|March 25, 1999
Comment P994312: U.S. Perspectives on Consumer Protection in the Global Electronic Marketplace
RE: Development of the Global Electronic Marketplace
To the Commission:
We are Graduate students at Virginia Tech. Currently enrolled in Internet Law, we have directly dealt with the issues surrounding e-commerce. As concerned and active e-commerce consumers, we view these comments as an excellent chance to voice our opinions regarding what we believe will be the preferred method of business in the coming years. We commend the Federal Trade Commission for offering the public this opportunity, for it is only through consumer contact that the full potential of e-commerce will be realized.
In 1995, the word "e-commerce" was barely defined. If consumers and businesses were asked how much they would spend on products and services purchased over the Internet, the result would have been many of blank stares. However, as the World Wide Web (WWW) has permeated every avenue of our lives, it is hard to imagine life without it. E-mail and Web surfing are now as much a part of our lives as disco and polyester were in the 1970s.
In the past two years, the use of the Internet by consumers and businesses for transactional purposes has increased exponentially. In early 1998, barely one percent of consumers used the Internet to purchase goods and services. By early 1999, that amount was 10 percent, a 1,000% increase.1 What will be seen in the next five years is anyone's guess, but it seems relatively safe to say that the exponential growth will continue.
Ask the experts, and you will find extremely varied predictions for e-commerce growth. Based upon the amount of spending for U.S. consumers only, the early predictions for 1998 have varied from $4.8 billion to $13.0 billion.2 The only constant among most experts was an underestimation. For example, Forrester Research, which surveyed 6,100 consumers, revised their earlier estimate from $4.8 billion to $7.4 billion.3 Forrester claims that total Internet sales reached $43 billion last year. By 2003, they predict total Internet sales of $1.3 trillion.4
While not exhaustive, there are three primary reasons for the vastly projected Internet retail growth. First, geography is shortening (or virtually eliminating) the bridge between consumer and supplier. Any individual with a credit card, computer, and a modem can purchase a computer from Gateway or Dell. Consumers have the advantage of obtaining all the information they need with the simple click of a mouse, this saving them the cost and expense of traveling to the mall or other retail location. Also, online purchases provide an advantage to suppliers as they do not to have to build expensive physical store locations. It is much cheaper to create and maintain a Website than to design and implement a physical location.
Second, consumers can pick any time of day to make a purchase, as Web sites are open 24 hours a day. Keeping a physical location open for 24 hours a day is a costly venture. Not only do consumers have the option of what time of day to place an order, suppliers have the option of deciding when to process the order. Sales clerks, phone operators, and 800 number charges are unnecessary. The supplier can download the orders from the net server and fill them at their convenience.
Third, comparison-shopping is easy. As more retailers begin to use the Web as a distribution channel, consumers can easily get a large number of quotes on similar. In fact, it is becoming so easy to comparison shop that switching costs are non-existent. Finding another goods or services provider can be done quickly and effortlessly.
Presently, the majority (45%) of products purchased on the Internet are technology-related.5 However, several new and different sectors have began to use the Internet to sell their products and services. For example, the deregulated utilities industry saw realized of $7.1 billion on the Internet last year. Auto manufacturers and suppliers recently launched the Automotive Network Exchange, and it is anticipated that this industry will trade more than $9.3 billion dollars on the Web in 1999.6 Also, in 1999, the financial services firm E*Trade plans on targeting 32 countries with its online brokerage services.7 It is estimated that 26 percent of all financial transactions will be conducted via e-commerce by 2001.8 Faced with the increasing popularity of direct online sales, the travel agency industry is facing changing times. Consumers are booking directly with travel and accommodation providers via the Internet and many agents are losing their commissions. In the future, the sales of practically every good and service will be enhanced through the use of e-commerce.
What will the next five years hold? It would be foolish for anyone to declare themselves an "expert" on such a changing and developing phenomenon and state with any degree of certainty exactly how large e-commerce will be in the next half-decade. The only thing that can be said with certainty is that the future is uncertain. However, we agree with Forrester Research Inc. and their prediction of online sales of $1.3 trillion by 2003.9 We feel extremely confident that total internet sales will top the trillion dollar mark by then.
As stated, the face of e-commerce has begun to morph at a startling rate. Will it continue to do so? Absolutely. As the evolution of online commerce picks up speed, and with the progressive growth of new tools, Web merchants have an expanding variety of options to approach the e-commerce market, and their use will help to spur its growth. These options include increased technology, advanced software packages, and the introduction of new buying avenues.
Just a few short years ago, the thought of selling a product on the Web was a foreign concept to most merchants. Getting started involved many complicated steps, including Web page design and online advertising, and the average merchant was not knowledgeable enough about the Web to be comfortable making these decisions. Today, this is no longer the case because there hundreds of software packages to support online store development and operation. The trend evolving from this base is to move beyond the catalog and the user interface to address problems of marketing, technical support, and transaction processing. One of the more popular packages for small businesses is ecBuilder Pro 4.0. ecBuilder has taken the guesswork out of online store fronts by creating a 14-step wizard-style program that guides the potential merchant through the various decisions needed to design a Web page that even the average computer user can follow without confusion. The program even sets up the user interface and registers the store with the major search engines. Products like this that allow a quick, efficient Web-based store front will allow any small business to become a competitor on the Web at a minimal price. The ease of use will further encourage the growth of e-commerce.
