Extranet in E Commerce - E-Commerce Concepts

What is an Extranet?

An extranet is a private network that uses Internet protocols, network connectivity, and possibly the public telecommunication system to securely share part of an organization’s information or operations with suppliers, vendors, partners, customers or other businesses. An extranet can be viewed as part of a company’s Intranet that is extended to users outside the company (e.g.: normally over the Internet). It has also been described as a “state of mind” in which the Internet is perceived as a way to do business with a pre approved set of other companies business-to-business (B2B), in isolation from all other Internet users. In contrast, business-to-consumer (B2C) involves known server(s) of one or more companies, communicating with previously unknown consumer users.

Briefly, an extranet can be understood as a private intranet mapped onto theInternet or some other transmission system not accessible to the general public, but is managed by more than one company’s administrator(s). For example, military networks of different security levels may map onto a common military radio transmission system that never connects to the Internet. Any private network mapped onto a public one is a virtual private network (VPN). In contrast, an intranet is a VPN under the control of a single company’s administrator(s).

An argument has been made that “extranet” is just a buzzword for describing what institutions have been doing for decades, that is, interconnecting to each other to create private networks for sharing information.One of the differences that characterized an extranet, however, is that its interconnections are over a shared network rather than through dedicated physical lines. With respect to Internet Protocol networks, RFC 4364 states “If all the sites in a VPN are owned by the same enterprise, the VPN is a corporate intranet.

If the various sites in a VPN are owned by different enterprises, the VPN is an extranet. A site can be in more than one VPN; e.g., in an intranet and several extranets. We regard both intranets and extranets as VPNs. In general, when we use the term VPN we will not be distinguishing between intranets and extranets. Even if this argument is valid, the term “extranet” is still applied and can be used to eliminate the use of the above description.”

It is important to note that in the quote above from RFC 4364, the term “site” refers to a distinct networked environment. Two “sites” connected to each other across the public Internet backbone comprise a VPN. The term “site” does not mean “website.” Further, “intranet” also refers to just the web-connected portions of a “site.” Thus, a small company in a single building can have an “intranet,” but to have a VPN, they would need to provide tunneled access to that network for geographically distributed employees. Similarly, for smaller, geographically united organizations, “extranet” is a useful term to describe selective access to intranet systems granted to suppliers, customers, or other companies.

Such access does not involve tunneling, but rather simply an authentication mechanism to a web server. In this sense, an “extranet” designates the “private part” of a website, where “registered users” can navigate, enabled by authentication mechanisms on a “login page”.

An extranet requires security and privacy. These can include firewalls, server management, the issuance and use of digital certificates or similar means of user authentication, encryption of messages, and the use of virtual private networks (VPNs) that tunnel through the public network.

Features of Extranet

Extranets generally have the following features:

  • The use of Internet technologies and standards. These include the standardized techniques for transmitting and sharing information and the methods for encrypting and storing information, otherwise known as the Internet Protocol, or IP.
  • The use of Web browsers. Users access Extranet information using a web browser like Microsoft Internet Explorer, Netscape Navigator or, more recently, Mozilla’s Firefox. Browser software uses relatively small amounts of memory and resources on a computer. The great thing about browsers is that an application written for a browser can be read on almost any computer without regard to operating system or manufacturer. That makes an application developed for a browser a snap to deploy. A browser on a user’s machine is all the software he or she needs to take full advantage of the Extranet application. No messy and confounding installation disks; fewer clogged hard drives.
  • Security. By their very nature, Extranets are embroiled in concerns about security. To protect the privacy of the information that is being transmitted, most Extranets use either secure communication lines or proven security and encryption technologies that have been developed for the Internet.
  • Central Server/Repository. Extranets usually have a central server where documents or data reside. Members can access this information from any computer that has Internet access.

