in order to provide direct access to the basic service of IP.

A major initial motivation for both the ARPANET and the Internet was resource sharing - for example allowing users on the packet radio networks to access the time sharing systems attached to the ARPANET. Connecting the two together was far more economical that duplicating these very expensive computers. However, while file transfer and remote login (Telnet) were very important applications, electronic mail has probably had the most significant impact of the innovations from that era. Email provided a new model of how people could communicate with each other, and changed the nature of collaboration, first in the building of the Internet itself (as is discussed below) and later for much of society.

There were other applications proposed in the early days of the Internet, including packet based voice communication, various models of file and disk sharing, and early "worm" programs that showed the concept of agents. A key concept of the Internet is that it was not designed for just one application, but as a general infrastructure on which new applications could be conceived. It is the general-purpose nature of the service provided by TCP and IP that makes this possible.

CERN and The World Wide Web Development

Taxation and Customs Matters

Uniform International Commercial Principles for Electronic Commerce

Intellectual Property Protection

Security

Privacy

Telecommunications Infrastructure

Standards (Interoperability)

Regulation of Content

Import and Export Regulations

4.1.1 Taxation and Customs Matters

Unreasonable tax burdens will hinder the growth of electronic commerce. Taxation of electronic commerce should be guided by the principle of neutrality. Neutrality rejects the imposition of new or additional taxes on electronic transactions and instead simply requires that the tax system treat such transactions equally, regardless of whether it is through electronic means or through existing channels of commerce. Where the administration of transactional taxes in this medium may be complicated given the difficulty in capturing relevant customer information, government and industry must work together to provide acceptable solutions.

Cross-border transactions may run the risk that states and countries will claim inconsistent taxing jurisdictions, and that taxpayers will be subject to unpredictable taxation. The adoption of consistent taxing terms, definitions and concepts would eliminate many of the problems that will otherwise occur when one jurisdiction seeks to impose income tax based on one criteria while another jurisdiction embraces a conflicting taxing criteria. Rules that provide certainty and prevent double taxation are required. At the international level, changes may be needed to existing international tax treaties for the avoidance of double taxation.

Concerning customs, we believe that the Internet should be a tariff-free environment for products and services delivered over the Internet. This is consistent with current trends to reduce or eliminate tariffs on products with the recent example of the World Trade Organization's International Technology Agreement designed to eliminate tariffs on technology products.

4.1.2 Uniform International Commercial Principles for Electronic Commerce

In order to facilitate international electronic commercial transactions, it is important to establish a unified treatment for commercial transactions. The private sector should continue to shape the rules governing transactions in electronic commerce, such as commercial practices, agreements and industry guidelines, as it does today in more traditional commercial activities. The role for government is to ensure that the legal environment supporting commercial transactions in the private sector is flexible and adaptable to electronic commerce. We recognize and encourage the ongoing work of groups and organizations to define national and international sets of uniform principles for electronic commerce.

Concerning disputes that may arise between parties conducting commerce over the Internet, particular attention should be paid to the functions of arbitration and mediation. If the structure necessary to conduct arbitration and mediation on the Internet is established and functions well, disputes may be resolved before they become more complicated, thereby reducing the costs to solve such disputes. Current arbitration organizations should study possible systems and structures for arbitration and mediation on the Internet, with a goal of giving arbitration awards on the Internet the same effect as traditional arbitration decisions. The use of the Internet is also worth considering for litigated disputes, given the litigation cost for the parties involved may be enormous due, in part, to the geographical distance between the parties.

4.1.3 Intellectual Property Protection and Rights

A balanced approach to intellectual property protection and rights will help to expand the use of electronic commerce. The Internet permits rapid and efficient dissemination of information in digital form. It has the potential to be a major medium for distribution of content in various forms, for example, textbooks, papers, drawings, music and video. Appropriate policies governing the communication and distribution of this information to the public are being put in place as a result of the World Intellectual Property Organization's landmark global conference held in Geneva in December 1996 and the two treaties that resulted from it. The GIP applauds the results of WIPO efforts to create the two new treaties. The GIP also supports WIPO activities to assess and resolve future intellectual asset issues. The GIP must also be aware of new issues such as the liability of network access and information providers - with a goal of multilateral solutions and international harmonization.

