Daniel Schutzer
Vice President and Director of Advanced Technology, Citibank and
President of the Financial Services Technology Consortium
Citibank
New York, N.Y.
dan.schutzer@citicorp.com
D-Lib Magazine, April 1996
Electronic commerce is the ability to perform transactions involving the exchange, or use, of goods or services between two or more parties using electronic tools and techniques. The goods exchanged could be electronic documents and digital objects (e.g. text, data, images, videos, software programs, and composites of all of the above) - the stuff one finds in Digital Libraries. In fact, information products, like electronic documents and digital objects are particularly important because they represent the purest form of Electronic Commerce. Indeed Electronic Commerce, with its greatly reduced cost of production and distribution makes many new knowledge businesses practical that were previously impractical.
For example, a fully realized infrastructure for Electronic Commerce would make it practical for authors to charge pennies for paragraphs and still make a profit - because the author can reach millions world-wide over the Internet, who can pay and download the paragraph at little or no cost to the author.
Selling documents, or charging for their use, over the Internet offers many advantages over traditional paper-based libraries:
The following key activities are common to both digital libraries and to electronic commerce, they are:
Note that not all of these activities are performed in every transaction; nor are they necessarily performed in this order; indeed, they may be performed in parallel. Finally, these activities can vary in complexity and importance depending on the nature of the transaction.
This activity can include
A major problem associated with the advertising and shopping activity is the cost and time expended in developing, maintaining, and finding relevant information, products, and services, given the plenitude of available information. Obviously, this problem will become increasingly complex as more data and services become available on-line, and the choices and possibilities multiply exponentially. We need new and better ways to find electronic documents and information and to publish and update this information.
Buyers and sellers may elect to negotiate the terms of a transaction - i.e., the terms of exchange and payment. These terms may cover right to copy, copyright or license agreements, usage rights, distribution rights, refund policies, and terms of payment. These terms can be standardized for routine commodity use, or customized to suit more unique individual situations. Often, in the case of two parties with a well-established business relationship (e.g. a library membership agreement) the terms of exchange are pre-negotiated as standing contractual terms for all their future exchanges. Often, this process will also include authentication of the two parties.
The buyer eventually issues a contractual agreement of the terms of exchange, or usage, and payment. This contractual agreement is generally issued as an order, which sets forth the price and other terms of the transaction. The order may be verbal, in writing, or electronic. It usually includes an acknowledgment of agreement by the various parties in order to help prevent any future repudiation. This agreement can be confirmed electronically through cryptographic techniques such as digital signatures.
A bill can be sent to the user, either before delivery of the electronic document, with the delivery, or after the delivery. The bill generally includes remittance information - who, where and how to pay. Even when the electronic document or digital object is provided free of charge, it is desirable to provide usage data as important feedback information to the librarian and author, which can be obtained by having the user complete order or request forms.
The buyer, or some financial intermediary, eventually sends some form of electronic payment (this could be some form of contract or obligation, such as authenticated payment instructions, or the actual transfer of value, such as digital cash), usually along with some remittance information to the seller. This payment may occur for a single item, on a usage basis, or with a single payment for multiple items or usage. Settlement occurs when the payment and remittance information are analyzed by the seller or the seller's agent and accepted as valid and the an actual transfer of funds is accomplished.
Electronic commerce does not completely address collaborative design and manufacturing activities, although they do share many of the same sorts of activities. For example, the publication of compelling electronic catalogs, advertisements, and product information requires the same set of electronic publishing tools, as the author of an electronic document or digital object for a digital library. In the ultimate "wired" society; collaborative design and manufacturing could decompose to hundreds of specialty firms that meet, negotiate and contract with each other over the network, which they would then use to purchase, sell, distribute, and assemble the various components that make up a product or service. This model is actually much closer to the relationship today between publishing companies, authors and libraries, than the model of today's typical large manufacturing company, such as General Motors.
Either before, after, or concurrent with payment, the seller arranges for delivery of the purchased electronic document or digital object to the buyer, or buyer's agent; and the buyer provides the seller, or seller's agent, with proof of receipt of delivery. Policies regarding customer satisfaction and return should be negotiated prior to this activity, and made part of the contract between buyer and seller. For larger, more complex, orders, distribution may involve more than two parties and entail complicated distribution coordination strategies. An ancillary distribution service involves acting as a fiduciary, and holding goods, certificates, bonds, stocks, etc., in trust.
This activity is particularly important to corporate customers and suppliers. Both buyer and seller must reconcile all electronic transactions in the accounts receivable and accounts payable, inventory information, and accounting systems. Account and management information system records must also be updated. This activity can involve third parties, if the transacting businesses outsource their accounting services.
