Home-based e-business - an option for the self-employed?

  4.1. Technical Aspects

•  Web site design

 The design of the web site is very important in order to give a favorable first impression to prospective customers. If the potential customers get an unfavorable experience at the site, they are unlikely to make a purchase at your site. A virtual shop web site should be designed in the following manner in order to attract and retain more customers:

•  Easy to navigate - The web site should be user-friendly and easy to navigate, customers are able to access to any page and accomplish whatever they want within three clicks. There are no deeply buried pages. As a result, shoppers will find this site very easy to use. This site is also easy to maintain where products or prices can be changed quickly.

•  Quick download time – research indicates that 80% of web users cite download time as the number one problem (Terry Sullivan, 1999). Most customers nowadays are still connecting to the Internet via slow modems and recent studies indicate that slow-loading web sites cause online consumers to abandon up to 50% of online transactions (Keynote – http://www.keynote.com) . A web site should be clean, simple and direct, with no fancy element such as whistles, glitz, moving words and flash animation. There should be no excess graphic and the resolution of all necessary photos is reduced to a minimum so that the loading time of each page is only a couple of seconds.

•  Clean and accurate product information and presentation - Since customers cannot actually see, touch and feel products in person, the presentation must be clear and visually accurate. All products are described in simple English with clear specifications and photos. It is better include a FAQ section in its Web site so that most of the common questions were already answered in advance, it also save a lot of labor hours to answer repeated questions.

Although designing a web site could be daunting for the beginner, professional help is readily available in Hong Kong at a low cost, and shop-front solutions are now readily available (see TURNKEY approaches below)

•  Web hosting

  Once the web site is designed, it needs to be hosted with an Internet Service Provider. There are basically three options on web hosting. The first choice is to buy one's own server but it is very costly both in initial hardware, software and maintenance, and therefore not suitable for a small home business start-up. The second choice is to use a free web hoster. There are a lot of free web-hosting services on the Internet but in return, most of them require placing some form of advertisement on your site. These could be quite disturbing to the potential customer and affect the image of the web site. Besides, the performances of these free web-hosting services are often unstable, and can seriously affect the business should the hoster go down. The third choice is to rent space on a paid web hoster. All it requires is to pay a monthly fee and there are technicians to set up and maintain your server regularly. Many web-hosting companies have a 99.9% uptime guarantee and this could be critical for success.

The standard and charges of web hosting service providers varies greatly in the market. Generally speaking, those from the developed countries such as United States , United Kingdom and Hong Kong are very reliable. The charge range from a few US dollars to several hundred dollars per month, depending on the services you choose. Normally, for a new start up small business, the package with minimum services is good enough and additional services can be added on later. In selection of the service provider, make sure that it has adequate space, bandwidth, reliability, knowledge and capability to handle a fully functional e-commerce site. In general, the author would recommend a free-hosting company in the initial start-up phase, but switch quickly to a paid web hosting company once the business takes off. The following is a comparison on free and pay web hosting services:

(Exhibit 17)

Source: researched and analyzed by the Author

•  Carting system

  It is desirable for online shops to have some sort of carting system that allows prospective items to be added so that the total price including shipping is calculated. On completion of the order, the merchant will then be notified of it by e-mail. The orders can then be downloaded into the merchant's database. Besides calculating the total costs, some carts offer other features such as discount coupons, mailing list, and affiliate tracking. Although not essential for sites selling a small number of items, it is nonetheless highly desirable and is obligatory for sites for selling a larger number of items. There are two types of carting systems available; first party and third party carts.

•  First Party – The cart software resides in the same server as the web site. The cart software is either purposefully written for that particular web site or purchased from a third party. Examples of which include Miva Merchan, Actinic OS Commerce, and X-cart Many of these proprietary carts come with a shop-front (online catalogue) system that allows the webmaster's to display his products easily in a professional manner, thus making the design process of the web site much easier. Many of these shop-front packages are offered as a TURNKEY approach that includes web hosting, shop-front/cart.

•  Third Party - The cart itself is hosted at a remote third party hoster. Examples of third party carts include 1shoppingcart.com [40] and Mal's e-Commerce (mals-e.com) [27]. One has to sign up and pay a subscription fee for the service.

The vast majority of online shops opt for first party rather than third party carts. In general, first party carts are more difficult to set up (except for TURNKEY solutions) but there are usually no recurring charges once the cart had been set up. Third party carts are usually easier to set up and are more flexible. However, the merchant would be very dependent on that system; should the servers of the third party cart goes down, the cart would be inoperable. The author consulted several web hosting companies in Hong Kong and it appears that cart software tend to be purposefully written for a particular web site. This is probably the most inflexible and expensive approach and would make the merchant totally dependent on the web hosting company.