4.1.4 Security

The GIP supports policies that work globally on information security, giving companies and individuals the ability to ensure that their communications have an adequate level of security. Because the Internet is not designed to provide centralized information security, individuals and companies bear the responsibility for securing and verifying information sent or received over open networks. To promote confidence in and usage of electronic commerce on the Internet, the private sector requires effective encryption for information security of business and personal data, including confidentiality, authenticity, and integrity of information in electronic form.

The GIP notes an important international step taken in March 1997 with the adoption of the OECD's "Guidelines for Cryptography Policy", setting out principles to guide countries in formulating their own policies and legislation relating to the use of cryptography. The OECD Guidelines are intended to promote the use of cryptography, to develop electronic commerce through a variety of commercial applications, to bolster user confidence in networks, and to provide for data security and privacy protection.

4.1.5 Privacy

The GIP encourages the private sector to implement processes for protecting customer and personal privacy. The increasing capability of computers and telecommunications to obtain and correlate personal information about individuals will continue to raise privacy concerns. If not addressed, these concerns could severely limit the growth of electronic commerce. In the near term, industry is studying different approaches to achieve an equitable balance between privacy interests and the desire to use personal information to promote electronic commerce.

Appropriate consumer protection is also essential for the healthy development of electronic commerce over the Internet. As consumer activities occur on a global level, an international consensus will be required with respect to minimum required regulations for consumer protection. Work is already underway within the OECD to establish international principles for consumer protection.

4.1.6 Telecommunications Infrastructure

Competitive environments for the provision of both local and long distance transport underlying the provision of Internet services, including electronic commerce, should be encouraged. This will help provide greater choice, functionality and value to Internet Service Providers for building their services on top of the infrastructure, and will ultimately benefit users. The World Trade Organization's recent agreement on basic telecommunications services, which opens telecommunications markets to competition, is another helpful step to promote electronic commerce on the Internet.

Many countries still maintain a monopoly provider of Internet access, or restrict the number of competing providers by adopting a licensing process that serves ultimately to limit competition, thereby reducing the choices available to users. OECD studies have shown positive correlation between the freedom to compete and provide Internet services within a country and the attractiveness of price and feature packages for consumers and businesses in that country.

4.1.7 Standards (Interoperability)

Electronic commerce will benefit from the development of technical standards to secure Internet interoperability. The Internet's development was based on voluntary industry standards and global interoperability. This key strength should continue to be fostered for its future growth. Governments should promote interoperability by encouraging industry-led global standards-setting processes, and by advocating open interfaces where multiple providers can interoperate. Such essential interfaces, where they are not open, can be used to diminish user choice by forming bottlenecks to access, which limit or deny competition. Market-driven processes should be encouraged wherever feasible in order to facilitate interoperability that can keep up with the rapid pace of technological and industry growth.

4.1.8 Regulation of Content

The GIP recognizes that the diversity of individual nations enriches the global environment. The promotion of diversity of content and respect for national culture and traditions are important. Encouraging trade in content (by removing barriers) is a means of promoting diversity of content, including cultural and linguistic diversity, and of preserving and maintaining the various national and regional cultures.

There is concern on the part of various governments regarding access to inappropriate information over the Internet. In the U.S. this concern primarily focuses on protecting children from pornographic content. The level of concern varies with the norms of each society, but countries as varied as the U.S., the U.K., China and Singapore have varying levels of concern. Censorship by governments can significantly dampen Internet growth and use. The Internet industry, including the GIP member companies, are developing and deploying content filtering mechanisms as a form of industry self-regulation, and are committed to supporting continued progress in this area.

