The International

Handbook of
Electronic
Commerce

Jae K. Shim, Ph.D.

AniqueA. Qureshi, Ph.D., CPA, CIA
Joel G. Siegel, Ph.D., CPA
Roberta M. Siegel

Roberta
Roberta
Roberta
Roberta
RobertaRoberta
First published in 2000 by FITZROY DEARBORN PUBLISHERS

This edition published 2013 by Routledge

2 Park Square, Milton APark, Abingdon, Oxon 0X14 4RN
711 Third Avenue, New York, N Y 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

© 2000 The Glenlake Publishing Company, Ltd.

ISBN: 1-888998-86-5

Library Edition: Fitzroy Dearborn Publishers, Chicago and London

ISBN: 1-57958-260-5

A l l rights reserved. No part of this book may be reproduced in any form or by

any means electronic, mechanical, photocopying, recording, or otherwise with-
out the prior written permission of the publisher.
Dedication

Shaheen Qureshi
Loving and Devoted Wife

Aqsa Qureshi
Wonderful Daughter
This page intentionally left blank
Acknowledgements

We wish to express our appreciation to our editor, Barbara Evans, for her
outstanding editing work on this project. We very much appreciate her
exceptional efforts.
This page intentionally left blank
T a b l e of Contents

About the Authors . ix

What This Book Will do For You . . xi

Introduction .. 1

Chapterl WHAT E - C O M M E R C E IS A L L ABOUT .. 9

Chapter 2—THE WORLD WIDE WEB AND E - C O M M E R C E .51

Chapter 3—THE INTERNET AND T H E ACCESS

PROVIDER INDUSTRY . 69

Chapter 4 INTRANETS AND EXTRANETS . 87

Chapter 5 MARKETING AND ADVERTISING 109

Chapter 6 ELECTRONIC DATA INTERCHANGE 141

Chapter 7—ELECTRONIC BANKING AND PAYMENTS 163

Chapter 8 NETWORK SECURITY 175

Chapter 9 L E G A L ASPECTS OF E - C O M M E R C E 227

Chapter 10 TAXATION OF E - C O M M E R C E 235

Chapter 11 ASSURANCE SERVICES 241

vil
viii Table of Contents

Chapter 12—ESTABLISHING A PRESENCE ON T H E WEB . 255

Chapter 13—WEB SERVERS . 259

Chapter 14—A REVIEW OF H T M L EDITORS . 265

Chapter 15—WEB SITE HOSTING SERVICES . 273

Glossary 283

Index . 293
A b o u t the Authors

Jae K. Shim, Ph.D., is professor of business administration at California

State University, Long Beach. Dr. Shim received his M B A and Ph.D.
degrees from the University of California at Berkeley. For over 20 years
a consultant on information systems development and computer applica-
tions, he is now president of the National Business Review Foundation, a
management and computer consulting firm. Dr. Shim has more than 50
books to his credit and has published some 50 articles in professional
journals, including the Journal of Systems Management, Financial
Management, the Journal of Operational Research, Omega, Data
Management, Management Accounting, Simulation and Games, Long
Range Planning, the Journal of Business Forecasting, Decision Sciences,
Management Science, and Econometrica.
In 1982 Dr. Shim received the Credit Research Foundation
Outstanding Paper Award for one of his articles on financial modeling. He
has also received a Ford Foundation Award, a Mellon Research
Fellowship, and an Arthur Andersen Research Grant.

Anique Qureshi, Ph.D., CPA, CIA, is associate professor of accounting

and information systems at Queens College of the City University of New
York. He is an expert in computer applications, especially those related to
the World Wide Web. Dr. Qureshi has written two books for Prentice-Hall
and has contributed chapters to books published by both Prentice-Hall
and McGraw-Hill. His articles have appeared in Accounting Technology,
the CPA Journal, Management Accounting, the National Public
Accountant, and Internal Auditing.