Single item, catalog type sales are not the only type of industries that will continue to drive the e-commerce market. Companies are interested in cutting out the middleman and becoming a one-stop shopping store. The more complicated a product, the more critical the support to the consumer. Companies selling complete product lines (such as a home computer with such amenities as a fax machine, scanner, and printer) must help its customers decide which products and accessories they will need. Again, software is available to simplify the decision process with a series of questions designed to narrow the number of possible products. The simplicity of completing a few questions in order to custom-order a computer system complete with a price creates a time saving environment for the time-challenged consumer. The potential price comparisons of a particular product from several manufacturers without having to travel makes the Internet a convenience many will not be content to live without. The simple convenience of Internet shopping will again fuel the e-commerce markets.
Another trend that will spur e-commerce growth is the introduction of public auction of goods on the Internet. LiveExchange was initially developed as a way for businesses to get rid of excess or outdated inventory to a select group of buyers. This trend has filtered into the lives of the average consumer as an electronic classified ad. It is a virtual private marketplace where auction transactions are limited to available bidders and are handled automatically. The scale on which an auction can take place can range from an individual willing to part with a valuable collection to companies selling unused printing facilities. The use of scanners and videos also allow for a visualization of the product and can calm the suspicions of buying a lemon. The Internet makes these items available to anyone with access to a computer and allows for the real-time recognition of bids. Essentially, anyone can sell just about anything from anywhere. No longer are people limited to what is being sold in local newspapers; they have access to products virtually anywhere in the world.
The last major factor we see as a major promoter of the growth of e-commerce is education and the growth of the younger generation. Today's schools are teaching children as young as elementary school age to become familiar with the Internet. Familiarity breeds confidence. The younger generations are growing up using computers for every imaginable task. They are able to configure, program, and design just about anything having to do with a computer. The convenience of having a computer is manifesting itself in many aspects of the 'X' and 'Next' generation's lives. We are becoming dependent on computers to pay bills, communicate with friends, file tax forms and eventually we will depend on computer to do most, if not all, of our day to day business and e-commerce.
As stated, e-commerce will grow exponentially in the coming years. However, the failure of online merchants and marketers in several areas could hinder this growth. Specifically, we are referring to increased customer confidence with issues of privacy and security, increased value to the customer, and an increase in new ideas and innovations. We place these elements in terms of the consumer because we believe they have an increasing amount of shopping power with e-commerce. In a Business Week article, Jeff Bezos, the CEO of Amazon.com, believes, "The balance of power [is shifting] away from business and to the consumer."10 Simply, with the advent of the World Wide Web (WWW), consumers have a virtual wealth of information for products at their fingertips, and the selection of possible places to shop has increased incredibly. Thus, the online merchant must cater more to what the consumer wants, and this places the consumer in a more controlling position.
First and foremost, we believe, are the issues of privacy and security. While we may have limited concern with the issues surrounding e-commerce because of our maturing in the information age, the general population is worried. From 500 randomly sampled surveys conducted on behalf of a subsidiary of the Council of Better Business Bureaus, "83 percent cited security of payment as a main concern abut online shopping."11 Also, a recent survey by the American Research Group revealed that, "77 percent of consumers don't trust online commerce enough to give out their credit card information."12 Further, this report states that, "Secure payment initiatives have been slow but more importantly have delayed [consumer] education and acceptance of secure [online] commerce."13 Thus, we believe that the driving force behind increased consumer confidence is public awareness and education encompassing online payments, and the growth of e-commerce in the coming years may be hindered as a result of the online merchants and marketers failing to provide sufficient education for consumers.
Second, we believe it is very important for online shopping sites to provide added value for the consumers - value beyond that which could be obtained through traditional stores. Because of the increasing consumer expectations with e-commerce Web sites, the failure of online merchants to provide this added value may hinder the growth of e-commerce. For us, added value includes lower prices, more in-depth product information and comparisons, and the opportunity to shop with reputable companies otherwise unavailable to us. A good example of the lack of added value was pointed to in the Business Week article mentioned earlier. They referred to a travel site through which the consumer would need an agent of that site to issue a ticket. While this may provide the consumer with a lower ticket price, there is no added convenience. The article states that, "customers [would] see no added value in that."14
The concept of added value is not new. Traditional stores have attempted to get ahead for centuries by promoting the added value of their stores. Thus, it would stand to reason that online stores could look to their history in an attempt to learn about or possibly model their successes. An international study of 50 consumer e-commerce sites by Shelly Taylor and Associates concluded that, "Web shops need to get back to the basics and learn from successful brick-and-mortar stores."15 In comparison to these traditional stores, the study states that many online stores lack in navigation and ease of use. Also, 24 percent of the online sites surveyed offer no pre-sale assistance, and 32 percent fail to provide shopping instructions. In these cases and others, the online shops not only failed to offer any added value but fail to meet the values consumers can reap from local stores. The continuation of this trend would certainly impede the growth of e-commerce.
