Cozahost Newsletter Archive

Newsletter Archive

eCommerce: a vague term explained. What you need to implement internet commerce for your business and how it affects you as a consumer is discussed.

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I was shocked into action yesterday. Like a swift kick in the procrastination gland when I read this:

"What did you buy with a day of your life today?"

I blinked several times, and then revised this article. In a hurry.

Just because I wrote it does not mean you have to read it of course, but if you will allow be to blow my own horn a little bit: This article was originally written in 2004 - and it is still relevant. It is not a leap of faith to say that it will be relevant for the next few years too.

In that there lies opportunity. For you. Find it.

“Ecommerce”.

Another wonderfully vague term. Excellent conversation starter at the braai.

The term is so vague and misused, it is bound to start a lively and entertaining conversation, so – to help you win the inevitable arguments, wagers, debates, and fist fights lets have a look at what this “ecommerce” thing is and how it works. Just an introduction mind you, this newsletter has a reputation to uphold.

In the old days

The term “e-commerce” was first coined in approximately 1996, shortly after the internet opened for public use. In the pre-historic days (pre 1996), the internet was mainly used by universities and other non-profit organizations to share research, general information and for email.

The internet had a hugely different character back then. The web was just invented. New sites were announced on discussion boards where enthusiasts could co check them out and crit them. There was a general feeling of community.

Most web sites were about either hobbies or academic research. Commercial sites were unheard of and frowned upon. A web site that purposely tried to sell something on the internet was scorned. Deemed greedy, exploitative, anti-{insert-your-religion}, a-social and was avoided like the plague.

The very fact that one would dare to do business on the internet offended the sensibilities of the hackers.

The internet was there for the benefit of all mankind to exchange knowledge. Trading on the internet was just, well, vulgar. (By the way; hackers are the good guys, not the bad guys as is often thought. A hacker is a person that uses his programming skills to figure out how a program or system works – purely for the sake of gaining the knowledge. The bad guys: worm and virus writers and so on are called crakers – or just scumbags for short)

Show me the money

Anyway, it was not long before 20 year old pizza grazing, long haired hackers were outnumbered and replaced by 20 year old crew-cut, salad chomping MBAs, who quickly figured out that the internet is a tool that will profoundly change the way business is done. Compared to the internet, the industrial revolution was like the discovery of fire versus the moon landing!

Before you could shout “SHOW ME THE MO-NEY!” companies started building web sites to sell products and to service their clients but the process of selling online was very cumbersome back then - and that is putting it politely.

“State of the art” web sites allowed you to download an order form which you then: printed out, completed and faxed back - with a copy of a bank deposit slip to prove that you paid for the order.

On the vendor side, an administrative person checked your order, waited for the money to appear on their bank statement and then eventually shipped your order - a few days or weeks later.

Not exactly high-tech.

A standard vision

Selling your products online is very nice, but automating and entire supply chain is even better!

Imagine you are a large corporate dealing with thousands of sub contractors or suppliers. Your computer systems can automatically place orders, pay invoices, replenish stocks, etc - saving tens of millions on administrative and stock management costs.

Such a level of automation would require that common standards are used for order placing, stock checking, payments and so on - so that the diverse computer systems of buyers and sellers can interact automatically.

Without standards, confusion would reign that would make the tower of Babel incident look like a Zimbabwean parliament opening. (To clarify: In our friendly neighboring country there are two ways to do things: Bob's way and the wrong way. No confusion at all. At Babel however, an engineering project turned ugly when everybody started talking their own language. Confusion spelled with a capital "F". By the way, there is no truth in the rumor that IT people were involved in that unfortunate project)

From the vision of creating a standard electronic message mechanism for companies (or rather, their computer systems) to conduct business with each other - a new standard was born.

EDI (Electronic Document Interchange) entered the stage.

EDI promised to make it possible for two companies who have never done business before to electronically trade with one another. It would not matter whether the products were as diverse as baby diapers, paper clips or rounds of ammunition: stock-standard computer software running the EDI standard would make it all possible. Automatically.

