E-Commerce - Exploring Your Options

Summary

Introduction

You've heard the predictions and read the endless statistics about the impact of the Internet on our economy. Just a few years ago, the Internet was something new that not many people knew much about. Now, it is changing the way we communicate and conduct business.

Today, the Internet provides users the opportunity to search for information at any time of the day or night and to communicate instantly with the use of e-mail and electronic forms. And now with the addition of online shopping, the impact of the Internet is continually exceeding all expectations.

E-Commerce often allows existing merchants the opportunity to expand their client base. It can also be a cost effective method of marketing products/services and displaying an inventory of products. Traditionally, merchants had to set up physical show rooms or produce costly catalogues to preview their products. Now, the Internet can provide an electronic vehicle to enhance this marketing strategy.

Whether you are using an electronic store in place of a physical one, or are using it to enhance your existing retail outlet, the decision to set up an e-commerce site should be based on a solid plan, preparation and realistic expectations on investment and return. Just as you would develop a plan for your physical business, so should you for your online venture.

What Is a Web Site?

A Web site is a series of pages which are developed using HTML (Hyper Text Markup Language) and when viewed by a Web browser (i.e. Netscape, Internet Explorer) can display text and graphics. Also, with the help of other languages and technologies, can play sound, display video and retrieve information. A Web site may be extremely attractive, informative and entertaining, but may also be quite static.

A static Web site is one that communicates only one way and doesn't allow for true interaction. A truly effective business Web site provides some methods for customers to provide feedback, ask questions and search for relevant information within your site.

Some components of an interactive Web site are:

• e-mail links;
• electronic forms which provide a method for customers to provide input;
• searching capabilities;
• connection to information databases for customer use.

What Is E-Commerce?

The term e-commerce is often associated with selling products or services over the Internet. These transactions may take place between your company and a new customer, or you can do business with existing customers and even other businesses. Business-to-consumer is where an actual financial transaction is expected to grow even ten times faster than business-to-customer commerce.

So, let us walk through a typical e-commerce transaction.

1. You must first develop a site that allows potential customers to find your products or services. A customer will browse through your electronic catalogue and select items to add to their shopping cart.
2. Once customers have finished selecting their items, they will fill out an online order form. This usually includes entering the customer's name, address, etc.
3. Order processing software will then calculate the totals, taxes and shipping information (usually based on delivery destination) - credit card number, expiry date and shipping address. This form must be secure.
4. Payment processing software encrypts the order total and payment information and contacts the credit card company to verify that the card number is valid and the total amount within the cardholder's limit.
5. Once authorized, a message is usually transmitted immediately to the customer and the merchant verifying the order, and the order processed.

Depending on the sophistication of the storefront software, and whether the merchant has his inventory and other back end systems integrated with the store, customers may even be able to track their orders through the shipping process.

Now that you know how a transaction happens online, you might wonder how all of this is facilitated. This can be the tricky part. Tricky does not mean impossible, but the challenges are the numerous options available and finding the right solution for your business.

The next section presents a process that will help you to develop a clearer understanding of the options that are right for you or, at least, a knowledge of the questions to ask the Internet professionals that you will be working with.

Questions to Consider

The following questions are important because the solution you will choose for your electronic store will be based largely on these questions. Let's go through each of these questions one-by-one so you can better understand their significance.

1)   Realistically, what is your budget?

Well, you know what they say . . . "you get what you pay for." This isn't always entirely true as you could certainly pay a high premium, hire someone who doesn't have your best interests at heart, and end up with an ineffective and poorly designed store. On the other hand, there are some solutions that won't break the bank and will do quite a nice job of selling your products. However, the most important thing about setting up an e-commerce site is to get all the associated costs up front. This means design charges, Web hosting fees, transaction costs, etc. We will go into this in more detail later in the document.

2)   How technically inclined are you?

If you feel you are fairly technically inclined and have some of the basic skills and tools at your disposal, you may be able to develop the store, or parts of it yourself. With some of the browser-based solutions, i.e. IBM HomePage Creator, you can point and click and select options that will create your store. Your responsibility would be to scan images, convert them to appropriate file format (.gif, .jpg) and upload them to the Web server.

3)   How many products do you plan to sell (now and in the future)?

As you will see later on in this document, charges for e-commerce solutions are often based on the number of items or products in your catalogue. Monthly fees are often based on these numbers and can rise rapidly if your catalogue begins to increase.

