Advantages and Disadvantages of E-Commerce - Literature review Example

E-Commerce and Introduction The change and revolution that the internet has brought in today’s world cannot be understated. Businesses have greatly benefited from the use of the internet in enhancing their ability to reach their target customers. There are businesses that have established a market niche for by engaging their customers online, without necessarily having many brick and mortar buildings where transactions are carried out (Farah and Higby, 2001: 304). E-commerce is defined by Alghamdi (2011: 6) as a model in businesses that makes it possible for an individual and the supplier to carry out business transactions in an electronic network, the internet being the most widely used network. E-commerce can be carried out between Business to Business models, Business to Consumer models and Consumer to Consumer models. This form of business can be described as a more advanced and improved version of mail order buying. To many businesses, E-commerce has given a chance to form and establish a felt presence in the market, and to reinforce and enhance an already developed market image by being able to make available cheaper and effective distribution channels for products and services (Schneider, 2012; 18). However, there are many issues that come with E-commerce, and the Estonia cyber attack is a perfect example of some of these issues (Theodore, 2007). This work shall analyze a few advantages and disadvantages of e-commerce, discuss how complaints are addressed, summarize online contracts and contractions and also have a look at some of the laws and acts governing e-commerce. In addition, some of the common issues that are in e-commerce shall also be discussed. Advantages and disadvantages of E-commerce The boundary-less-ness of virtual businesses has made things better for consumers, giving them more autonomy, flexibility and saving a lot of time for them. There are many advantages that come with the e-commerce business model, some of which are summarized below. To begin with, e-commerce provides customers with convenience in that the customers can access the products and services any time since there is no time limit. The other advantage is the time saving factor. This is because customers do not have to queue as they would have done in a physical store. In many cases as Schneider (2012; 30) notes, online transactions take a few minutes, hence giving the advantage over the brick and mortar stores. In addition, E-commerce offers a wide array of product choices, where an interested customer can browse through the different websites and compare the prices. This is possible because lop bots can make comparison for the customers by scouring stores found online and find the best deals. This is much advantageous as compared to when a customer has to move from one shop to another to compare the prices and get the best variety. Other advantages include the reduction of logistics-related issues, theft and fraud protection, ability to sell one’s products/services globally and ability to access remotely-located stores (Schneider, 2012; Alghamdi, 44). A good example of a business with very high quality services, good customer care and minimal convenience is Amazon. (Amazon.com 2014) However, with these advantages come several disadvantages of e-commerce. To begin with, there is no ability for one to physically feel and examine the product as would have been possible in physical stores. Secondly, it is usually hard for customers to return unwanted products in case of dissatisfaction or wrong delivery. Another disadvantage is that not all businesses are able to venture into the e-commerce world since there are a lot of requirements to fulfill. In addition, businesses may have difficulties recruiting employees and retaining them. Consumers also feel less confident when transacting businesses online due to the use of their credit cards due to past cases of fraud and identity thefts (Farah and Higby, 2001; 304). Other disadvantages include high shipping and handling costs, increased entry to market barriers and businesses missing sales opportunities on physical stores when they concentrate too much on e-commerce. Address of consumers complaints Research shows that dissatisfied people talk about the dissatisfying product or experience five times more as compared to those people who have been satisfied (Edwards and Wilson, 2007; 316). In businesses, complaints from the customers are inevitable, and businesses must therefore have measures and procedures to address these complaints. However, there are differences regarding how customer complaints are handled in the e-commerce world as compared to the traditional business models. The legal frameworks of the two are different but they both work towards ensuring customer satisfaction. In the traditional business model, in case of customer complaints, the physical presence of the customer is required. Traditionally, complaints from the customers were taken care of by national courts, and the complaints were settled where one of the two parties involved in the disputes are located, but with the advent of online marketing, things have changed. Edwards and Wilson (2007; 317) note that people are no longer confined and restricted to buying their products in one store, or even in one country, as e-commerce transcends borders. B2C customer disputes can no longer be effectively addressed by the traditional mechanisms that existed before (OAS, 2010; 5). The EU 2002 gives power to consumers who carry out their transactions online to sue the seller of the products or services. This seller may be based in an EU country where the suing customer lives or in an EU country where the business is located, even if this seller has no business operations or employees in that country (Edwards and Wilson, 2007; 320). This makes it easy for the online customers since they are not limited by the issues of boundaries and geographical locations. Their rights to good service and quality products are taken care of by the fact that they can sue the online businesses, and they can even do this online. However, even with this provision, it is sometimes impossible to amicably settle disputes between customers and sellers who transact their businesses online. Since the customers can be located anywhere, it is very hard to establish the real location of a complainant, especially with the currently available anonymizer enabling devices as Edwards and Wilson (2007) collectively note. This makes it harder for disputes to be solved online. Contracts and contraction in online businesses Online businesses must be conducted with great caution, with both parties (seller and buyer) understanding