Also, contrary to the promises of an open and expanded economic framework that will be of benefit to SMEs, ecomm will inevitably undergo a "shakeout" in which the majority of business conducted online will be concentrated in the hands of only a few. It has been estimated that fewer than 15 companies will end up making 80% of the sales over the Internet. Moreover, choice will be limited to the extent that ecomm consumers will rely on only a handful of sites and visit these repeatedly, rather than spend the time to search for other possibilities.
The Cashless Society Part I
Unfortunately, the feeling of inevitable optimism, generated by large numbers and three-digit statistics, has distorted views and attitudes toward economic growth. No longer is a modest rise and a solid consumer base enough; growth has to be exponential. In the case of online gambling, for instance, in spite of the projection that the number of paying subscribers to gaming services (stock brokers not included) would double by the year 2001, "the growth rate was considered too slow to sustain the industry."
Hand in hand with high expectations are myths and unfounded assumptions pertaining to the economic future vis-à-vis ecomm. This has to do, in part, with the economic sectors that ecomm purportedly covers:
Electronic commerce covers mainly two types of activities: indirect electronic commerce, the electronic ordering of tangible goods, which still must be physically delivered using traditional channels such as postal services or commercial couriers; and direct electronic commerce, the on-line ordering, payment and delivery of intangible goods and services such as computer software, entertainment content, or information services on a global scale.European Commission
The problem with this is that there is no mention of production - both primary or secondary - only services and marketing. This would not be problematic if the promises of ecomm were more moderate. However, if it is to be the driving force of the global economy (and a revolutionary one at that) then production must be taken into account; if the global economy is made up of only consumers and consumer-related activities (i.e. services and marketing), what would happen to production -indeed, who would be the producers? Furthermore, those who presently work within the production process are also, incidentally, consumers. If such labour becomes minimized because of automation (through strategies of streamlining or downsizing) or somehow disappears altogether (e.g., delocalization), then the purchasing power of this segment of the consuming population declines and, in turn, would lead to a reduction in overall consumption levels, upon which the entire system is based.
In addition to all this, the assumption that ecomm via the Internet will mean an expansion of the framework in which the bulk of economic activity is presently conducted is unfounded. At present, the type of commerce that is being conducted by electronic means is, for the most part, business-to-business only and is made up of closed associations, often industry specific and of a limited number of corporate partners. In conjunction with this, it is conducted on closed proprietary networks between known and trusted partners, with security built into the network design. In short, the market is an exclusive club.
The way in which Internet-based commerce would make a difference, it is often argued, is that it would go beyond this business-to-business model to also include business-to-consumers, business-to-public administration, and user-to-user:
Until recently no more than a business-to-business activity on closed proprietary networks, electronic commerce is now rapidly expanding into a complex web of commercial activities transacted on a global scale between an ever increasing number of participants, corporate and individual, known and unknown, on global open networks such as the Internet.European Commission
Internet-based ecomm, then, purportedly represents an open marketplace on a global scale with an unlimited number of partners, conducted on open and unprotected networks between known and unknown partners. Some observe that the demand for ecomm is already in place, and that it's merely up to business to make it happen: "when it comes to electronic commerce, consumers are ready to buy but business are not ready to sell. "Notwithstanding this, the only negative side to Internet-based ecomm is that a system for security and authentication is lacking.
The first objective is to build trust and confidence. For electronic commerce to develop, both consumers and businesses must be confident that their transaction will not be intercepted or modified, that the seller and the buyer are who they say they are, and that transaction mechanisms are available, legal and secure. Building such trust and confidence is the prerequisite to win over businesses and consumers to electronic commerce.European Commission
It is interesting to note that when it comes to security, people do not seem wary about giving their credit card numbers over the phone. Yet, when it comes to using a credit card over the Internet, most people prefer to either wait for an invoice or call a toll-free number.
It should be kept in mind that ecomm is a complex activity, and that security and trust are not the only pre-requisites. Consumers also like to see and handle products, test them, and have personal service, among other things. Nevertheless, the argument remains the same: unlike traditional electronic commerce in where the market is a club and the network is just a means for moving data, Internet-based electronic commerce (which is what most people refer to when they use the broad term ecomm) means the network itself is the market.