Customer service entails
Customer service also involves providing general cash management advice, including addressing foreign exchange imbalances and risk exposures, collection of delinquent payments and late fees.
A final key activity in electronic commerce is the collection, management, analysis, and interpretation of the various data to make more intelligent and effective transaction-related decisions. Examples include: collecting business references, coordinating and managing marketing strategies, determining new product offerings, granting/extending credit, and managing market risk. Performance of these tasks often involves the use of advanced information management techniques, including models and simulations and collaborative computing technologies to support conferencing and distributed workflow processes.
These tasks will become more difficult as the sources of information grow in number and are of increasingly diverse and uncertain quality. Additionally, the use of this information may raise significant privacy concerns and issues, that will result in the imposition of significant limitations on the use of this data, and conceivably encryption of selected portions of the transaction information.
Some related issues and needs are discussed below:
A particularly important class of products on the Internet, and evolving NII, are products that are pure information. In the information age, a large percent of the commerce will never be embodied physically. Information products are enabled by information technology and not just distributed more efficiently by it. These products can consist not just of electronic publications, catalogs, videos and the like, but can include interactive video games, software programs, electronic keys and tokens, customized design specifications, even electronic keys that can open to hotel rooms, cars, storage compartments, and airport boarding gates. Furthermore, these information products are not just created entirely by the service provider, but can be designed or customized by the customer (e.g., customers can create their own selection of articles to be bound in an electronic book, or creating their own custom clothing design), adding a customer-driven activity call "design" to the purchase cycle. Indeed, information products can be continuously added to, modified, and morphed, as they pass along a chain of users. It is also likely that for these products ordering, billing, payment, and distribution would likely all happen simultaneously.
The electronic commerce infrastructure will need to support advanced types of revenue collection, in addition to traditional methods (e.g., payment upon receipt, payment in advance, etc.). For example, an information product service provider could distribute its product widely and charge on a usage basis; i.e. charge the user only when the information (for example, a software program, a digital document, an electronic key that can open and start a rental car) is used. One innovative approach that permits usage accounting and payment is called meterware. It provides local hardware and/or software to continuously record and bill customers based on their usage. Meterware and other advanced revenue collection ideas (payment schemes, such as micro-payments, electronic cash and electronic check which do not require the presence of an on-line payment processor) create opportunities for reaching new customers and for distributing products and services; these make great sense in a low or zero distribution cost environment and should be supported by the electronic commerce infrastructure.
There are many unanswered questions, however, surrounding these techniques. For example, can payment schemes actually be implemented that are both efficient and secure enough to process such low value transactions? Some micro-payment schemes for use over the Internet have been proposed that are significantly weaker than those being proposed for the more traditional payment schemes (e.g. SET and Echeck). The argument is that one can safely sacrifice security for processing efficiency when the transactions are low value enough. The argument is that it is much more important to minimize the amount of computational and communications resources needed to effect payment than to ensure the integrity of the transaction - that the loss of a penny here or there will not be consequential enough to matter. But, this may not be the case when the revenue is being allocated across many parties, each getting only a small portion of the payment, and where the profit margins may be extremely thin.
Perhaps even more important is the aspect of being able to enforce intellectual property and usage rights. What good is it to focus on collecting a penny for the use of an electronic document or digital object if one does not also focus on enforcing usage rights associated with that document or object. Without this latter focus, a user can pay a penny for the use of a document or object, and then easily redistribute it to thousands or millions of their "friends" across the country? And, if strong cryptographic technology is used to enforce and protect a digital object from being "shared" in ways that violate its usage agreements, then why not use the same strong cryptography for payment? If one has already invested in the cost of this technology and processing to enforce usage rights, why not also include it for payment processing? Indeed common strong solutions to this problem, applied across many domains, should help to drive down the cost of the strong cryptography, and hardware tokens that are needed.
The user acceptability of these new forms of payment is also questionable. Advocates point to gas meters, and telephone bills, as proof of the acceptance of bills with small payments based on usage. But, the complexity of these bills certainly pale by comparison to the sorts of bills that users might expect to see in some future "wired" world of micro-payments. Imagine sitting down to reconcile a bill comprised of thousand of penny items. Each item is small enough, but the total will probably be large enough to command our attention. Also, these all these examples of usage billing are coming from businesses that have been run as a monopoly - the user has had no other alternative offered them. When given the choice, users have often opted for a more certain, fixed flat fee, even if that fee is slightly greater than their historical usage pattern.
The cost of usage billing and accounting may be unacceptably high in the future economics of the "wired" society. For example, it has been argued that a significant portion of the cost of operating the telephone and utility infrastructure today is due to the imposition of usage metering and accounting hardware and systems, and that more nimble companies offering equivalent services based on a flat fee, could operate equivalent service at much lower cost.
