Why isn’t Australia further down the road of success in electronic commerce? Why hasn’t electronic commerce permeated further into the psyche and everyday lives of every Australian? Some lawyers argue that legal uncertainties are the primary cause of uncertainty. In particular, concerns regarding privacy, security, authentication and consumer protection are heading the lists of hurdles that many see as barriers to progressing electronic commerce. This paper considers the weight of real versus perceived risks of doing business online, and includes some practical guidance on how to circumvent some those perceived risks. It also tackles some of the other perceived issues that are stifling the uptake of electronic commerce, including lack of business and consumer confidence and awareness, and makes a case for how these perceptions can easily be overcome. The paper concludes with some guidance on how we can speed up our journey down the long road ahead.
Electronic commerce has not taken off in Australia over the past 12 months in the proportions that were once predicted. Of course there are some notable exceptions such as woolworths.com and ozarcade.com, but overall Australia is still out of step with worldwide trends, which are mainly driven by the United States. Overall, there was a 100% increase in the number of global online purchases in the twelve months to September 1998. Percentage wise, participation rates in Australia are low compared to the level of IT saturation, which is often measured in terms of number of servers installed. In fact, Australia rates higher than many industrialised nations in terms of number of servers installed, and is clearly the leader among its Asian neighbours. So the question is: "What’s the hold-up?" What have been some of the major roadblocks to the development of electronic commerce in Australia?
There are many commentators, particularly .lawyers, who assert that the uncertainty that surrounds security, privacy, enforceability of contracts, authentication, and the effect of foreign jurisdictions is holding-up the progress of electronic commerce in Australia…. my thesis does not support that view. There is little empirical evidence to suggest that decision-makers are balking at the legal considerations. I contend that business people are much more concerned about business imperatives. Most managers think of an idea or opportunity first, then leave it to the lawyers to figure out a way to deal with the legal constraints if these become an issue. Consumers may be wary at first, but this has more to do with fear of the unknown than outright rejection of the new technology. In other words, raising awareness is a key issue in the uptake of new ways for consumers to do their business. In this context, "consumer" could mean an individual or a company buying from another individual or company.
This paper is in two parts. Firstly, it will weigh up some of the real versus the perceived risks of doing business electronically, and give practical suggestions for how these hurdles can be overcome. Second, it will investigate some of the other reasons business has not joined the electronic commerce revolution in the proportions previously expected. It will also highlight some of the key starter requirements that augur well for the development of electronic commerce in Australia. The second part also discusses strategies for moving from the position where current perceptions are holding up the progress of electronic commerce, to a position where Australia is at the forefront of the development of electronic commerce on a global scale.
There are many people around, particularly lawyers, who tend to favour a highly regulated electronic commercial environment. In this context, issues like online security, privacy, authentication, and jurisdictional issues have been put forth as issues that can and are stopping the progress of electronic commerce. I would like to challenge some of those notions in a broad sense, and I know that several other speakers will be going into depth about the major advances that have been taking place in these arenas.
Security is one of the issues often touted as a risk of doing business over electronic networks. There is no doubt that data flowing over networks is at risk of interception and impeachment. Information in any form is usually subject to some kinds of risks. This risk is compounded in the digital environment because of the increased capacity to gather, aggregate, manipulate and extrapolate the information. However there are laws and sophisticated enforcement techniques that already exist to apprehend those that use proprietary information illegally. So although risks exist, the possibility of large-scale misuse of information is not overwhelming because the same digital infrastructure that makes it possible for illegal operators to "steal" information also makes it possible to catch the perpetrators.
In fact digital networks have proved to be useful for tracking many types of crimes and following up with effective enforcement. For example, there have been several globally coordinated raids on international child-pornography networks, which were located and tracked using Internet-based technology. Similarly, regulators worldwide including Australia’s own ASX have participated in many "Internet Sweeps" to detect and prosecute companies and individuals perpetrating fraud on the Internet. These kinds of initiatives would have been much more costly and most likely less effective if conducted on non-networked entities using traditional enforcement models.
