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CHAPTER 2

THEORETICAL FOUNDATION

2.1 Electronic Commerce (E-Commerce)

E-Commerce according to Laudon, K. C., and Traver, C. G can be

defined as “the use of Internet and the Web to transact business” [1]. To

elaborate the definition further, something can be considered as an E-

Commerce if it has two characteristics. First, transactions must be done or

mediated using digital technology such as Internet or Web. Second,

transactions must be commercial. This means transactions must involve the

exchange of value, such as money, between and among organizations and

individuals in return for products or services [1].

Although similar, E-Commerce is different from E-Business. E-

Commerce focus on the external boundaries of the business, such as

customers and activities that directly generates revenues, while E-Business

focus on the internal transactions and activities within the business, such as

inventory control and document transfers [1]. Because the concepts of E-

Commerce and E-Business intersect, the two concepts are often merged thus

often E-Commerce also includes the concepts of E-Business or vice versa.

For example, George Beekman and Michael J. Quinn describe E-Commerce

as using telecomunication networks to conduct the sharing of business

information, maintaining of business relationships, conducting business

transactions, reorganizing internal business process and external business

alliances, and creating new consumer oriented products [2].

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In general, E-commerce has eight unique dimensions that differentiate

itself with traditional business. The eight unique dimensions are [1]:

1. Ubiquity

2. Global Reach

3. Universal Standards

4. Information Richness

5. Interactivity

6. Information Density

7. Personalization/customization

8. Social technology

2.1.1 Components of Electronic Commerce

E-commerce has typical components or functionalities that

sets-up and build a website into an e-commerce. There are several

common components and functionalities for e-commerce including

[1] [3]:

2.1.1.1 Registration/ Login and Customer Database

Customer should be prompted with registration before

making transaction online through the e-commerce. The

purpose is for authentication and storing customer information

for business purpose. Registration process has to be

straightforward and easy for the customer. Optional

registration/log in such as using Facebook Connect is

recommended to provide alternative and convenience for

customers that do not want to manage many accounts [3].

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Although registration is widely recognized as a

common feature that every e-commerce must have, there had

been arguments that registration should be made optional. The

reason is because there are customers that feel insecure in

sharing their personal information to a business. In addition,

customer can be discouraged to register and buy when they

found the registration process is too complex. To solve these

issues, some solution are designed such as to make registration

optional with customer able to purchase without registering

and request the customer registration after a customer make a

purchase [4].

Information on registered customer should be stored in

a customer database. Information that should be stored might

include name, address, phone address, and e-mail address [1].

2.1.1.2 Product Catalog and Database

Product catalog should provide product information to

customers who can be presented in the form of text or graphics

[1]. A product catalog should be used when the e-commerce is

selling multiple product or services. Customer should be able

to navigate through the product catalog through a well

designed user interface. The objective is for customer to be

able to find the product that they are looking for. Therefore,

customer should be provided with the capability to search for

product based on specific keywords or tags [3].

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Product database is functioning as storage for product

catalog information. It should store information such as

product description, stocking number, and inventory level [1].

2.1.1.3 Admin Area

Admin area refers to the back end of the e-commerce

which handled by employees and function as a place to

manage the e-commerce. Management might include

managing customer details, managing product inventory and

details, or sales order processing. [3].

2.1.1.4 Sales Database

Sales database refers to the storage of sales

transactions when customer purchases a product. It contains

information related to sales such as customer information,

product purchased, date, and payment details. Sales

information stored can then be used for multiple purposes by

the business such as to provide after-sale customer support for

customer [1].

2.1.2 Types of E-Commerce

2.1.2.1 Business-to-Business (B2B)

Business-to-Business (B2B) e-commerce refers to the

use of e-commerce by businesses to sell or conduct transaction

to other businesses [1]. It is the largest form of e-commerce

with huge growth potential and the highest revenue generated

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when compared to other e-commerce types. B2B has two

primary business models:

1. Net marketplace. In net marketplace customers and

suppliers are gathered into a single Internet platform for them

to conduct trade [1]. For example: alibaba.com

2. Industry consortia. Industry owned vertical market

that enables buyer to purchase from a limited set of invited

participants [1]. This business model is focusing on creating

long-term relationships between suppliers and buyers. For

example: Exostar, SupplyOn.

Another form of B2B is Business-to-Government

(B2G) where businesses conduct transaction with government

institutions. However, B2G can also be considered as B2B

because in most cases the government acts as an independent

business unit when conducting transaction [1].

