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E-Commerce in the Future
Hurdles, trends, issues and clarity. What can we expect from electronic commerce?

By: Jason Smith

Jason Smith is the co-founder and vice president of branding at Columbus Group Communications, an Internet strategy and solutions company. He holds an Honours Bachelor of Commerce degree from the University of British Columbia, was named one of Vancouver's 'Top 40 under 40' for 1998, and was awarded B.C'.s Young Entrepreneur of the Year from Ernst and Young and the Business Development Bank of Canada in 1998. He has been providing Internet strategic consulting to clients in a wide range of industries since Columbus Group's inception."

This is not a thesis. It was not written with the intention of persuading or convincing you. Instead, I’ve focused on the issues I see impeding and helping shape the future of electronic commerce. To be sure, there is too much confusion about what electronic commerce is, how it works and what it means to you. In what follows, I hope to be able to shed some light on a few of these issues, including government regulation, and identify some the trends that are shaping electronic commerce today.

E-commerce versus e-business

Does anyone know what e-commerce is? I mean really know? We’ve all talked about it, have read about it, have thrown the word around a couple dozen times, even built a commerce enabled site or two, but how many of us can really give an accurate description of what e-commerce is?

What about e-business? IBM has spent $200 million dollars to convince us they invented the term. But what is e-business as compared to e-commerce?

To clarify, e-commerce is about the transaction. Typically the monetary transaction, but it could also be the transaction that takes place when you download a free piece of software or update customer service records. The focus is on the transaction itself.

E-business is a broader term, covering all things related to the electronic exchange of information. E-business is about redefining business models and fundamentally changing the way the company operates. It’s about doing all of your business electronically, not just the transaction, but the order status, invoicing, or a parts inventory for example.

The two terms are often used interchangeably but there is a difference: e-commerce is just a part of e-business. The issues and trends that are explored in this document touch on both areas - those that affect the transaction and those that affect the overall exchange of information.

The promise of an electronic business are many: streamlined processes, simplified sharing of critical data, lower organizational barriers, integration with customers, suppliers and business partners. The bottom line is that because the Internet is based on open protocols, multiple platforms can collaborate and enable business transactions to take place much easier than ever before. Issues such as security, encryption methods, information overload, usability that become more critical, but are technically solvable.

For those who haven’t heard of Columbus Group, we are an online company. We build Web sites, intranets, extranets, commerce enabled sites, online advertising campaigns, all with a personalization focus, and all designed to do one thing: Drive more business to our corporate clients. This is done either directly through a personalized Web tool we’ve created, or offline. The goal, in the end is to sell more of what they are currently selling by building a personalized online experience for their customers.


Two tiers of companies (online only and extensions of existing)

There are two types of companies that e-commerce binds together. The first are those companies that are looking to extend their existing business to the Web. Think of an existing retail outlet like Wal-Mart in this case. In it’s simplest form, they want to sell more of what they are selling through the ‘new’ Web channel.

On the flip side of this are online only companies, those companies that do not have retail outlets to staff up and maintain., the online book (and now CD) store is the Web’s brightest example., the rising winner of the auction sites, is another.

The fact that there are these two different models of business does not take away from their commonalties. How these companies conduct business online is typically very similar. The advantage in the case of the former, there are no legacy systems to worry about - they’re starting from scratch. The latter have the flip-side advantage. They have legacy systems - they’re not starting from scratch. Depending on how you look at it both are advantages.

A start-up can build the necessary infrastructure around Web based technologies from the ground up whereas the company looking to expand into Web commerce need to Web-enable their current systems. Whether or not this is an advantage depends on the extent to which the companies integrate their back end with their online storefronts.

The biggest difference with existing companies extending to the Web, is in understanding that doing online electronic business isn’t as simple as Web enabling a legacy system. For all the technology and design skills that make security, user interface and back-end integration issues disappear, the bigger issue is how to change the structure of an existing company to take advantage of doing business electronically.

