E-Commerce

Two unique features of e-commerce are:

1. Ubiquity: it is available everywhere and at any time through the internet, not limited to a physical marketplace.
2. Global reach: it crosses national boundaries and reaches a very large number of customers worldwide.

(Others include universal standards, richness, interactivity, information density and personalisation.)

An e-commerce business model is the set of planned activities, designed to produce a profit in a market, that describes how a firm creates value for its customers and earns revenue online. Examples are B2C retail, marketplace and subscription models.

A firm value chain is the series of primary activities (inbound logistics, operations, outbound logistics, marketing and sales, service) and support activities (infrastructure, human resources, technology, procurement) through which a firm adds value to its products and services. It is used to find where cost and differentiation advantage can be gained.

Benefits of mobile applications for e-commerce:

• Easy and fast access to shopping at any time and place.
• Push notifications for offers and order updates.
• Personalised experience and better customer loyalty.
• Faster checkout and mobile payments.
• Use of device features such as GPS and camera.

Dimensions of e-commerce security:

• Integrity
• Nonrepudiation
• Authenticity
• Confidentiality
• Privacy
• Availability

Search engine marketing (SEM) is a form of online marketing that promotes a website by increasing its visibility on search engine results pages, through paid search advertising and search engine optimisation.

Location-based marketing is a form of mobile and digital marketing that uses a customer's geographic location, found through GPS, Wi-Fi or mobile network data, to deliver relevant ads, offers and information at the right place and time.

A reverse auction is an auction in which the roles are reversed: a buyer asks for a product or service and multiple sellers compete by lowering their prices. The seller offering the lowest price wins. It is widely used in B2B procurement.

Collaborative commerce (c-commerce) is the use of digital technologies by business partners, such as suppliers, manufacturers, distributors and customers, to jointly plan, design, forecast and manage products and supply chains by sharing information on common platforms.

An affinity community is an online community of people who share a common interest, hobby or background, such as a profession or fan group, and who interact on a platform for information and support. Businesses use them to reach targeted customers.

Benefits of e-commerce to businesses:

• Global reach: The firm can sell to customers anywhere without opening physical stores.
• Lower costs: Savings on premises, staff, printing and communication, and cheaper order processing.
• Open round the clock: The business can sell 24 hours a day, 365 days a year.
• Better customer relationships: Customer data supports personalisation, feedback and direct communication.
• Efficient supply chain: Less inventory, faster procurement and quicker delivery.
• Easy marketing: Cheap and measurable promotion through email, search and social media.

E-commerce affects industry structure, that is, the competitive forces in an industry (Porter's five forces):

• Threat of new entrants: Increases, because online entry needs little capital and no physical stores, though large firms can gain scale and brand advantage.
• Bargaining power of customers: Increases, because customers compare prices and products easily and switching is easy.
• Bargaining power of suppliers: Can increase or decrease. Suppliers can sell directly to customers and reach more buyers, but firms can also choose from many suppliers online.
• Threat of substitutes: Increases, as new digital products and services appear.
• Rivalry among competitors: Intensifies, as competition becomes global and price transparency pushes margins down.

Overall, e-commerce usually makes markets more competitive and reduces industry profitability unless firms differentiate.

Services provided by the Internet:

• World Wide Web (WWW): Browsing websites and web applications for information, shopping and banking.
• Email: Sending messages and files to anyone with an address.
• File Transfer Protocol (FTP): Uploading and downloading files.
• Instant messaging and chat: Real-time text, voice and video communication.
• Voice over IP and video conferencing: Calls and online meetings over the network.
• Social networking: Platforms such as Facebook for communicating and sharing.
• Online shopping and banking: E-commerce and payment services.
• Streaming and cloud services: Music, video and online storage.

Social marketing (social media marketing) is the use of social networks such as Facebook, Instagram, YouTube and TikTok to promote a brand, product or service, and to engage with customers.

It includes sharing content, paid social advertising, influencer collaboration, and building communities where customers comment, share and give feedback. It builds brand awareness, trust and loyalty at a low cost, allows targeting by age, interest and location, and gives measurable results such as reach, likes and conversions.

Supply chain management helps B2B e-commerce in these ways:

• Faster, cheaper procurement: Orders are placed electronically with suppliers, which removes paperwork and errors.
• Lower inventory: Real-time information sharing with suppliers allows just-in-time delivery and less stock.
• Better coordination: Manufacturers, suppliers and distributors share demand forecasts and production schedules.
• Transparency: Orders and shipments can be tracked through the chain.
• Reduced costs and cycle time: Fewer intermediaries and quicker delivery improve efficiency and customer service.

A B2B e-commerce marketplace is an online platform where many buyers and sellers (businesses) meet to trade goods and services with each other. The marketplace operator provides the website and services such as catalogues, search, ordering, payment and logistics, and earns income from transaction fees, commissions, membership fees or advertising.

It can be vertical (serving one industry, such as steel) or horizontal (serving many industries, such as Alibaba). It lowers search costs, increases price transparency and widens the supplier and buyer base.

Types of e-commerce, classified by the nature of the transacting parties:

• Business-to-Consumer (B2C): Businesses sell to individual consumers. Example: Daraz or Amazon selling goods.
• Business-to-Business (B2B): Businesses sell to other businesses, for example a manufacturer buying raw materials. Example: Alibaba.
• Consumer-to-Consumer (C2C): Individuals sell to each other through a platform. Example: eBay, Hamrobazar.
• Consumer-to-Business (C2B): Individuals sell products or services to firms. Example: freelancers on Upwork, or a photographer selling images to a company.
• Business-to-Government (B2G) / Government-to-Citizen (G2C): Firms or citizens deal with government online. Example: online tendering through the Public Procurement portal, or online tax filing.
• Mobile commerce (m-commerce): Transactions through mobile devices. Example: eSewa and Khalti payments or mobile app shopping.