The issue of added value relates somewhat to our final point. We believe the increase in technology and the resulting increase in online users and their expectations is and will continue to force online merchants to dazzle the consumers with new and innovative ways of marketing their products. There is, however, a small problem. According to the Shelly Taylor and Associates study mentioned earlier, many things such as browser requirements, plug-ins, and RAM intensive applications discourage the users of laptops and older equipment as well as first-time users. Further, a Consumer Fulfillment Index by BizRate.com (which covers surveys from June 1997 through January 1999) states, "Merchant performance used to surpass customer expectations, but that difference is diminishing as customer expectations rise."16 Thus, simply adding the latest technological gadgets to e-commerce sites will not suffice. Because consumer expectations are increasing faster than merchant performance, the index states that consumer satisfaction is also declining, especially for first time users. The latter may be due to the drop in the initial Internet excitement, but the fact remains that satisfaction levels are falling. It stands to reason that as satisfaction levels continue to fall, a number of consumers may turn away from e-commerce, and this could hinder it's growth.
In looking at the above, it then becomes clear that the innovative thinking mentioned in several articles we have read refers not just to what the consumer sees on their monitor. It refers to the business and their involvement with product development, purchasing, sales, and marketing, and the result of a successful campaign would be lower prices, better access, and improved information. All of this points directly to added value for the consumer. The Consumer Fulfillment Index by BizRate.com states that, "it will become increasingly important [and difficult] for online merchants to replicate the convenience, selection, and experience of shopping" at traditional stores in order to keep consumers returning to their site.17 Innovative thinking was pointed to as a major component in this replication. Another article referring to the need for increased e-commerce advances quoted Julian Nelson, a Senior Analyst with International Data Corporation. She believes, "New and innovative thinking on the part of the Web seller is essential for successfully reaching"18 consumers. Therefore, the growth of e-commerce may be hindered not just by a failure of online shops to keep current with technology but by their failure to keep current with and discover new business and marketing strategies.
In summary, we believe that e-commerce will grow tremendously in the next few years. In fact, because these are basically uncharted waters, we believe it is next to impossible to guess as to the amount of this growth. It is clear, however, that some prevalent issues such as online privacy, online security, added value to the customer, and innovative thinking by the e-commerce sellers could hinder this growth.
Thank you for the opportunity to submit these comments.
1 http://www.techweb.com/voices/harrow/1999/0104harrow.html (Exponential E-Commerce Growth)
2 http://thestandard.com/ (Why E-Commerce Forecasters Don't Get It Right)
3 http://thestandard.com/ (Why E-Commerce Forecasters Don't Get It Right)
4 http://www.planetit.com/techcenters/docs/E-commerce/Technology/PIT199901255001/ (Electronic Commerce: Poised for Critical Mass)
5 http://www.planetit.com/techcenters/docs/E-commerce/Technology/PIT199901255001/ (Electronic Commerce: Poised for Critical Mass)
6 http://www.planetit.com/techcenters/docs/E-commerce/Technology/PIT199901255001/ (Electronic Commerce: Poised for Critical Mass)
7 http://www.planetit.com/techcenters/docs/E-commerce/Technology/PIT199901255001/ (Electronic Commerce: Poised for Critical Mass)
8 http://www.techweb.com/voices/harrow/1999/0104harrow.html (Exponential E-Commerce Growth)
9 http://www.techweb.com/voices/harrow/1999/0104harrow.html (Exponential E-Commerce Growth)
10 http://www.businessweek.com/1998/25/itspec98.htm (The "Click Here" Economy)
11 http://cyberatlas.internet.com/market/retailing/confidence.html (Consumers concerned with Reliability: Payment Security Also an Issue)
12 http://www.webcentricman.com/html/opport_ec_afraid_1297.html (Are Consumers Afraid of E-Commerce?)
13 http://webcentricman.com/html/opport_ec_afraid_1297.html (Are Consumers Afraid of E-Commerce?)
14 http://www.businessweek.com/1998/25/itspec98.htm (The "Click Here" Economy)
15 http://cyberatlas.internet.com/market/retailing/taylor.html (Online Stores Lacking: E-tailors Should Follow Lead of Offline Shops)
16 http://cyberatls.internet.com/market/retailing/biz.html (Online Consumers Getting More Savvy: Merchants Must Work to Satisfy Shoppers)
17 http://cyberatls.internet.com/market/retailing/biz.html (Online Consumers Getting More Savvy: Merchants Must Work to Satisfy Shoppers)
18 http://cyberatlas.internet.com/market/retailing/secret.html (The Secrets to E-Commerce Success: Survey Reveals Top Strategies)