When a company has been doing business a certain way for many years, shifting gears to become an electronic business is no small task. This important difference becomes exaggerated when you consider that these businesses still need to maintain and enhance their existing channels, such as mail-order, 1-800 and bricks and mortar retail outlets. In most cases, this would give those companies an advantage - they’ve been selling books or music for many years. But in the online world, new models have emerged that require innovative selling practices that were previously not possible.’s associate seller program for example, transforms sites across the Web into a bookstore - an ‘Amazon mini-bookstore’. Simply by linking content with related books, the mini-bookstore begins to make money (~15%) on every book sold from that site.

E-commerce enables new companies to compete with existing companies in this way. In markets already well known by everyone, such as books or music, start-ups can compete with innovative approaches and some backing - especially if they get the jump on traditional brick and mortar stores stumbling in the electronic transition. Online only commerce sites have the advantage of avoiding the physical restraints associated with traditional store and the freedom to not worry about enabling out of date structures.
Table of Contents

E-commerce versus e-business

Two tiers of companies
  • Online only
  • Extensions of existing
How big is this market?

Business to business e-commerce

Consumer e-commerce

Hurdles and barriers Trends for the near future Regulation and government

How big is this market?

For the past two years, there has been a lot of talk about how big the electronic commerce market will be. More slowly than some thought, the market is developing into what some had envisioned. In 1997, e-commerce accounted for over $7 billion (eMarketer), even with the market not reaching critical mass. Many large retailers and many consumers have yet to come to market. Still, it is the business to business market that promises the most growth potential, by some estimates reaching close to $250 billion by 2002 (eMarketer). IDC predicts that within two years, the overall market for e-commerce will be over $200 billion, most of that coming from business to business commerce.


Business to business e-commerce

It is clear that even at this stage, business to business e-commerce far exceeds the consumer transactions market. There is valuable commercial business to be done on the Internet, everything from opening the channel with suppliers, to getting up to the minute status reports, to having independent sales associates check the credit status of customer accounts. Business to business commerce can immediately point to a return on investment (ROI). Companies like Bell South are saving millions of dollars through the development of one application alone. Bell created an Internet based expense reporting system that moved paper forms online, incorporated digital certificates to verify and secure every report, and saved $5.4 million in costs as a result of increased productivity, reduction in paper costs and efficiencies in approvals. The success of initiatives like these is due to an organization’s ability to embody what it is to be an electronic business. It requires fundamental changes within the organization to capitalize on marketing, customer service, order fulfillment and tracking possibilities that are made possible through e-business.

Companies that are succeeding in electronic commerce have understood that the real issues are beyond the transaction. Technology is the first step, business transformation is the next. These companies are thinking in terms of the medium and not letting their existing infrastructure get in the way. It involves unconventional thinking, flatter structures and corporate cultures that openly embrace change. The Web is not just another sales channel. It openly challenges how business is being done now in terms of existing structures and customer, supplier and vendor relationships. A good way of looking at it is to imagine you are starting over. “If you started from scratch today, how would you structure your business?”

Boeing looked at it in this way. A business to business commerce application allowed 350 of their airline customers to order and check the inventory status on spare parts. Streamlined to the point where the airline could search for, find, check the status of, order and receive delivery of the part on the same day. The site now receives over 4000 transactions a day and has eliminated 25% of order processing costs (fax, customer support time, phone, data entry). Cost cutting is almost a side benefit. Boeing has changed the way airlines do business with them by developing a service that the airlines at first did not want.


Consumer e-commerce

Moving to the consumer side, almost 25% of people online made a purchase in 1997, even though most were concerned about the level of security on the Internet (Angus Reid). Given Dell and Cisco’s success ($3 and $6 million daily respectively), electronic commerce is already a burgeoning consumer industry. People who buy on web are generally not shopping for better prices, they are looking for products they couldn’t find elsewhere or for efficiencies in their ordering process (such as customizing the product to suit your needs).

Price is always an issue, but it is rarely the primary motivater for online shopping. Internet provides a less expensive and potentially more satisfying way to transact certain kinds of business. This is applies directly to repetitive purchases. But the caveat is to ensure ordering is easy to use and incorporates features beyond what is possible offline.