2.1.2.2 Business-to-Consumer (B2C)

Business-to-Consumer (B2C) e-commerce refers to the

use of e-commerce by businesses or companies to sell

products or services to individual consumers [1]. This type of

e-commerce is the most common type encountered by

consumer. Consumer access online product catalog provided

by businesses, search and select the products they wish to

purchase, and make product purchases. To help consumer

purchase experience, B2C often use the shopping cart feature

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of e-commerce. Shopping cart in e-commerce works the same

way as shopping carts in real life. Customers can select

multiple products through the online catalog, store it into their

shopping cart, and then purchase all the products in their

shopping cart in one transaction [1].

Revenue wise, B2C e-commerce did not generate high

revenue when compared to B2B e-commerce. However the

growth of B2C e-commerce is very fast and it has been

growing exponentially making it one of the booming e-

commerce types [1].

Example of B2C e-commerce: Amazon.com, Play-Asia.com.

2.1.2.3 Consumer-to-Consumer (C2C)

Consumer-to-Consumer e-commerce refers to the use

of e-commerce by consumer to sell or conduct transactions to

each other and often conducted through the help of online

market or auction sites. C2C involve platforms where

consumer can place their products to sale or auction. The

platforms will then create product catalogue from consumers’

products and allows other consumer to search and make

purchases through the platform [1]. In C2C, the business only

provides the platform for customers to do transactions in

which it is mostly internet based, while data and information

for product catalogs are all came from customers. To certain

extent, some businesses also provide catalog search engine,

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payment system, and delivery service that aid customer in

buying and selling products.

Examples of C2C e-commerce: E-Bay, Craiglist,

Tokobagus, Yahoo Auctions.

2.1.3 Samples of E-Commerce in Hosting Service Provider

Hosting service providers (HSP) are businesses or individuals

that provide hosting solution and services to its customers. HSPs often

make use of e-commerce to publicize and offer their hosting products

and services to customers [5]. E-commerce enable customers to

conduct various business activities such as browsing through HSP

product catalog, compare hosting packages and price information,

make purchases, get live support, and requesting for hosting renewal.

2.1.3.1 Godaddy.com

Figure 2.1 Screenshot of Godaddy.com (taken directly from

www.godaddy.com in 2013)

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Godaddy.com is one of the leading hosting service

providers from United States. Mainly providing hosting

needs, Godaddy.com differentiate itself and well known for its

complete web hosting solution. In addition to hosting,

Godaddy.com also web design service to help people that does

not have web building skills. Customers simply only need to

purchase the product package and Godaddy.com will handle

the whole web development, hosting needs, and maintenance.

2.1.3.2 Masterweb.net

Figure 2.2 Screenshot of Masterweb.net (taken directly from

http://www.masterweb.net/Hosting_Indonesia-main.html in 2013)

Masterweb.net is currently the leading hosting service

provider in Indonesia with the highest market share in web

hosting compared to other Indonesia hosting provider [6].

Owning 19.4829% market share of web hosting in Indonesia

based on data from www.webhosting.info taken on 28

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February 2013. Masterweb.net provides variety of hosting

needs that includes domain name ordering, web hosting,

shared hosting, virtual private server, server hosting, and

digital/SSLcertificate.

Masterweb.net uses its e-commerce mainly as a place

to sell their hosting solutions, where customer can seek

product information, make order, and seek for 24 hours

customer support. They also provides its own knowledge base

for customer to learn about the details of products they are

offering which really helps non technical users that are not

familiar with hosting concepts.

2.2 Hosting Service

Hosting is service where business or vendor is providing storage

space for housing, serving, and managing customer files or data, typically for

website. The businesses that provides hosting service is called Hosting

Service Provider (HSP) [5].

2.2.1 Types of Hosting Services

2.2.1.1 Domain Name

Any devices connected to Internet are called host and

uniquely identified by its Internet Protocol (IP) address which

are series of numbers separated by dots (.) for example:

69.10.25.46. IP address can be hard for people to memorize

thus it is often represented in natural language called Domain

Name, for example: www.google.com [1].

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Domain names are unique which means there cannot

be two same domain names exist. Because of this, many

domain names are registered by user so that it cannot be used

by other people. Hosting service provider often provides

domain registration service for customer to name the space

they are renting.

2.2.1.2 Dedicated Server

Dedicated hosting, or dedicated server, is a hosting

service in which customer server space and system resources

is not shared with other customer [7]. This is done by having

the customer lease an entire server. Dedicated hosting provides

the customer with several benefits such as greater capacity,

increased security, improved reliability through no interaction

with other website, and complete control over the

configuration [8]. However it comes with drawbacks including

higher cost compared to share hosting and higher technical

requirement to manage the server.