Two e-commerce payment systems:

(a) Credit and debit cards

The customer enters card details at checkout, and the transaction is authorised through the payment gateway, acquiring bank, card network and issuing bank. A credit card lets the customer pay later from a credit line, while a debit card takes money straight from the bank account. It is widely accepted and convenient, but needs strong security (encryption, 3-D Secure) against fraud.

(b) Digital wallets

A digital wallet such as eSewa, Khalti or PayPal stores money (and sometimes card details) electronically. The customer loads funds and pays by entering a PIN or scanning a QR code, and the money moves instantly from the customer's wallet to the merchant's. It is fast and convenient for small payments and mobile commerce, and does not expose card details to the merchant. Its limits are transaction ceilings and the need for wallet acceptance by the merchant.

Email marketing is the sending of commercial messages such as promotions, newsletters and offers by email to a list of existing or prospective customers, in order to build relationships, drive sales and retain customers.

Why it is considered the most efficient digital channel:

• Low cost per message: Sending thousands of emails costs very little, so the return on investment is high.
• Direct and permission based: It reaches people who have agreed to receive messages, so the audience is interested.
• Personalisation and segmentation: Messages can be customised by name, behaviour and purchase history.
• Measurable: Open rates, click rates and conversions can be tracked and tested.
• Automation: Welcome, abandoned-cart and follow-up emails can be sent automatically.
• Ownership: The firm owns its list and does not depend on a social platform's algorithm.
• Wide reach: Almost every Internet user has an email account.

A portal is a website that gives a single gateway to information, services and links, and earns income from advertising, subscriptions and fees. Types of portal:

• Horizontal (general) portals: Offer a wide range of content and services for a broad audience, such as search, news, email and shopping. Example: Yahoo, MSN.
• Vertical (niche) portals: Focus on one industry or interest. Example: a health portal such as WebMD, or a jobs portal such as Merojob.
• Enterprise (corporate) portals: Give employees, partners or customers secure access to a firm's internal information and applications. Example: a company intranet.
• Government portals: Provide public services and information. Example: the Nepal government's online service portal.
• Search portals: Centre on a search engine with additional services. Example: Google.
• Community portals: Serve a group with shared interests. Example: a university student portal.

B2C business models describe how a firm sells to consumers online. The main ones are:

1. Portal

A site giving a gateway to search, news, email, entertainment and shopping, earning from advertising, referral fees and subscriptions. Example: Yahoo.

2. E-tailer (online retailer)

A firm sells physical goods directly to consumers through its website, earning from product sales. It can be virtual-only or a bricks-and-clicks firm. Example: Amazon, Daraz.

3. Content provider

Distributes digital content such as news, music, video or books, earning from subscriptions, pay-per-view or advertising. Example: Netflix, Spotify.

4. Transaction broker

Processes online transactions for consumers and earns a transaction fee. Example: online travel and ticket booking, or stock brokers, such as Expedia.

5. Market creator

Provides a digital environment where buyers and sellers meet, earning from commissions and fees. Example: eBay.

6. Service provider

Offers online services such as software, storage, photo sharing or financial advice, earning from fees or subscriptions. Example: Google Drive, Dropbox.

7. Community provider

Offers an online meeting place for people with shared interests, earning from advertising and subscriptions. Example: Facebook, LinkedIn.

Threats to e-commerce include malicious code, phishing, hacking, data breach, credit card fraud, spoofing, denial-of-service (DoS) attacks and sniffing. The main technological solutions are:

1. Encryption

Data is converted into unreadable ciphertext so that only authorised parties can read it. Symmetric encryption uses one shared key (AES), while public key encryption uses a public and private key pair (RSA). It protects confidentiality and integrity.

2. Digital signatures and certificates

A digital signature is a hash of a message encrypted with the sender's private key, which proves authenticity, integrity and nonrepudiation. A digital certificate issued by a certification authority confirms the identity of a website or user.

3. Secure channels (SSL/TLS and HTTPS)

SSL/TLS encrypts data between browser and server, so card and personal details are protected in transit. Virtual private networks (VPN) secure remote connections.

4. Firewalls

Hardware or software that filters incoming and outgoing traffic according to security rules and blocks unauthorised access to the network.

5. Intrusion detection and prevention systems

Monitor network traffic for suspicious activity and raise alerts or block it.

6. Anti-virus and anti-malware software

Detects and removes viruses, worms, trojans and ransomware.

7. Authentication and access control

Passwords, one-time passwords, biometrics, tokens and two-factor authentication ensure only authorised users enter the system, with permissions limited to what each user needs.

8. Secure payment protocols and tokenisation

Protocols such as 3-D Secure and tokenisation replace card numbers with tokens to reduce fraud.

9. Backup and updates

Regular backups, security patches and software updates protect availability and fix known weaknesses.

A community provider is a B2C business model in which a website creates an online environment where people with similar interests can meet, share content and interact, and which earns revenue from advertising, subscriptions or referral fees. Examples are Facebook, LinkedIn and Twitter (X).

