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Memorandum to Parliamentary Select Committee on E-commerce

Programme Director
Professor Steve Woolgar

Virtual Society? Programme
Sad Business School
Oxford University
59 George Street
Oxford OX1 2BE
+44 (0)1865 288667
+44 (0)1865 288668 (fax)
The Trade and Industry Committee Inquiry into Electronic Commerce

Memorandum by the ESRC Virtual Society? Programme


  1. The Virtual Society? Programme is funded by the Economic and Social Research Council (ESRC) and comprises 22 research projects at 25 Universities in the UK. Its central question is: Are fundamental shifts taking place in how people behave, organise themselves and interact as a result of electronic technologies? The answers will have a crucial bearing on commercial and business success, and on the quality of life. The initial results from the Programme provide evidence on the themes of The Impact of Electronic Commerce, and on Government Regulation.

  2. Potential and risk

  3. Whereas the hype surrounding new technological applications promises they will substitute for previous modes of business, the reality is that they nearly always augment (or complement) existing applications.

  4. The challenge especially for small businesses is to distinguish the real commercial opportunities from the much hyped potential. Amongst small businesses we observe a high failure rate at present. The risk is not only considerable but massively unpredictable. The hottest Internet companies are not expected to show a profit for many years, while old companies (like AOL) are now doing well after a shaky start.

  5. The unrealised potential of e-commerce is illustrated by the example of the voluntary sector. This sector has an aggregate gross income of 13.1 billion, net assets of 39.8 billion and gross current expenditure of 12.5 billion. While some key groups of organisations within the sector are embracing the new technologies, a significant proportion are failing fully to exploit their potential. Only 3.8% provide facilities for electronic shopping; a mere 8.7% engage in on-line fundraising. Significantly, cost is not the crucial factor in inhibiting uptake and application of e-commerce. Rather, there is a widespread failure to realise the necessity for expertise in training and development, and a lack of awareness or understanding of technological capacity.

  6. Breadth of the problem

  7. In order to appreciate the potential of and barriers to e-commerce, it is important to understand the phenomenon in broad terms. E-commerce is not just point to point transactions on the Internet, commercial trading through electronic signals. It is also a finely-tuned, flexible and locally-managed global exchange of data, ideas, talent, silent partners and noisy stock market offerings. It involves real people, money, relations and opportunities in a rapidly shifting and growing exchange of risk as well as capital; humdrum ideas as well as cutting edge concepts.

  8. The DTI's Secure Electronic Commerce Statement rightly emphasises that e-commerce depends upon security and trust. But since these are about new social relations, it is crucial that consideration be given in terms much broader than merely technical concerns about, for example, digital signatures and encryption.

  9. Mid-price non-perishable products have been the primary focus of Internet marketing thus far. But there is also much peripheral/symbolic use by companies. Then fact that e-commerce provides a modern, technologically sophisticated image has lead to a proliferation of non transaction sites where companies provide information and advertising without a point of sale. Support services, distribution techniques and payment mechanisms will have to be worked on for e-commerce to develop significantly.

  10. Trust

  11. E-commerce changes consumption from a practice which is public yet relatively anonymous (as in traditional forms of shopping), to a practice which is private but more highly visible to certain groups of people. This brings with it new forms of expertise and information about consumers.

  12. The problem of trust reflects the current shaky structure of e-commerce systems. The evolving structure of e-commerce is a transaction chain of companies providing services, using other companies that provide services. These in turn use automated systems which interface with other automated systems. This is a structure with a high chance of going wrong. It will likely settle down, especially if appropriate international standards are developed. But this will be a slow process. A culture of trust, rather like a brand, takes a sustained investment over a long period. Business to business will depend as much or more on means to build networks of trust as it does on the means to handle transactions.

  13. Regulation

  14. Besides payment details, a good deal of personal data flows into e-commerce channels. These data then become exchangeable between organisations and across national boundaries. So it is vital that e-commerce is regulated for data protection. This is extremely difficult in the context of global electronic commerce, and against a background of highly variable international laws and jurisdictions (cf evidence from Mr Raab, University of Edinburgh).

  15. Barriers to Adoption and Development

  16. Consumer views on e-commerce are split. In general terms, people value the potential for increased convenience, for getting information about products and for being able to shop around from wider range of products and suppliers compared to high street shopping. E-commerce is more welcome for some areas of consumption than others - books, CDs and grocery shopping have immediate appeal. Clothes shopping is the most typical area that people think would not be a success.

  17. However, consumers are also cautious. They show a clear preference to view the sites of their favourite and most trusted retailers (e.g. Marks and Spencer). The exception is hi-tech, middle class consumers who are interested in and a more general interest in CDnow - both purely Internet providers.

  18. For most consumers, the appeal is not in opening up the Internet to shopping but in delivering existing services in electronic form. The implications are twofold: 1) e-commerce through digital television is likely to appeal more broadly than Internet services 2) two versions of e-commerce will develop - an Internet based version which takes full advantage of that medium to transform (probably used by a minority of hi-tech/ social class ABs) and a stripped down, menu driven service which will deliver mainly on convenience rather than on choice and price.

  19. Consumers are not generally concerned about problems of privacy. They believe security is a problem which will find a technical solution. They have very little awareness of potential developments around e-commerce in the use of agent software and data mining. They are not yet aware of the changing relationship of trust that such technical developments will bring.

  20. The cost of being on line is a frequently expressed concern. Free ISP organised by retailers would be a direct incentive here. The main sticking point is the potential increase in phone bills.

  21. Current interface design does not fit well into shopping practices. The categories used to classify products are not ones that make sense to users; nor are products presented in a way that matches their display in the shop. Lack of attention to design means shopping online is currently too mechanical.

  22. The costs of developing supporting infrastructure services are slowing investment. This explains the relative speed of development of services that do not require the delivery of products (eg banking) or offer products that can be delivered using existing services (books, computers, CDs). In areas such as supermarkets, however, fully fledged and profitable e-commerce would require the development of warehousing and new modes of distribution and supply.

  23. Retailers are also cautious about the potential effects of widely developed e-commerce services on competition. Major retail companies have worked hard, through concentration and acquisition to get control of production, supply and distribution. Fully developed e-commerce would threaten existing arrangements in retail. The recent controversy over excess profits and control over the supply chain by the major supermarkets illustrates the sensitivity of his issue.

  24. The public's low awareness of security issues creates a problem of self-regulation for retail companies who are used to selling to public and anonymous consumers and having, therefore, to meet the demands of quality and truthfulness. Developing e-commerce creates a different relationship between retailers/suppliers and customers involving greatly increased knowledge of individual shoppers and the shift from mass to direct marketing. Customers will have to be persuaded to move from trading loyalty for quality/price to trading personal information for differentiated service - an important change in trust relationships.

  25. Conclusion

  26. These initial findings show that evaluation of the impact of e-commerce requires an in-depth understanding of the context of application and the broader social and economic context for development. Many non technical issues need to be addressed and managed before e-commerce can be more broadly and successfully developed.

12 February 1999

Professor Steve Woolgar, Director
ESRC Virtual Society? Programme
Brunel University
Middlesex UB8 3PH
+44 (0)1895 203210
+44 (0)1895 203071 (fax)


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