In theory this all sounds very nice, but it's not likely to be so in practice. Instead of offering an expansion of the framework, ecomm, as it is envisioned and defined by its supporters, will most probably reinforce the status quo. Moreover, it is questionable whether the Internet will go beyond being a massive public database, with Intranets being the real backbone of global economic activity instead. Already, some observers have changed their focus, stressing that ecomm is not really for the benefit of consumers but mostly for the convenience of business management. Hence, the emphasis of ecomm appears to be shifting away from the idea of cybermalls (i.e., retail) to business-to-business (i.e., corporate) activities. Present statistics also seem to confirm this, generally estimating that retail activity on the Internet will increase 15 times by the turn of the century; conversely, business-to-business activity is expected to increase 110 times within the same time frame.
The anticipated "consumer boom" that has hitherto been predicted, therefore, is in doubt. Consequently, these are very shaky foundations upon which to build a cashless society, for ecomm can only be maintained by a constant increase in consumer consumption. This goes hand in hand with the tenets of corporate capitalism, the basis of which is that of perpetual growth. As Ms. Chee Yoke Ling of the Third World Network, speaking at a UN luncheon, observed, "there are not enough resources in the world for everyone to live even at the current level of consumption of the average Malaysian, let alone the level of the United States or Europe." In short, a universal consumer society in and of itself is unattainable.
This fact is not even considered by supporters of ecomm. As far as they are concerned, information-based products, services, and marketing all present themselves as an infinite resource that can be exploited effectively and continually through the appropriate use of electronic media. However, little is it realized that even the adequate and appropriate use of information-based products, services, and marketing - this intangible economy - is also finite, for there is only so much information that a person can take in before reducing everything to a simplistic, abstract level. Moreover, the fact that new media consumption has a reductive effect on the consumption of traditional media, is further proof that there is a limit to the amount of information an individual can or will consume.
On another level, the foundations of ecomm are also shaky from the business side of things, mostly affecting SMEs. As Gerry McGovern (1997) points out, the notion of the Internet being a "level playing field" is no longer valid. "This may have been so a year or two ago," he writes, "but not necessarily now. Small businesses with pioneering owners did have the opportunity to exploit some of the new opportunities the Internet offered, as the larger, sluggish organisations remained dormant. This is less the case today, as traffic is becoming harder to achieve without marketing spend and websites themselves are becoming more expensive to develop and maintain."
What must also be kept in mind is that public computer networking, namely the Internet, is a relatively new phenomenon and is in a constant state of flux. To this must be added the fact that it is mostly in the US that the Internet is viewed predominantly as an economic phenomenon. Even so, according to research by Computer Intelligence US businesses use the Internet mainly for research, intranets, and corporate home pages. This same research also reveals that the Internet is significantly less widely used for other applications, including ecomm, publishing and education. Ironically, it was precisely these areas (ecomm, publishing and education) in which the Internet was supposed to have its biggest impact. For example, present statisitcs put the use of the Internet for education at a mere 1%.
Additionally, it should also be noted that excitement among users over the Internet has waned somewhat, and many are beginning to see the less thrilling side of networking - and computers in general. One of the biggest problems facing users is, says the European Commission , that of information overload: "As we face the Information Society, however, problems of information overload and disorientation are increasing. Today's online content is often untargeted, difficult to find, and of questionable quality and relevance."
Still more important are the imminent conflicts arising from competition between not only traditional and new media, but traditional and "new" forms of commerce as well. These upcoming conflicts can perhaps best be seen and understood in Central and Eastern Europe. The establishment of mega malls, mail ordering, teleshopping, etc. have all been a recent phenomenon in the region. Much money has been invested in these ventures, some of which are just getting off the ground. Subsequently, huge web franchises pose a threat to many of these investments, for ecomm will significantly reduce returns by taking away a substantial share of the market - especially from mail ordering businesses. Conversely, seeing an opportunity to further bolster their own revenues, other media and traditional forms of commerce will likewise try and go after Internet revenue. In the end, what we can expect to see is rugged, cutthroat competition between different types of media and commerce, culminating in huge financial disasters.