Certain governments view the Internet's free flow of information across borders as a political threat and are putting in measures that stifle its growth. These kind of censorship and government controls poses major challenges to the Internet.

CHAPTER FIVE

THE FUTURE OF COMMERCE

The future of commerce is "Electronic Commerce". Electronic commerce is not some futuristic dream. It's happening now, with many well-established success stories. It's happening world wide - while the USA, Japan and Europe are leading the way, electronic commerce is essentially global in both concept and realization. It's happening fast. And, with the maturing of EDI and the rapid growth of Internet and the World Wide Web, it's accelerating.

Box 5.1: EDI

Electronic data interchange (EDI) is the exchange of documents in a structured form between computers via telephone lines. It is being increasingly used to great effect worldwide, most commonly, but not exclusively, for purchasing and distribution - orders, confirmations, shipping papers and invoices - but also for dentists payments and the distribution of exam results.

The impact of electronic commerce will be pervasive, both on companies and on society as a whole. For those companies that fully exploit it's potential, electronic commerce offers the possibility of breakpoint changes - changes that so radically alter customer expectations that they re-define the market or create entirely new markets. All other companies, including those that try to ignore the new technologies, will then be impacted by these changes in markets and customer expectations. Equally, individual members of society will be presented with entirely new ways of purchasing goods, accessing information and services, and interacting with branches of government. Choice will be greatly extended, and restrictions of geography and time eliminated. The overall impact on lifestyle could well be comparable to say that of the growth in car ownership or the spread of the telephone.

Box 5.2:What Is Electronic Commerce?

Electronic commerce is any use of electronic networks and technology for commerce and other economic activity. This includes the use of electronic communication as the medium through which goods and services of economic value are designed, produced, advertised, catalogued and inventoried, purchased and accounts settled. Private and public enterprises, citizens, companies, entrepreneurs, public institutions and government organizations, all types of social organizations and corporations will be able to freely participate in economic activities over a wide range of sectors including agriculture, forestry and fishery, industry, private and government services. Electronic commerce will allow products to be marketed worldwide, while providing a wide array of options to the consumer. Electronic commerce can also enhance a nation's economic position in an increasingly competitive global market.

Modern business is characterized by ever-increasing supply capabilities, ever-increasing global competition, and ever-increasing customer expectations. In response, businesses throughout the world are changing both their organizations and their operations. The barriers between the company and its customers and suppliers are lowering. Business processes are being re-designed so that they cross these old boundaries.

One special case of electronic commerce is electronic trading, in which a supplier provides goods or services to a customer in return for payment. A special case of electronic trading is electronic retailing, where the customer is an ordinary consumer rather than another company. However, while these special cases are of considerable economic importance, they are just particular examples of the more general case of any form of business operation or transaction conducted via electronic media. Other equally valid examples include internal transactions within a single company or provision of information to an external organization without charge.

Electronic commerce is technology for change. Companies that choose to regard it only as an "add on" to their existing ways of doing business will gain only limited benefit. The major benefits will accrue to those companies that are willing to change their organizations and business processes to fully exploit the opportunities offered by electronic commerce.

5.1 Electronic Commerce Categories

5.1.1 Business-Business

The business-business category would be a company that uses a network for ordering from its suppliers, receiving invoices and making payments. This category of electronic commerce has been well established for several years, particularly using Electronic Data Interchange (EDI) over private or value-added networks.

5.1.2 Business-Consumer

The business-consumer category largely equates to electronic retailing. This category has expanded greatly with the advent of the World Wide Web. There are now shopping malls all over the Internet offering all manner of consumer goods, from cakes and wine to computers and motor cars.

5.1.3 Business-Administration

The business-administration category covers all transactions between companies and government organizations. Currently this category is in its infancy, but it could expand quite rapidly as governments use their own operations to promote awareness and growth of electronic commerce

5.1.4 Consumer-Administration

The consumer-administration category has not yet emerged. However, in the wake of a growth of both the business-consumer and business-administration categories, governments may extend electronic interaction to such areas as welfare payments and self-assessed tax returns.