2.2.1.3 Shared Hosting

Shared hosting is type of hosting where the server

space is used to serve multiple clients. Server space is

partitioned into smaller space which customer rent and when

configured properly the clients will not be able to see the other

clients in the server. The purpose of shared hosting is to

reduce the cost of leasing the server space and make server

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space more affordable for customers. It is very affordable that

there are hosting providers offering shared hosting for free [9].

However, shared hosting brings several drawbacks

such as performance issue due to shared resources, heavily

dependent on the host to manage the server, and security

issues such as hackers that may come from the other clients in

the server [9].

2.2.1.4 Virtual Private Server

Virtual Private Server (VPS) is a type of shared hosting

with each server partition runs its own operating system or

virtual server. This gives the illusion as if the client is running

a dedicated server since client will have full control of its

virtual server.VPS make use of virtualization software to

manage and distribute computer resources to its clients. This

technology also allows a virtual server to take resources from

multiple machines [9].

2.2.1.5 Virtual Private Network

Virtual Private Network (VPN) is a network

technology that provides secure access for user to access

internal network via the Internet. VPN make use of Point-to-

Point Tunneling Protocol (PPTP), an encoding mechanism that

securely wraps the delivered message to shield it from external

interception. The term virtual is used because user did not

actually have dedicated secure communication line, the VPN

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only establish temporary secure communication line between

networks [1]. Hosting service provider often provides VPN

connection for its customers to connect to their server space

securely.

2.2.1.6 Cloud Hosting

Cloud hosting is a type of hosting where customer

website is not necessarily stored in a single server space but it

is distributed through cloud (internet) to different server

spaces across the network. The main benefits provided by

cloud hosting are cost, scalability, and reliability. Customer

only needs to pay for the amount of resource they use, unlike

other hosting types where customer needs to pay for a fixed

amount of resource packages. Cloud hosting has high

scalability because customer can easily increase the resource

space they needed. Cloud hosting is also more reliable because

it is distributed and does not have any single point of failure

since a failure in one machine can be replaced with other

server on the network [7].

2.2.1.7 Anonymous Hosting

Anonymous hosting refers to hosting services that are

privately registered and booked using third party name via

Proxy ID or ID Protection. The purpose is to keep the

information of the customer secret and untraceable, which is

useful to keep sensitive information from competitors and

hackers [10].

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There are two types of anonymous hosting providers.

One is provider that request customer details for record this

way customer can still be identified by the provider but it will

remain anonymous from the public. The other type is provider

that does not require any customer identification at all thus the

customer is anonymous to both the provider and public [10].

Example of anonymous hosting provider:

anonymoushosting.in, ccihosting.com, shinjiru.com.

2.2.2 WhoIs

WhoIs is a searching protocol for submitting queries to

database specifically with specific use of getting details on ownership

of domain name, IP network, or Autonomous System Number (ASN).

When a server receive WhoIs query, the server will process the query

and reply with owner information such as e-mail addresses, contact

numbers, and other related metadata [11].

One common use of WhoIs is to check domain name

registration and expiry information. Since domain names must be

unique and there can be no duplicate, availability checking becomes is

reqired during domain purchase since people cannot buy reserved

domain. One way to buy reserved domain is by making use domain

owner’s information provided by WhoIs to contact the owner and

negotiate to buy and transfer domain name ownership. Domain name

also has expiry dates and the owner can will lose its ownership if its

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not extended. Owner can check domain expiry date using WhoIs and

be reminded when they should extend their domain name.

2.3 Business Model

According to Alexander Osterwalder and Yves Pigneur, a business

model describes the understanding on how an organization or business

creates, delivers, and capture values [12]. A business model is vital in order

to create a good business strategies, because it act as a blueprint that explains

the required activities and resources needs to be done to run the business.

2.3.1 Business Model Canvas

Business Model Canvas is a concept introduced by Alexander

Osterwalder and Yves Pigneur as a method to build and analyze a

business model. The concept has been applied and tested

internationally, and it has been used by various international

organization such as IBM and Deloitte [12].

The Business Model Canvas suggest nine building blocks of

creating a solid business model and a business model can be

considered good if it is be able to clearly defined the nine blocks. The

nine building blocks of business model canvas are [12]:

Customer Segments (CS) : the customer segments being

served by the business.

Value Propositions (VP) : how the business is going to solve

problems and satisfy customer needs.