A few studies indicated that there is value in walking the customer through the sales cycle even if they don’t purchase online. CyberDialogue estimates that $4.2 billion in offline sales can be linked to Internet activity, most of which had used the Internet as their research tool. Many of the companies reporting this level of offline sales had not invested in a robust online commerce offering.

While processing payments is one side of the equation, the other side is the data mining that is possible. This is also the point where privacy concerns are most loudly heard. From a business perspective, it makes sense - tailoring the choices and products offered to a potential customer by knowing more about them. They are more likely to buy if it is a product that they are interested in. This level of personalization is hard to come by though unless you are asking the customer directly. This is also the point where privacy critics raise the biggest read flag.

Commerce on the Internet has far reaching impacts, both on the bottom line and on organizational transformation. Still, even with these success stories and projected numbers, there are issues that are hindering commerce growth.


Hurdles and barriers

Lack of seamless integration with the back-end

Few companies have fulfillment, integrated ordering, inventory tracking, marketing and customer service working in harmony. There are many reasons why this continues to be a hurdle. ROI is one reason. Most companies do not see the entire potential of electronic commerce. Industry numbers aside, accurately assessing the worth to a particular company is difficult. Security concerns are another issue. The fear is that the internal infrastructure becomes vulnerable to security leaks.

From the human resource perspective, integration requires concerted effort within the company. The task of full integration through the value chain is a big one, demanding changes and involvement across the organization. In looking at this option initially, many companies find the demand does not warrant the investment in time, resources and dollars. Rather than take a leap of faith, most companies choose to experiment with stop-gap solution which further hinders full electronic commerce development.

Web enabling versus transformation

With the exception of soft goods, there comes a point where you need someone to take over for the computer; support and fulfillment. Often companies focus too much on technology without thinking about the organizational changes that need to occur. In the end, it’s not just about technology, it’s about a fundamental change within the organization. Companies often overlook this. As a result efficiencies are lost, unnecessary problems created and the company becomes buried in the day to day fires of the stop-gap commerce solution.

Many companies have a fear of getting it right the first time. With a larger investment at stake when integrating from the beginning, companies are simply afraid to take the risk until it becomes self evident.

Chicken and egg

Depending on the organization, the consumer market is still small relative to the overall number of buyers offline. The question then becomes a matter of timing. Do we wait until critical mass is achieved before investing in electronic commerce? Even from a business to business perspective, if it is built, will suppliers, customers, vendors come? The fear that the answers are no is augmented by asking them. Most are not familiar with the possibilities and would rather stay with what they are used to.

It’s a question of investing in technology and infrastructure ahead of, or after, demand and risking the resulting game of catch-up. Companies like Boeing helped customers overcome their initial hesitation about doing business online by making it too easy for their airlines not to use it. Customers quickly relied on the extranet for all parts searching and ordering, even with the initial hesitation.

Currency conversion and global commerce

In doing business beyond traditional commerce borders, tariff, tax, and currency issues further impede development efforts. Handling currency conversion alone is a barrier. Many merchants simply force a currency on the buyer, the Canadian dollar for instance. As the market for many companies becomes global, currency conversion will be a necessary component for e-commerce initiatives. For the majority of consumer purchases, this can be handled by the credit card companies. But for a few products and many business to business applications, currencies need to be converted.

PSINet has a new service called WorldPay that enables this conversion. Partnered and equipped with information from a bank, a merchant can offer products for sale in 160 different currencies. The bank brokers the transaction, converting the amount into the appropriate currency for the purchaser, taking payment from the purchaser in that currency, and depositing the conversion of that currency into the merchants bank account to pay for the product.