Joel G. Siegel, Ph.D., CPA, is a consultant to businesses on computer

applications and professor of accounting, finance, and information sys-
tems, Queens College of the City University of New York. He was previ-
ously associated with Coopers and Lybrand, CPAs, and Arthur Andersen,
ix
X About the Authors

CPAs. He has served as consultant to numerous organizations including

Citicorp, ITT, and the American Institute of Certified Public Accountants
(AICPA). Dr. Siegel is the author of 60 books, published by Glenlake
Publishing, the American Management Association, Prentice-Hall,
Richard Irwin, McGraw-Hill, HarperCollins, John Wiley, Macmillan,
Probus, International Publishing, Barron's, and AICPA. He has written
over 200 articles on business topics, many on computer applications to
business. His articles have appeared in such journals as Computers in
Accounting, Financial Executive, Financial Analysis Journal, the CPA
Journal, National Public Accountant, and Practical Accountant. In 1972,
he received the Outstanding Educator of America Award. Dr. Siegel is
listed in Who's Who Among Writers and Who's Who in the World. He
formerly chaired the National Oversight Board.

Roberta M . Siegel is a computer consultant specializing in electronic

commerce. Her computer expertise includes both hardware and software
applications. Ms. Siegel was formerly affiliated with Lebensbaum and
Russo, CPAs. She coauthored The Accountants Microcomputer
Handbook and Selecting and Maintaining a Microcomputer, both pub-
lished by Prentice-Hall. She has also contributed chapters to several
books. Ms. Siegel's articles have appeared in the CPA Journal,
Computers in Accounting, Prentice-Hall Corporation Service, New
Accountant, and Personnel Management.
What This Book Will do
Fo r Y o u

Technology plays an increasingly vital role in business. Electronic com-

merce (e-commerce) improves efficiency and allows businesses to pro-
vide both value and convenience to customers. The World Wide Web
(Web) allows retailers to reach not only customers but also suppliers; it
provides another medium for them to expand internationally at a rela-
tively low cost.
A l l types of businesses, not-for-profit entities, and governmental bod-
ies are using the Web. The Internet is an integral part of most transactions.
Selling over the Internet reaches international as well as domestic con-
sumers.
Retailing on the Internet greatly benefits consumers. They can use
search engines to find the lowest quoted prices on merchandise and ser-
vices. With 3-D imaging, instead of just reading a description and look-
ing at a photograph, a consumer can inspect the product from virtually
any angle.
To remain competitive, businesses must maintain a presence on the
Internet. Growth in commercial use of the Internet, rapid changes in tech-
nology, and the complexity of management today have combined to
expand the duties of business managers. Managers must keep up to date
with changes in technology.
This book—designed as a practical "how to" guide—covers all
aspects of e-commerce to help managers implement it in their organiza-
tion; it addresses such concerns as security. The techniques it covers can
be adopted outright or modified to suit your own needs. Numerous exam-
ples illustrate practical applications. Checklists, exhibits, illustrations,
and step-by-step instructions enhance the book's practicality. Common
questions are answered. Our goal is to give managers an up-to-date com-
pendium of current technologies and applications, taking into account
new and emerging trends. Because e-commerce requires managers to be

xl
xii What This Book Will do For You

knowledgeable about both technology and its management, we have

given special consideration to balancing these two needs.
We have tried to make this book easy to understand, comprehensive,
and informative. We hope it will be a valuable reference that you can refer
to every day.
Introduction