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Channels (CH) : the way organization deliver its value

proposition to customers.

Customer Relationship (CR) : the relationships established and

maintained to each customer segments.

Revenue Streams (R$) : how the value proposition generate

revenue when succesfully offered to customer.

Key Resources (KR) : the asset required to create, offer, and

deliver the value proposition.

Key Activities (KA) : activities performed to transform the

key resources to value proposition.

Key Partnerships (KP) : resources and activities that acquired

form outside of the business.

Cost Structure (C$) : the cost inccured to the business from

running the business model.

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Figure 2.3 Business Model Canvas (taken from [13])

2.4 System Development Life Cycle

According to Satzinger et al [14] Systems development life cycle

(SDLC) is the process of building, deploying, using, and updating an

information systems. SDLC is the one of the key fundamental concepts in

information system development. There are 5 phases in SDLC which are:

Planning Phase: identifying the scope, ensuring feasibility, and

developing schedule, resource plan, and budget for the project. In

common organizational situation, the plan created during this phase

might require approval from top management. Key activity in this

phase is to precisely define the business problem and the scope of the

required solution.

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Analysis Phase: the objective of analysis phase is to understand and

document the business needs and the processing requirements of the

new system. Can be achieved through information gathering,

analyzing information, and building prototype.

Design Phase: transforming the requirements defined and decisions

made during analysis into the design of system based solution.

Designs might include, network design, application architecture

design, user interfaces design, system interfaces design, database

design, system controls design, and prototypes.

Implementation Phase: during this phase the final system are built,

tested, and installed. The objective also includes the training for users

and the organization.

Support Phase: the objective of this phase is to keep the system

running after the system is installed. This may be done through

activities such as system maintenance, system enhancement, and

providing user support.

There are two classifications of SDLC: predictive approach and

adaptive approach.

2.4.1 Predictive Approach

Predictive approach is SDLC approach where project

planning and organization is conducted in advance, and that

the new system will be developed according to plan [14].

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Predictive SDLC benefits most when used for building

systems that are well understood and well defined.

Waterfall model is an example of predictive SDLC

approach. Waterfall model handle project in sequential

method. One phase is to be completed before moving into the

next phase. After completing a phase, the phase is frozen

therefore it is not possible to return to previous phases [14].

Predictive approach has the advantage of low technical

risk because project and specification are planned carefully.

However, the inability to return to previous phase is a

problem, considering human can always make error and going

back might be required. Because of this, pure predictive or

waterfall approach is rarely used and many have used a

modified waterfall model [14].

2.4.1 Adaptive Approach

Adaptive approach is the more flexible SDLC

approach that assume project cannot be planned in advance

and must be modified as it progresses [14]. Adaptive

approach is best used for projects where requirements and

needs are uncertain.

Spiral model is an example of adaptive SDLC. Spiral

model handle project in iteration. SDLC phases are repeated

over and over on each different system components, with each

phase refining the result of the previous phase, until the system

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is closer to what is ultimately needed. One way of doing spiral

approach is by creating prototypes on every iteration [14].

Adaptive approach has the advantage of flexibility

being able to cope with changes of requirement in the middle

of development. However the flexibility comes with high risk

due to not well defined requirements.

2.5 Unified Modeling Language Diagrams

Unified Modeling Language (UML) is a modeling language

developed by the Object Management Group (OMG) in 1997 with the

objective of providing common design language for building of computer

system and applications. It provides visual frameworks, such as diagrams and

notations, which can be used to visualize and describe system blueprints. It is

widely used and it has become the standard modeling notation for system

application development [15].

2.5.1 Activity Diagram

Activity diagram is an UML diagram that describes the

sequence of activities conducted by users in a transaction or a

business process [14]. The purpose of creating activity diagram is to

help describing workflow of a transaction using visualization,

particularly when it is difficult to be done written or verbally.

Activity diagram is built on symbols such as:

Swimlane, which is a rectangular area that represents the user

doing the activities.

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Oval shape, which represent a single activity in the

workflow.

Arrows, that represents the sequence of activities.

Diamonds shape which act as decision point that branch out

the activities path.

Black circles that represent the start and end of a workflow.

Figure 2.4 Sample Activity Diagram [14]

2.5.2 Event Table

Event table is a collection of use cases that lists events in rows and

key pieces of information about each event in columns [14]. There are six

key pieces of information in event table which are: event, trigger, source, use

case, response, and destination. Event table will become the basis for data

flow diagram and use case diagrams for further analysis.