5.2 Supplier Opportunities and Customer Benefits

As summarized in table 1, electronic commerce offers several opportunities to suppliers and commensurate benefits to customers. These include:

5.2.1 Global Presence / Global Choice

The boundaries of electronic commerce are not defined by geography or national borders, but rather by the coverage of computer networks. Since the most important networks are global in scope, electronic commerce enables even the smallest suppliers to achieve a global presence and to conduct business worldwide.

The corresponding customer benefit is global choice - a customer can select from all potential suppliers of a required product or service, regardless of their geographical location.

Table 1: Opportunities and Benefits

5.2.2 Improved Competitiveness / Quality of Service

Electronic commerce enables suppliers to improve competitiveness by becoming "closer to the customer". As a simple example, many companies are employing electronic commerce technology to offer improved levels of pre-and post-sales support, with increased levels of product information, guidance on product use, and rapid response to customer enquiries. The corresponding customer benefit is improved quality of service.

5.2.3 Mass Customization / Personalized Products and Services

With electronic interaction, customers are able to gather detailed information on the needs of each individual customer and automatically tailor products and services to those individual needs. This results in customized products comparable to those offered by specialized suppliers but at mass market prices. One simple example is an on-line magazine that is tailored for the individual reader on each access to emphasize articles likely to be of interest and exclude articles that have already been read.

5.2.4 Shorten or Eradicate Supply Chains / Rapid Response to Needs

Electronic commerce often allows traditional supply chains to be shortened dramatically. There are many established examples where goods are shipped directly from the manufacturer to the end consumer, by-passing the traditional staging posts of wholesaler's warehouse, retailer's warehouse and retail outlet. (Typically the contribution of electronic commerce is not in making such direct distribution feasible - since it could also be achieved using paper catalogues and telephone or postal ordering - but rather in making it practical in terms of both cost and time delays.)

The extreme example arises in the case of products and services that can be delivered electronically, when the supply chain can be eradicated entirely. This has massive implications for the entertainment industries (film, video, music, magazines, and newspapers), for the information and educational industries, and for companies concerned with the development and distribution of computer software.

The corresponding customer benefit is the ability to rapidly obtain the precise product that is required, without being limited to those currently in stock at local suppliers.

5.2.5 Substantial Cost Savings / Substantial Price Reductions

One of the major contributions of electronic commerce is a reduction in transaction costs. While the cost of a business transaction that entails human interaction might be measured in dollars, the cost of conducting a similar transaction electronically might be a few cents or less. Hence, any business process involving "routine" interactions between people offers the potential for substantial cost savings, which can in turn be translated into substantial price reductions for customers.

5.2.6 Novel Business Opportunities / New Products and Services

In addition to re-defining the markets for existing products and services, electronic commerce also provides the opportunity for entirely new products and services. Examples include network supply and support services, directory services, contact services (i.e. establishing initial contact between potential customers and potential suppliers), and many kinds of on-line information services.

While these various opportunities and benefits are all distinct, they are to some extent inter-related. For example, improvements in competitiveness and quality of service may in part be derived from mass customization, while shortening of supply chains may contribute to cost savings and price reductions.

5.3 Examples of Electronic Commerce

There are many well-established examples of electronic commerce in a wide range of industry sectors and a wide range of application areas. A few of these will serve to illustrate the nature of current activity.

5.3.1 Retail

ibs (http://www.bookshop.co.uk)

The Internet Bookshop exists only as a site on the World Wide Web - it has no physical outlets. The shop specializes in technical books and currently offers more than 780000 titles. Customers visiting IBS can browse, search using keywords, and obtain detailed information on individual titles, including a descriptive text, bibliographic information, contents list, reviews, and suggested readership. They can order and pay for books, which are then delivered through publishers’, established international delivery channels.