Packet switching is a method of data transmission in which a message is broken into small units called packets. Each packet carries the address and travels independently over the network, possibly by different routes, and the packets are reassembled in the correct order at the destination.

Internet Protocol (IP) is the network-layer protocol that gives each device on a network a unique address (IP address) and routes packets from the source to the destination. It provides connectionless, best-effort delivery and is used together with TCP (TCP/IP).

A security threat is any potential circumstance, event or person that can cause harm to a computer system, network or data by breaching confidentiality, integrity or availability, for example malware, hacking, phishing or denial-of-service attacks.

Two tools of online marketing are:

1. Search engine marketing (including SEO and pay-per-click ads).
2. Social media marketing (Facebook, Instagram and similar platforms).

(Others: email marketing, display ads, affiliate marketing.)

The advantage of location-based marketing is that it lets a business send relevant, personalised offers and information to customers based on their current physical location, using GPS or mobile devices. This increases the chance of response and sales, for example a discount sent to a customer near the store.

An English auction is an ascending-price auction in which bidders openly compete by placing successively higher bids, and the item is sold to the highest bidder when no one wants to bid more than the current price.

A B2B e-commerce marketplace is an online platform (also called an e-marketplace or exchange) where many buyers and sellers businesses meet to find each other, compare prices and carry out transactions, usually in a particular industry or across industries. Examples are Alibaba and Amazon Business.

Collaborative commerce (c-commerce) is the use of digital technologies by business partners such as suppliers, manufacturers, distributors and customers to collaboratively plan, design, forecast, manage and share information throughout the supply chain to improve efficiency.

Three advantages of e-commerce over traditional commerce:

1. Availability and convenience: online stores operate 24 hours a day, all week, and customers can shop from anywhere, whereas traditional shops have fixed hours and locations.
2. Wider reach and lower cost: a business can reach national and global customers without opening many physical outlets, which saves rent, staff and inventory costs.
3. Easy comparison and personalisation: customers can compare prices, features and reviews quickly, and sellers can offer personalised products and offers using customer data.

The B2C (Business-to-Consumer) model is a business model in which a business sells products or services directly to individual consumers through the internet, without intermediaries. It is the most familiar e-commerce model.

Main features

• The seller is a business and the buyer is an individual customer.
• Transactions are usually small in value and large in number.
• Payment is made by card, e-wallet or cash on delivery.

Types of B2C models: e-tailer (Daraz, Amazon), community provider (Facebook), content provider (news sites, Netflix), portal (Yahoo), transaction broker (travel and ticketing sites) and service provider (online banking).

Revenue sources: sales of goods, advertising, subscription fees and transaction fees.

The evolution of the internet can be explained in three major phases.

1. Innovation phase (1961-1995): The internet began as ARPANET for military and research use. Packet switching, TCP/IP and email were developed, and the World Wide Web and browsers appeared in the early 1990s. Use was mainly by academics and researchers.
2. Commercialisation phase (1995-2000): The internet was opened for commercial use. Many dot-com start-ups, online retail and portals (such as Amazon, eBay and Yahoo) were launched, with heavy investment, until the dot-com bubble burst around 2000.
3. Consolidation/reinvention phase (2001 onwards): After the bubble burst, surviving firms strengthened their business models. Broadband, social networks, search, mobile and cloud computing spread, and e-commerce became part of mainstream business (Web 2.0 and mobile commerce).

Mobile marketing is the promotion of products and services to customers through mobile devices such as smartphones and tablets, using SMS, mobile apps, mobile websites, push notifications and location-based services.

Two advantages

1. Direct and personal reach: people carry their phones all the time, so messages reach them instantly and can be personalised.
2. Low cost and measurable: it is cheaper than many traditional media, and the response (clicks, installs, purchases) can be tracked easily.

Three digital marketing strategies:

1. Search engine optimisation (SEO): improving the content and structure of a website so that it ranks higher in the unpaid search results, which brings organic traffic at low cost.
2. Social media marketing: promoting the brand on platforms such as Facebook and Instagram through posts, campaigns, ads and influencers to build engagement and loyalty.
3. Email marketing: sending targeted promotional or informational messages to a list of subscribers, which is cheap and gives a high return when personalised.

(Other strategies include pay-per-click advertising, content marketing and affiliate marketing.)

Three technology solutions for e-commerce security:

1. Encryption (SSL/TLS and digital certificates): it converts data into unreadable form during transmission and storage, so card numbers and passwords remain confidential, and certificates verify the identity of the website.
2. Firewalls: hardware or software placed between the internal network and the internet that filters incoming and outgoing traffic according to security rules, blocking unauthorised access.
3. Intrusion detection/prevention systems and antivirus: they monitor the network for suspicious activity and malicious software and alert or block the threat.

(Others: secure payment gateways, two-factor authentication and VPNs.)

Five key trends in supply chain management (SCM):

1. Internet-based and cloud-based SCM: firms share demand, inventory and production data with partners on web platforms in real time, which reduces delays and costs.
2. Collaboration and integration (collaborative commerce): suppliers, manufacturers and distributors plan and forecast together, which reduces the bullwhip effect and excess stock.
3. Automation and artificial intelligence: robotics, AI forecasting and automated warehouses improve speed and accuracy in order handling and demand planning.
4. Visibility and tracking using IoT, RFID and blockchain: goods are traced from source to customer, which increases transparency, security and trust.
5. Mobile and omnichannel fulfilment: supply chains are managed through mobile devices, and orders may be received through many channels and delivered via same-day or click-and-collect options.

