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How LCDs Work

You probably use items containing an LCD (liquid crystal display) every day. They are all around us -- in laptop computers, digital clocks and watches, microwave ovens, CD players and many other electronic devices. LCDs are common because they offer some real advantages over other display technologies. They are thinner and lighter and draw much less power than cathode ray tubes (CRTs), for example.

     

A simple LCD display from a calculator

But just what are these things called liquid crystals? The name "liquid crystal" sounds like a contradiction. We think of a crystal as a solid material like quartz, usually as hard as rock, and a liquid is obviously different. How could any material combine the two?

In this article, you'll find out how liquid crystals pull off this amazing trick, and we will look at the underlying technology that makes LCDs work. You'll also learn how the strange characteristics of liquid crystals have been used to create a new kind of shutter and how grids of these tiny shutters open and close to make patterns that represent numbers, words or images!

Liquid Crystals
We learned in school that there are three common states of matter: solid, liquid or gaseous. Solids act the way they do because their molecules always maintain their orientation and stay in the same position with respect to one another. The molecules in liquids are just the opposite: They can change their orientation and move anywhere in the liquid. But there are some substances that can exist in an odd state that is sort of like a liquid and sort of like a solid. When they are in this state, their molecules tend to maintain their orientation, like the molecules in a solid, but also move around to different positions, like the molecules in a liquid. This means that liquid crystals are neither a solid nor a liquid. That's how they ended up with their seemingly contradictory name.

So, do liquid crystals act like solids or liquids or something else? It turns out that liquid crystals are closer to a liquid state than a solid. It takes a fair amount of heat to change a suitable substance from a solid into a liquid crystal, and it only takes a little more heat to turn that same liquid crystal into a real liquid. This explains why liquid crystals are very sensitive to temperature and why they are used to make thermometers and mood rings. It also explains why a laptop computer display may act funny in cold weather or during a hot day at the beach!

Nematic Phase Liquid Crystals
Just as there are many varieties of solids and liquids, there is also a variety of liquid crystal substances. Depending on the temperature and particular nature of a substance, liquid crystals can be in one of several distinct phases (see below). In this article, we will discuss liquid crystals in the nematic phase, the liquid crystals that make LCDs possible.

One feature of liquid crystals is that they're affected by electric current. A particular sort of nematic liquid crystal, called twisted nematics (TN), is naturally twisted. Applying an electric current to these liquid crystals will untwist them to varying degrees, depending on the current's voltage. LCDs use these liquid crystals because they react predictably to electric current in such a way as to control light passage.

  
Liquid Crystal Types
Most liquid crystal molecules are rod-shaped and are broadly categorized as either thermotropic or lyotropic.

Image courtesy Dr. Oleg Lavrentovich, Liquid Crystal Institute
Thermotropic liquid crystals will react to changes in temperature or, in some cases, pressure. The reaction of lyotropic liquid crystals, which are used in the manufacture of soaps and detergents, depends on the type of solvent they are mixed with. Thermotropic liquid crystals are either isotropic or nematic. The key difference is that the molecules in isotropic liquid crystal substances are random in their arrangement, while nematics have a definite order or pattern.

The orientation of the molecules in the nematic phase is based on the director. The director can be anything from a magnetic field to a surface that has microscopic grooves in it. In the nematic phase, liquid crystals can be further classified by the way molecules orient themselves in respect to one another. Smectic, the most common arrangement, creates layers of molecules. There are many variations of the smectic phase, such as smectic C, in which the molecules in each layer tilt at an angle from the previous layer. Another common phase is cholesteric, also known as chiral nematic. In this phase, the molecules twist slightly from one layer to the next, resulting in a spiral formation.

Ferroelectric liquid crystals (FLCs) use liquid crystal substances that have chiral molecules in a smectic C type of arrangement because the spiral nature of these molecules allows the microsecond switching response time that make FLCs particularly suited to advanced displays. Surface-stabilized ferroelectric liquid crystals (SSFLCs) apply controlled pressure through the use of a glass plate, suppressing the spiral of the molecules to make the switching even more rapid.

