Special Issue: Systems for Computer-Mediated Digital Commerce

Steven O. Kimbrough and Ronald M. Lee
Volume 1, Number 4, Summer 1997, pp. 3 – 10.

Use of global, worldwide information infrastructures has become an everyday reality. Worldwide networks help organizations operate not only locally and regionally but also globally. For small and medium-sized enterprises (SMEs) in particular, the advent of cheap, ubiquitous global computer-mediated communication offers tremendous opportunities to do business globally. Digital commerce includes those aspects of the conduct of commerce (i.e., doing business in the broadest sense) that are essentially mediated by computer and communications systems. These encompass all phases of commercial activity including marketing, opportunity finding, sales, negotiation, contract formation, monitoring of contracts, customer support, decision making, and more.

The purpose of this Special Issue of the International Journal of Electronic Commerce is to present research and focus discussion on aspects of digital commerce for which formal analysis and building of automated systems are particularly pertinent. We understand the term “electronic commerce” to include all types of commerce in which electronic media and computer systems_including electronic mail, multimedia, and the like_are involved. Indeed, given the current convergence of computer networks with other forms of communication media, the notion of electronic commerce might also include various forms of images, audio, and video (i.e., the digital counterparts to fax, telephone, and television). By referring to digital commerce, we mean to focus on that subset of electronic commerce in which the communication is recognized symbolically (“understood”) by a computer_enabling applications in which the computer is able to make inferences or decisions about the content and structure of the communication, and thereby facilitate and mediate commercial trade. More specifically, this implies that the symbols of the communication are formalized in some way, having an explicit syntax and semantics. EDI is an elementary example of this. However, as we shall see in the course of this issue, we may entertain much more dramatic and exotic examples of digital commerce. While it is not possible in a single issue to touch upon all aspects of digital commerce, here is short list of topics on the subject, using terminology now popular in the literature.

We turn now to some brief comments by way of background on digital commerce.

What’s New?

Samuel Morse invented the telegraph in 1845. Since then, the world of business_including commercial, government, and nonprofit enterprises_has had and has used extensively an electronic, digital communication system for supporting the conduct of business. The case has been made_for example by Paul Krugman, an economist now at MIT_that the defining strides toward a world of electronic, digital, global, highly interconnected commerce were made more than 100 years ago:

We tend to assume that the world economy is something that needs widebody jets and fax machines. But the truth is that these technologies are minor improvements from an economic point of view. The really decisive technologies for creating an integrated world economy were steamships, railroads, and telegraphs. These made the costs of shipping goods and transferring information low. Everything since has only further reduced costs that were already low by 1880. By 1913 our great-grandfathers had created an international economy that in many respects_mobility of labor, mobility of long-term capital_was more closely integrated than anything the world has seen since. . . . [Measured by] the ratio of total trade (exports plus imports) to GNP . . . the United Kingdom was more of a trading nation in the reign of Queen Victoria than the United States ever has been or probably ever will be. [3, pp. 228-229]

We call this Krugman’s challenge to electronic commerce. Granting the basic factual correctness of Krugman’s challenge, there is nonetheless a general excitement in the air about electronic commerce. Spurred in no small part by the phenomenal growth and impressive functionality of the Internet, and the rush of innovative applications coming to it, there is a general ferment these days among academic researchers, investors, and knowledgeable observers, as well as trade press journalists, about the prospects of increasing reliance on electronic commerce. Is this excitement justified, or should Krugman’s challenge be taken as a definitive pooh-poohing of electronic commerce? How, if at all, is technology relevant to answering the challenge? First, although our focus here is on technology for electronic commerce, it is important to appreciate the categories of technology with which we are concerned. In the field of information systems, it is common to distinguish effective (or logical or semantic) access to information from efficient (or physical) access to information. To use a familiar analogy, if our problem is to get a book from the library, then the efficiency question may be put as, “Given the ID of the book, how can the book be retrieved as quickly and as cheaply as possible?” On the other hand, the effectiveness (or logical) question may be put as, “Given my needs and interests, which books should I try to get?”

In this Special Issue, we are concerned almost entirely with problems of effective access to information. Assuming that the physical access problem is solved to a known degree_that networks are in place, messages can be sent at a certain attractive rate and for a certain attractive cost_then what? We believe that the most interesting technological questions can begin to be addressed only once this assumption can credibly be made. So What? From the previous section, we see that at least part of Krugman’s challenge is answered: Digital commerce adds computer mediation to electronic messaging. This is something new and different, considered on the scale of the last 100 years. With the telegraph, humans decided what messages to send, humans keyed them in manually, and humans received and interpreted the messages. Today, it is often possible for machines (computers) to decide what is to be said, to formulate the messages and have them transmitted, and to receive, interpret, and decide how to respond to incoming messages. In the near future, if the research reported here is on track, these capabilities will be greatly enhanced. What is this worth? How will a mature electronic commerce affect industrial organization? How will it affect individual lives and international relations? The field is much too new to answer these questions fully. Doing so is an outstanding research issue. We limit ourselves here to raising, we hope forcefully, this fascinating question.