Taxes and tariff confusion

Another barrier is the confusion and lack of understanding of taxes and tariffs. For e-commerce to succeed, this must be made easy. Integrating these modules into a commerce software package could be a first step. Having a consolidated taxation and tariff third party broker is another. For those who are extending their business online, and who have experience in the mail order business, it is less of an issue. They are already used to dealing with regulation from another channel. They have the understanding in-house of the steps required to handle tariffs and taxes. But for many retailers, this is not the case. They have little knowledge of whether rubber versus leather soled shoes are taxed differently when going across the border. Depending on the nature of the business, this classification can dramatically affect the cost of doing business.

For most of the clients we deal with, customs brokers handle all of these issues. Shipping companies like UPS and Fedex can handle it on a small scale. But one of the keys to succeeding is understanding how to work within the system to keep costs down and ensure fulfillment efficiencies. Are the boots you’re selling classified as hiking or alpine? It will make a difference when it comes to tariffs and therefore you’re bottom line. The main areas of concern are tariffs, freight and sales taxes. Consumers have the same questions when coming to a site. If I buy this product from this vendor, will I pay a duty on it when it comes across the border? What are the shipping costs? Can I avoid any sales taxes?

The vendor should have full explanations on the site, and making it easy for the customer to understand. From both the consumer and vendor perspective, the lack of understanding of all of these issues create a barrier.

Supplier fears of disintermediation

For a number of companies, supplier, distributor and manufacturers fear backlash from existing channels if e-commerce is enabled. Depending on the products carried, the price point of these products, and the importance of keeping existing channels running smoothly, the fear of disintermediation prevents some companies from getting into online commerce.

Interface design

Interface design can mean many things, from the design, to the navigation to the site’s ease of use. It is all of these things and it is clearly a barrier to doing business online. How much is too much, in terms of choice, flash and information? Too much information can hinder the sale. Poor design can hinder the sale.

Depending on the product, walking the user through screen after screen of selection criteria often bring out too many issues, clouding the decision making process. Many purchases are made offline based on an emotional quotient, “that one there would be nice.” Rarely do you compare detail by detail when making you’re decision.

On the Web, picking a product that has many possible options, such as a car, is difficult - “do you want the 60/210 tires or the 75/215 tires, moonroof or sunroof, V8 or V6?” You can’t simply look at the whole package and see how it feels. It is difficult to select your options when you are unsure about how it will all affect the end product. You can tell a real estate agent that you don’t like that house, but it is a difficult to draw a parallel with a few pull down menus.

This is where personalization and active learning technologies come in. Over time assumptions are made about your likes and dislikes that help filter information and lead you to the proper choice.

The hurdle for personalization is that it’s very difficult to parallel the path of decision making in the human brain. Often a consumer will change their mind regarding a few variables and swim upstream. Offline, you can see and use this information easily. Online, personalization takes a little more time to learn about you. “Maybe I don’t mind the wood trim after all.” A barrier then is to offering too many choices, or presenting the wrong personalized information to the point that it hinders the sale.

Security concerns prevail

Generally, the people do not think the Web is a safe place to conduct transactions. While digital certificates, experience, the pending SET protocol and SSL are helping to change that perception, the perception still exists both on a business to business level and on a consumer level. Especially when dealing with electronic business, security within the channel and verification of who you are dealing with must be certain. Angus Reid reports that most web users will adopt e-commerce if they are convinced that the technology is in place to safeguard their transactions. The hurdle lies on how to convince them.

Lack of trust

Trust is another barrier. The advent of digital certificates are helping overcome this, but there is still a perception gap between what is believed to be true and reality. Trust and e-commerce play a mutually dependent role. This is where site branding becomes a major commerce facilitator. Would you trust something if the Royal Bank said it was OK? Do you trust Wal-Mart? Banks and many businesses have an established brand, brands that build trust and security.

Branding conveys the assurance of quality and trust where there are no other means of communicating with one another. Descriptions of how secure the environment really is help, but the power of the brand in lending security is the one the major forces in creating the level of trust necessary to facilitate mass commerce.

Online consumers need the reassurance of brands to build the trust required to take the commerce step. Over 90% of Canadians online are concerned about the level of security when giving out their credit card online (Angus Reid). This lack of trust is a major barrier, one that is fueled by the mainstream press. For there to be critical mass, the level of trust between consumer and business will have to increase.