Creating an LCD
There's far more to building an LCD than simply creating a sheet of liquid crystals. The combination of four facts makes LCDs possible:

  • Light can be polarized.
  • Liquid crystals can transmit and change polarized light.
  • The structure of liquid crystals can be changed by electric current.
  • There are transparent substances that can conduct electricity.

An LCD is a device that uses these four facts in a surprising way!

To create an LCD, you take two pieces of polarized glass. A special polymer that creates microscopic grooves in the surface is rubbed on the side of the glass that does not have the polarizing film on it. The grooves must be in the same direction as the polarizing film. You then add a coating of nematic liquid crystals to one of the filters. The grooves will cause the first layer of molecules to align with the filter's orientation. Then add the second piece of glass with the polarizing film at a right angle to the first piece. Each successive layer of TN molecules will gradually twist until the uppermost layer is at a 90-degree angle to the bottom, matching the polarized glass filters.

As light strikes the first filter, it is polarized. The molecules in each layer then guide the light they receive to the next layer. As the light passes through the liquid crystal layers, the molecules also change the light's plane of vibration to match their own angle. When the light reaches the far side of the liquid crystal substance, it vibrates at the same angle as the final layer of molecules. If the final layer is matched up with the second polarized glass filter, then the light will pass through.

If we apply an electric charge to liquid crystal molecules, they untwist! When they straighten out, they change the angle of the light passing through them so that it no longer matches the angle of the top polarizing filter. Consequently, no light can pass through that area of the LCD, which makes that area darker than the surrounding areas

Building Your Own LCD
Building a simple LCD is easier than you think. Your start with the sandwich of glass and liquid crystals described above and add two transparent electrodes to it. For example, imagine that you want to create the simplest possible LCD with just a single rectangular electrode on it. The layers would look like this:

     

The LCD needed to do this job is very basic. It has a mirror (A) in back, which makes it reflective. Then, we add a piece of glass (B) with a polarizing film on the bottom side, and a common electrode plane (C) made of indium-tin oxide on top. A common electrode plane covers the entire area of the LCD. Above that is the layer of liquid crystal substance (D). Next comes another piece of glass (E) with an electrode in the shape of the rectangle on the bottom and, on top, another polarizing film (F), at a right angle to the first one.

The electrode is hooked up to a power source like a battery. When there is no current, light entering through the front of the LCD will simply hit the mirror and bounce right back out. But when the battery supplies current to the electrodes, the liquid crystals between the common-plane electrode and the electrode shaped like a rectangle untwist and block the light in that region from passing through. That makes the LCD show the rectangle as a black area.

Backlit vs. Reflective
Note that our simple LCD required an external light source. Liquid crystal materials emit no light of their own. Small and inexpensive LCDs are often reflective, which means to display anything they must reflect light from external light sources. Look at an LCD watch: The numbers appear where small electrodes charge the liquid crystals and make the layers untwist so that light is not transmitting through the polarized film.

Most computer displays are lit with built-in fluorescent tubes above, beside and sometimes behind the LCD. A white diffusion panel behind the LCD redirects and scatters the light evenly to ensure a uniform display. On its way through filters, liquid crystal layers and electrode layers, a lot of this light is lost -- often more than half!

In our example, we had a common electrode plane and a single electrode bar that controlled which liquid crystals responded to an electric charge. If you take the layer that contains the single electrode and add a few more, you can begin to build more sophisticated displays.

LCD Systems
Common-plane-based LCDs are good for simple displays that need to show the same information over and over again. Watches and microwave timers fall into this category. Although the hexagonal bar shape illustrated previously is the most common form of electrode arrangement in such devices, almost any shape is possible. Just take a look at some inexpensive handheld games: Playing cards, aliens, fish and slot machines are just some of the electrode shapes you'll see.

There are two main types of LCDs used in computers, passive matrix and active matrix. In the next two sections, you'll learn about each of these types.