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Figure 2.5 Sample Event Table [14]

2.5.2 Use Case Diagram

Use case diagram is diagrams that visualize different user roles

and how the user roles interact with the system [14]. Use case itself is

a term that refers to an activity that is carried out by the system which

could be the result of a trigger from the user. The purpose of creating

a use case diagram is to get visualization on the functional

requirement of the systems, which includes the relationship between

the user (or actors) to the system, and the relationship between one

use case to another use case [15].

In use case diagram, actors or user role is represented as stick

figure. Use case is represented as oval shape. Actor participation in a

use case is connected using line, and the system boundary is

represented by rectangle area.

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Figure 2.6 Sample Use Case Diagram [14]

Use case diagram is often come together with a use case

description that provides the detailed information of each use cases.

Use case description list and describe in detail how each use case are

processed. A use case description contains the following information:

use case name, scenario, triggering event, brief description, actors,

related use cases, stakeholders, preconditions, postconditions, flow of

activities for both actor and system, and exception conditions.

2.5.3 Entity Relationship Diagram

Entity Relationship Diagram (ERD) is a model used to define

data storage requirements. Data storage requirements include the data

entities, data attributes, and relationships between data entities. Data

entities are things such as objects or data that the system needs to

store information [14].

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ERD consist of three main notations: rectangle that represents

data entities, connecting line that represents relationship between data

entities, and “crow’s feet” that represent cardinalities between data

entities. Cardinalities describe the type of relationship and constraints

between entities. There are three types of relationships between data

entities:

One-to-One

One-to-Many

Many-to-Many

Figure 2.7 Sample Entity Relationship Diagram [14]

2.5.4 Data Flow Diagram

Data flow diagram (DFD) is a graphical system model that

visualizes all of the main requirements of an information system in

terms of input/output, process, and data storage [14]. It shows the

flow of data from external agent to the system, show how data is

moved from one process to another, and show how data is stored in

the logical database.

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Figure 2.8 Data Flow Diagram Notations [14]

The detail of information presented by a DFD depends on the

level of abstraction of the DFD. At the most abstract (high level) view

of a system, a DFD is called as Context Diagram. Context diagram is

a DFD that provide summary of all processing activity within the

system. A high level DFD, such as context diagram, can be

decomposed into lower levels which give more details, and a

decomposed DFD can be further decomposed to provide more details

when needed [14].

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Figure 2.9 Sample Context Diagram [14]

2.6 Database

“Shared collection of logically related data, and a description of this

data, designed to meet the information needs of an organization.” [16]

Database by definition refers to a collection of related and organized

data that is used primarily to support organizational informational needs.

Logically related data in the context refers to entities, attributes, and

relationships of an organization’s information [16]. Database provides the

organization with capabilities such as enabling data to be shared to multiple

users, enabling user to quickly query/search for data, and provides the user

with well processed and meaningful information. Database is usually

managed through software called Database Management Systems (DBMS),

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which enable user to define, create, maintain, and control access to database

[16].

2.6.1 Relational Database System

One of the most common methods to organize data in database

is to use Relational Model. Database stored in this method is called

Relational Database. In Relational Database, data are organized into

tables (relation), consisting rows (record) and column (attribute) [16].

Every record must contain unique attribute (or set of attributes) called

Primary Key which is used to uniquely identify a record within a

relation and to link a relation with other relations [17]. The collection

of tables with rows and columns are the ones that made up relational

database.

Relational database is managed by Relational Database

Management System. In managing database, RDBMS follows three

main fundamentals [18]:

Information is stored in the form of table

Value found in table column should not be repeated

Structured Query Language (SQL) must be used

2.7 Interaction Design and User Interface

Sharp et al [19] describe interaction design as designing interactive

products that enhance and augment, the way people communicate and

interact in their everyday lives. Although interaction design can encompass

interaction with different varieties of medium, it is commonly associated with

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interaction between human and computers. Interaction design is the umbrella

term that emphasizes different designing activities in which one of them

includes User Interface Design.

The focus of interaction design concerned with user experiences. User

experience is how people feel about a product when they are using the

product [19]. What people feel may include their pleasure, satisfaction, and

the sensual effect from the product they use. User experience cannot be

designed by people, what people can do is to create design features that evoke

the user experience.

The process of interaction design consists of four basic activities [19]:

1. Identifying needs and establishing requirements for user experience.

2. Developing alternative designs that meet the requirements.

3. Building interactive versions of the designs to be communicated and

assessed by user.

4. Evaluating what is being built and the user experience it offers.