My testimony from this week's FTC event (which was quite useful) is online
here:
http://www.ftc.gov/opp/ecommerce/anticompetitive/panel/mccullagh.pdf
Previous Politech message:
http://www.politechbot.com/p-04048.html
-----Original Message-----
From: Jonathan Zuck [<mailto:jzuck_at_actonline.org>mailto:jzuck_at_actonline.org]
Sent: Friday, October 11, 2002 1:33 PM
To: Declan McCullagh [<mailto:declan_at_well.com>mailto:declan_at_well.com]
Subject: Testimony Summary and Link to Report
Declan,
Here is my testimony from this week's FTC workshops on barriers to
ecommerce. ACT is also a member of the NetChoice coalition which released
its first "State of eCommerce" report in conjunction with the
workshops. The report found that these barriers will cost American
consumers $32 billion in the year 2002 alone. The press release, fact
sheet and full report can be found at
<http://www.netchoice.org/ecomm-rls.html>http://www.netchoice.org/ecomm-rls.html
Jonathan Zuck
President
Association for Competitive Technology
jzuck_at_actonline.org
Testimony Summary of:
Jonathan Zuck
President
Association for Competitive Technology (ACT)
Before the
Federal Trade Commission
Office of Policy Planning
Public Workshop:
Possible Anticompetitive Efforts to Restrict Competition on the Internet
October 8, 2002
Washington, D.C
As President of the Association for Competitive Technology (ACT), I m here
today representing thousands of information technology businesses and
professionals. ACT is a national education and advocacy group representing
mostly small and mid-sized technology companies. We advocate market
solutions by encouraging investment, innovation, and competition in the IT
industry. ACT members include software developers, systems integrators,
consulting and training firms, and e-businesses, all working to build the
solutions that make eCommerce happen. ACT has actively engaged policy
makers on a wide range of issues including online privacy, broadband,
digital rights management, antitrust policy, and of course, eCommerce, a
channel that s absolutely vital to small and medium sized businesses.
We ve been closely following the work of the FTC s Office of Policy
Planning in exposing and opposing barriers to eCommerce. In early 2001, we
focused our own work in this area by helping to form the NetChoice
coalition, along with Orbitz, eBay, eRealty, the Electronic Commerce
Association, the Information Technology Association of America (ITAA), the
Wine Institute, and the Electronic Retailing Association together
representing many tens of thousands of IT companies. Like the FTC, we
believe that eCommerce promises value and convenience to consumers, but
that innovation and competition are meeting stiff resistance from
old-economy middlemen and legacy regulations.
eCommerce finds itself at a crossroads as 2002 draws to a close. Apart
from the notorious failures of flawed business models like Pets.com (who
thought you could ship a 50-lb bag of dog food cross-country and SAVE
money?), eCommerce is today a favored channel for connected consumers to
buy goods and services. In spite of the Dot-Com shakeout and overall
economic downturn, the U.S. Census Bureau reports that eCommerce retail
sales are growing ten times faster than all retail sales, and new eCommerce
players like eBay and Amazon are now firmly in the black . At the same
time, bricks-and-mortar businesses like Walmart and BestBuy have
complemented their retail channels with successful eCommerce websites.
So, with all that progress, why is eCommerce at a crossroads today? The
reason is simple, yet insidious: the forces building and maintaining these
barriers are growing bolder. Traditional middlemen are growing desperate
to stop consumers from moving their purchases online especially during this
slow economy. They re not shy about asking state legislatures and
regulatory agencies to misapply legacy rules to eCommerce, or to enact new
rules that protect local businesses by restricting online
competitors. Unfortunately, state lawmakers don t always get to hear that
consumers favor of letting value, choice, and convenience determine the
winners and losers.