The importance of cyberspace to business is escalating rapidly. It's esti-

mated that Web-related revenues will reach $1 trillion within the next
year. Those using the Internet are disproportionately high income and
well-educated consumers—a quite attractive pool of potential cus-
tomers—and the current estimate is that there are 300 million of them
worldwide. And within the next year, it's expected that about 40% of
these regular Web users will be buying online.
About 25% of American small businesses have an Internet presence.
It's estimated that 40% of all U.S. companies will sell merchandise online
in 2000.
E-commerce—the purchase of goods and services over the Internet's
World Wide Web—is a broad term. It encompasses all electronically con-
ducted business activities, operations, and transaction processing. (The
Internet is a global network of computers linked by high-speed data lines
and wireless systems. The World Wide Web is a global hypertext system
accessed by the Internet and navigated by clicking hyperlinks from one
document to the next. Together they allow millions of communication
devices like computers, using different hardware, operating systems, and
software, to link to each other. A n estimated 10 million computers in over
160 countries are connected to the Internet.) E-commerce transactions are
controlled electronically from ordering to delivery.
E-commerce is important in such interrelated areas as business-to-
business (estimated to reach $300 billion in 2000), customer-to-business,
and intra-business, all relying on each other for supplies, distribution, ser-
vices, and technology. E-commerce links companies, customers, suppli-
ers, employees, and distributors.
E-commerce changes the way business is done. In some cases it
replaces non-electronic ways of contracting, product and service delivery,
and customer involvement; in other cases, it supplements them. To max-
imize its effectiveness, businesses must think about building infrastruc-
1
2 Introduction

ture to share information, using intermediaries, and managing knowl-

edge. The functional responsibilities of e-commerce include design,
building, manufacturing, and controlling.
To do their jobs effectively and remain competitive, businesspeople
as well as information technology staff must be familiar with online
applications. Typical objectives of e-commerce include shorter manufac-
turing time, faster customer response, better service quality, cost reduc-
tion, and shorter product cycles. To accomplish these, managers must be
aware of

• Recent developments in interactivity and real time transactions.

• Trends in hardware, software, and communications technology.
• How transactions are processed and secured through electronic
web-based systems.

To be effective today managers and businesspeople must provide

information over the Internet. This book is for them and for consumers
who want their e-commerce activities to be more successful. In fact, e-
commerce can improve the relationship between sellers and consumers.
It simplifies the delivery of products, services, and information.
We hope this book will be of interest to all types of businesses of dif-
ferent sizes (small, medium-size, and large) in different industry group-
ings, whether they are manufacturers, wholesalers, retailers, or service-
oriented businesses. We point out how to improve sales and cut the costs
associated with e-commerce transactions. Consumers can learn from the
book how best to use e-commerce to save money and be more efficient in
buying products and services.
There are different definitions of e-commerce depending on your per-
spective:

• The business process viewpoint sees it as the use of technology to

automate business transactions and workflow.
• The online viewpoint sees it as the facilitation of the purchase and
sale of goods or services.
• The communications viewpoint sees it as the delivery of data,
goods or services, computer network payments through telephone
lines and other communication modes.
Introduction 3

• From the service perspective, it's providing quality services and

products to satisfy customers, both business and consumer, while
reducing service costs and expediting delivery.

E-commerce should be of interest to business managers, marketers,

accountants, financial executives, financial analysts, investors, creditors,
lawyers, and consultants. Parties to e-commerce include:

• Manufacturers, wholesalers, and retailers

• Sellers of Internet commerce products like Oracle, Microsoft, and
Netscape
• Financial institutions, including banks and insurance companies
• Government regulatory agencies
• Standard-setting organizations
• Industry associations

Because of digitization, the electronic marketplace requires no phys-

ical stores or market institutions. The electronic marketplace allows sell-
ers to innovate the entire business process from manufacturing to cus-
tomer service. In e-commerce sellers and buyers meet to trade products
using digital processes. Sellers of goods or services that can be digitized
or otherwise transferred electronically especially will find e-commerce a
very quick and cost-effective way to reach consumers. Goods and ser-
vices particularly suitable for e-commerce include software (via electron-
ic downloading to the consumer), video, cable television, music albums,
books (via electronic transmission), newspapers and magazines (in elec-
tronic format), information databases, education and job training, home
banking, bulletin boards and chat rooms.
Users can interact with products by downloading business problem-
solving software, exchanging personal settings, and e-mail. E-commerce
may be used for such noncommercial functions as filing and paying taxes
and other personal finance matters.
E-commerce includes:

• Data about goods or services, such as where to buy them, prices,

warranties, quantities available, delivery terms, and laws that
apply to the transaction. There are even online auctions like eBay,
a giant virtual flea market. At the web site (www.ebay.com) com-
4 Introduction

panies and individuals trade goods, giving eBay a small transac-

tion fee when the trade is affected.
• Corporate financial information.
• Production logistics.
• Project performance and data.
• Online searches for information.
• Personnel information.
• Warehousing data, including inventory-stocking levels.
• Online publishing of company information, such as reports, analy-
ses, and documents.
• Subscription services.
• Electronic mail and messaging. About 75% of all online con-
sumers use e-mail services, making it the most common form of e-
commerce.
• Inventory management and distribution.
• Order tracking.
• Shipment and delivery tracking. Obtaining information to prepare
a competitive bid.
• Production management.
• Tracking and monitoring sales.
• Product or service selection and delivery.
• Instant updates of pricing changes.
• Advertising and promotion of goods. For example, the new "virtu-
al tag" technology allows consumers viewing multimedia adver-
tisements online to order a product just by clicking the mouse on
the advertisement. Among the goods and services being ordered
via electronic catalogs are computer products, food, travel ser-
vices, and apparel. Online advertising is expected to grow to $2.5
billion this year.
• Application engineering.
• Payments. A bill can be sent electronically to a customer, who then
authorizes the bank by electronic check to transfer funds from the
customer's account to the vendor's account. The customer's
monthly electronic bank statements list the payments. With regard
Introduction 5

to electronic money, CyberCash among others has a technology

that allows a consumer to visit a CyberCash Web site, download an
electronic "wallet" from the consumer's bank, and travel the Web
spending electronic dollars at sites accepting Cyber Cash.
• Consumer searches for product and service information.
• Marketing research.
• Accumulating demographic data about customers.
• Customer service and support.
• Financial services, such as online investing in stocks.
• Distribution: Soft goods can simply be downloaded; hard goods
can be set up for delivery.

Electronic data interchange (EDI) refers to the electronic purchase,

receipt, and payment for inventory and supplies. EDI significantly
reduces delivery time and related paper processing, thus reducing inven-
tory and transaction costs. EDI software can be downloaded from the
Internet for upgrades, program patches, and documentation.
Given its versatility, e-commerce thus

• Eliminates limitations of place and time.

• Improves information flow.
• Fosters better customer relations and better product distribution.
• Allows data continuity (data is created, altered, and distributed
faster at lower cost).
• Reduces costs by allowing businesses to close stores; stock less
merchandise at existing stores; minimize transaction costs by
improving the linkage between vendors, purchasers, and interme-
diaries, eliminating duplication; and better share information.
• Stimulates sales and improves the revenue base by providing new
markets, new information-oriented products and services, better
channels of service delivery, and closer interaction with customers.
• Reduces order processing time and inventory levels.
• Improves how business transactions are processed, resulting in
better performance, better customer satisfaction, better manage-
ment decisions, higher quality, enhanced efficiency, and better
interaction.
6 Introduction

• Provides business efficiencies, such as upgrading technology,

transferring content, transactional processing and payment, pro-
duction processes, improved communication, more accurate trans-
actions, better promotion and advertising, low-cost technological
infrastructure, less obsolescence, enhanced sharing of information,
and improved service.
• Allows for better internal integration of business operations (e.g.,
improved interaction among departments within the company),
resulting in better coordination of decentralized decision making
and for better external integration (linkage to the outside) through
a network of companies, contractors, suppliers, and government
agencies.
• Provides the opportunity for a business to move toward a virtual
value chain and to two-way interactive communication.

