Electronic commerce

COMMERCE, ELECTRONIC

Any sales transaction that takes place via com-
puter or over the INTERNET.
In 1990, nobody would have predicted that
by the end of the twentieth century people could
conduct nearly all of their commercial transac-
tions electronically. Today, a person with a sim-
ple Internet connection can purchase anything
from clothing to books to jewelry to stereo
equipment online. It is possible to purchase
insurance, pay one’s telephone bill, and buy gro-
ceries over the Internet. Banking transactions
such as transfers from one account to another
can be accomplished online quickly and effi-
ciently. Although most commerce is still con-
ducted in person, more than one-third of adults
in the U.S. made at least one purchase online in
2002.
Electronic commerce (or e-commerce) has its origins in the 1960s, with the introduction of a computerized check-processing system called the Electronic Recording Machine—Accounting
(ERMA). Banks used ERMA to process billions
of checks each year, making it possible for nine
employees to do the work of 50. During the
1970s, companies began using Electronic Data
Interchange (EDI) to process purchase orders,
invoices, and shipping notifications. Although
EDI could save time and money, it was an
expensive and somewhat cumbersome system,
and small to mid-size businesses could not
afford it.
The introduction of the Internet in the mid
1990s opened electronic processing up to companies
of all sizes; anyone with a computer could
connect to a global system that reached into
countless businesses and homes.
The first major “virtual” company to appear
on the Internet was Amazon.com, founded by
Jeff Bezos in Seattle. Amazon.com began doing
business in July 1995. Its premise was simple:
People could purchase books online through
Amazon.com for less money than the same
books would cost at a local bookstore. Because
Amazon.com had no actual retail stores (the
books were stored in a warehouse), it could
afford to keep prices lower than the competition.
If Amazon.com had a buyer’s order in stock
in its warehouse, it could be delivered within
two to three days. In some bookstores, a special
order for an out-of-stock book could take weeks.
(Today, Amazon.com sells a wide variety of
products in addition to books.)
Not long afterward, in September 1995,
Pierre Omidyar and Jeff Skoll founded eBay, an
online auction service. Essentially, eBay allows
sellers and potential buyers to deal online; as
with a live auction, various buyers bid for an
item, and the seller accepts the highest bid.
In the ensuing years, Amazon.com, eBay,
and similar virtual companies cropped up on
the Internet. Established “brick and mortar”
companies also established an Internet presence.
Today, the average person can find the local
lawyer, doctor, dry cleaner, and baker on the
Internet along with companies such as Amazon
.com and eBay. Not every company offers online
retail services; in truth, many smaller companies
merely have one or two web pages on their site
with a telephone number and a link to an EMAIL
address. For some companies, the Internet
has proven to be a double-edged sword. On the
one hand, a growing number of consumers
expect that the businesses they deal with will
have a web site. Even many self-employed individuals
have web sites for precisely this reason.
On the other hand, a web site that has nothing of
substance to offer will simply drive potential
customers away.
Why do people shop online? One compelling
advantage is convenience. The idea of
being able to sit in front of one’s computer, look
at different objects, compare prices, enter some
data, press a button, and wait for a package to
arrive two or three days later is attractive to
many people, especially if they do not live close
to major retail stores. (Or, for that matter, a person
on the East Coast can make an online purchase
from a West Coast store.) Speed is another
factor. Most e-commerce retailers offer two- or
three-day delivery (or next-day service for an
additional fee. An online bookstore might be
able to ship a hard-to-find book to the buyer in
less time—and possibly for less money—than a
small neighborhood bookstore that tries to track
the book down.
In 2002, according to UCLA’s third annual
Internet Report (released February 2003), the
percentage of adults using the Internet to make
purchases actually dropped to 39.7 percent from
a high of 50.9 percent the previous year. That
figure does not necessarily reflect a loss of confidence
or interest in online shopping, although
some people may simply stop making online
purchases once the novelty wears off. In fact, the
average number of purchases made by those
who still use the Internet for shopping nearly
tripled between 2001 and 2002, from an average
0.8 to 28.32. The average dollar figure also rose
between 2001 and 2002, from $70.21 to $100.70.
Even consumers who use the Internet on a
regular basis do not necessarily see online shopping
as a routine option. In fact, according to the
UCLA report, many Internet buyers wait before
they make their first online purchase (nearly half
waited more than two years after their first
Internet experience). By far the most common
reason cited (32.4 percent) is fear of providing
credit card information online. Other reasons
include fear of deception, not knowing whether
the online purchase would be cheaper than a
“live” purchase, and uncertainty over what is
available for sale online.
Thanks to improved technology that allows
information to be encrypted when it is sent
from one computer to another, it is extremely
difficult for an unauthorized person to obtain
one’s credit card number or SOCIAL SECURITY
number. (Proponents of e-commerce argue that it is no more dangerous to send one’s credit card
number over the Internet than it is to have it on
a receipt that can be read by countless people.)