Trends for the near future

Building trust through building the brand

Companies will invest heavily in their online brands, building consumer confidence and trust in the process. Gaining the trust of consumers will be paramount for all commerce site. While technology will aide in building this trust, branding is a key driver. Given the global nature of the medium, existing businesses will still need to brand build online. New online only companies will need to develop strong brands to increase traffic, gain the trust of online consumers, and facilitate commerce.

Trust in security through digital certificates

Coined by some as the ‘critical business enabler for e-commerce on the Web’, digital certificates allow for:
  • verification of who the sender is (identity)
  • a secure transaction by placing a tamper resistant seal on the information
  • proof that the transaction has occurred
Digital certificates are the best way to build security into the transaction process. Think of them like a passport being sent through certified mail that will costs $25 each, they officially verify who you are and ensure tamper proof delivery. They work like this: everyone gets a public and private key as part of their digital certificate. The keys work in conjunction with one another to code, then decode a message or information: a sender encrypts information with their private key and the recipients public key, it is e-mailed to the recipient, and the recipient decodes it using the sender’s public key and his own private key.

Digital certificates are most often used in business to business commerce, where the identity and transaction validity are of major concern. The reason for this, aside from the average transaction value being higher, is that businesses can make certificates a necessary requirement to use the system. In knowing who will be using the system, standards can be set. It is becoming more common within the industry, but not yet verging on standard. Imagine being able to transfer official documents or contracts, or make online banking and financial transactions with the knowledge that you know exactly who you are dealing with on both ends of the transaction. Examples of certificate use are many - UPS uses them as part of new service offering enabling legal and confidential information to be sent electronically, Scotiabank uses them for their online banking service, and United Health Care will be using them for the transmission of medical data. Bell South uses certificates for their internet based expense tracking system. Submission and approvals of forms all happen electronically in a fraction of the time, to the point where Bell believes they will save $5.4 million dollars this year alone.

The development of trust brokers

Trust brokers: independent entities who are entrusted with holding and distributing personal information on behalf of users as they move from site to site. The trust broker will hold, on behalf of somebody, different levels of personal information. Depending on the site visited, that person will chose what level of information s/he will want to provide to the asking site - A, B or C. Consumers will trust that their personal information is stored securely, similar to money in a bank, with the trust broker.

Emergence of online currency brokers

Carrying forward the need for brokers, we expect that currency brokers will play an increasingly important role. These may be banks or other third parties that can handle all currency exchange issues for electronic commerce. FX Web for instance will aggregate fund transfers among a group of customers to give their individual customers the advantage of lower rates usually reserved for larger transactions. Business to business e-commerce drive the establishment of these services, with the consumer transaction portion being carried by the banks.

Growth in relationship commerce

The trend toward personalization on the Web will have a considerable impact on electronic commerce. While personalization will not translate into direct sales, it does bring the customer one step closer to turning browsers into buyers. Potentially even more sales as other, related products, are recommended. Customer loyalty increases and a relationship is built that leads to trust, a necessary ingredient in the electronic commerce transaction. The rationale is clear: the better you know the customer, the easier it is to identify what they need. The ability to show the customer a product that you are 75% certain they are interested in is powerful. How you get to know this information is another story. Some personalized sites ask for information outright, using rules based filtering systems. Others do it using adaptive prediction technology, like Net Perceptions Group Lens product that provides real time learning of customer likes and dislikes based on mouse clicks. There are privacy issues here. The level to which a site uses personal information is a concern. But the bigger issue is when multiple sites share this information and how this information is used. How much do you want people to know about you? It is my belief that as long as you are getting something of value in return, and I’ve volunteered this information based on what is known to me, an information exchange is fair game. If this information is passed on to another party to whom I have not given permission, I take issue. This is where the government could step in, regulating the exchange of personal information between sites without the permission of the user.