all binding terms. The internet has greatly revolutionized the convenience to which sellers and buyers get involved in commercial activities, but it has also created uncertainty in customers regarding the areas of jurisdiction, laws, terms and conditions (Alghamdi, 2011: 70). This does not mean that the traditional contract principles are changed, but the emphasis is on achieving compliance and acceptance concerning the contract information. Just like there are contracts in the traditional businesses model, there are contracts in the e-commerce business models. A contract refers to a legally binding agreement between parties. Usually, most of the contracts in online businesses are “click-wrap” contracts where the user scrolls through the website, and expressly agrees to the terms and conditions by clicking on the buttons usually labeled “I accept’, or “I agree” (Alghamdi, 2011: £143). To ensure certainty, it is important that before engaging in e-commerce trading (selling or buying), the following be understood. Invitation to treat, offer, acceptance, consideration, authorized signature, terms of agreement, implied contract and warranties. To explain some of these issues, an analogy can be drawn. An online business places in its website a dress for sale. The price of the dress is £150, and the terms are that the price of the dress is inclusive of the shipping and wrapping charges. There is an opt out option valid for seven days after expression of interest. Payment should be done through linking your debit card. Drawing from the above example, the buyer sees the dress in the website. This is what is called an invitation to treat. Next, the buyer may be interested in buying the dress, and he or she is ready to give the £ 150 that has been put in the website. This is the offer. If the owner of the business agrees to this price, and there are no issues, and the buyer is eligible to purchase the dress, then the seller accepts the money, which is now referred to as acceptance. When the buyer gives the money to the seller (in this case when the money is deducted from the buyers account) and the dress starts the shipment process, this is what is called consideration. According to Alghamdi (2011; 71) an offer can simply be defined as a commitment to certain terms that have been proposed by another party. Acceptance is the willful expression of a customer’s interest to take the offer put forward. Consideration is agreed upon once the exchange of something valuable has been made. The terms of agreement refers to the buyers’ willing acceptance to be bound by the conditions placed by the business, especially by clicking the “I agree” button. These terms are intended to reduce the liabilities of the websites owner. Authorized signature refers to a symbol that is executed for the sole purpose of legalizing and authenticating writing or a transaction. It can be used as the signature of a buyer that a business is supposed to recognize, and will only make deductions from the debit/credit card when this signature appears (Gary, 2001). This is important in reducing cases of identity theft. Warranties in online businesses refers to contracts for the sale of goods and services, and serve the same purpose as in traditional business (they offer guarantees) and are especially useful in electronic online stores that have worldwide distributed stores. Statutes of frauds are usually used in online businesses when contracts made require actions that cannot be summed up within one year, and also when the goods sold online are worth over £ 500 ( Alghamdi, 2011; 79) Customers who engage in e-commerce are advised to take time to understand the terms and conditions of the business before they make any purchase to avoid later complaints. Rudder versus Microsoft (Thierer, 2006; 143) is a good example where Rudder announced class action on behalf of MSN subscribers accusing Microsoft of breach of payment issues. This, Rudder argued was so because the member agreement for Microsoft, which was an online click wrap required one to go through several website pages containing terms and conditions before clicking the “I agree” button to be able to access the services. Though the judge ruled in favor of Microsoft, online customers should be extra careful when binding themselves to online contracts. Laws governing e-commerce activities In U.K, online activities are governed by the Data Protection act of 1998, Distance selling Act of 2000, and E-commerce directive of 2002 (Schneider, 2012; 204). All the three are intended to ensure that the customers are not exploited and that all business carrying their activities online do so lawfully and legally. The data protection act, to begin with requires that all business with an intent of transacting businesses online must register with this act, so long as you gather or collect any information concerning your employees, your current customers or your potential customers. The act also requires that the owner of the business should state what they intend to do with this data, and prohibits the business owners from exporting this data outside the European community’s without approval from the owners. This act also provides that upon request from the owner, the data should be deleted, and that the businesses must only collect data that pertains to their business needs (Prins, 2003). Consumer protection (Distance selling act) of 2000 further ensures of how consumers are protected in e-commerce. It demands that all businesses provide detailed and clear information about their products and their services. In addition, the businesses are required to clarify about their costs, explaining whether the indicted cost is inclusive of the postage and packing costs, and also of the taxes. Following a purchase, the businesses must provide written confirmations, for example through a confirmation email. In addition, the businesses should provide a “cooling off period”, which gives an allowance for a customer to change their mind, return or even cancel the order. The time for this period, which is commonly seven working days should be well and clearly indicated. Another aspect of distance selling is the fact that the business should inform its customers of their rights to return their order in case of dissatisfaction, with the only losses incurred by the customer being the package and the postage fees (Schneider, 2012; 208). The e-commerce directive of 2002 is a reinforcement of the Distance Selling act, which emphasizes on the importance of a business displaying its operating name, its physical and geographical address, its contact information among other basics. The directive also emphasizes on the importance of clear information being provided with regards to