If you are planning to sell numerous items, you may wish to look at a more flexible type of solution that won't become too expensive as your business grows.

4)   Are you looking to integrate a storefront into an existing Web site or are you starting the entire process from scratch?

You may already have a basic Web site and have decided to add a store component. If this is the case, you may want to begin by talking with your current Web host to see if it offers any e-commerce solutions. You may also have some existing database integration or technologies on your current site that need to be taken into consideration when selecting your storefront option.

After you have considered these questions, let's get down to business. What options are available and what are the costs involved? To put it all together, let's go through the components of an e-commerce site and the options available to you.

Anatomy of an E-Commerce Site

Web Design/Catalogue Development

A good Web designer will be able to give you a professional looking site that is easy to navigate and expresses the culture of your company. With some of the storefront solutions that we will discuss, you may be able to create a site with little technical knowledge; yet, in many cases, it may not be appropriate for you to build your store—you may need to concentrate on the business aspect of your store and leave the technical and design issues to someone else.

When selecting a designer to develop an e-commerce site, ensure he/she has significant knowledge and experience. In most cases, you will not only be contracting the designer to actually develop your site, but to assess your needs and recommend technologies and solutions that are right for you and your business.

Cost for design specialists can range from $50/hr and up. Many designers will offer package deals for basic sites for those businesses wanting to get a presence on the Web.

Just like a physical retail outlet, your store will need products to select, a shopping cart, check out, etc. Although you could hire a programmer to build you these components from scratch, there are a number of software solutions on the market that have these components pre-developed.

Template Service or Storefront Software?

Template service is an online browser based template like Yahoo Store or IBM's Home Page Creator service. This type of service provides a relatively inexpensive solution for small businesses that want an effective store, but don't require full control over every aspect of the site's merchandising and technical capabilities. It is most appropriate for small stores that don't have a large number of items for sale.

Merchants can create simple store by selecting options and filling in items such as product description, company information, etc. You would also need to upload graphic files and logos that will be displayed on your electronic store.

Template Advantages:

• easy to use;
• all tasks handled from within your Web Browser (i.e. Netscape, Explorer);
• relatively fast set-up;
• no need to install any software on your computer;
• little technical knowledge required;
• no need to find a Web Hosting Company or ISP as the store is hosted on the template service providers site.

Template Disadvantages:

• limited flexibility in store design and layout;
• your store looks very much like other stores developed with the template service;
• costs usually increase as additional catalogue items are added.

Example of Canadian Template Services:

DXshop at http://www.dxshop.com

Template Service Fees

The fee usually consists of a basic monthly charge plus additional fees. The additional fees depend on the number of transactions your store requires or the number of items your store carries.

IBM HomePage Creator, as an example, ranges from $45-$300/month which does not include the costs associated with real-time credit card authorization. The template service will usually set you up with a third party payment processing company for this service.

If you are interested in a template solution, take a look at the seller's Web site; they often provide demos or allow you to create a "test store" prior to signing up.

Storefront software is a tool that you or your developer can use to create your store. These range from very simple and inexpensive packages to more complex and scalable packages that are much more pricey. Again, the package that is right for you depends on the options you need.

Storefront software, which is often referred to as off-line software, varies in terms of sophistication and features. Some software is very simple and straightforward, others have enhanced features and options, i.e., product options, inventory integration and administrative options.

Advantages of Storefront Software:

• usually more powerful and more flexible than template services;
• more control over the layout and organization of your store;
• work with many Web hosts (confirm with your ISP);
• relatively few restrictions for enhancing or changing a store.

Disadvantages of Storefront Software:

• may be more complicated to use than templates;
• must be installed on your computer;
• you have to work off-line with the software and upload to the server;
• may assume or require technical or programming knowledge.

Examples of Storefront Software:

ecBuilder by Maximizer Software Inc. at http://www.ecbuilder.com
eParcel by Canada Post at http://www.canadapost.ca/business/prodserv/so/default-e.asp

Storefront Software Fees

Fees for storefront software range from about CAN$450 to $1 500 with more complex packages priced even higher. The site developer would be required to load this software on his/her computer and would have to upload the completed files to a compatible server (Microsoft IIS, etc.). Use of this software is often limited to people with some technical knowledge as even viewing the completed files in most cases requires the use of a server.