A silver bullet of such magnitude - Mr Dracula would wet his pants.

Unfortunately this promise of standardized simplicity never realized: The problem with EDI was that a) it was very complicated to implement and b) "standards" emerged within the standard…resulting in a non-standard.

Pretty soon it became clear that EDI was not the solution everyone thought it would be, and after a few spectacular and very expensive failures, IT consultants stopped using the term "EDI" and opted for a safer, more technology neutral term: “Ecommerce”.

And the term "eCommerce" is coined, but not trademarked...

Back to the point: EDI was thrown into the “never-happened-next-big-thing” box, and “ecommerce” is now taken to mean ANY form of electronic (computerized) transaction involving the buying and selling of goods – a definition and term that is so vague that it is almost useless. It is not a standard. It is not a product. It’s not even a real word.

On our level (SMEs and private individuals), “ecommerce” is understood to mean a web site you can do business with, or, if you insist “B2C” – which is business to consumer and not “B2B” – which is business to business.

Ecommerce on the most basic level assumes that:

• a web site has an online listing of products/services

• the customer has a credit card and

• the customer can place orders online and pay for them.

As practical example, lets use Kalahari.net: You can browse their selection of books and CDs online. Their site will tell you whether or not an item is in stock, you can place products in your “shopping basket” and you can proceed to the ”check-out” where you can pay for your order with your credit card.

Kalahari.net will now verify your credit card, transfer money from your Visa or MasterCard to their bank account, and, if all went well, automatically ship your order to you…all within a few seconds.

That web site can be said as “ecommerce enabled”. A money printing machine!

Assuming you have products people want at a reasonable price (and profit), assuming that you market your service effectively, and assuming you have the technology on your web site to facilitate orders and credit card payments – then dear reader, you will make money while sipping a tequila sunrise on a topless Clifton beach!

Not a bad way to make a living – wouldn’t you agree?

Ok, I know, that’s an awful lot of planets to align before you grab your beach towel, but at least it is good to know that it is no pipe dream. It is possible and do-able. You can do if for your own business: the technology and mechanisms needed to build your own “money-printer” is available and ready for use.

You do not have to be a multi million dollar company or a quantum physicist to benefit from it. All you need is some good, old fashioned hard work, common sense and guts – very little computer mumbo-jumbo involved.

So, exactly how would you go about setting up or building your own ecommerce enabled web site as a stepping stone to the “nothing but a beach towel” life style?

How to get one

Let’s start at the beginning:

First you need your own domain name
A domain name is like a piece of real-estate on the internet. Virtual floor space if you like. You need a domain name to run a web web site, email and so on. See this article about domain names for a brief explanation...

Then you need a web site
This might be a pretty obvious point, but if you are going to do business online you need a well designed web site, hosted by a reputable and responsible ISP. The guys that register your domain name for free and host your web site for 12c per month is not a clever choice if you are serious about your online business. Here is a list of features you need for hosting your money printer...

Then you need quality content
Your web site must contain plenty of quality information. Forget about just sticking a “click here to buy” button on a page. That approach has never worked and never will. Without quality content geared for search engine placement and to earn the trust of potential customers you will get nowhere.

Then software on your web site to take orders
After you built your content, you need a way for your customer to place an order. If you have 50 or more products, or if you are not comfortable building web pages, then ask your ISP to install a shopping cart system on your web site. This software will help you to place products (with pictures) in a searchable directory where clients can browse your offerings and place one or more item in their virtual shopping basket.

Then a payment gateway
Once your customer placed an order, you need a way for him to pay you. The only way to automate this process is to use a “credit card payment gateway”. It works like this: once your customer is ready to pay, he clicks on a link you provided. The customer is now transported to the secure server of your payment gateway provider with invisible information you attached to indicate the amount that must be paid, the currency, your reference number and so on. The gateway provider now asks the customer for credit card details and sends that information on to their bank for processing.