Other trends are sustainable (green) supply chains and just-in-time or build-to-order production.

Web services are software components that communicate over the internet using standards such as XML, SOAP, WSDL, UDDI and REST, allowing different applications to exchange data. Five important web services in e-commerce are:

1. Payment services: secure payment gateways (cards, e-wallets, mobile banking) complete online payments safely and quickly.
2. Shipping and logistics tracking services: couriers' services give shipping rates, labels and tracking, so customers can follow their orders.
3. Product search and catalog services: these allow customers to search, compare and filter products, and update product data automatically across sites.
4. Authentication and security services: single sign-on, digital certificates and verification confirm users' identity and protect the transaction.
5. Communication services (email, SMS, chat): order confirmations, notifications and customer support are sent automatically, which improves customer relations.

Together they allow integration of systems of different firms, reduce cost, speed up transactions and improve the customer experience.

E-commerce changes industry structure, which can be analysed with Porter's five forces.

1. Threat of new entrants (increases): low entry barriers such as no need for physical stores let new online firms enter easily, though established brands and economies of scale can still protect big players.
2. Bargaining power of suppliers (mixed): the internet allows firms to find alternative suppliers and compare prices, which lowers supplier power, but large digital platforms can gain power over small sellers.
3. Bargaining power of buyers (increases): customers can easily compare prices, read reviews and switch to other sellers, so their power rises.
4. Threat of substitutes (increases): new digital products and services replace traditional ones (for example e-books, streaming and online banking).
5. Rivalry among existing competitors (intensifies): competition on price is stronger because of transparency and global competitors, and the market becomes wider.

E-commerce also removes intermediaries (disintermediation), creates new intermediaries and new business models, and increases the overall size of markets. As a result, industry profitability is generally reduced, and firms must differentiate through brand, service and technology.

E-payment systems allow money to be transferred electronically for online purchases. Their advancement has fuelled e-commerce growth in several ways.

1. Convenience and speed: payments are completed in seconds from home or mobile, with no need to carry cash or visit a bank.
2. Trust and security: encryption, OTP, two-factor authentication and tokenisation reduce fraud and give buyers and sellers confidence.
3. Wider customer base: cards, wallets and mobile banking let customers pay businesses anywhere, including cross-border sellers.
4. Lower transaction costs and automation: electronic settlement reduces cash handling and speeds up order processing and reconciliation.
5. Support for new business models: micropayments, subscriptions, and instant refunds became possible, and mobile commerce expanded.

Examples: In Nepal, wallets and systems such as eSewa, Khalti, IME Pay, Fonepay QR, connectIPS and mobile banking let customers of Daraz and other sites pay instantly instead of relying only on cash on delivery. Globally, PayPal, Visa/Mastercard, Apple Pay and Alipay support the growth of Amazon and Alibaba.

(a) Why SmartKart adopted e-commerce and the unique features behind its success

SmartKart adopted e-commerce to improve customer convenience and to reduce operating costs (no need for many physical outlets, lower inventory and staffing costs). It also wanted to expand its customer base, diversify services and stay competitive in a digital economy.

Unique features that contributed to its success:

• Global reach / ubiquity: it could serve customers anywhere, at any time.
• Personalisation: offers and recommendations were tailored to each customer.
• Interactivity: two-way communication through apps, reviews and promotions engaged customers.
• Universal standards: common internet standards lowered entry cost and made the platform easy to use and to integrate.
• Multiple models (B2C, B2B and C2C) broadened its revenue sources.

(b) Security threats and effectiveness of the solutions

Threats faced: phishing attempts, data breaches and fraudulent payment activities.

Solutions used: SSL encryption (protects data in transit), firewalls (block unauthorised access), intrusion detection systems (detect suspicious activity) and secure payment gateways (protect payment data). These were supported by management policies: strong authentication, strict access control, employee training and legal compliance.

Effectiveness: The solutions were largely effective because they addressed the threats in layers: prevention (firewalls, access control), protection (encryption and secure payments), detection (IDS) and human factors (training). They helped retain customer trust and allowed the company to keep growing. However, technology alone cannot stop phishing, which depends on users' awareness, so continual updates, monitoring, regular audits and customer education are still needed.

(c) How SmartKart enhanced its marketing strategy

• Online marketing and advertising: it used SEO and pay-per-click ads to attract targeted traffic, and social media campaigns and influencer partnerships to reach audiences and build credibility.
• Data-driven approach: analytics tools and marketing automation studied consumers' online behaviour (browsing, purchase frequency, response to ads), so it could judge the costs and benefits of each initiative and focus on the effective ones.
• Mobile marketing: a feature-rich app gave personalised recommendations and push notifications.
• Location-based marketing: offers were linked to nearby delivery hubs.
• Social marketing: integration with social media enabled customers to share reviews and engage with campaigns, creating word-of-mouth promotion.

By combining social, mobile and local (SoLoMo) strategies, SmartKart improved brand visibility, customer engagement and its position in the Nepali e-commerce market.

A digital signature is an electronic code, created with the sender's private key, that authenticates a message or document. Its main advantages are:

• Authentication: it proves who sent the message.
• Integrity: any change to the content after signing makes verification fail.
• Non-repudiation: the signer cannot later deny having signed.
• Speed and savings: contracts can be signed online without printing, posting or meeting in person.

A digital wallet (e-wallet) is a software application or online service that securely stores a user's payment information, such as bank account, card details and balance, so the user can pay for goods and services electronically using a phone or computer. Examples are eSewa, Khalti and PayPal.