That said, however, we believe that the most profound consequences of digital commerce will come by means of dramatic decreases in the transaction costs of contracting and maintaining interorganizational relationships. A large number of observers [1, 2, 4, 5] have noted a strong secular trend for businesses to vertically disintegrate and to establish working, flexible (often temporary) relationships with many other firms, serving at many points in the value chain. The phenomenon is associated with the Japanese keiretsu system and currently goes by many different names, including concentration without centralization [2], alliance capitalism [1], network forms of organization [4], and operational webs [5]. The following passage is representative of what these observers see:

Of all the reactions [to the trauma of the worldwide economic crisis of the 1970s and early 1980s], all the experiments, the most far-reaching may well turn out to be the creation by managers of boundary-spanning networks of firms, linking together big and small companies operating in different industries, regions, and even countries. This development_not an explosion of individual entrepreneurship or a proliferation of geographically concentrated industrial districts, per se_is the signal economic experience of our era. [2, p. 127]

If, indeed, the imperatives favoring alliance capitalism are as powerful as suggested in this literature (see [2, p. 166], for a list of “motives for technology-oriented companies to seek cooperation via networks”), then it is surely easy to see why there should be a strong, ongoing need for better systems to handle business messaging automatically, that is, for systems of digital commerce. We may simply live in a time in which the benefits of interorganizational coordination and cooperation are enormous. If so, then digital commerce will be a profoundly influential enabling set of technologies.

Some Examples of Digital Commerce

Some examples of activities falling under this definition of digital commerce include:

Digital payments. In settlements between banks, this is probably one of the oldest, and most established electronic commerce applications in the form of Electronic Funds Transfer (EFT). Currently, many new alternatives are being developed to support consumer payments for digital shopping, including so-called “cybercash” or digital coinage for making micro-purchases, such as pay-per-click Web browsing.

Electronic libraries and bookstores. In digital form, the distinction between library and bookstore is blurred, since one obtains a digital copy of the book in either case. (This might be converted to a hardcopy book at a local printing service.) Although this concept is quite promising and widely discussed (especially for international distribution, e.g., to the Third World), it is currently stymied by copyright considerations.

Electronic shopping and marketing. Inspired by the explosive development of the Internet and World Wide Web, this is probably the fastest-growing aspect of electronic commerce. Nearly every major company either has or is developing a “home page” about itself and its product/service offering. Here, the main point about “going digital” is not simply computerization, but interactivity. This includes:

Interactive, multimedia advertisements (soon with movie clips and audio), which the user can manipulate (e.g., view the product from different angles, look under the hood of an auto) with menu-style navigation for additional details (and cross-references to other products). Customer-directed product search, with active, “on demand,” search for products and services (as opposed to the passive presentation of traditional media such as TV, radio, and magazine advertising). “Interactive customization,” for example, for automobile options or components for a personal computer, is possible.

Interactive personalization, where the product/service offering is automatically tailored to consumer specifications. Examples include electronic shopping for apparel (try it on a 3-D model of yourself), for eyeglasses or hairstyles (try it on your face, head), and plastic surgery (alter a picture of your face or some other part of the body). A successful example of this is Andersen Windows, which installs alternative window styles in a virtual image of your house, allowing you to see the view outside as well as how it fits with the interior decor.

Electronic markets and auctions. These mechanisms are being used for commodity goods (substitutable among producers, e.g., grains), and for trades in the securities and financial services industries. Here, electronic trading seems to be an especially promising option, since product characteristics can be entirely conveyed in symbolic form (the consumer does not have to see, feel, or try on the item). Indeed, the Telcot electronic market for cotton, in Texas, has been in operation since the early 1980s. In financial markets, the move to electronic trading has been well publicized, beginning with the “Big Bang” conversion of the London stock market in 1987.

We note in passing a few characteristics of electronic markets, now being addressed in the research literature. Electronic market services may have the following characteristics: They may be informative only, for example, providing on-line stock market activity, or they may also include on-line placing of orders. They may allow orders to be placed by automated trading programs. Further, digital markets have the ability to monitor market activity more effectively, for example, to detect dumping or market manipulation.

Electronic contracting. This refers to the negotiation and performance monitoring of contracts via digital networks. Again, the main benefit is the potential for computer mediation. Examples include automatic logging of documentary evidence for the verification of legal controls, and for the detection of performance satisfaction or breach, such as late payments.

Important issues for electronic contracting are related to performative communications. Here the communication not only conveys information, but may also be legal evidence of a commitment (e.g., a contract offer) or a right (e.g., electronic airplane tickets, electronic payment orders). The issues are not only technological. They also require suitable modifications to the legal system. Because of these technological developments, for example, the definitions of legal writing, signature (authentication), uniqueness of evidence, and negotiable documents will have to be rethought.