The personalized site has other implications. If it is done properly, it rewards the early innovators. Those who have created sites with personalized profiles that get to know you over time. The longer you wait, the longer your competitor has to personalize an environment for that user. This makes it increasingly pointless for the user to go anywhere else. Why go to all that trouble all over again on another site? Personalization lends itself well to those pioneers who establish a brand on the Web early and who focus on creating a relationship with that customer over time.

Personalization extends beyond the site into tailoring a product to suit a customer’s needs. Another growth area for commerce, customized products allow the customer to select the exact specifications, name, theme etc. of the product. Everything could be personalized to meet what only they are looking for. The key to success here is to offer the customer a choice between variations of simple and detailed customization.

New models of e-commerce

Online advertising, micro-commerce, co-marketing and cross-selling deals will become more common. The idea is to create thousands of commerce touch points across the Web.

The micro-commerce model will encounter explosive growth through 1999. Based on the Amazon Associates program, there are a number of new models that are taking advantage of the traffic and content found on other sites. CDNow adopted the same approach as, embedding a link to buy a specific CD on pages all over the Web. Think of it as a franchise. A miniature portion of a company’s commerce site placed on other Web sites. Another good example of where this is moving is who are combining personalized, limited quantity products for sale on Web sites across the globe. The products for sale are reflective of the content, and eventually, the person viewing the content, on the page. It works like this: content sites embed an ‘Impulse Buy Object’ on their site, sitting it on their pages of choice. When a visitor comes across that page, the object pulls relevant products out of the ImpulseBuy database and displays it to the user. If you were on a golf site for example, you might get an ad that tells you that there are only 5 Big Bertha’s remaining for $100. This type of selling moves the commerce transaction in line with the user’s experience, allowing the user to buy the good right then and there, then continue on the same path as before.

The same is true for advertising banners. Like the Impulsebuy model, banner ads incorporating the ability to buy the product right in the banner itself, without the user ever having to leave the site, are growing in popularity. Again the idea is to bring the purchase transaction in line with the mental thought path of the user. With banner ads, you are able to target the ad directly, provide robust measurement, and distribute across thousands of Web sites that relate specifically to the product being offered for sale.

Synchronizing the value chain

Aligning other channels with the Web site and ensuring full back-end integration: Technology, fulfillment, marketing and customer service stop gaps will be replaced by integrated systems. Online customer service interaction will increase as a result. A study done by ActivMedia in 1998 concluded that all product categories would benefit from increased customer interaction. Specifically, video conferencing customer support would make customers up to 50% more likely to buy the product. Customer services will evolve to a much more broad level than what currently exists on or offline today. Customers will be able to confer with customer representatives, have them point a camera at and show products, direct attention to specific features, answer specific questions, and essentially guide the user through the shopping experience.

From an integrated technology perspective, most sites have little or no automation on the back-end, and fewer still have integrated electronic commerce through the value chain completely. Given that sales are increasing the trend will move away from treating electronic commerce with stop gap solutions. Marketing will become involved through the ability to advertise specific products to specific customers with specific preferences., an online video retailer with both a physical presence and a leading online commerce store, learned that lack of integration on the back-end leads to back-logs and problems. has a database of over 85,000 movie titles to buy or rent online. Behind the scenes, real time integration with distributors provides customers with current inventory levels and ensures seamless ordering for both the customer and for Their current solution processes orders electronically, bouncing from one distributor to another until the requested video is found in a distributors inventory. Previously, the fulfillment system was fax based, faxing requests to multiple distributors and resulting in a slow ordering process. They have also integrated personalization into the site, offering similar or recommended titles to customers based on their selection. Based on movie reviewer input, similar movies are grouped and recommended when the customers searches for a title among the group.

Development of Internet based reward programs

Already we are seeing the emergence of Web only loyalty and incentive programs. Coolsavings, an Internet coupon site promoting brick and mortar retailers is having tremendous success getting advertisers to hold their coupon promotions on the Coolsavings site. The idea is to link online promotion with offline commerce, extending the commerce capability of the Internet. A plug-in application restricts the number of coupons available for distribution by printing a unique bar code on each. The coupon can then be printed and used in offline commerce.