In implementing e-commerce, managers must think about the con-

sumer's role, the mechanism, and the nature of various applications.
Implementation will require automating processes, using pilot projects,
using data warehouses, and planning for growth and expansion.
A n example of an e-commerce application is what Microsoft has
done with the Microsoft Shopping Network (MSN). Microsoft formulat-
ed a business model enabling content providers to establish the fees and
keep most of the revenues, about 60-75%, resulting from their content.
Microsoft's take is 20% of advertising revenues and a 5% commission on
merchandise sold over M S N but delivered by other methods.
Telecommunications companies like wireless, satellite and land-
based, or cable-TV are building the e-commerce communications infra-
structure (information superhighway). Their work and Internet transmis-
sion speed (bandwidth), quality, and reliability must also be taken into
account.
Internet service providers (ISPs) are the entities that provide the basic
connection to the Internet. These are expected to generate $50 billion in
annual revenues in 2000. The national, regional, and local ISPs provide
custom web site design, marketing, and other services besides hosting e-
commerce services. Some ISPs offer "turnkey" e-commerce products in
a single-ready-to-use package including hardware, software, payment
processing and communications. They can provide for connection, cata-
log maintenance, order and credit card processing, as well as other ser-
vices. You have to decide, though, what information stays on your com-
pany computers and what will reside with the ISP. How is information
with the ISP to be controlled and secured?
Introduction 7

You may have to think about whether to outsource some or all of your
e-commerce functions. The following chapters will give you some guid-
ance.
The World Wide Web and E-Commerce
Booker, Ellis . “Web Will Replace EDI Nets,” Web Week, Vol.2, No. 7. Mecklermedia Corp.,
1996.
www.domainnames.com. NetNames, Ltd., 1999.
Eldridge, Earle . “Web Can Aid Deaf Shoppers E-Mail Helps Buyer, Seller Communicate,”
USA Today, April 27, 1999.
Florida Attorney General , http://www.legal.firm.edu/consumer/tips/internet.html, 1998.
Financial Executives Institute , Duke University, http://www.nua.ie.com, 1999.
Giga Information Group , http://www.nau.ie.com, 1999.
IBM (press release), http://www.nu.ie.com, 1999.
Internet World Online Magazine , at
http://www.internetworld.com/print/monthly/1996/09/Webwatch.html, 1999.
Internet World Online Magazine , at http://www.internetworld.com/daily/stats/1998/05/2103-
ecommerce.html.
Lang, Peter . “How to Beat Credit Card Fraud,” at
http://www.sellitontheweb.com/ezine/howto004.shtml, 1999.
Lang, Peter . “The Internet Marketing Center,” at
http://www.sellitontheweb.com/ezine/opinion030.shtml.
Mayr, David . “An Internet Timeline,” at http://members@magnet.at/dmayr/history.htm, 1998.
Radosevich, Lynda , “Going global overnight,” InfoWorld, Apr 19, 1999.
Winstein, Laura . Electronic mail post: net.explodes.txt, 1996.
Zakon, Robert ‘Hobbes.’ “The Hobbes Internet Timeline, v.4.1,” at
http://info.isoc.guest/zakon/Internet/History/HIT.html, 1998.
ZDNet Online Magazine . “6 Security for Buying on the Web,” at
http://zdnet.com/zdtv/callforhelp/projects/story/0,3650,2232583,00.html.

The Internet and the Access Provider Industry

“Boosting Bandwidth”, Infoworld, May 5, 1997, Vol. 19, Issue 18, avail able at
http://infoworld.com/cgi-bin/displayArchive.pl?/97/18/e01-18.71.htm.
Furger, Roberta , “Good Providers: The Best National and Regional ISPs,” PC World, March
1999.
“Managing your ISP,” Infoworld, April 21, 1997, Vol. 19, Issue 16, available at
http://infoworld.com/cgi-bin/displayArchive.pl?/97/16/e01-16.55.htm.
McCracken, Harry , “Bandwidth On Demand,” PC World, March 1999.
Navarrete, Angela , “Future Internet,” PC World, March 1999.
PC World, March 1999, p. 164.
“The U.S. Internet Service Provider (ISP) Market Will Add Nearly $4.5 Billion of Revenues
Annually over the Next Three Years, According to IDC”, available at
http://smartmoney.com/smt/news/pr/index.cfm?story=pr-l9990419-001030-101l.
Whatis.com , available at http://www.whatis.com/index.htm.