Virtual Vineyards (http://www.virtualvin.com)

Like ibs, Virtual Vineyards exists only as a site on the Web. It offers wines and gourmet foods, providing an outlet for a number of small Californian wine producers. There is detailed on-line information on the various wines and foods, and also an on-line query service (using e-mail). Customers can order and pay using either credit cards or electronic cash.

Customer orders are transferred electronically from Virtual Vineyards' San Jose office to their Napa Valley warehouse, along with instructions from printing the shipping label and enclosures (such as tasting notes). The goods are shipped by Federal Express. Customers can track the progress of the delivery on-line by accessing the Federal Express site.

5.3.2 Finance

Barclays Bank (http://www.barclays.co.uk)

Many banks have offered on-line querying of accounts for some time. Following relaxation of controls on the export of security technologies from the USA, Barclays has extended this to a large scale trial offering customers full banking services from their home computers.

ESI (http://www.esi.co.uk)

Electronic Share Information Ltd offers an on-line share information and trading facility. Customers can view London Stock Exchange prices and the FTSE 100 index, buy and sell shares on-line via ShareLink, use a range of technical analysis and research tools, obtain company profiles and share tips, request automatic notification of share price changes, and obtain real-time portfolio valuations. Launched in September 1995, the service now has 15000 registered users and attracts 1.25 million visits per month.

5.3.3 Distribution

DIPA

DIPA GmbH supplies high quality photographic images. Customers can browse an extensive photographic library and order the required images, which are then delivered over satellite links.

Oracle (http://www.oracle.com)

Potential customers can now access Oracle's Web site and browse information on the company's products. They can then download free trial versions of various products, or pay on-line and download full versions. Because of potential legal and financial problems, the on-line purchasing and delivery service is currently limited to United States customers only.

5.3.4 Pre/post Sales Support

Hewlett Packard (http://www.hp.com)

Hewlett Packard's "Access HP" Web site provides thousands of pages of information, including general company information, news, world-wide contact points, new product announcements, and details of HP's wide range of products and services.

GE Plastics (http://www.ge.com/gep)

GE Plastics is an industry leader in the field of engineering plastics. The company's Web site provides an overview of the company's products, detailed profiles of the properties of each material, and guidance and recommendations for designing applications using the company's materials. There is also an on-line "Technical Tip Of The Week" contest whereby any visitor can submit a tip for working with GE materials. The company selects the best tips for incorporation into its "Past Technical Tips" pages.

5.3.5 Engineering Design

Ford

Ford engineering teams worldwide collaborate in the design of new car engines using Ford's private network. The design support system is a combination of a real-time videoconferencing system and a shared "design whiteboard". Any participant in a design conference can draw or write on the whiteboard, drag objects onto the whiteboard, and edit objects on the whiteboard. All changes to the whiteboard are immediately visible to all other participants. The object types supported include CAD drawings, text documents, and video clips.

GEN (hhtp://www.gen.net)

The Global Engineering network is coordinated by Siemens Nixdorf and has participants from many European countries. GEN is a "marketplace for engineering knowledge", bringing together the suppliers of components and sub-assemblies and those who might incorporate those components or assemblies into their own new products. The suppliers enter detailed technical information (perhaps including 3D CAD drawings) into the GEN network. Potential customers can then search the supplier information looking for "best fit" components or assemblies, and can experiment with incorporating those components or assemblies into the early stages of their own product designs.

5.3.6 Business Support

citiusNet (e-mail: citius@mail.citius.fr)

citiusNet is a well established system for supporting business-to-business electronic commerce. It currently has three major elements - altius, citius and fortius. Altius is an electronic catalogue of industry and office supplies. Citius is a system for handling trading transactions. Fortius supports electronic payment by EDI, and is used not only for payment of goods selected from altius and traded over citius, but also for routine transactions such as pension and insurance payments. citiusNet is a multi-language service that is offered internationally. The systems were developed by DDP from Lyon, France, with the cooperation of various partners from Spain, Belgium, Germany and Italy.