Online points, incentive programs for air miles, hotels, cars etc are also spurring e-commerce growth. Click Rewards, a company that buys points from airlines, hotels and others resells them to e-commerce merchants who can then offer them to their customers. 1-800 flowers, Yahoo and others use the service. Expectations are that this type of service will parallel and eventually integrate completely with current offline incentive programs such as Air Miles.

Growth of direct debit e-commerce

Specifically for business to business transactions, direct debit purchases will grow. For most larger business to business purchases, credit cards are not used. Similar to how it works offline, the relationship between business is usually established and invoices and cheques are used as the means of payment. We expect that money will be moved directly in the future, direct deposit through secure transactions. The most promising technology to facilitate direct debit at this point is through digital certificates. Banks will also play a role, likely acting as the trust broker for the transaction.

New pricing models- fluid pricing

Looking at the growth of last minute airline tickets and the growth of auction revenues ($335 million in 1997, $1.8 billion in 1998 , Zona), it becomes clear that many products are worth different amounts, at different times or in different circumstances. A product is supposed to be worth what they buyer is willing to pay and what the seller is willing to sell for. In the offline world, this is rarely the case. One of the reasons is because people who set the prices are not usually present at the time of sale to accept or decline an offer - this all changes online. Mini-auctions, for every product, could go on all the time. In this case the price is set by supply and demand in real time. The going rate for this vacation package is $400 for you today. If you visit a site without buying a few times, or closer to the departure date, the price may drop, but the product itself may be sold too. Contribute a comment, use e-cash, or buy another product and get a discount off the price. Essentially, the site can become a salesperson, allowing you to bargain your way to the deal you are most comfortable with. This type of model is most applicable to products that are scarce in quantity, but the concept of a fluid price is still valid. With the Web working in real time, 24 hours a day, commerce can take place in many forms and at many prices - even for the same product.

Government regulation

1997 saw lawmakers responding to public opinion about a broad range of Internet issues. From privacy to encryption to censorship to taxation, many measures were proposed and even a few passed. 1998 has seen a concerted extension of this, with lawmakers gaining a strong understanding of the industry issues and tabling more legislation for review. In the most nations, they are working with and listening to what industry has to say about these issues. Given that the U.S. is still the driving country behind the Internet, the policies that are set there will affect how we do business in here (Canada) and will likely be emulated in many other countries. Over the next year, we expect to see government take much bolder steps, introducing and passing legislation that will have a direct impact on censorship, privacy, taxation and possibly encryption.


Government and regulation

The government could play a role in a number of areas - privacy, taxation, encryption, censorship etc. For most of these issues however, the Internet, in it’s present state and with a few exceptions, would be a better place without their involvement.

On the taxation issue especially, do nothing about e-commerce. Let the industry incubate. At most extend mail order rules to online world, but don’t invent new laws to be applied only to the Internet. Why should there be a difference between ordering a product in person, on the phone, through the mail or through the Web? Does being able to offer lower prices on the Web warrant the creation of new regulation? There is the issue of consistency. Rules and regulations differ from one locale to another, making it an administrative burden, but is it any different than mail order? Mail order vendors were forced to deal with the same issue when they began. They have now developed systems to support this administrative burden, giving them a possible advantage over newly established online only companies. For this reason, an incubation period, with no taxes on e-commerce is a good idea. For how long is up for debate, but I would expect no more than two years. That should be sufficient time for most online companies to solidify the foundations, and for a swinging majority of Web consumers to become accustomed to purchasing online. Lawmakers need to ensure they collect their tax, while the both lawmakers and the industry need to ensure they have enough time to incubate and grow electronic commerce. The best case scenario would see a multi-state or multi-nation agreement on e-commerce taxation. The CommerceNet sponsored joint advisory committee concluded that a single government entity should bear the administration burden of multi-state tax policies, or have one tax across all states. This makes sense. The more consistency we can have across the board, the better. However, in the near term, I am skeptical that a single government entity will form to handle all tax collection and remittance issues, and am even more doubtful of the possibility of agreement between policies of all states. That said, a tax free incubation period might provide for enough time for the government to get at least partial agreement.