LCD History

Today, LCDs are everywhere we look, but they didn't sprout up overnight. It took a long time to get from the discovery of liquid crystals to the multitude of LCD applications we now enjoy. Liquid crystals were first discovered in 1888, by Austrian botanist Friedrich Reinitzer. Reinitzer observed that when he melted a curious cholesterol-like substance (cholesteryl benzoate), it first became a cloudy liquid and then cleared up as its temperature rose. Upon cooling, the liquid turned blue before finally crystallizing. Eighty years passed before RCA made the first experimental LCD in 1968. Since then, LCD manufacturers have steadily developed ingenious variations and improvements on the technology, taking the LCD to amazing levels of technical complexity. And there is every indication that we will continue to enjoy new LCD developments in the future!

Passive Matrix
Passive-matrix LCDs use a simple grid to supply the charge to a particular pixel on the display. Creating the grid is quite a process! It starts with two glass layers called substrates. One substrate is given columns and the other is given rows made from a transparent conductive material. This is usually indium-tin oxide. The rows or columns are connected to integrated circuits that control when a charge is sent down a particular column or row. The liquid crystal material is sandwiched between the two glass substrates, and a polarizing film is added to the outer side of each substrate. To turn on a pixel, the integrated circuit sends a charge down the correct column of one substrate and a ground activated on the correct row of the other. The row and column intersect at the designated pixel, and that delivers the voltage to untwist the liquid crystals at that pixel.

The simplicity of the passive-matrix system is beautiful, but it has significant drawbacks, notably slow response time and imprecise voltage control. Response time refers to the LCD's ability to refresh the image displayed. The easiest way to observe slow response time in a passive-matrix LCD is to move the mouse pointer quickly from one side of the screen to the other. You will notice a series of "ghosts" following the pointer. Imprecise voltage control hinders the passive matrix's ability to influence only one pixel at a time. When voltage is applied to untwist one pixel, the pixels around it also partially untwist, which makes images appear fuzzy and lacking in contrast.

Active Matrix
Active-matrix LCDs depend on thin film transistors (TFT). Basically, TFTs are tiny switching transistors and capacitors. They are arranged in a matrix on a glass substrate. To address a particular pixel, the proper row is switched on, and then a charge is sent down the correct column. Since all of the other rows that the column intersects are turned off, only the capacitor at the designated pixel receives a charge. The capacitor is able to hold the charge until the next refresh cycle. And if we carefully control the amount of voltage supplied to a crystal, we can make it untwist only enough to allow some light through.

By doing this in very exact, very small increments, LCDs can create a gray scale. Most displays today offer 256 levels of brightness per pixel.

Color
An LCD that can show colors must have three subpixels with red, green and blue color filters to create each color pixel.

Through the careful control and variation of the voltage applied, the intensity of each subpixel can range over 256 shades. Combining the subpixels produces a possible palette of 16.8 million colors (256 shades of red x 256 shades of green x 256 shades of blue), as shown below. These color displays take an enormous number of transistors. For example, a typical laptop computer supports resolutions up to 1,024x768. If we multiply 1,024 columns by 768 rows by 3 subpixels, we get 2,359,296 transistors etched onto the glass! If there is a problem with any of these transistors, it creates a "bad pixel" on the display. Most active matrix displays have a few bad pixels scattered across the screen.

    



LCD Advances
LCD technology is constantly evolving. LCDs today employ several variations of liquid crystal technology, including super twisted nematics (STN), dual scan twisted nematics (DSTN), ferroelectric liquid crystal (FLC) and surface stabilized ferroelectric liquid crystal (SSFLC).

Display size is limited by the quality-control problems faced by manufacturers. Simply put, to increase display size, manufacturers must add more pixels and transistors. As they increase the number of pixels and transistors, they also increase the chance of including a bad transistor in a display. Manufacturers of existing large LCDs often reject about 40 percent of the panels that come off the assembly line. The level of rejection directly affects LCD price since the sales of the good LCDs must cover the cost of manufacturing both the good and bad ones. Only advances in manufacturing can lead to affordable displays in bigger sizes.