DDP now plans to extend its services to offer general business support ("Intermediation"). DPP will handle all routine operations (banking, administration, pension funds, etc.) on behalf of its subscribers, thus allowing those subscribers to concentrate on their core businesses.

5.3.7 Publishing

The Times (http://www.the-times.co.uk)

The Times and the Sunday Times are now published on-line. The complete content of the newspapers is available, and access is free. Using the "Interactive Times" facilities, users of the on-line service can tailor the newspaper to their own personal interests and tastes or perform a search for past articles that include specified keywords.

5.3.8 Professional Services

de Kreek (http://www.dds.nl/dekreek)

Mr Jeroen de Kreek, a lawyer from Amsterdam, provides a legal question answering service that is available 24 hours a day. Users of this service are led through a hierarchy of menus that aids them in ultimately formulating their question as a text message. Mr de Kreek then responds to this question, normally within two hours. The response to the first question is free, but subsequent questions incur charges.

5.3.9 International Contact

Global Tradepoint Network (http://www.unicc.org/untpdc)

The Global Tradepoint Network is a huge network of business information, developed under the UN-supported Electronic Trade Efficiency Programme. By interfacing to establish national databases, the network aims to supply key trading data for countries across the world. Such data might cover, for example, market information, transportation options and prices, insurance facilities, credit availability, customs requirements, and import/export regulations. Further, through its "electronic trading opportunities" system, the network serves as a meeting place for buyers and sellers worldwide. Potential matches between buyers and sellers are identified by using both geographical details and information on products offered or required, the latter being expressed using the Harmonised Customs Tariff codes. Once a potential match has been identified, the buyer and seller establish contact directly.

5.3.10 Shared Business Processes

Tesco

Tesco operates around 540 supermarkets in the UK. The company has a "sales based ordering" system whereby information on product sales at individual supermarkets, as collected by the checkout scanners, is forwarded electronically to the computers at the company's Store Control Center. These computers determine the goods needed to replenish the stock at each store, and send this information electronically to the computers at the Tesco depot serving that store. For many products Tesco itself holds no stock, so orders are generated automatically and forwarded to Tesco's suppliers using EDI. On delivery to the Tesco depot, the replacement stock is immediately shipped on to the appropriate stores. Within 24 hours of an item being sold by the supermarket its replacement is back on the shelves. The re-stocking system relies on electronic communication and on close co-operation between Tesco and its suppliers, who in effect are partners in a shared business process of replenishing products on the supermarket shelves.

CONCLUSION

In fact, electronic commerce began more than two decades ago with the introduction of electronic data interchange (EDI) between firms (sending and receiving order, delivery and payment information, etc.) Even consumer-oriented electronic commerce has a rather long history: each time you use automatic teller machines or present your credit cards, you transact business electronically. These EDI and ATM, however, operate in a closed system; they are of a more convenient communications medium, strictly between the parties allowed in.

Traditional electronic data interchange (EDI) is an automated system of business-to-business data exchange. Two primary areas of EDI are data interchange (for orders, invoices) and electronic funds transfer (EFT) used among banks, which have high volume in relatively small number of data items, and long-term relationship. Setting up an EDI is expensive such that only large firms could justify investing in EDI. Security-wise, EDI offers robust transactions compared to the Internet since EDI runs on closed, private value added networks.

In the last few years, we have seen a new phase of commercialization. Originally, commercial efforts mainly comprised vendors providing the basic networking products, and service providers offering the connectivity and basic Internet services. The Internet has now become almost a "commodity" service, and much of the latest attention has been on the use of this global information infrastructure for support of other commercial services. This has been tremendously accelerated by the widespread and rapid adoption of browsers and the World Wide Web technology, allowing users easy access to information linked throughout the globe.