A networking switch is a hardware device that connects computers and other devices within a local area network (LAN). It receives data frames and forwards them only to the specific device for which they are meant, using MAC addresses, which makes the network faster and more efficient than a hub.

Advantages of credit cards:

• Convenience: no need to carry cash; they are accepted in shops and online.
• Credit facility: the holder can buy now and pay later, usually within an interest-free period.
• Security and records: they are safer than cash, and statements give a record of spending.
• Rewards and global use: cashback, reward points and international acceptance.

Simple Mail Transfer Protocol (SMTP) is the standard application-layer protocol used to send and relay e-mail from a client to a mail server and between mail servers over the internet. It normally uses TCP port 25 (587 for submission). Receiving mail is handled by POP3 or IMAP.

A value proposition states the specific benefits a business offers to customers and why they should buy from it rather than from competitors. It helps an online business by:

• attracting and retaining target customers by clearly showing what they gain (low price, convenience, variety, fast delivery);
• differentiating the business from rivals;
• guiding website design, pricing and marketing messages, which raises conversion and customer loyalty.

Marketing through the web (online marketing) promotes products using internet tools. The main methods are:

• a company website and search engine optimization (SEO);
• search engine advertising and banner or display ads;
• e-mail marketing and newsletters;
• social media marketing (Facebook, Instagram, YouTube);
• affiliate marketing and content or blog marketing.

These let a firm reach targeted customers at low cost and measure the results.

Public key encryption (asymmetric encryption) uses a pair of mathematically related keys: a public key, which is shared openly and used to encrypt, and a private key, which is kept secret and used to decrypt. Anyone can send a secure message using the receiver's public key, but only the receiver's private key can read it. RSA is a common example.

An electronic cheque (e-cheque) is the digital version of a paper cheque. The payer issues it electronically, signed with a digital signature, and sends it to the payee, who deposits it electronically so the bank transfers the money. It works like a paper cheque but is faster and cheaper to process.

Search Engine Optimization (SEO) is the process of improving a website's structure, content and links so that it ranks higher in the unpaid (organic) results of search engines such as Google, thereby increasing the quality and quantity of visitors to the site.

The generic framework of e-commerce shows the components that support e-commerce applications. It has two kinds of elements: the applications built on top, and the supporting infrastructure and pillars beneath.

1. E-commerce applications: online shopping, e-banking, e-auctions, e-supply chain, e-learning, e-government and similar services.

2. Supporting infrastructure:

• Common business services infrastructure: security, smart cards, authentication, electronic payment and directories or catalogues.
• Messaging and information distribution infrastructure: EDI, e-mail, HTTP and file transfer used to send information.
• Multimedia content and network publishing infrastructure: HTML, Java, web servers and browsers used to create and publish content.
• Network infrastructure: telecom, cable, wireless, internet and intranets that carry data.
• Interface infrastructure: databases, user interfaces and application integration.

3. Supporting pillars:

• People: managers, buyers, sellers, service providers and trained staff.
• Public policy: laws, taxes, privacy, cyber laws and technical standards.
• Marketing and advertising: market research, promotion and customer service.
• Support services: logistics, payment and other services.
• Organization: partnerships and management of business relationships.

Firewall: a firewall is a hardware or software security system placed between a trusted internal network and an untrusted external network (the internet). It monitors incoming and outgoing traffic and allows or blocks it according to security rules, protecting the network from unauthorized access.

Types of firewall:

• Packet-filtering firewall: checks each packet's source and destination IP address, port and protocol against rules. It is fast but cannot inspect content.
• Circuit-level gateway: monitors TCP handshakes to confirm a session is legitimate before allowing the connection.
• Application-level gateway (proxy firewall): works at the application layer, acts as an intermediary for requests and inspects the content of the data. It is the most secure but slower.
• Stateful inspection firewall: tracks the state of active connections and allows only packets that belong to a valid, established session.
• Next-generation firewall: combines the above with deep packet inspection, intrusion prevention and application awareness.

Internet: a worldwide public network of interconnected computer networks that uses the TCP/IP protocol. Anyone can access it to use services such as the web, e-mail and file transfer.

Intranet: a private network inside an organization that uses internet technology (web browsers, TCP/IP). Only employees can access it, and it is protected by a firewall. It is used for sharing documents, policies, internal communication and applications.

Extranet: an extension of an organization's intranet that gives controlled access to selected outsiders, such as suppliers, distributors, customers and business partners. It supports B2B activities such as order tracking, inventory sharing and collaboration.

Business to business (B2B) commerce is trade between two businesses, while business to government (B2G) commerce is trade between a business and government agencies.

Both use the internet to cut cost and time, but B2G follows far more formal and public procedures.

Risks associated with an electronic payment system:

• Fraud and identity theft: stolen card numbers, passwords or PINs are used to make unauthorized payments.
• Hacking and data breaches: attackers break into payment systems and steal financial data.
• Phishing and malware: fake sites, e-mails and spyware trick users into revealing details.
• Double spending and duplicate payments: the same digital money may be spent more than once.
• Privacy loss: payment records reveal personal spending habits.
• System failure and technical errors: server downtime, network failure or wrong transfers can delay or lose transactions, and recovering money may be hard.
• Repudiation and disputes: a customer may deny having made a payment.
• Lack of legal protection and awareness: weak laws and low user knowledge increase the exposure.

Electronic Data Interchange (EDI) is the computer-to-computer exchange of standard-format business documents, such as purchase orders and invoices, between organizations without human intervention.