This competition between old and new media has been largely ignored until now because it has been assumed that time and expenditures for media would increase dramatically along with the technology. The latest research figures, however, shows that this will not be the case. According to Andersen Consulting, in general users do not dramatically increase their media time or expenditure budgets. Indeed, it has been forecasted that within the next 30 years media time budgets will increase by only 30 minutes per day, whereas the past 30 years had seen an increase of 90 minutes. From this perspective, there will actually be a slowing down - not speeding up - on the information superhighway.
Moreover, media expenditures are expected to rise only half a percentage point to 4.5% of income, up from a present level of 4.0%. Not only has research shown that there is little potential for significant further expansion in the media time and expenditure budgets of consumers, but also, as already mentioned, people tend to decrease the use of one media in deference to another: "surveys have shown that online users clearly cut back on their TV time due to the improved functionalities of new media."
The result of all this is clear: electronic media will compete ferociously with other media (broadcast, print, etc.) for the limited time and money of consumers. Also, contrary to the promises of an open and expanded economic framework that will be of benefit to SMEs, ecomm will inevitably undergo a "shakeout" in which the majority of business conducted online will be concentrated in the hands of only a few (see The Internet Retailing Report). It has been estimated that fewer than 15 companies will end up making 80% of the sales over the Internet. Moreover, choice will be limited to the extent that ecomm consumers will rely on only a handful of sites and visit these repeatedly, rather than spend the time to search for other possibilities.
The Ultimate Fear
Although we can expect to see a more fiercely competitive economic regime thanks to ecomm, culminating in corporate consolidation, this does not necessarily mean that those standing on the side of the new technology will automatically come out as winners. In fact, we already have some examples of ecomm failures. What is more, some of these failures are among the top economic powerhouses of the world.
The future of ecomm may best be seen in one of its biggest proponents, WIRED magazine and the Digerati. Even the likes of Kevin Kelley and Louis Rossetto are going through a turbulent period as true economic realities (as opposed to their virtual ones) are beginning to make themselves felt. WIRED magazine is presently undergoing a period of realignment as it hopes to reinvent itself while its parent company, Wired Megacorp, continues to sink in the red. In addition to scaling back its web site and other ventures, the management of Wired Megacorp is also trying to reinvent itself, as evidenced by Rossetto stepping down as head of the company.
Apart from WIRED, there have been several miscalculations by leading technology companies at establishing a comprehensive ecomm presence on the Internet, as exemplified by the failures of cybermalls like those run by IBM, MSN, Openmarket, etc. What is interesting to note is that a lot of companies that extol the virtues of electronic commerce, such as IBM, are losers themselves. Meanwhile, those that are very successful, such as Microsoft, are sometimes slow to catch on to the trends so that when they do, as with the MSN, they produce financial disasters which are only cushioned by the fact that they are able to absorb the loss. Are these, then, the examples of prosperity for the future upon which we are to rely, no less emulate?
In spite of these false starts, ecomm is being pushed forward as an article of faith. In many ways, ecomm is taking on the shape of an elaborate and sophisticated pyramid scheme; it comes true so long as you have a steady and expanding supply of new people to believe in it who will, in turn, invest their time and resources (i.e., money). As Richard Moore (1997) points out: "Madison avenue is selling cyberspace - but it's selling the commercial version yet to be implemented, it's pre-establishing a mass-market demand." Unfortunately, as with any type of pyramid scheme, as soon as its base of support fails to expand exponentially, it is doomed to crash.
In an attempt to avoid this inevitably, supporters of ecomm, like Peter Schwartz at WIRED, have constantly reiterated that the production and consumption of bits must become incorporated into the way productivity and economic growth is measured. Yet such a measurement would be grossly inaccurate, for it doesn't take into account - or ignores outright -basic fundamentals of economics, such as primary production. In other words, the religion of ecomm is based on the belief that moving bits and bytes around is actually productive and that "consuming" information is enough to sustain an economy.