The examples shown above are Canadian solutions which are still fairly difficult to come by. Many of the solutions are produced by American companies which can make it difficult to get technical support or integrate payment processing solutions.

Also, the storefront package is just that . . . the store. Merchants will still have to pay fees to a Web host for their server space, set-up a merchant account and a payment processing service, and in most cases, a developer to actually create the store within the software framework.

Many storefront solutions offer merchants the ability to download their software for a trial period. This is highly recommended before you purchase.

Internet Service Provider (ISP)/Web Host

An ISP provides you a connection to the Internet and a Web host provides space on their server for your Web or e-commerce site. These companies are often one and the same and can provide both services. Customers are usually charged monthly fees based on factors such as site storage space, bandwidth, etc.

Web hosts are starting to offer e-commerce solutions bundled with their monthly storage charges, where they might include a storefront development package, and maybe even Web development. Once again, this usually doesn't include the merchant account or payment processing fees.

Domain Name

A domain name is your Internet address. It is what people use to find you on the World Wide Web. An example of a domain name would be www.yourcompany.com or www.yourcompany.ca

How does .ca differ from .com?

Dot-ca is the country code Top Level domain (ccTLD) designating Canada. Dot-com is the generic Top Level domain (gTLD) designating commercial activities. The policies and administration of the .ca domain name will be set by the Canadian Internet Registration Authority and governed by Canadian law. The gTLDs are managed in the United States under American law.

The Canadian Internet Registration Authority (CIRA) is a non-profit Canadian corporation that is responsible for operating the .ca Internet country code Top Level Domain (ccTLD) for all Canadians.

If you meet the Canadian Presence Requirements for Registrants you can register a new .ca domain name by following these steps:

1. Search for your domain name by conducting a "whois" search . You can only register a new .ca domain name if it is not registered to anyone else.
2. Select a CIRA certified Registrar and proceed with your registration.
3. After completing the registration process with the registrar, first-time registrants will receive a temporary user id and password, which they will have to enter on CIRA's secure Web site in order to accept the Registrant Agreement and CIRA's Registration Rules.

A .ca domain name may be registered for a period of 1 to 10 years. The registration fee will depend on the registrar you select, but seems to vary between CAN$25 and CAN$75 annually.

For more information regarding .ca domain names, visit CIRA's Web site at http://www.cira.ca/en/register.html

Domain names ending with .com, .net or .org can be registered through many different companies (known as "registrars"). To view a listing of these companies, visit the Internet Corporation for Assigned Names and Numbers at http://www.icann.org/registrars/accredited-list.html

The Internet Corporation for Assigned Names and Numbers (ICANN) is a non-profit, private sector corporation designated by the US Government to serve as the global consensus entity to which the US government is transferring the responsibility for coordinating four key functions for the Internet, including the management of the domain name system.

To obtain a .com domain name, there is a registration fee (approximately CAN$75). A .com domain name may be registered for a period of 1 to 10 years.

If you want to check if your desired .com domain name is in use and the rules for registration, visit the VeriSign Web site at http://www.netsol.com

Merchant Account

A merchant account is an account that you set up for your store in order to accept credit cards as a form of payment. You must have a merchant account activated for each type of credit card you accept, i.e. Visa, MasterCard, etc. The merchant bank coordinates the transfer of funds between the payment processor, your bank and the cardholder's bank.

Each merchant account is given a classification. In the case of e-commerce, you will be classified as having a "card not present" or "mail order/telephone order" merchant account. The merchant account number(s) obtained from your banking institution will need to be provided to your payment processor. This will allow them to integrate with your store and provide real-time payment processing services.

If you are unable to obtain a merchant account from a financial institution, you may wish to contact an Internet Payment Service such as Internet Secure at (http://www.internetsecure.com) or PSIGate (http://www.psigate.com). Internet Secure guarantees merchant status for most online stores; however, their set up and transaction fees are usually significantly higher than a merchant account obtained from a bank.

Merchant Security Deposits

To ensure that they have significant funds available to cover potential charge backs, some financial institutions require substantial security deposits before they will issue you merchant status.

A charge back is a request from the cardholder or card issuer to reverse a purchase that was made on your online store.

It is extremely important that you discuss your merchant account options and all possible fees with your financial institution prior to developing your electronic store.