Advantages:

• Reduces paperwork, data entry errors and processing cost.
• Speeds up transactions and shortens order cycles.
• Improves accuracy and inventory control (supports just-in-time).
• Strengthens relationships with trading partners and improves cash flow.
• Documents are exchanged securely and can be tracked.

Disadvantages:

• High initial cost of software, hardware and training.
• Requires partners to agree on common standards.
• Rigid and less flexible for small or occasional trading.
• Needs integration with existing systems and ongoing maintenance.
• Dependent on network reliability and security.

Why organizations prefer EDI over e-mail:

• EDI uses a standard structured format that the receiving computer processes automatically; an e-mail is free text that must be read and re-keyed by a person.
• Fewer errors and faster processing.
• EDI is more secure, with authentication and audit trails, and supports legal acceptance of documents.
• It integrates directly with the accounting and inventory systems.

1. Traditional commerce is done face to face in physical shops during fixed hours, while e-commerce is done over the internet and is available 24 hours a day.
2. Traditional commerce is paper-based and limited to a local market, while e-commerce is paperless and can reach customers worldwide.

Two disadvantages of ADSL:

1. The speed is asymmetric: upload speed is much lower than download speed.
2. Speed falls as the distance from the telephone exchange increases, and it is affected by line quality, so it is not available or reliable in distant areas.

Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents, such as purchase orders and invoices, between organizations in an agreed standard electronic format without manual handling.

Secure Sockets Layer (SSL) is a security protocol that creates an encrypted link between a web server and a browser, so that data such as card numbers and passwords stay private and unchanged during transmission. Websites using it show HTTPS and a padlock. Its modern successor is TLS.

Two advantages of an e-payment system over the traditional payment system:

1. It is faster and available 24 hours, so payments are made instantly from anywhere without visiting a bank or carrying cash.
2. It lowers cost and handling risk, since it needs less paper and cash handling, and it keeps automatic records of every transaction.

A search engine is a software system or website, such as Google or Bing, that searches the internet for web pages matching the keywords a user enters and displays the results in ranked order.

E-environment is the set of electronic and external conditions in which an e-commerce business operates. It includes technological, legal, economic, social, political and competitive factors, together with the internet infrastructure, that affect how the business functions.

An intranet improves communication and information sharing within the organization: employees can quickly access policies, forms, data and applications on a secure internal network, which saves time and cost, reduces paperwork and improves coordination.

A Virtual Private Network (VPN) is a technology that creates a secure, encrypted connection (tunnel) over a public network such as the internet. It lets remote users or branch offices connect safely to a private network, as if they were directly connected to it.

The technical infrastructure of the e-commerce framework is the set of technologies that supports e-commerce applications. Its main layers are:

• Network infrastructure: the internet, intranets, extranets, telecom, cable and wireless networks that carry data.
• Messaging and information distribution: e-mail, EDI, HTTP and FTP for sending messages and documents.
• Multimedia content and network publishing: HTML, web servers and browsers for creating and delivering web content.
• Common business services: security and encryption, authentication, electronic payment and directories.
• Interface and database layer: user interfaces, databases and integration with back-end systems.

Hardware (servers, routers, computers) and software (web server, e-commerce platforms) form the base on which all these layers run.

A software agent is a program that works autonomously on behalf of a user, carrying out tasks such as searching, comparing and negotiating with little human supervision.

Roles in e-commerce:

• Product search and comparison: shopping bots find products and compare price and features across many sites.
• Negotiation and bidding: agents negotiate prices and bid in online auctions for the user.
• Personalization and recommendation: they learn customer preferences and suggest suitable products.
• Customer service: chatbots answer queries and handle complaints at any time.
• Monitoring and alerts: they track price changes, stock and orders and notify the user.
• Information filtering: they filter large amounts of data to bring relevant information.

They save time and cost for buyers and help sellers serve customers better.

EDI automates the workflow of an organization by letting business documents move directly between the computer systems of trading partners, so the steps that were done manually are triggered automatically.

Example, purchase to payment cycle:

1. The retailer's inventory system detects low stock and automatically generates a purchase order, sent by EDI to the supplier.
2. The supplier's system receives the order and updates its stock and production records without data re-entry.
3. The supplier sends an EDI advance shipping notice and then an invoice.
4. The retailer's system matches the order, receipt and invoice, and the payment is made through electronic funds transfer.

Result: no re-keying, fewer errors, faster order cycle, lower paperwork and staff cost, and better inventory control. In this way EDI links purchasing, inventory, accounting and shipping into one automatic flow.

Social media marketing is the use of platforms such as Facebook, Instagram, TikTok, YouTube and LinkedIn to promote products and engage customers.

Role in e-commerce:

• Brand awareness: reaches a very large audience at low cost.
• Customer engagement: direct two-way communication through comments, messages and polls builds relationships.
• Targeted advertising: ads can target customers by age, location and interest.
• Traffic and sales: posts and shop links drive visitors to the online store, and social commerce lets users buy directly.
• Customer feedback and service: reviews and comments give market insight and allow quick support.
• Viral and word-of-mouth promotion: sharing and influencer marketing spread the message.
• Measurable results: analytics show reach, clicks and conversions.