 

 

 

 

How Modems Work

If you are reading this article on your computer at home, it probably arrived via modem.

we'll show you how a modem brings you Web pages. We'll start with the original 300-baud modems and progress all the way through to the ADSL configurations!

Let's get started with a short recap of how the modem came to be.

The Origin of Modems
The word "modem" is a contraction of the words modulator-demodulator. A modem is typically used to send digital data over a phone line.

The sending modem modulates the data into a signal that is compatible with the phone line, and the receiving modem demodulates the signal back into digital data. Wireless modems convert digital data into radio signals and back.

Modems came into existence in the 1960s as a way to allow terminals to connect to computers over the phone lines. A typical arrangement is shown below:

      

In a configuration like this, a dumb terminal at an off-site office or store could "dial in" to a large, central computer. The 1960s were the age of time-shared computers, so a business would often buy computer time from a time-share facility and connect to it via a 300-bit-per-second (bps) modem.

A dumb terminal is simply a keyboard and a screen. A very common dumb terminal at the time was called the DEC VT-100, and it became a standard of the day (now memorialized in terminal emulators worldwide). The VT-100 could display 25 lines of 80 characters each. When the user typed a character on the terminal, the modem sent the ASCII code for the character to the computer. The computer then sent the character back to the computer so it would appear on the screen.

When personal computers started appearing in the late 1970s, bulletin board systems (BBS) became the rage. A person would set up a computer with a modem or two and some BBS software, and other people would dial in to connect to the bulletin board. The users would run terminal emulators on their computers to emulate a dumb terminal.

People got along at 300 bps for quite a while. The reason this speed was tolerable was because 300 bps represents about 30 characters per second, which is a lot more characters per second than a person can type or read. Once people started transferring large programs and images to and from bulletin board systems, however, 300 bps became intolerable. Modem speeds went through a series of steps at approximately two-year intervals:

  • 300 bps - 1960s through 1983 or so
  • 1200 bps - Gained popularity in 1984 and 1985
  • 2400 bps
  • 9600 bps - First appeared in late 1990 and early 1991
  • 19.2 kilobits per second (Kbps)
  • 28.8 Kbps
  • 33.6 Kbps
  • 56 Kbps - Became the standard in 1998
  • ADSL, with theoretical maximum of up to 8 megabits per second (Mbps) - Gained popularity in 1999

300-bps Modems
We'll use 300-bps modems as a starting point because they are extremely easy to understand. A 300-bps modem is a device that uses frequency shift keying (FSK) to transmit digital information over a telephone line. In frequency shift keying, a different tone (frequency) is used for the different bits.

When a terminal's modem dials a computer's modem, the terminal's modem is called the originate modem. It transmits a 1,070-hertz tone for a 0 and a 1,270-hertz tone for a 1. The computer's modem is called the answer modem, and it transmits a 2,025-hertz tone for a 0 and a 2,225-hertz tone for a 1. Because the originate and answer modems transmit different tones, they can use the line simultaneously. This is known as full-duplex operation. Modems that can transmit in only one direction at a time are known as half-duplex modems, and they are rare.

Let's say that two 300-bps modems are connected, and the user at the terminal types the letter "a." The ASCII code for this letter is 97 decimal or 01100001 binary. A device inside the terminal called a UART (universal asynchronous receiver/transmitter) converts the byte into its bits and sends them out one at a time through the terminal's RS-232 port (also known as a serial port). The terminal's modem is connected to the RS-232 port, so it receives the bits one at a time and its job is to send them over the phone line.

Faster Modems
In order to create faster modems, modem designers had to use techniques far more sophisticated than frequency-shift keying. First they moved to phase-shift keying (PSK), and then quadrature amplitude modulation (QAM). These techniques allow an incredible amount of information to be crammed into the 3,000 hertz of bandwidth available on a normal voice-grade phone line. 56K modems, which actually connect at something like 48 Kbps on anything but absolutely perfect lines, are about the limit of these techniques.

