The Development and Growth of Electronic Commerce

Over the thousands of years that people have engaged in commerce with one another, they
have adopted the tools and technologies that became available. For example, the advent
of sailing ships in ancient times opened new avenues of trade to buyers and sellers. Later
innovations, such as the printing press, steam engine, and telephone, have changed the
way in which people conduct commerce activities. The Internet has changed the way people
buy, sell, hire, and organize business activities in more ways and more rapidly than any
other technology in the history of business.

Electronic Funds Transfers (EFTs)

Although the Web has made online shopping possible for many businesses and individuals,
in a broader sense, electronic commerce has existed for many years. For more than 30
years, banks have been using electronic funds transfers (EFTs, also called wire transfers),
which are electronic transmissions of account exchange information over private communications
networks.

Electronic Data Interchange (EDI)

Businesses also have been engaging in a type of electronic commerce, known as electronic data
interchange, for many years. Electronic data interchange (EDI) occurs when one business
transmits computer-readable data in a standard format to another business. In the 1960s, businesses
realized that many of the documents they exchanged were related to the shipping of
goods, for example, invoices, purchase orders, and bills of lading. These documents included the
same set of information for almost every transaction. Businesses also realized that they were
spending a good deal of time and money entering this data into their computers, printing
paper forms, and then reentering the data on the other side of the transaction. Although the purchase
order, invoice, and bill of lading for each transaction contained much of the same
information—such as item numbers, descriptions, prices, and quantities—each paper form usually had its own unique format for presenting that information. By creating a set of standard
formats for transmitting that information electronically, businesses were able to reduce
errors, avoid printing and mailing costs, and eliminate the need to reenter the data.

One serious problem that potential adopters of EDI faced was the high cost of
implementation. Until the late 1990s, doing EDI meant buying expensive computer hardware
and software and then either establishing direct network connections (using leased
telephone lines) to all trading partners or subscribing to a value-added network. A
value-added network (VAN) is an independent firm that offers connection and transactionforwarding
services to buyers and sellers engaged in EDI. Before the Internet came into
existence as we know it today, VANs provided the connections between most trading partners
and were responsible for ensuring the security of the data transmitted. VANs usually
charged a fixed monthly fee plus a per-transaction charge, adding to the already
significant expense of implementing EDI. Many smaller firms were unable to afford to
participate in EDI and lost important customers, who went elsewhere to buy. The companies
that operated VANs have gradually moved EDI traffic to the Internet, but many other
companies have developed other ways to do EDI types of transactions on the Internet. You
will learn more about EDI, VANs, and new B2B transaction technologies