Digital cities. This concept has recently become quite popular, especially in the Netherlands and elsewhere in Europe. Essentially, it refers to a set of digital information services and digital social networking services provided by a city (or region, or nation). For instance, in the Netherlandsthere are presently digital cities for Amsterdam, Rotterdam, The Hague, and Utrecht. Standard information, such as train schedules and library hours, is made available, as well as schedules for sports and entertainment events (e.g., the North Sea Jazz festival, the Rotterdam Film Festival) and for special exhibitions (e.g., the art museum in Maastricht has a digital catalog available on the Web).

Digital bureaucracies: Government agencies, especially those that provide social services, are also moving toward an electronic commerce orientation and presence. Best known is the electronic commerce initiative of the U.S. Department of Defense in circulating its RFPs electronically. Other developments in the future may include digital interfaces for unemployment (checking jobs available), income tax advice and filing, and visa applications.

Overview of Papers

Six papers are included in this Special Issue, covering a range of issues and methodologies, from descriptive/empirical to formal/mathematical.

The first paper, by Steven O. Kimbrough and Ronald M. Lee, “Formal Aspects of Electronic Commerce: Research Issues and Challenges,” surveys the electronic commerce research in progress at their respective centers (one in the United States, the other in Europe).

These issues are further elaborated by the second paper, by Michael A. Covington, “On Designing a Language for Electronic Commerce,” which argues the value and technological feasibility of a formalized language for electronic commerce.

The third paper, “Artificial Agents Learn Policies for Multi-Issue Negotiation,” by Jim Oliver, combines distributed artificial intelligence (DAI), specifically genetic algorithms, with negotiation support systems (NSS), to develop a model of artificial agents capable not only of negotiating but of learning through experience. It is claimed that these artificial negotiating agents can be effectively applied in practical electronic commerce situations.

The fourth paper, “Designing a Market for Quantitative Knowledge,” by Georg Geyer, Christoph Kuhn, and Beat Schmid, is an architecture paper, proposing electronic markets for quantitative knowledge. This is distinguished from a market for on-line databases, in that intermediate analyses may be performed on quantitative data. Thus, intermediate vendors may emerge, competing on the quality of these analyses.

The focus of the fifth paper, “Electronic Commerce in Decision Technologies: A Business Cycle Analysis,” by Hemant Bhargava, Ramayya Krishnan, and Rudolf MĀller, is similar to that of the previous paper. However, while the previous paper focuses on markets for quantitative data resources, this paper addresses markets for (mainly quantitative) processing resources, in the form of decision support software.

The sixth and last paper, “The Development of FEDI in Switzerland: A Life-Cycle Approach,” by Ivo Cathomen and Stefan Klein, is the most empirical of the set. The paper is about the adoption of EDIFACT in the banking sector of Switzerland. A life-cycle approach is used to examine the phases of technology adoption. The paper provides a thorough empirical account of these trends and offers tentative predictions about the further adoption of these standards.

References

  1. Gerlach, M.L. Alliance Capitalism. New York: Oxford University Press, 1992.
  2. Harrison, B. Lean and Mean: The Changing Landscape of Corporate Power in the Age of Flexibility. New York: Basic Books, 1994.
  3. Krugman, P. The Age of Diminished Expectations: U.S. Economic Policy in the 1990s. Cambridge, MA: MIT Press, 1994.
  4. Powell, W.F. Neither markets nor hierarchies: network forms of organization. Research in Organizational Behavior, 12 (1990), 295-336.
  5. Reich, R.B. The Work of Nations: Preparing Ourselves for 21st Century Capitalism. New York: Knopf, 1991.

Steven O. Kimbrough is an Associate Professor at the Wharton School, University of Pennsylvania. His main research interests are in electronic commerce, decision support, logic modeling, and computational rationality. His active research areas include computational approaches to belief revision and nonmonotonic reasoning, formal languages for business communication, model management, automated negotiation, and information retrieval. He received his Ph.D. from the University of Wisconsin-Madison.

Ronald M. Lee is the Director of the Erasmus University Research Institute for Decision and Information Systems (EURIDIS) in Rotterdam, the Netherlands. Prior to that, he was Associate Professor of Information Systems at the Management Science and Information Systems Department at the University of Texas at Austin. He has a Ph.D. in decision sciences from the Wharton School of the University of Pennsylvania and has previously served as a research scholar at the International Institute for Applied Systems Analysis in Vienna and as Visiting Professor of Management at the Universidade Nova de Lisboa in Lisbon. His current research focuses on applications of artificial intelligence to business, with a special focus on “logic modeling,” the use of formal logic representations for management science applications. His current projects involve the use of logic modeling and Petri Nets to represent and manage formal business communications, specifically electronic document interchange (EDI), focusing on electronic commerce and governmental bureaucracies.