The notion of security is linked in many ways to the notion of privacy. For example, a breach of security may equate to a breach of personal privacy. Individuals seem increasingly concerned that their private information, including financial information and personal preferences, will be dealt with in a way that violates their privacy. But are these concerns real or merely perceived? My first proposition to you on this score is that the notion of privacy is culturally, historically and geographically relative. What is accepted in one culture may not be accepted in the next. Similarly, information that is considered private in one generation may not be considered private in the next. Taking this a step further, I contend that information considered "safe" in one medium is not considered "safe" in another. The consummate example being that people are usually quite happy to give their credit card details to complete strangers in person, over the phone, or by mail order, but they will not do so on the Internet.
The truth is that there are many ways that both privacy and security concerns can be assuaged by technical and commercial means. For example, if you ever receive a credit card statement containing payments that you did not authorise, you can immediately challenge the relevant financial institution which is bound by codes and laws to refund that money immediately if the merchant cannot authenticate the transaction. Contrast this to a situation where a dodgy operator can cash your cheque and be out of town before you know it! So in fact using credit cards on the Internet does not pose a major risk to you at all. In fact it actually enhances your prospects of getting compensated for any losses because the vendors and credit card companies absorb a lot of the risks associated with transacting electronically.
Another commercial remedy to such problems is to bargain for your privacy and security by only engaging in transactions where you are satisfied that the information gatherer provides adequate levels of protection. For example, you may pay a lower price for a product if you agree that your personal data can be used for other purposes. Or you might agree to pay a premium price for a service if the provider is guaranteeing the kind of privacy and security protections you desire. It is now very common for many prominent US corporations like Microsoft and AOL.COM to display a "Privacy Policy" page as part of their website.
A different spin on the security issue is the notion of authentication, and particulary the impact of authentication on the enforcement of legal relationships such as contracts. This becomes particulary important when you start dealing on a commercial basis, because you are often entering new contracts each time you do business. In addition to authentication, the added factors that must be considered in terms of online contract enforcement are anonymity and distance. How do you know with whom you are dealing? How do they know who you are? These are real problems, and they are amongst the more difficult to deal with in simple technological terms, but there are solutions available.
Authentication can be an issue for both the consumer and the supplier. Whereas a good or service provider will want to be sure they will et paid, for example, a consumer will want to know that when she enters her credit card details over the Internet to purchase a Peruvian statuette, she will receive it …promptly and in one piece! So then there are other considerations. Firstly that the party she is dealing with is reputable enough to send the doll at all, then that she will receive it without too much delay, and thirdly that it will be of comparable quality to those you might buy in a store. (If they are available in a store at all).
A trusted brand, like a trademark, or an authentication agency may serve as a signpost for consumers and businesses that are seeking good deals on the Internet. If your organisation has not been around for long enough to establish its own brand name to "trusted" status, you can improve your website by displaying the logo of other trusted parties that you use to deliver your product. For example, if you participate in Mastercard’s Shop Smart program, you are permitted to display the Mastercard logo on your site. Similarly, if you utilise the services of a world reknowned courier service like FedEx or DHL, you could approach them about displaying their logo on your site. Adrian McCullagh form Gadens Lawyers will tell us more about the establishment of trust in the electronic commerce environment in his paper later on in the program.
A technological solution to security and authentication concerns is encryption technology. The technical approach to security includes public key frameworks that can be used to make the transfer of data more secure, and we will hear more about from Stephen Wilson who is the Senior Manager of the KPMG Certification Authority, later today.
In addition to the risks associated with transferring and authenticating data, there are problems associated data storage as well. Firewalls are a technical way of making the storage of data and proprietary networks more secure. The storage facility’s physical security should also be considered, since most security breaches take place on site.
Breaches of intellectual property, especially copyright, is another prominent legal risk being touted as a roadblock to the development of electronic commerce. It is true that digital technology makes the copying of text and software easier than ever before. But just as there are technology-based enablers of copying, so too are there technological solutions. For example, Xerox Corporation has poured millions of dollars into its southern California research division to come up with digital watermarking software that imprints each document with a watermark. A watermark will affect the integrity of a document each time it is copied or printed contrary to how they were intended to be used.