The payment gateway provider’s bank then contacts MasterCard, Visa, Diners, etc for authorization to transfer the amount of funds necessary. If the credit card company authorizes the transaction, the payment gateway provider executes a transaction that will take the amount away from the customer’s credit card account and place it in your bank account. A few seconds later when the process has completed, the gateway provider will let a program on your web site know that the payment was successful. It is now your responsibility to dispatch the goods to the customer.

The details of how the payment gateway works is not your problem – you simply follow your gateway provider's basic instructions and voila!

We recommend you check out the MyGate gateway provider. They have several ready to go solutions and are currently working to integrate to our content management system. They are also very reasonably priced. (More about that later)

Requirements

There are a few requirements before you can use a payment gateway provider:

You must be a credit card vendor, in other words, you must be registered with MasterCard, Visa, Diners, etc to accept credit card payments. Your bank or the payment gateway provider will help you with this.

Part of this registration process will be a strict vetting process (by the credit card companies) to make sure that you are bone-fide and credit worthy. When you are accepted, you will have to sign a contract with the credit card companies that specify:

• Payment repudiation is the vendor's problem: in other words, when a credit card customer reverses payment (within 6 months after the transaction), the onus is on you to prove that it was a valid and legal transaction – not on the customer to prove that it was not.

• You may not discriminate against a credit card customer by charging more than you would for a cash transaction.

• Your bank, the credit card company and the payment gateway provider will each take a cut of the transaction – typically about 5% in total.

• A fixed monthly fee to the payment gateway provider.

• You will take all precautions necessary to detect fraud and prevent your customer’s credit card number from falling in the wrong hands.

Sign this contract - it’s pretty standard and there are no Latin bits designed to nail you later - and you are in business!

You might think that these costs are a bit high - but compare it to renting space in a shopping center? Peanuts by comparison.

What about being a consumer - using your credit card on the internet?

So what about being on the other side of the fence – i.e., the buyer?

Consumers are sometimes reluctant to use their credit cards on the internet.

Much of this has to do with press hysteria about stolen credit card numbers and such. The real truth is that the vendor takes almost all the risk in a credit card transaction – remember that the vendor must prove that a transaction was legal and valid - the burden does not lie on the customer to prove that it was not.

Of course it would be real dumb to give your credit card number to a vendor unless you are SURE that they are above-board. This common sense applies on the internet and on a street corner. By the time you try to reverse a fraudulent transaction with a shady vendor, he has long since moved on and is living happily on a Mexican beach toasting the gullibility of naïve credit card owners with a propensity to pay voluntary stupid tax. :-)

Contrary to popular belief and urban legends, using your credit card on the internet is mostly safer than using it in the real world. This is thanks to the fact that banks scrutinize virtual (internet) vendors more carefully than physical vendors and thanks to a technology known as SET (Secure Electronic Transactions).

By selecting a payment gateway provider that supports the SET standard, a vendor (and consumer) has added protection because neither the payment gateway provider nor the vendor ever sees the customer credit card details. As soon as the customer enters the information, it is encrypted until it reaches the bank – no system or person in between can decipher the information.

At Cozahost we use SET provided by Setcom. (We also recommend MyGate) We never see, process or store credit card information for online payments. The possibility that someone can accuse us of fraudulent credit card transactions is significantly reduced because we can prove that we never had access to the information in the first place.

The customer is happy because his credit card information is 100% secure from the beginning of the transaction right through to the end, and the honest vendor is happy because he is not exposed to all kinds of security risks and fraud.

Now you know

And there we go: a brief introduction on “ecommerce”. With this information you will probably win the argument at the braai and collect on the wager, but we can’t guarantee you will win the fist fight. Just float like a butterfly and sting like a bee - baby.

You will also understand that ISPs that sell “ecommerce ready” web sites are, how shall I put this delicately, “duplicitous”. They are not exactly lying, but they are not exactly telling the truth either – that’s the beauty of the “ecommerce” word: it means what you say it means.

But now you know. :-)