While these are the broad attributes shared by most Extranets, Extranets vary dramatically in their design and implementation. They can be employed in a wide variety of environments and for very different purposes, like:

  • Sharing case information
  • Sharing of case-related documents—many Extranets contain document
  • repositories that can be searched and viewed by both lawyer and client online
  • Calendaring—key dates and scheduling of hearings and trials can be shared
  • on-line
  • Providing firm contact information
  • Acting as a “work flow engine” for various suppliers
  • Providing access to firm resources remotely
  • Sharing time and expense information

Industry use

During the late 1990s and early 2000s, several industries started to use the term “extranet” to describe central repositories of shared data made accessible via the web only to authorized members of particular work groups. For example, in the construction industry, project teams could login to and access a ‘project extranet’ to share drawings and documents, make comments, issue requests for information, etc. In 2003 in the United Kingdom, several of the leading vendors formed the Network of Construction Collaboration Technology Providers, or NCCTP, to promote the technologies and to establish data exchange standards between the different systems.

The same type of construction-focused technologies have also been developed in the United States, Australia, Scandinavia, Germany and Belgium, among others. Some applications are offered on a Software as a Service (SaaS) basis by vendors functioning as Application service providers (ASPs). Specially secured extranets are used to provide virtual data room services to companies in several sectors (including law and accountancy).

There are a variety of commercial extranet applications, some of which are for pure file management, and others which include broader collaboration and project management tools. Also exist a variety of Open Source extranet applications and modules, which can be integrated into other online collaborative applications such as Content Management Systems. Companies can use an extranet to:

  • Exchange large volumes of data using Electronic Data Interchange (EDI)
  • Share product catalogs exclusively with wholesalers or those “in the trade”
  • Collaborate with other companies on joint development efforts
  • Jointly develop and use training programs with other companies
  • Provide or access services provided by one company to a group of other

companies, such as an online banking application managed by one company on behalf of affiliated banks Share news of common interest exclusively with partner companies

Business Models of Extranet Applications

Extranet applications

An extranet application is a software data application that provides limited access to your company’s internal data by outside users such as customers and suppliers. The limited access typically includes the ability to order products and services, check order status, request customer service and much more.

A properly developed extranet application provides the supply chain connection needed with customers and suppliers to dramatically lessen routine and time consuming communications. Doing so frees up resources to concentrate on customer service and expansion as opposed to administrative office tasks such as data entry.

Just as intranets provide increased internal collaboration, extranets provide increased efficiencies between your company and its customers and/or suppliers. Developing and implementing an extranet application can provide you the competitive edge to stay ahead of the competition in the eyes of your customers and a better ability to negotiate prices with your suppliers.


  1. Extranets can be expensive to implement and maintain within an organization (e.g.: hardware, software, employee training costs) — if hosted internally instead of via an ASP.
  2. Security of extranets can be a big concern when dealing with valuable information. System access needs to be carefully controlled to avoid sensitive information falling into the wrong hands.
  3. Extranets can reduce personal contact (face-to-face meetings) with customers and business partners. This could cause a lack of connections made between people and a company, which hurts the business when it comes to loyalty of its business partners and customers

E-Commerce Business Models

Since eCommerce consists of doing business online or electronically, the business or revenue models are somewhat different than that of a “brick and mortar” business. Common eCommerce models are direct online sales, selling online advertising space, and online commissions.

Direct online sales model

You can establish your website as your place of business and directly sell to those entering your “store” to make a purchase. Since delivery is often by mail, this is similar to customers buying from a mail order catalog. Software products, e-books, music and video files can be delivered to the customer through the downloading process. Amazon.com is a good example of a business using the direct sales model to gain revenue.

Online advertising space model

Just as television and radio stations gain revenue from advertisements, related to the reach or number of viewers they have, so too can popular websites charge for the number of viewers seeing an ad. A better method is to count the number of viewers that click on an ad, taking them to the company’s website.

Online commission model

Individuals and companies can also be established as affiliates, where they gain a commission for sales made through a company using the direct online sales model. Online companies such as eBay and PayPal charge a commission for their services. Google gains a commission for ads placed on others’ websites.

Successful Ecommerce Business Models

Five different ways websites can generate revenue by Robert Samuelsen “There’s no such thing as a free lunch!” While this simple economic aphorism seems to have been forgotten in the world of cyberspace, it holds true as much today as it ever has. First lets establish the fact that no site is free - every web site costs money. The web site is stored on a computer, uses web server software, accesses telecommunication resources, and must be maintained. Someone must pay for the computers, software, telecommunication charges, and time. The omnipresent cost either comes from your pocket or some benevolent benefactor.