Another technical solution to intellectual property problems is streaming technologies. Bit streaming involves sending bits of information in a stream to individuals who request a particular song, movie or any other form of proprietary data. Streaming technology will only really come to the fore when wireless technology becomes so prevalent so you do not need to be tied to a geographic location in order to receive the bit. So you could receive your favourite songs on your "Bit-Man" in the same way you used to listen to your Walkman while going for your jog.
Using this model, a user might pay a low monthly fee to have unlimited access to a particular artist’s songs, for example. The songs would be provided on demand, at premium sound quality, as many times as you like within the licence period. You would never see a physical copy. These kinds of initiatives are being implemented in conjunction with crack-downs on IP pirates, which will in turn reduce the incentive to make unauthorised copies of copyrighted material. This kind of solution to what originally seemed to be a legal problem has the capacity to protect intellectual property and create new business opportunities at the same time.
This is the position taken by Jim Griffin former Vice-President of Geffen Records who now heads OneWorld Corporation claims that copyright infringement is not such a big issue to him. If it is a small time pirating operation, it is not worth the expenditure to find and catch the culprits, if it is a big operation, it will be easier to trace the pirates electronically. In fact he believes that it would be easier to catch electronic pirates than ones that operate in more conventional ways. After all, you can hide a CD pressing plant in some far off place, in the woods or any other inconspicuous location, but it is much more difficult to hide a hive of electronic activity.
Finally, one of the most pervasive "legal" problems facing the development of electronic commerce is the overlay of hundreds of different jurisdictions around the world. This creates complicating factors for the interpretation of law and resolution of disputes on an international scale. Whose law applies? Where would the case be heard if it went to court? Do you have the resources to pursue a matter on the other side of the world anyway? Are you really bound by US law, as many of the American online merchants and software providers would like you to believe? These issues create risks, but once again there are ways to get around them. Governments can definitely play a key role here. By cooperating at an international level to institute effective dispute resolution mechanisms, governments can assist their own citizens and make their countries more attractive bases to invest in electronic commerce initiatives.
Another factor to consider is that virtually all of these problems that are promoted as legal impediments to the development of electronic commerce are systemic. What I mean by that is that they reflect the nature of the systems in which they exist. If an IT system is dispersed across hundreds of boundaries and therefore jurisdictions, jurisdictional issues will be endemic to that kind of networked environment. The very same elements that we find so appealing about the Internet – like the potential to communicate and do business with millions of people worldwide – is also the cause of many of the legal sticking points. Therefore stalling the progress of electronic commerce due to its inherently networked qualities does not make sense. At some point managers need to ask themselves "Can I have the best of both worlds?"…and the answer, might have to be no. Or at least you need to realise there is some give and take invloved. For all the benefits you can derive from engaging in electronic commerce, like reduced transaction costs, and greater marketing and distribution reach, you will need to make a commercial decision as to whether you are willing to take on the added legal risks.
If there are ways to get around the legal risks, then what is really stalling the progress of electronic commerce in Australia? The electronic survey results of a group of Australia’s top executives attending the E-Commerce Summit at Parliament House earlier this year showed quite clearly that most business people are more concerned about whether or not it makes business sense to invest in electronic commerce initiatives, rather than what the legal impediments might be. In essence, when business people actually take the time to consider these issues, and many of them have not even gone that far, they often conclude that the cost-benefit analysis does not add up in favour of pursuing the matter.
It is true that a small business with some IT know-how can set up their virtual shop front with relatively modest capital, but there are considerable set-up costs involved in producing a more sophisticated electronic commerce platform like Telstra’s Transigo procurement system, or the St George banking site incorporating "ecash" facilities.