Payment Processors/Payment Gateways

These are companies which authorize and instantly approve credit card orders that are made on your online store. This allows shoppers with valid credit cards to complete purchases and prevents those with invalid cards from completing a purchase.

Example of Canadian payment processor:

• E-xact Transactions Ltd. at http://www.e-xact.com  

Payment Processor Fees

Fees vary from company to company, but typically consist of:

• a one time set-up fee;
• a monthly fee; and
• a per transaction fee.

Often payment processors work with the financial institutions, so their fees are integrated with the merchant account set up. When you contact these organizations, inquire if they bill direct or through your selected banking institutions.

Security

A standard Web site usually doesn't require a high level of security; however, an e-commerce site is quite different. Typically, when customers are shopping on your site, they are in a non secured environment until they "Click to Pay." This is usually the point when they are directed to a secure server with all of the necessary security features. Once users begin the payment process, they start to give private information such as name, address and, of course, credit card information. This is where the latest encryption technology is activated.

With the use of SSL (Secure Socket Layer) or SET (Secure Electronic Transaction) technology and a digital certificate, the users credit card number and private information is encrypted and sent to the payment processor for verification.

Two of the largest certificate authorities on the Internet are:

Verisign at http://www.verisign.com

Thawte at http://thawte.com

Information on security issues and encryption technology can often be obtained from you ISP or Web host.

Conclusion

An online store can provide an incredible opportunity for merchants to gain exposure for their products and sell them to a worldwide client base. However, it is imperative that the same considerations that would be given to setting up a physical store also be given to an electronic store.

Are your products/services conducive to selling online? What is your competitive advantage, price, ease of use, delivery, convenience? Have you instilled confidence in your site? Is it a secure site? Do you have a privacy policy?

And of course, one of the key components, can buyers find you? Have you implemented a marketing strategy for your online store? This would include actions like registering with search engines and directories, printing your domain name on all printed material cross-promotion with other complimentary sites, etc.

More information on marketing your Web site can be found at http://www.wilsonweb.com/wmt

Also, it is important to remember that, just because you are selling in a virtual environment, it doesn't mean you can circumvent the rules for operating a business in your province. The same legal and taxation collection rules that would apply to a physical business, still apply to your online store. Although some of these areas are still a bit grey with this new technology, it is a good practice to operate the same as you would in the "real" world.

And remember, you can sell to whom you wish. If you want to limit your online business to customers in Canada and the U.S. only, then that's OK. If you are not set up to ship overseas, then it is better to state that "up front" than to get into a situation where your products are held up at the border, or the shipping costs are so expensive you lose money. After all, the transaction may be done over the computer but, more often than not, you will at some point have to ship a physical product and therefore be subject to the rules and regulations of the exporting and importing countries.

So make your plan, speak to industry specialists and surf the Web. Learn from other successful electronic stores so that your online venture will be a successful one!

E-Commerce Checklist

• Develop an e-commerce business plan
• Web designer/E-commerce developer
• Storefront solution (template or storefront software)
• Merchant account(s)
• Payment processor
• ISP to host your store
• Obtain a domain name
• Digital certificate

Key Definitions

SSL (Secure Sockets Layer)

Most sites use SSL browser level standard, which was developed by Netscape Communications Corp. SSL is bundled with current Netscape and Explorer browser versions. SSL encrypts and deciphers all messages travelling to and from the server; however, a merchant won't know for sure that the card has not been stolen. For a higher level of assurance, you must turn to the SET standard.

SET (Secure Electronic Transaction) and Digital Certificate

SET verifies identities as well as encrypting the credit card information. It does this by introducing a third-party "digital certificate" that makes sure no customer or store can pretend to be someone else.

Credit card owners use an "electronic wallet" that sits on their computer hard drive as a browser plug in. Merchants also get a coded certificate provided by their bank, verifying that they are a legitimate business. The certificates generate digital codes called public-private key pair that decipher the credit card number and change with every transaction.

ISP (Internet Service Provider)

An ISP gives you your actual connection to the Internet. Many ISP's offer Web hosting services as well.

Web Host

The hosting service provides a certain amount of storage capacity for your site on their server. Your host can also keep track of how many people are coming to your site and how they have found it (referring sites). They usually charge a set-up fee and monthly space rental charges.

Prepared by: The Business Link, Business Service Centre