Comparison of (4) Different Carting System:

(Exhibit 18)

Source: researched and analyzed by the Author

4.1.4. Payment Processor

It is essential for an online business to have a means of accepting payment from its customers, especially credit card that accounts for over 90% of transactions carried through the Internet. It is in this area that e-businesses in Hong Kong is at the most disadvantage compared to North America and Europe . However, the situation has vastly improved in the last year with the availability of PayPal and also several payment gateways that will accept merchants based in Hong Kong . Previously, a merchant based in Hong Kong would have to open a merchant account with a local bank that could be very difficult and expensive. The merchant would then have to seek authorization from the bank by phone for each individual. This is a rather tedious process and adds significantly to the labor time. It is virtually impossible for a home-based business to open a merchant account with a local bank as a deposit of up to US$100,000 is required and even then, there are no guarantees that the application will be accepted. Listed below are the options available for e-businesses in Hong Kong to accept credit card payments.

(1). Escrow Agency

An escrow service receives money from the customer. It then authorizes the merchant to ship the order. The money is released to the merchant once the customer had indicated that he has received and is satisfied with the order. Examples of escrow services include escrow.com [14] and escrow.ca. The problem with escrow is that there is a substantial time lag before the merchant receives the money. Moreover, there is substantial work involved in setting up an escrow transaction. Moreover, the buyer himself must become a member and this may put prospective buyers off because of the extra time and hassle involved. In my experience, around one third of escrow transactions are abandoned by the buyer. However, there is no possibility of the merchant being defrauded by credit card fraud as escrow assumes full responsibility for the transaction. Escrow services are especially useful where large transactions are involved. The escrow charge of around 4% of the value of the transaction is quite reasonable. .

(2). PayPal

PayPal [29] has truly revolutionized e-commerce, particularly for the small merchant. For the first time, there is a means for private individuals to accept credit card payments with ease. It is now an attractive proposition for small merchants in Hong Kong especially since it allows withdrawal of money to a Hong Kong bank account, whereas up until last year, this was only available to residents of the U.S. and Canada . PayPal is now the major means of payment for online auctions and eBay [11] had now taken over PayPal. However, like escrow services, the buyer must sign up for PayPal before being allowed to pay, and likewise, this may put prospective buyers off.

(3). Payment Gateway

A payment gateway allows the customer to make a purchase by credit card and have it processed in real-time. The payment gateway sends a request for authorization directly to the computers of the credit card holder's bank. On authorization, the funds are captured. After a holding period of around 4 weeks, the funds are disbursed to the merchant. This leads to substantial savings in time for the merchant in that he need not seek authorization by phone from his bank. To date, no locally based payment gateway is available to merchants based in Hong Kong . Payment gateways are usually based in the U.S. or Europe and are available for merchants based in their respective countries only. Although this can be got round by opening a “Shell” company in the U.S. , this process is tedious and expensive. As from last year, several payment gateways have begun to take in customers based in Hong Kong at a reasonable cost. These include 2checkout.com [41] and Worldpay [37]. Some like 2checkout.com will take in new merchants without doing a background check but whereas others like Worldpay would require a company registration certificate and also a thorough background check. The quality of the service provided varies enormously, particularly in the case of fraud screening.

(4). The issue of credit card fraud

Credit card fraud is one of the most destabilizing factors in e-commerce. The banks and credit card companies regard e-commerce as a high-risk activity, and thus the merchant is liable for all the loss sustained through credit card fraud. To add insult to injury, the merchant also has to pay a charge-back fee of around US$20-30 for every fraudulent transaction as a reimbursement to the banks for the time spent in investigation. Typically, the buyer makes a purchase with a credit card issued by a bank in a particular country and asks the goods to be sent to another person in another country. There are also other means of checking the validity of the purchase e.g. by verifying that the invoice address given is correct and also that the customer has entered the correct 3 or 4 letter security code.

4.1.5. TURNKEY Approach

Setting up a web site and integrating it with a carting system and a payment gateway could be a very daunting and complicated task for the uninitiated. For this reason, a number of TURNKEY approaches are on the market offering a combination of the above elements in a single package. The most common combination is to offer web hosting with a shop-front/shopping cart system offered by hypermart.net and retineada.com. Another combination involves combining a shopping cart with the payment gateway such as 2checkout.com. Packages are becoming available whereby web hosting, shop-front, and payment gateway is combined into one package. A good example of this is the ‘click and build' [4] system offered by Worldpay [37].