The cost and potential revenue constitutes a business model. Therefore, even the “free” sites have a business model. A public site offered by a library, school, or university has a business model. Free email service has a business model. Free home pages fit into a business model. Every site in the entire world wide web has a business model. There are different business models underlying each website.

In actuality, five distinct eCommerce business models form the basic structure for the wide variety of websites today. The five categories are called vanity, billboard, advertising, subscriptions, and storefront sites. [Editor’s Note: Mr. Samuelsen considers affiliate programs to be a variant on the storefront model.] While not all drive revenue directly, they all incur costs. In addition, many sites combine several of the five identified business models. Each of the five models have unique characteristics which make it different from the other types. Therefore, it is important to understand their differences.

Vanity: Many web sites are started as vanity sites. These sites are often created by individuals as an outlet of self expression, to share a hobby, promote a cause, or find others with similar interests. These sites are created with no intentions of deriving revenue and no illusions of grandeur. It could be as simple as a one page family site or a complex forum on a specific topic. The costs are borne either by the individual or by some altruistic enterprise such as universities, libraries, communities, associations, and even businesses. Nevertheless, the costs are real of these “free” sites.

Billboard: Billboard sites (also called brochure or information sites) are designed to derive economic benefit through indirect means from either referred sales, reduced cost, or both. Revenue comes from creating awareness of its products or services via the web, with the actual purchase transaction occurring off-line. Just like a billboard on a highway, success is measured on viewer ship as net citizens “surf” by and are influenced to purchase product. Most corporate sites today put up these electronic brochures to provide information about their products, employment information, or public information.

Economic benefit is created through the indirect purchase of goods or services from existing physical outlets and cost savings through the elimination of infrastructure or inefficiency. Finally, some businesses feel this is the best way to avoid channel conflict’s potential pricing disparity between different supply chains.

Advertising: Network television, radio, and many periodicals follow the advertising model. All programming and content is funded by advertising dollars, with consumer viewership measuring value. Agencies conduct sophisticated surveys to measure the value and establish the pricing. For eCommerce, advertising can be in the form of banners, sponsorships, ezine ads, and other promotion methods.

This is a much-ballyhooed but still largely unproven model on the web. While there are a few sites that are entirely supported by advertising dollars, the lack of websavvy viewership statistics hindering the mass adoption by advertisers? As the knowledge of consumer behavior is further understood, experts will prepare purchase pattern analyses providing advertisers with empirical data to support their promotion campaigns.

Subscriptions: In other media, the subscription models are well established’ accepted by subscribers and nurtured by publishers. On the web, subscriptions are not yet widely accepted by consumers. Of those that are accepted, the subscription model caters to sites targeted to particular niches of individuals who have specific needs. These sites are often specialized with expert content and timely information. The subscriptions fund the development and maintenance of the site.

Subscriptions can be paid on a weekly, monthly, or annual basis. Payment through a credit card account is a common payment scheme for subscription sites because of the ability to periodically process the purchase transaction electronically.

Storefront: To some people, a products-offered site is narrowly defined as a “true” eCommerce site. A website that offers products for sale is the electronic version of a catalog. These virtual storefronts are built to describe the offering with pictures and words, offer promotions, provide a “shopping cart,” and complete the purchase transaction. Once the product is purchased, the cyber enterprise arranges for product fulfillment including shipping and handling.

The fulfillment is sometimes completed by the website enterprise or directly from the manufacturer in a drop shipping arrangement. Some manufacturers are now passing up the intermediary wholesalers and retailers by offering their products directly to consumers. This collapsing of the supply chain is called disintermediation. Although the vast majority of these sites offer tangible products, they can work for service products too. The primary characteristic of these types of sites is the ability to make a one time purchase with no future obligations.

While it is impossible to predict the future in this fast moving media, it is obvious that all five business models will remain viable for the near term. Each model will continue to mature both in its acceptance and sophistication. Consumers will increasingly look to the web for physical commerce alternatives because of the limitlessness of the media both in terms of geography and shopping hours. For net entrepreneurs, each model should be examined carefully to understand which model provides the maximum benefit. With the understanding of the business models, financial projections can be easily created and business plans finalized. With the business plan in hand, you will realize even in cyberspace, there is no such thing as a free lunch.

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