taxation, pricing, terms of delivery and all other terms and conditions. This directive, in a bid to enhance privacy also informs of the importance of an “opt-in” and an “opt-out” approach. An opt in approach is where there is a default choice for the customer to restrict the use and sharing of their personal data. Here, they also click an agreement box where they are to be contacted only through a specific medium. An opt out approach is taken to be a default where if the customer does not tick the box specifying how they are to be contacted, then the online business shall contact the customer with the default method usually used (Jonathan, 2006). The SWIFT bank action is an example where the rights of the customers were violated, an action which is against the law (Edwin, 2007) There are also other requirements that govern the use of intellectual properties in the e-commerce business model. In America, the Information Technology Association of America (ITAA) gives requirements against use of another person’s intellectual property without their consensus. In addition, there are rules against defamatory statements, Per se defamations and disparagement of products, all in bid to promote successful e-commerce activities. Intellectual property is protected by granting copyrights, registration of trademarks among others (OAS, 2010). E-commerce issues Even with the above acts and directives, security and privacy issues continue to be major issues of concern. Research shows that only about 50% of e-commerce customers are very sure of its safety (Tyler et al, 2010; 497). Online customers in 2012 were victims of privacy invasions in U.K. 61% of people say that they could have purchases goods online but their fears for their security were too large (Schneider, 2012; 200). The majority of the people, once they give out their personal information, have no idea of what it is later used for. This places them at the vulnerability zone, especially if the company to whom they give their personal information does not have encryption ability. The October 2000 incident where hackers broke and accessed huge secrets of Microsoft company (Tyler et al 2010: 494, Reuters, 2000) or where Estonia’s computer systems were hacked (Theodore 2007; Richard, 2010) was a worry to many people. Some worry that if a worldwide known company, with all its security details had their security jeopardized by hackers, what about small businesses? Issues to do with privacy are recorded day in day out. Identity theft is one of the major issues which are of great concern. Free information flow and proliferation are the main forces through which customers may become victims of identity fraud (Edwin, 2007; 2). When the consumers’ identities are stolen, they might be used to make purchases or even establish credits, and this might is a big inconvenience to online customers and businesses. According to IRS (2013), in 2012 in South Carolina, over 387,000 customers had their security breached when their security numbers were breached. The same reports that on 24th September 2013, Tampla Maurice J. was sentenced to 174 months in prison after he pleaded guilty to charges of wire fraud and identity theft. Telemarketing fraud is the other major issue which is closely related to identity theft. For instance, on 30th September 2013, in Palmdale, Calif Michael Williams was found guilty and sentenced to 33 months in prison for telemarketing fraud. Mike Niko, on the same day was sentenced for 38 months on prison. He and others hacked into the computer system of California Department of Social Services, stole details and names of people, and used these to claim fraudulent refunds on tax. These are just a few of the many cases involving privacy of the online customers (IRS, 2013). Another issue that can also be encountered in online business is online crime and terrorism. A well financed terrorist group might put up sustained effort and slow down or bring to standstill major transactions of an online company in its processing centers, especially those that have huge returns (McGuire and Sherry( 2000; 53). The main challenges when dealing with these issues is jurisdiction and challenges applying laws that were written before the use of the internet became widespread and before criminal activities in the internet became prevalent (Edwards and Wilson, 2007; 328). Challenges in e-commerce laws With the increased number of businesses venturing in online businesses, it is very important to have laws that will protect the consumers and also the business owners. However, even with these provisions, cross border disputes are still a great challenge, with jurisdictional issues posing greater challenges on online businesses (Edwin, 2007; Farah and Higby, 2001; 305). As much as the jurisdictional bodies are keen to enhance the privacy and safety of employees, daily issues are emanating with the rampant growing technology. Hackers are devising new ways of accessing personal information that customers give to their online businesses, and this further makes them vulnerable. Another challenge is that digitization has made it even harder for online business owners and customers to monitor the use of their personal information. The opt in and opt out approach still remains un-understandable to the customers, and hence others end up making mistakes that cost them dearly (ORS, 2010; 499). Conclusion The wave of e-commerce cannot be stopped, and this business model has definitely made things easier for customers. Purchasing of goods has become easier and has saved people from long queues and inconveniences. However, customers making their purchases online must be sure to understand the contract terms that are used in the online transactions. It is also important to understand the issues that are commonly encountered in online transactions, and also for one to know their rights. Privacy issues, telemarketing frauds, terrorism and online crime and intellectual property are among some of the most common issues that have led to laws being formed to govern e-commerce. But even with these issues, it is evident that e-commerce is here to stay, and its importance cannot be understated. References Alghamdi, A., 2011. The Law of E-Commerce: E-Contracts, E-Businesses. New York: Author house. Amazon. Com., 2014. Placing an Order. Amazon. Com. [Online]. Available at [Accessed 19th February 2014]. Edwards, L., and Wilson, C., 2007. Redress and Alternative Dispute Resolution in E.U Cross Border E-Commerce Transactions. International Review of Law, Computers and Technology, 21(3), 313-333. Edwin, J., 2007. SWIFT Privacy: Data Processor Becomes Data Controller. Journal of Internet Banking and Commerce 12(1), 1-5. 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