In general, the industry is still in it’s infant stage. We need to be careful about incubating and encouraging the success of this industry. In general though, it has enough momentum on it’s own. Assuming reasonable measures, there is no stopping e-commerce now, even with taxes being introduced. The value of electronic commerce is far too great to have it curbed significantly by taxes. The industry needs a short period longer to succeed and to try to work out common industry practices. Beyond that period (two years max), the footholds within the industry will be clear and taxes will have little effect on the continued growth of the industry as a whole. Depending on the level of consistency across the States and Canada, we will see some relocation of online only business to more favourable tax jurisdictions. This effect will be minimal. The roots will have grown wherever that business was established, making them much more likely to stay put.

As a basis for comparison, the fact that mail-order could grow into a multi-billion dollar industry in spite of individual taxes is reason enough to believe that the e-commerce train will keep on rolling. The benefits of e-commerce over direct mail are enormous - from tracking and personalization possibilities to cheaper prices to the soft goods market, there are too many reasons why e-commerce will succeed regardless of what the government does.

Expecting that 1999 will see a sharp rise in bills in US, regulation in specific areas will be coming shortly. Lawmakers have done their homework however. They have listened to industry concerns and are moving forward on a sound framework of knowledge. Legislature knows that electronic commerce is one the global leadership rings. That will not be jeopardized. To that end, aside from censorship, most passed measures will be designed to help sensibly grow rather than hinder the industry.

In terms of security, the government fears the encryption issue most of all. In the United States for instance, the US government has requested to have all private keys for digital certificates entrusted to them for fear of having this level of security in the wrong hands. Fair enough. But where does the line between protection and invasion of privacy begin and end? How many conspiracy theorists do we have? Will the government use this information to the aggregate public’s detriment or to their benefit? Being forced to choose, I would likely trust the government over multiple profit oriented companies. The best case scenario would of course be to have the public and private sector work together and form a joint committee to handle the entire issue. In the end, this is a dying issue: if the government really wants access to private keys for National Security purposes, they’ll get it.

The role of government within privacy issues is another issue. A recent article in Internet World cited that over 75% of sites asked for some form of personal information. On kids sites too. Most of this personal information was in the form of an e-mail address and a name, but some went as far as home phone number and address. Frankly, I don’t see a role for the government here, other than perhaps for kids sites. There is a general need for trust brokers. Ultimately, consumers will or will not be comfortable with giving out personal information. Depending on the swell of support, this will be a issue that sites will take notice of themselves. No business wants to be seen as infringing on people’s rights. But at the same time, if you offer me a chance to win a trip to Hawaii by filling in a survey on a street corner, through the phone or through the Web, chances are I’d fill it in. Even better that after I do, I’m offered products and services that are suited to my needs rather than the usual avalanche of information I don’t want. Personalization and privacy are inextricably linked. Choice in this case is paramount. By giving the site visitor a choice, leaving it up to them the make the decision as to whether or not it is worth sharing personal information, we remain on the right side of the ethical line.

Regulating the type of information that is asked for a particular purpose however is like dictating what the questions can asked of a focus group. Participants can provide that level of information as they see fit. Age discrimination is the only other place where I can see a government role. Depending on the age of the user, personal information restrictions should be imposed. You wouldn’t ask a child at the front door questions without asking a parent’s permission first. I can see the same extension into the online world. I’m still hopeful however that the industry can work out a solution before government intervention. Like a permission note, a technology that gives a child a certain amount of personal information that can be used from site to site. There is a need for standards and inter-site cooperation. It does however need some time to mature. Many of these sites are still working on building enough of a presence to attract advertisers, let alone regulation. Again here, I think recommendations from a committee, without new regulation would serve to benefit the industry and the public at large more significantly. The bottom line: the government should continue to work with industry, but give it more time.


© Copyright 1999, columbus group.communications

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