Not all middlemen, however, are looking for barriers to help them keep
their place in the distribution chain. Players in the eCommerce space fall
into two categories. The unbound are middlemen like Amazon, Expedia, and
for the time being eBay. These firms can invest, innovate, and compete
freely via the online channel. The bound category includes businesses
whose eCommerce initiatives are restricted or threatened by barriers, such
as Orbitz, eRealty, 1-800-Contacts, car manufacturers, and small
wineries. The bound category also includes businesses and professionals
who want barriers to protect them, such as Optometrists, traditional
Realtors, and car dealers.
We ve just concluded a report that estimates the consumer costs of barriers
in just four of these bound commodities cars, residential real estate,
contact lenses, and airline ticketing. I should say up-front that our
estimate did not include any value for the convenience and increased
choices that consumers find online, as these are easy to see but not so
easy to quantify. Without including the powerful benefits of increased
choice and convenience, we estimate that these barriers will cost U.S.
Internet users $32 billion this year alone. Over the next 5 years, these
costs could exceed $200 billion. And that s just for cars, real estate,
contacts, and airline tickets.
Clearly, we are at a crossroads for eCommerce. The stakes for consumers
are enormous, and business innovation will be discouraged if we don t
expose and oppose the kinds of barriers you ll hear about over the next 3
days.
If we re successful in eroding and preventing barriers, I think we ll see a
natural trend toward more integration of eCommerce with traditional
channels. When they re able to buy more via both online or offline
methods, consumers will change their buying methods to suit their current
need for savings, convenience, and delivery time. They ll be attracted to
merchandisers who offer multiple channels, giving consumers a more
convenient way to browse merchandise and make returns. Businesses will
become less wary of channel conflicts and bolder about using both online
and offline distribution, as Gateway has done and Dell Computer has
recently announced.
To be sure, this evolutionary process will produce some casualties along
the way. Manufacturers and middlemen alike will have to adapt to consumer
preferences for multiple distribution alternatives or perish at their own
hands. Some middlemen will focus on providing value-added services, such
as travel agents who earn commissions for complex vacation or business travel.
I ll conclude my remarks with some calls to action to bring down barriers
to eCommerce. State governments should dismantle vertical restrictions and
exclusivity laws that bar direct sale to consumers. States should
re-examine and rationalize outdated regulatory structures, franchise laws,
and licensing systems that were designed for an entirely offline world and
which actually raise constitutional issues in the Internet arena.
Congress should work to avoid a patchwork of state laws, which frequently
restrict interstate commerce and make it universally more expensive to
serve consumers across state lines.
Congress and the Administration might recognize that the lack of Internet
IPOs means there s no easy capital to fund tomorrow s Amazon or eBay. It s
more likely that manufacturers and primary suppliers will make the
technology investment and do the marketing to build the next generation of
direct online channels for consumers. For industries with many small and
disparate suppliers, they may have to combine their efforts in a joint
distribution business. Yet, supplier-organized distribution channels face
antitrust hurdles appropriately designed to protect consumers. Regulators
have to continue to protect consumers, but should give suppliers a chance
to create pro-consumer distribution channels, even if they have to work
together to make it work better.
Here at the FTC, I would encourage continued advocacy against barriers when
they re debated in state capitols, courtrooms, and in the boardrooms of
industry and professional associations. An additional role for the FTC
would be to educate consumers about their options and responsibilities when
doing business online.
As consumers become more educated about the value and convenience of
eCommerce, advocacy groups like ACT and NetChoice should do a better job of
organizing and galvanizing consumers to oppose barriers. Businesses like
eBay, for instance, might alert their buyers and sellers when new state
legislation threatens their online marketplace.
Industry and professional associations should work to apply the promise of
eCommerce, not to block it. Increasingly aware consumers won t tolerate
artificial barriers that limit choice and raise prices, so it s time to
start embracing new and complementary distribution channels. What I m
really saying, to groups like the auctioneers association, car dealers, and
travel agents, is Lead, follow, or get out of the way!
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Received on Oct 12 2002
Intro