Electronic commerce transactions currently involve all manner of devices (e.g., phone, fax, POS - point-of-sale device) and media (e.g., electronic data, image, voice, paper), and networks (cable, wire, satellite, cellular) over which they will be delivered, so the system infrastructure must accommodate all of these devices, media and communications networks, without degrading them to the lowest common denominator. Opening up digital libraries to all these devices, at of course a greatly reduced functionality on some of the less capable devices, might still be a capability worth looking into. It would better bridge the gap between the real physical world and the future "wired" world, and it would dramatically increase the accessibility of the digital library to a much wider population faster, including the more disadvantaged citizens.
The electronic commerce domain has a large quantity of legacy systems which it needs to interface to, and ultimately phase-out, as it evolves to more modern systems, applications and processes. These legacy systems and processes (e.g., paper checks, mainframe-based settlement and payment systems and EDI VAN's) will not go away overnight, and a successful electronic commerce infrastructure must allow the user to easily and transparently transfer between and switch back and forth between the new all electronic, and the older, hybrid legacy systems and processes. Digital Libraries also need to deal with similar legacy issues.
Finally, libraries of publicly available/accessible libraries and files of registered contracts, information and reports, as well as catalogs and lists of products, data and services, if made part of the NII domain-specific infrastructure being offered by various electronic commerce vendors and information providers, could be interfaced with this electronic commerce scenario to further enrich it.
A convergence of several factors has recently lifted digital libraries and electronic commerce to the promise of a new level of utility and viability. These factors include the increased availability of communications and communications bandwidth, the reduced cost and increased user-friendliness of computers and communications, the growth of the Internet and on-line services, and the drive toward global competitiveness. There are however, a number of standardized services that are needed to fully realize their complete potential. Most of these services are common to many different applications, including electronic commerce and digital libraries. Each application domain could address these issues separately, but the cost and accessibility of these services would be greatly improved if all applications utilized the same set of services, much the way they now are all utilizing the same communications networks (e.g. Internet technology).
So, in the near future, we should see a broad range of new value-added services, including the following built around trust and security:
All of these initiatives must be developed within a common framework, or we run the risk of creating isolated, non-interoperable implementations that will inhibit progress toward truly free, open, and spontaneous electronic commerce and digital libraries. Most of the current solutions being prototyped over the Internet, all vary in their approach to security and privacy, their ability to handle micro-payments, and their applicability to various types of transactions. They also differ in their business models - for example, in their pricing strategy and in their assumptions as to who bears the risk in case of insufficient funds or disputes. The electronic commerce infrastructure therefore must achieve the following goals:
Most current implementations depend on proprietary solutions, which don't easily interoperate - if at all. Internet e-mail and the World Wide Web are notable exceptions. A truly interoperable common infrastructure, for applications such as electronic commerce and digital libraries, would allow parties to conduct their transactions in private, without paying any fees to intermediaries unless they provide some real added value, such as credit or search services. This infrastructure would make it easier for any and all interested persons to become service providers as well as consumers.
The infrastructure must be based on a common set of services and standards that ensure interoperability. Preferably, these services and standards can be used as standard building blocks that service providers and application designers can combine, enhance, and customize.
As the Internet and its successors evolves, it will grow and mature significantly - possibly in ways not even imagined today. New services and businesses will emerge. For example, NII's electronic marketplace will provide new opportunities for narrowcase marketing and publishing to very short-lived niche markets. Also, existing services and products will be redefined and modified. The common infrastructure will have to be sufficiently flexible to accommodate all of these changes and be able to address new applications and new requirements as they arise.
The consumer cannot usually communicate or transact with vendors in a simple, direct, freeform environment in today's electronic commerce applications. For example, to access most electronic shopping services, a consumer must subscribe to an on-line service (e.g., Prodigy or cable TV shopping channels) which then provides proprietary hardware and/or software with which to communicate with the vendors that have also registered with that service.
The lack of personal contact and the anonymity associated with conducting transactions over a telecommunications network make it difficult to authenticate parties and detect intruders; this in turn makes the system vulnerable to fraud and increases the need for security services. Additionally, the speed with which transactions can be conducted leaves parties with less time to react, check, and respond appropriately - again creating the potential for system fraud and abuse. Lack of sufficient security inhibits the introduction of direct, secure, real-time electronic payment and settlement systems that can support secure exchanges without pre-arrangements or third parties.
Participants in today's electronic commerce applications must find methods and means of navigating effectively through the sea of rapidly increasing on-line electronic information and services in order to find trading partners and items of interest. This problem will only increase as more information and businesses go on-line.
March 30, 1996
hdl://cnri.dlib/april96-schutzer