Intranets and Extranets

“Corporate Finance Network,” at http://www.corpfmet.com/welcome.html.
“Corporate Intranets,” at http://www.moonspinners.com/moonspinners/intranet.html
“Enterprise Solutions,” at http://home.netscape.com/comprod/at_work/index.html.
“Finance Applications,” at http://www.itWeb.com/intranet/corp_16.htm.
Hoffman, Charles , “Intranets,” Journal of Accountancy, October 1998, pp. 31–37.
“Intranet Applications: A White Paper,” at http://www.thehost.com/intraOl.htm.
“Intranets,” at http://www.mgl.co.uk/iservices/intranet.html.
“Intranets Refine Corporate Information Systems: A White Paper,” at
http://www.netscape.com/comprod/at_work/white_paper/indepth.html.
“Livelink Intranet Suite by Opentext Corporation,” at http://www.opentext.com/.
“The Web World #1 Guide to Finance,” at
http://www.euro.net/innovation/Web_Word_Base/TWWl-html/FinTOCl.html.

Marketing and Advertising

Choi, S. , Stahl, D. , & Whinston, A. Economics of E-commerce. Indianapolis: Macmillan
Technical Publishing, 1997, p. 224.

Electronic Data Interchange

*
Baum, M. , & Perritt, H. Electronic Contracting, Publishing, and EDI Law. New York: John
Wiley & Sons, 1991.
Bort, R. , & Bielfeldt, G. Handbook of EDI. New York: Warren, Gorham & Lamont, 1997.
Thierauf, R. , Electronic Data Interchange in Finance and Accounting. Connecticut: Quorum
Books, 1990.
CommerceNet: http://www.commerce.net/ Data Interchange Standards Association (DISA):
http://www.disa.org Defense Acquisition Revolution Reform Net: http://www.far.npr.gov/
Defense Technical Information Center (DTIC): http://www.dtic.dla.mil Department of Defense
E-commerce Office: http://www.acq.osd.mil/ec/ EDI World Institute:
http://www.ediwi.ca/ediwi/ E-commerce Strategies, Inc.: http://www.ecom.com/buyersguide
Federal EDI Secretariat: http://snad.ncsl.nist.gov/dartg/edi/fededi.html FedWorld:
http://www.fedworld.gov FinanceNet: http://www.financenet.gov/ General Services
Administration: http://www.gsa.gov/ Government Printing Office:
http://www.access.gpo.gov/su_docs/ ISO Online: http://www.iso.ch/ Jim's EDI Emporium:
http://www.ibmpcug.co.uk./~jws/index.html National Performance Review: http://www.npr.gov
Premenos Corporation: http://www.premenos.com Rawlins EDI Consulting:
http://www.metronet.com/homepages/rawlins/ SBA Online: http://www.sbaonline.sba.gov
Sterling Commerce: http://www.sterling.com Unidex: http://www.wwa.com/unidex/edi/
USENIX: http://www.usenix.org/

Electronic Banking and Payments

IBM E-Business (www.ibm.com/e-business), a generally helpful e-commerce resource.
KalaKota, R. , & Whinston, A.B. , E-commerce—A Managers Guide. Addison Wesley, 1997.
Kosiur, David , Understanding E-commerce. Microsoft Press, 1997.
Net Business (www.techweb.com/netbiz), a collection of case studies in e-commerce.
ZDNet E-Business (www.zdnet.com/icom/e-business), a guide to e-commerce emphasizing
tax issues.