Environmental factors affect e-commerce in these ways:

• Technological: internet penetration, speed, mobile use and payment technology decide how widely e-commerce can grow.
• Legal and regulatory: cyber laws, e-transaction laws, consumer protection and taxation can support or restrict online business.
• Economic: income level, banking access and economic stability influence purchasing power and online payment.
• Social and cultural: attitudes, trust, literacy and shopping habits affect acceptance of online buying.
• Political: government policy, stability and support for digital systems shape the business climate.
• Competitive: the presence of rivals and global competition affects prices and strategy.
• Physical/ecological: logistics, roads and electricity affect delivery and operation.

A favourable environment speeds the growth of e-commerce, and a poor one slows it.

Message security means protecting messages sent over a network, such as e-mail or transaction data, from being read, altered, forged or denied by unauthorized parties. It is usually achieved with encryption, digital signatures and certificates.

Three goals:

1. Confidentiality: only the intended receiver can read the message. It is achieved by encryption, so an eavesdropper sees only unreadable text.
2. Integrity: the message is not altered during transmission. Hash functions and digital signatures detect any change.
3. Authentication and non-repudiation: the receiver can be sure who sent the message, and the sender cannot later deny having sent it. Digital signatures and certificates provide this.

Availability, meaning authorized users can access the service when needed, is another commonly stated goal.

Opportunities of online banking in Nepal (customer view):

• Banking 24 hours a day from home or mobile, saving time and travel.
• Quick fund transfer, bill payment, top-up and QR payment.
• Lower transaction cost and easy access to account balance and statements.
• Reach for customers in remote areas where branches are few.
• Growing mobile banking, wallets and connected-payments systems such as Fonepay.
• Government and bank support for digital payment.

Challenges:

• Security concerns such as fraud, phishing and hacking.
• Low digital and financial literacy, especially in rural areas.
• Poor internet and electricity in some regions and network or server failures.
• Lack of trust and fear of losing money, with slow dispute resolution.
• Weak cyber law enforcement and limited customer protection.
• Service charges and difficulty for older users.

Overall, awareness, secure systems and better infrastructure are needed to turn the opportunities into real benefits.

In pure e-commerce, the product, the process and the delivery agent are all digital, whereas in partial e-commerce at least one of these is physical.

• Pure e-commerce: buying software or an e-book from an online store and downloading it directly.
• Partial e-commerce: ordering clothes through Daraz online, which are delivered physically.

A business model is the plan that describes how a company creates, delivers and captures value, that is, how it earns revenue and profit. It sets out the customers, products, revenue sources, costs and activities of the business.

Mobile apps are software applications designed to run on mobile devices such as smartphones and tablets. They are downloaded from app stores and provide functions such as shopping, banking, messaging or games. Examples are eSewa, Daraz and WhatsApp.

A threat is any potential danger, person, event or circumstance that can exploit a weakness (vulnerability) in a system and cause harm, such as loss, theft or damage of data, money or services. Examples are viruses, hackers and phishing.

E-commerce marketing is the promotion of products and services to customers using internet and digital channels, such as a website, search engines, e-mail, social media and online advertising, with the aim of attracting visitors, converting them into buyers and retaining them.

Two advantages of an e-payment system:

1. It is fast and convenient, as payments can be made 24 hours a day from anywhere.
2. It reduces the cost and risk of handling cash and paper, and gives an automatic record of transactions.

Local marketing is the use of digital tools, such as location-targeted ads, local search listings and mobile promotions, to reach customers in a specific nearby area or neighbourhood so that they visit or buy from a local business.

An e-commerce portal is a website that acts as a gateway to a wide range of information, services and online shopping from many providers in one place. It attracts large numbers of visitors and earns revenue from advertising, commissions and transaction fees. Examples include Yahoo and Daraz.

An online auction is an e-commerce marketplace where buyers place competing bids over the Internet for goods or services for a fixed period, and the item goes to the bidder who meets the winning rule, usually the highest bid. eBay is a well-known example.

A supply chain is the network of organisations, people, activities, information and resources involved in moving a product or service from raw-material suppliers through manufacturers, distributors and retailers to the final customer.

Three features of e-commerce:

• Ubiquity: Business can be done anywhere and at any time through computers and mobile phones, so the market is not limited to a physical place.
• Global reach: Transactions can cross national borders, giving access to far more customers than a physical store can reach.
• Interactivity: The technology allows two-way communication between the seller and the customer, as in live chat, reviews and online forms.

Other features are universal standards, richness, information density and personalisation.

E-commerce changes business strategy in several ways:

• New markets and customers: Firms reach global customers and can sell directly, cutting out intermediaries.
• Lower costs: Digital selling reduces the cost of stores, staff, paperwork and inventory, so firms can compete on price.
• New business models: Firms adopt models such as subscription, marketplace and online-only retail, and redesign their value chain and supply chain around the Internet.
• Customisation and data use: Customer data supports personalised offers and faster decisions.
• Changed competition: Entry barriers fall and customers compare prices easily, so firms must differentiate through service, brand and speed.

The physical infrastructure of the Internet consists of:

• Client devices and servers: Computers, smartphones and host servers that send, store and deliver data.
• Network access equipment: Modems, routers, switches and hubs that connect users and direct traffic.
• Transmission media: Fibre-optic cable, copper wire, microwave and satellite links that carry the data.
• Internet Service Providers (ISPs): Companies that give users access to the Internet.
• Internet Exchange Points and backbone networks: High-capacity links and exchange points where ISPs connect and exchange traffic.
• Data centres: Facilities that host websites and applications.