Here's a look inside a typical 56K modem:

    

All of these high-speed modems incorporate a concept of gradual degradation, meaning they can test the phone line and fall back to slower speeds if the line cannot handle the modem's fastest speed.

The next step in the evolution of the modem was asymmetric digital subscriber line (ADSL) modems. The word asymmetric is used because these modems send data faster in one direction than they do in another. An ADSL modem takes advantage of the fact that any normal home, apartment or office has a dedicated copper wire running between it and phone company's nearest mux or central office. This dedicated copper wire can carry far more data than the 3,000-hertz signal needed for your phone's voice channel. If both the phone company's central office and your house are equipped with an ADSL modem on your line, then the section of copper wire between your house and the phone company can act as a purely digital high-speed transmission channel. The capacity is something like 1 million bits per second (Mbps) between the home and the phone company (upstream) and 8 Mbps between the phone company and the home (downstream) under ideal conditions. The same line can transmit both a phone conversation and the digital data.

The approach an ADSL modem takes is very simple in principle. The phone line's bandwidth between 24,000 hertz and 1,100,000 hertz is divided into 4,000-hertz bands, and a virtual modem is assigned to each band. Each of these 249 virtual modems tests its band and does the best it can with the slice of bandwidth it is allocated. The aggregate of the 249 virtual modems is the total speed of the pipe.

Point-to-Point Protocol
Today, no one uses dumb terminals or terminal emulators to connect to an individual computer. Instead, we use our modems to connect to an Internet service provider (ISP), and the ISP connects us into the Internet. The Internet lets us connect to any machine in the world. Because of the relationship between your computer, the ISP and the Internet, it is no longer appropriate to send individual characters. Instead, your modem is routing TCP/IP packets between you and your ISP.

The standard technique for routing these packets through your modem is called the Point-to-Point Protocol (PPP). The basic idea is simple -- your computer's TCP/IP stack forms its TCP/IP datagrams normally, but then the datagrams are handed to the modem for transmission. The ISP receives each datagram and routes it appropriately onto the Internet. The same process occurs to get data from the ISP to your computer. See this page for additional information on PPP.

How E-commerce Works

Introduction
Unless you have been living under a rock for the last two years, you have heard about e-commerce! And you have heard about it from several different angles. For example:

  • You have heard about all of the companies that offer e-commerce because you have been bombarded by their TV and radio ads.
  • You have read all of the news stories about the shift to e-commerce and the hype that has developed around e-commerce companies.
  • You have seen the huge valuations that web companies get in the stock market, even when they don't make a profit.
  • And you may have actually purchased something on the web, so you have direct personal experience with e-commerce.

Still, you may feel like you don't understand e-commerce at all. What is all the hype about? Why the huge valuations? And most importantly, is there a way for you to participate? If you have an e-commerce idea, how might you get started implementing it?

Commerce
Before we get into a complete discussion of e-commerce, it is helpful to have a good mental image of plain old commerce first. If you understand commerce, then e-commerce is an easy extension.

Merriam-Webster's Collegiate Dictionary defines commerce as follows:

com.merce n [MF, fr. L commercium, fr. com- + merc-, merx merchandise] (1537) 1: social intercourse: interchange of ideas, opinions, or sentiments 2: the exchange or buying and selling of commodities on a large scale involving transportation from place to place 3: sexual intercourse

We tend to be interested in the second definition, but that third one is interesting and unexpected - maybe that's what all of the hype is about!

So commerce is, quite simply, the exchange of goods and services, usually for money. We see commerce all around us in in millions of different forms. When you buy something at a grocery store or at Wal-mart you are participating in commerce. In the same way, if you cart half of your possessions onto your front lawn for a yard sale, you are participating in commerce from a different angle. If you go to work each day for a company that produces a product, that is yet another link in the chain of commerce. When you think about commerce in these different ways, you instinctively recognize several different roles:

  • Buyers - these are people with money who want to purchase a good or service.
  • Sellers - these are the people who offer goods and services to buyers. Sellers are generally recognized in two different forms: retailers who sell directly to consumers and wholesalers or distributors who sell to retailers and other businesses.
  • Producers - these are the people who create the products and services that sellers offer to buyers. A producer is always, by necessity, a seller as well. The producer sells the products produced to wholesalers, retailers or directly to the consumer.