Many of the big investors have only experienced balance sheet losses or minimal returns on their investments and that has proved to be a disincentive to other organisations contemplating market entry. On the international scene, Amazon.com’s rollercoaster earnings have seen more downslides than ups. These are the kinds of stories that have made investors wary, and yet the promise of untold riches and prosperity through reduced transaction costs and increased marketing power continues to seduce us if only we can get the balance right.
I hope that I have convinced you that some of the legal and security issues that are touted as roadblocks to the uptake of electronic commerce are actually only minor hurdles that we can overcome with a bit of commercial and technical commitment and creativity. What is perhaps harder to sell is the idea that we need to reach a critical mass in order to really reap the rewards that electronic commerce can bring. The wait-and-see approach will not precipitate the kind of uptake of electronic commerce that could really benefit Australia and boost the economy in the long term.
There needs to be an appreciation for the concept of critical mass. In physics, critical mass is minimum quantity of fissile material for a chain reaction to take place. Similarly, there is often a lead time in a business cycle which is quiet until enough of a good is sold that sales skyrocket. Before a critical mass is reached, return on investment will be low. When a critical mass is reached, there will be enough people using the system to make it self-sustaining.
When this happens, there will be enough "passing trade" on the Internet to trigger a huge growth in electronic commerce profits, both to business and consumers. One issue that Tom Worthington put to me, no doubt playing the devil’s advocate, was how do we avoid the "free rider" problem? My response to that is "What free rider problem?". You see, many of the traditional notions of neo-classical rationalist economics do not apply in the networked environment. On the Internet we are talking about the economy of information. As Kevin Kelly, executive editor of Wired magazine says, "on the Internet, more creates more, and the more you give the more you will receive". These kinds of approaches are reflected in business practices such as giving software away for free, and providing free samples to a range of other sought-after products. There is also going to be a far greater importance on early entrance in to markets. Less time will be spent exploiting a product to its last cent, and more effort will be devoted to research and development. So those you might call "free-riders", the companies that do not take that critical leap of faith early on in the uptake of new technologies will pay for their reticence in reduced market share. Just consider the huge effort Barnes and Noble have expended to try and catch up with the fast-moving Amazon.com, and the fact that the early entrant is still ahead of the rest commanding an impressively large market share in the online book trading sector.
Let me tell you some other reasons why I believe that Australia is poised to be one of the great electronic trading nations in the world. One of the key factors is that Australia possesses some of the key starter requirements for a successful electronic commerce industry. Starter requirements are those elements that go toward getting Australia off on the right track in terms of positioning Australia to take a lead role on the world stage with respect to electronic commerce. Some of these include:
Knowing that Australia possesses several key starter requirements makes taking the electronic commerce leap of faith a bit easier. However there are also specific actions that can be taken by government, business and consumers to push ahead with the growth of electronic commerce initiatives in Australia. The most significant action that we can all take, is to act now!
We need to work together to encourage as many people as possible to take the fullest advantage of network technologies, not just for doing business but also for research and recreation. Sure we need to market our own services, but we need to market the medium as well.
The natural tendency is to sit back and wait to see how and when other players join in the electronic commerce revolution. But if too many organisations and individuals take that approach, we will never reach the critical mass we need. In general, businesses and consumers should make their decision to embark on electronic commerce with the knowledge that when enough participants enter the e-marketplace, or market-space as it is also called, the returns will undoubtedly come. That applies equally to consumers and businesses. The more consumers buy online, the more products and services will be offered. The more buyers are in the market-space, the more businesses will also become involved, and we will reach that critical mass required to really make the investment in electronic commerce worthwhile.
Anita has been working on developing new business and legal models for Advantra's electronic commerce projects. She is also Legal Chairman of the Australian Information Industry Association (AIIA), which is the largest and most influential IT industry group in Australia. Anita's business acumen combined with an intuitive understanding of technology and international relations puts her in a unique position to produce results that work on legal, social and economic levels. She is an award-winning speaker who can captivate and inform an audience at the same time. Anita is author of The Millennium Bomb Disposal Kit: Year 2000 Legal and Management Success Strategies, and is presently completing her second book, Lex Cybertoria: Cyberspace Law.