As for missing out on the experience of actually
seeing and touching an object before purchasing it, many web sites now have detailed information as well as photographs of the merchandise being offered for sale. Even retailers that do not offer electronic purchases can do this. Lenscrafters, the large optical chain that is famous for its one-hour glasses service, clearly cannot sell its wares over the Internet. The Lenscrafters web site has pictures of many of its frames, as well as a guide to help visitors determine their facial shape and which frame would look best on them. (According to the UCLA study, many Internet shoppers browse through their local retail stores to examine a product,
and after that they look on the computer to see
whether they can order it for less online.)
A major breakthrough in safe electronic
transactions came with the passage of the Electronic
Signatures in Global and National Commerce
Act. The statute, which was signed into
law by President BILL CLINTON on June 30, 2000,
had been passed 426 to 4 by the House and
unanimously passed by the Senate. Better
known as the E-Sign Act, it removes one of the
most stubborn barriers to e-commerce by making
it safe for people to transmit personal information
over their computer.

The E-Sign Act authorizes legal recognition
of electronic (digital) signatures, contracts, and
records. It also provides a uniform framework
for all of the states to follow. A number of states
had enacted their own laws, which made interstate
electronic commerce cumbersome at best.
E-Sign can be quite useful for people who need
to sign something by a deadline. A person who
wishes to purchase HEALTH INSURANCE online,
for example, can do so over the computer
instead of having to fill out a form and mail it in
and risk being presented with a rate increase
that went into effect before the paperwork was
received.With an electronic signature, the transaction
is completed on the spot.
In June 1998, the U.S. DEPARTMENT OF COMMERCE
issued a white paper that called for the
creation of a not-for-profit corporation to help
manage the Internet’s infrastructure. This corporation
became known as the Internet Corporation
for Assigned Names and Numbers
(ICANN). The best known function of ICANN
is its coordination of the Domain Name Service
(DNS). In other words, ICANN is responsible
for overseeing the technology that allows Internet
users to type in domain names (i.e.,
www.domainname.com) instead of long strings
of numbers. This technology makes it easier for
users to type in names of retail stores or online
commerce sites. ICANN also oversees the Uniform
Domain-Name Dispute Resolution Policy
(URDP). This policy governs the methods by
which corporate entities can choose and protect
their domain names. All URDP cases are arbitrated
through the World Intellectual Property
Organization (WIPO), a group created in 1970
to safeguard intellectual property rights. Companies
whose names are trademarked, or who
are well-known organizations, are sometimes
forced to contend with individuals who try to
use a similar domain name. This practice is
known as “cybersquatting.” An example of a
company that was the victim of cybersquatting
is ABC Carpet Company, an established New
York City-based retailer of rugs and other home
accessories. In 1998, ABC registered the name
“ABC Carpet & Home” (which it had begun using in 1995) with the U.S. PATENT AND TRADEMARK
OFFICE. Two separate individuals tried to
use domain names with “ABC Carpet & Home”
in them, and in both cases WIPO ordered that
ownership of the domain names in question be
transferred to the New York company. ABC Carpet
Co. v. Helen Gladstone, WIPO Case No.
D2001-0521; ABC Carpet Co. v. Tom Boltz and
abccarpetandhome.com, WIPO Case No.
D2001-0531.
One e-commerce question that has generated
interest is whether states should be able to
tax sales conducted over the Internet. Technically,
Internet transactions are taxable, but a
1992 ruling by the U.S. Supreme Court held that
states could only require sellers to collect taxes if
they have a physical presence in the same state as
the consumer. In 1998, Congress imposed a
three-year MORATORIUM against any Internet
taxes, which was renewed for two years in 2001.
Meanwhile, the National Governors Association
(NGA) introduced the Streamlined Sales Tax
Project (SSTP) in 2000 to adopt uniform tax
rates among the 50 states. The estimated date for
SSTP’s completion is late 2005.
FURTHER READINGS
Mark, Roy. 2003. “Bush Backs Internet Moratorium.” Boston
Internet News (May 16).
Secretariat on Electronic Commerce. 1997. The Emerging
Digital Economy.Washington, D.C.: U.S. Department of
Commerce.
UCLA Center for Communication Policy. 2003. The UCLA
Internet Report: Surveying the Digital Future. Los Angeles:
University of California Regents.
CROSS-REFERENCES
Justice Department; Internet; Taxation; Telecommunications.