You can see that at this high level, commerce is a fairly simple concept! Whether it is something as simple as a person making and selling popcorn on a street corner or as complex as a contractor delivering a space shuttle to NASA, all of commerce at its simplest level relies on buyers, sellers and producers.

The Elements of Commerce
When you get down to the actual elements of commerce and commercial transactions, things get slightly more complicated because you have to deal with the details. However, these details boil down to a finite number of steps. The following list highlights all of the elements of a typical commerce activity. In this case, the activity is the sale of some product by a retailer to a customer:

  • If you would like to sell something to a customer, at the very core of the matter is the something itself. You must have a product or service to offer. The product can be anything from ball bearings to back rubs. You may get your products directly from a producer, or you might go through a distributor to get them, or you may produce the products yourself.
  • You must also have a place from which to sell your products. Place can sometimes be very ephemeral - for example a phone number might be the place. If you are a customer in need of a back rub, if you call "Judy's Backrubs, Inc." on the telephone to order a back rub, and if Judy shows up at your office to give you a backrub, then the phone number is the place where you purchased this service. For most physical products we tend to think of the place as a store or shop of some sort. But if you think about it a bit more you realize that the place for any traditional mail order company is the combination of an ad or a catalog and a phone number or a mail box.
  • You need to figure out a way to get people to come to your place. This process is known as marketing. If no one knows that your place exists, you will never sell anything. Locating your place in a busy shopping center is one way to get traffic. Sending out a mail order catalog is another. There is also advertising, word of mouth and even the guy in a chicken suit who stands by the road waving at passing cars!
  • You need a way to accept orders. At Wal-mart this is handled by the check out line. In a mail order company the orders come in by mail or phone and are processed by employees of the company.
  • You also need a way to accept money. If you are at Wal-mart you know that you can use cash, check or credit cards to pay for products. Business-to-business transactions often use purchase orders. Many businesses do not require you to pay for the product or service at the time of delivery, and some products and services are delivered continuously (water, power, phone and pagers are like this). That gets into the whole area of billing and collections.
  • You need a way to deliver the product or service, often known as fulfillment. At a store like Wal-mart fulfillment is automatic. The customer picks up the item of desire, pays for it and walks out the door. In mail-order businesses the item is packaged and mailed. Large items must be loaded onto trucks or trains and shipped.
  • Sometimes customers do not like what they buy, so you need a way to accept returns. You may or may not charge certain fees for returns, and you may or may not require the customer to get authorization before returning anything.
  • Sometimes a product breaks, so you need a way to honor warranty claims. For retailers this part of the transaction is often handled by the producer.
  • Many products today are so complicated that they require customer service and technical support departments to help customers use them. Computers are a good example of this sort of product. On-going products like cell phone service may also require on-going customer service because customers want to change the service they receive over time. Traditional items (for example, a head of lettuce), generally require less support that modern electronic items.

You find all of these elements in any traditional mail order company. Whether the company is selling books, consumer products, information in the form of reports and papers, or services, all of these elements come into play.

In an e-commerce sales channel you find all of these elements as well, but they change slightly. You must have the following elements to conduct e-commerce:

  • A product
  • A place to sell the product - in the e-commerce case a web site displays the products in some way and acts as the place
  • A way to get people to come to your web site
  • A way to accept orders - normally an on-line form of some sort
  • A way to accept money - normally a merchant account handling credit card payments. This piece requires a secure ordering page and a connection to a bank. Or you may use more traditional billing techniques either on-line or through the mail.
  • A fulfillment facility to ship products to customers (often outsource-able). In the case of software and information, however, fulfillment can occur over the Web through a file download mechanism.
  • A way to accept returns
  • A way to handle warrantee claims if necessary
  • A way to provide customer service (often through email, on-line forms, on-line knowledge bases and FAQs, etc.)