Three key dimensions of e-commerce security:

• Integrity: Information sent or received is not altered by an unauthorised party. For example, the amount in an order cannot be changed in transit.
• Confidentiality: Data is available only to authorised persons, for example by encrypting card details.
• Authenticity: The identity of the user, merchant or website is verified, for example through passwords, digital certificates and signatures.

Other dimensions are nonrepudiation (a party cannot deny an action) and availability (the system works when needed).

Three types of online auction:

• English (forward) auction: Buyers bid openly with rising prices, and the highest bidder wins. eBay uses this.
• Dutch auction: The price starts high and is lowered until a bidder accepts it, or multiple units are sold at the lowest successful bid.
• Reverse auction: A buyer requests an item and sellers compete by offering lower prices, and the lowest bidder wins. It is common in business procurement.

Sealed-bid auctions, where bids are submitted privately, are also used.

Location-based marketing uses a customer's physical location, found through GPS, Wi-Fi or mobile networks, to send relevant offers and information.

Importance:

• Messages reach the right person at the right place and time, so conversion rates are higher.
• It drives foot traffic to nearby stores.
• Advertising spend is used efficiently because only nearby customers are targeted.
• It improves customer experience through relevant and personalised offers.
• It gives data on customer movement and behaviour.

Example: A restaurant sends a discount coupon to a person's phone when they walk near it at lunchtime, or a user searching for "pharmacy near me" is shown the closest shops on Google Maps.

Five key elements of a business model:

• Value proposition: Why customers should buy from the firm, that is, what benefit or problem solved the firm offers, such as low price or convenience.
• Revenue model: How the firm earns income, for example advertising, subscription, transaction fee, sales or affiliate fees.
• Market opportunity: The market space the firm intends to serve and its potential size.
• Competitive environment: The other firms selling similar products in the same market, their strengths and market share.
• Competitive advantage: What the firm can do better than others, such as unique technology, brand or lower cost.

Other elements are market strategy, organisational development and management team.

Search engine marketing (SEM) is promoting a website by increasing its visibility in search engine results through paid search advertising and search engine optimisation (SEO).

How it is effective:

• Reaches intent-driven users: People who search are already looking for a product, so they are more likely to buy.
• Targeting: Ads can be targeted by keyword, location, device and time.
• Pay for performance: In pay-per-click advertising the firm pays only when someone clicks.
• Measurable: Clicks, conversions and cost per sale can be tracked and improved.
• Quick and scalable: Paid ads appear immediately, while SEO builds lasting organic traffic.
• Brand visibility: A top position builds awareness and trust.

Example: A Kathmandu laptop shop bids on the keyword "buy laptop in Kathmandu" in Google Ads. When a user searches that phrase, the ad shows at the top, and the shop pays only if the user clicks. Keywords, ad text and landing page are then adjusted by tracking conversions.

Online credit card transaction procedure:

Customer -> Merchant website -> Payment gateway -> Acquiring bank
   -> Card network (Visa/Mastercard) -> Issuing bank
   and the approval returns along the same path

1. The customer selects goods, goes to checkout and enters card details on the merchant's secure (SSL/TLS) page.
2. The merchant's server sends the encrypted details to the payment gateway.
3. The gateway passes them to the merchant's acquiring bank, which forwards the request to the card network.
4. The network sends it to the customer's issuing bank, which checks the card, available credit and fraud rules, and authorises or declines.
5. The response goes back along the same path to the merchant, and the customer sees confirmation or rejection.
6. The merchant ships the goods.
7. Settlement: the issuing bank transfers the funds through the network to the acquiring bank, which credits the merchant's account after deducting fees. The customer is billed on the card statement.

Procurement is the process of obtaining the goods and services a firm needs from suppliers. E-procurement carries it out online.

Steps:

1. Identify the need and raise a purchase requisition.
2. Search for suppliers and request quotations or tenders.
3. Evaluate offers and select the supplier.
4. Issue a purchase order.
5. Receive goods or services and inspect them.
6. Receive the invoice, match it with the order and receipt, and pay.

Example: A hospital needs medical gloves. A staff member raises a requisition in the company's e-procurement system. The system sends a request for quotation to registered suppliers, the lowest suitable offer is accepted, a purchase order is sent electronically, and after delivery the invoice is matched and paid online. This reduces paperwork, time and cost.

(a) Business models and customer engagement

TechTrendy adopted the Business-to-Consumer (B2C) model and sold directly to customers through its online store, which removed intermediaries and lowered prices. It built a user-friendly website, mobile apps and social media pages, which kept customers engaged. Online auctions and promotional deals attracted new buyers, and personalised email campaigns and targeted advertising raised repeat purchases and loyalty. Data collected from customers was used to refine the product range, which raised sales.

(b) Secure and efficient transactions

• Security: It installed secure payment systems and robust cybersecurity measures to protect customer data, covering encryption, authentication and privacy (integrity, confidentiality and authenticity).
• Payment options: It offered credit/debit cards, digital wallets and cash on delivery, so customers could choose a convenient and trusted method.
• Supply chain: A seamless supply chain management system handled online orders quickly, so orders were processed and delivered efficiently.
• Infrastructure: It improved its e-commerce infrastructure to support traffic and order volume.

(c) Mobile and social marketing

• Mobile: Mobile-friendly platforms and apps let customers browse and shop from their smartphones at any time, which boosted sales. Location-based marketing sent tailored offers to nearby customers.
• Social: A strong presence on social networks and influencer collaborations raised brand awareness, trust and loyalty, and gave two-way communication with customers.
• Together these increased online traffic, sales and customer satisfaction.