The World Wide Web (WWW), the Internet's client-server, opened up a new age by combining the Internet and the Electronic Commerce.

Electronic commerce is not limited to buying and selling products online. The online or digital partners demand changes in the way we do business from production to consumption, and they will affect companies who might think they are not part of electronic commerce. Electronic commerce is leading to significant changes in the way products are customized, distributed and exchanged and the way consumers search and bargain for products and services and consume them.

CASE: Amazon.com vs. Barnes & Noble

The case of Amazon.com vs. Barnes & Noble shows that the very definition of "stores" has to be re-evaluated. This also touches upon the issue of taxable nexus and sales tax collection on the Internet.

Distributing books require numerous local outlets (local bookstores) to provide convenient access to customers. At the same time, mail order distribution has been used for many decades through various book clubs. Taking this direction into the Internet, Amazon.com has become the leading online bookstore, billing itself as the "largest bookstore" on earth not by opening numerous branch stores but via the Internet. The "biggest bookstore", Barnes & Noble with a towering share of revenues and physical book stores, has been forced to respond to Amazon.com's challenge by opening its own Web store as well as by bringing a law suit against its challenger.

The Internet has the potential to become the Worlds' most active trade vehicle within a decade, creating millions of high paying jobs. In addition, Internet shopping may revolutionize retailing by allowing consumers to sit in their homes and buy a wide variety of products and services from all over the world.

The growth of Electronic Commerce over the Internet was estimated by Forrester Research in July 1997, and indicated that business-to-business commerce over the Internet would reach $8 billion in 1997, a tenfold increase from 1996. In 2002, it is estimated that the value of goods and services traded between companies will rise to $327 billion. Forrester Research predicts that durable goods manufacturers will lead the rush to Internet-based electronic commerce, reaching $99 billion in sales by 2002. Makers of paper, plastics, apparel, and other non-durable good will sell $17 billion online by 2002.

However, to ensure the growth of global electronic commerce over the Internet, standards must be observed to assure reliability, interoperability, ease of use and scalability in areas such as:

electronic payments;

security (confidentiality, authentication, data integrity, access control, non-repudiation);

security services infrastructure (e.g., public key certificate authorities);

electronic copyright management systems;

video and data-conferencing;

high-speed network technologies (e.g., Asynchronous Transfer Mode, Synchronous Digital Hierarchy); and

digital object and data interchange.

Both telecommunications networks and computer technologies are heading toward the "convergence". In short, the convergence is a process that allows a certain incompatible devices to talk to each other (interoperable), products to be interchangeable and processes to be integrated. The digital technology is much wider than a simple network convergence we are aware of today.

Today's Electronic Commerce processes are based on personal computers because of their origin within the Internet, a network of computers. The first stage of Electronic Commerce expansion is that within the installed base of computer users. The second wave will come when more people get access to computers (via lower computer prices or cheaper devices). The third and more important, expansion is predicted to be from those with non-computer access to the global network: through broadcast TV, cable TV, telephone networks, and new appliances. A widespread use of these cheaper access media represents the phase of "bringing workplace computers into the living room". It means the steps for The New Era of commerce. Although…………

The Limiting Factors of Electronic Commerce

Will Be our Limited Vision of

Electronic Commerce

Bibliography

Wiseley, W (1977) A Tool of Power: The Political History of Money (pp. 01-10) John Wiley & Sons, Inc.

Davies, G. (1994) A History of Money from Ancient Times to the Present Day (pp. 10-696) University of Wales Press & J. H. Bank (Eds.) Cardiff.

Moore, C.H. and Russel A.E. (1916) Money: Its Origin, Development and Modern Use (p. 135)

Hoppe, H. (1995) Compton’s NewMedia, Inc – Interactive Encyclopedia

International Telecommunication Union (ITU) (1997) Challenges to The Network: Telecoms and the Internet

Internet Sources:

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