In addition, there is often a strong desire to integrate other business functions or practices into the e-commerce offering. An extremely simple example -- you might want to be able to show the customer the exact status of an order.

Why the Hype?
There is a huge amount of hype that surrounds e-commerce. Given the similarities with mail order commerce, you may be wondering why the hype is so common.

"On the retail side alone, Forrester projects $17 billion in sales to consumers over the Internet by the year 2001. Some segments are really starting to take off." --Forrester Research, "Content and Context..," DMA Insider, Spring 1998.

  • "Worldwide business access to the Web is expected to grow at an even faster rate than the US market--from 1.3 million in 1996 to 8 million by 2001." --O'Reilly & Associates
  • "Home continues to be the most popular access location, with nearly 70% of users accessing from their homes...almost 60% shop online. The most popular activities include finding information about a product's price or features, checking on product selection and determining where to purchase a product." --IntelliQuest Information Group, Inc., WWITS Survey
  • "In general, the more difficult and time-consuming a purchase category is, the more likely consumers will prefer to use the internet versus standard physical means." eMarketer.

This sort of hype applies to a wide range of products. According to eMarketer the biggest product categories include:

  • Computer products (hardware, software, accessories)
  • Books
  • Music
  • Financial Services
  • Entertainment
  • Home Electronics
  • Apparel
  • Gifts and flowers
  • Travel services
  • Toys
  • Tickets
  • Information

The Dell Example
But this doesn't explain the frantic rush by companies, both large and small, to get to the web. Nor does it justify a small business making a big expenditure on an e-commerce facility. What is driving this sort of frenzy? To understand it a bit, let's take a look at one of the most successful e-commerce companies: Dell.

Dell is a straightforward company that, like Gateway 2000, Micron and a host of others, sells custom-configured PCs to consumers and businesses. Dell started as a mail-order company that advertised in the back of magazines and sold their computers over the phone. Dell's e-commerce presence is widely publicized these days because Dell is able to sell so much merchandise over the web. According to IDG, Dell currently sells something like $14,000,000 in equipment every day. 25% of Dell's sales is over the web.

Does this matter? Dell has been selling computers by mail over the phone for more than a decade. Mail order sales is a standard way of doing things that has been around for over a century (Sears, after all, was a mail order company originally). So if 25% of Dell's sales move over to the web instead of using the telephone, is that a big deal? The answer could be YES for three reasons:

  • If Dell were to lose 25% of its phone sales to achieve its 25% of sales over the web, then it is not clear that e-commerce has any advantage. Dell would be selling no more computers. But what if the sales conducted over the web cost the company less (for example, because the company does not have to hire someone to answer the phone)? Or what if people purchasing over the web tend to purchase more accessories? If the transaction cost on the web is lower, or if the presentation of merchandise on the web is more inviting and encourages larger transactions, then moving to the web is productive for Dell.
  • What if, in the process of selling merchandise over the Web, Dell lost no sales through its traditional phone channel? That is, what if there just happens to be a percentage of the population that prefers to buy things over the Web (perhaps because there is more time to think, or because you can try lots of different options to see what happens to the final price, or because you can compare multiple vendors easily, or whatever). In building its web site to attract these buyers, Dell may be able to lure away customers from other vendors who do not offer such a service. This gives Dell a competitive advantage that lets it increase its market share.
  • There is also a widely held belief that once a customer starts working with a vendor, it is much easier to keep that customer than it is to bring in new customers. So if you can build brand loyalty for a web site early, it gives you an advantage over other vendors who try to enter the market later. Dell implemented its Web site very early, and that presumably gives it an advantage over the competition.

These three trends are the main drivers behind the e-commerce buzz. There are other factors as well.

