In the good old days, business was pretty simple. I had a pig, you had some wool; we showed up at the market and haggled, then I went home to knit a cardigan while you whomped up some BBQ. Nowadays we don't have to show up at the market, and we don't even need physical goods or currency to conduct business. Electronic commerce is the most recent step in the evolution of business transactions. It replaces (or augments) the swapping of money or goods with the exchange of information from computer to computer.

Give me some examples. Electronic commerce, or e-commerce, is a very broad term. E-commerce conducted between businesses differs from that carried out between a business and its consumers. For business-to-consumer e-commerce, the Web has become the dominant pipeline. Think Amazon.com. The company offers lots of books for sale on its Web site. Consumers find what they like, type in their credit card number and unpack the books a few days later. Conducting individual stock trades, moving money from checking to savings or tracking an overnight package delivery via the Internet are other examples.

Business-to-business e-commerce takes many forms, some of which have been around for years. Electronic data interchange (EDI) is a format for exchanging business information over private networks. It was created to automate and speed the exchange of information between companies that regularly did business together. For example, on Tuesday your computer can automatically tell my computer that you've shipped the 500 pallets of wool I ordered. Then on Wednesday my computer acknowledges your shipping confirmation and tells you that I'll mail you a few thousand pigs on Thursday. No money actually changed hands electronically here but plenty of business data did. If your business and my business do transactions like this often, the automated system beats having our clerks stand by the fax machine every day and then retype the information they receive into our respective computer systems.

EDI is still used, and there are many other mechanisms for business interaction, such as electronic catalogs and electronic payment systems. The Web plays an expanding role just as it does in consumer e-commerce. For instance, you might let your office-supply provider put an ordering page on your intranet.

What are the pros and cons of electronic commerce?

E-commerce is attractive because it reduces the cost of doing business. Sending a few bytes of data over a network is cheaper, faster and more convenient than sending a messenger or even making a phone call. The primary concern is security. The Internet is very public, and many people hesitate to send sensitive data over the wires where it might be intercepted by nefarious third parties. But with so many organizations excited about the benefits of e-commerce, plenty of people are working on resolving the security issues.