The Lure of E-commerce

The following list summarizes what might be called the "lure of e-commerce":

  • Lower transaction costs - if an e-commerce site is implemented well, the web can significantly lower both order-taking costs up front and customer service costs after the sale by automating processes.
  • Larger purchases per transaction - Amazon offers a feature that no normal store offers. When you read the description of a book, you also can see "what other people who ordered this book also purchased". That is, you can see the related books that people are actually buying. Because of features like these it is common for people to buy more books that they might buy at a normal bookstore.
  • Integration into the business cycle - A Web site that is well-integrated into the business cycle can offer customers more information than previously available. For example, if Dell tracks each computer through the manufacturing and shipping process, customers can see exactly where their order is at any time. This is what FedEx did when they introduced on-line package tracking - FedEx made far more information available to the customer.
  • People can shop in different ways. Traditional mail order companies introduced the concept of shopping from home in your pajamas, and e-commerce offers this same luxury. New features that web sites offer include:
    • The ability to build an order over several days
    • The ability to configure products and see actual prices
    • The ability to easily build complicated custom orders
    • The ability to compare prices between multiple vendors easily
    • The ability to search large catalogs easily
  • Larger catalogs - A company can build a catalog on the web that would never fit in an ordinary mailbox. For example, Amazon sells 3,000,000 books. Imagine trying to fit all of the information available in Amazon's database into a paper catalog!
  • Improved customer interactions - With automated tools it is possible to interact with a customer in richer ways at virtually no cost. For example, the customer might get an email when the order is confirmed, when the order is shipped and after the order arrives. A happy customer is more likely to purchase something else from the company.

It is these sorts of advantages that create the buzz that surrounds e-commerce right now.

There is one final point for e-commerce that needs to be made. E-commerce allows people to create completely new business models. In a mail order company there is a high cost to printing and mailing catalogs that often end up in the trash. There is also a high cost in staffing the order-taking department that answers the phone. In e-commerce both the catalog distribution cost and the order taking cost fall toward zero. That means that it may be possible to offer products at a lower price, or to offer products that could not be offered before because of the change in cost dynamics.

However, it is important to point out that the impact of e-commerce only goes so far. Mail order sales channels offer many of these same advantages, but that does not stop your town from having a mall. The mall has social and entertainment aspects that attract people, and at the mall you can touch the product and take delivery instantly. E-commerce cannot offer any of these features. The mall is not going to go away anytime soon...

Easy and Hard Aspects of E-commerce
The things that are hard about e-commerce include:

  • Getting traffic to come to your web site
  • Getting traffic to return to your web site a second time
  • Differentiating yourself from the competition
  • Getting people to buy something from your web site. Having people look at your site is one thing. Getting them to actually type in their credit card numbers is another.
  • Integrating an e-commerce web site with existing business data (if applicable)

There are so many web sites, and it is so easy to create a new e-commerce web site, that getting people to look at yours is the biggest problem.

The things that are easy about e-commerce, especially for small businesses and individuals, include:

  • Creating the web site
  • Taking the orders
  • Accepting payment

There are inumerable companies that will help you build and put up your electronic store. We'll discuss some options in the next section.

Building an E-commerce Site

The things you need to keep in mind when thinking about building an e-commerce site include:

  • Suppliers - this is no different from the concern that any normal store or mail order company has. Without good suppliers you cannot offer products.
  • Your price point - a big part of e-commerce is the fact that price comparisons are extremely easy for the consumer. Your price point is important in a transparent market.
  • Customer relations - E-commerce offers a variety of different ways to relate to your customer. E-mail, FAQs, knowledge bases, forums, chat rooms... Integrating these features into your e-commerce offering helps you differentiate yourself from the competition.
  • The back end: fulfillment, returns, customer service - These processes make or break any retail establishment. They define, in a big way, your relationship with your customer.

When you think about e-commerce, you may also want to consider these other desirable capabilities:

  • Gift-sending
  • Affiliate programs
  • Special Discounts
  • Repeat buyer programs
  • Seasonal or periodic sales

The reason why you want to keep these things in mind is because they are all difficult unless your e-commerce software supports them. If the software does support them, they are trivial.