Aside from this, what has been driving many businesses toward the Internet is not so much the business opportunities available but the fear of being left out. As one observer aptly put it:
The good news is that this field is evolving so fast that no one is quite sure how to put together a winning strategy that trumps everyone else. Hundreds of millions of dollars are being wasted on projects that are abandoned. The obvious one is the Microsoft Network, where they spent a lot of money and threw it all out. AT&T set up a whole network system, it's dead. And the company that bought it has just closed it. Business leaders aren't sure what to do, but they are scared to be left out. They are investing in everything that comes along. One might work and if they are not there first, they are lost.Steven E. Miller
The pressure to be online, regardless of whether it will be profitable or not, is immense. This is due, in part, to the efforts of those who have also been painting a rosy picture for consumers about the benefits of ecomm, despite the fact that trends appear to be going in the opposite direction. Analysts at Dataquest, for instance, warned businesses that those who do not join in the "third wave of historical industrial changes" may get burned.
Others, meanwhile, take a stoic approach, realizing that it may be a long wait, but if and when ecomm becomes the standard means for doing business, then they would be well placed to reap the benefits. In the case of the Deutsche Bank , for example, "with even credit card acceptance still strikingly limited in Germany, the day Germans switch on their PCs instead of their car engines for their weekly shopping trip is some way off. But Deutsche Bank says it wants to be ahead of the game when it arrives." It should be noted that while technology companies are more liable to take risks, the banking sector is a little more cautious. In spite of the fact some banks have already instigated ecomm trials (such as Deutsche Bank's Bank 24) many bank officials prefer to take a "wait and see" attitude - especially the smaller ones.
Business interest in ecomm, therefore, is for the most part not based on a well-founded economic rationale. Rather, many businesses - big and small - feel coerced into accepting it because of a fear of being either left out or losing some sort of advantage to competitors. In addition to this, the quick and massive success stories of people like Bill Gates has whetted the appetite of many, convincing some that a virtualized version of the American Dream now exists.
For this reason, the spontaneity of the web and its ability to generate instantaneous buyer gratification is regarded as more than a new communications media - it's seen as the birth of an entirely new commercial channel. Yet most economic activity, measured in terms of the intensity of goods and services traded, takes place not in western, industrialized nations but in the "developing" democracies of Central and Eastern Europe and the Third World. In fact, it can be argued that it was the opening of Central and Eastern European markets to western predatory capital at the end of the Cold War that helped stave recessions in the West from becoming major industrial and financial depressions.
Most corporatists realize this, which is the reason why they prefer to look to "global markets" in order to increase their revenues. It has become an accepted notion among them that "one of the best ways for maturing U.S. businesses to maintain or exceed their historic rates of growth is to expand internationally by targeting under-served markets overseas." Only by seizing these opportunities overseas are they also able to work around the shortcomings behind a high-performance work organization and still believe in the tenets of corporate capitalism.
Thus, to avoid an economic slowdown in the west/north, a thinly veiled plan of economic imperialism toward the east/south has been adopted as the working model for what is glibly termed "the global economy." Not only does this concept not take into account the needs of non-industrialized countries but, as Chee Yoke Ling noted, "people are becoming increasingly cynical about the professed corporate commitment to sustainability given that in corporate dominated forums such as World Trade Organization (WTO) they talk only of the rights of corporations and nothing of their obligations."
The global economy concept in and of itself is questionable. Gerard Lyons , chief economist for the DKB International Bank, noted in a recent interview that the global economy has been in trouble for most of this decade - and the situation doesn't look set to improve anytime soon in the foreseeable future. Hence, even without a shakeout, user backlash caused by information overload, or conflicts arising from the clash between traditional and new media/commerce, the Achilles heel of ecomm is its orientation toward the global economy.
Likewise, the idea that the use of cash money will eventually decline into insignificance or disappear altogether is just as illusionary as the idea that the system of bartering was totally replaced by the cash economy. As anyone who has travelled to Central or Eastern Europe and the Third World knows, what can be termed as "classic" economic activity still thrives: Western democracies label most of this activity the "black market", insinuating that such activity is sinister, unlike corporate capitalism.
Those who are taken in by such propaganda are unable to understand that the black market fills a need for consumers suffering from falling real wages and deteriorating standards of living. Not only that, western propaganda against the black market hides one very uncomfortable fact: that is, a major portion of the economic activity among and within western industrial nations are "black" as well, although it is usually referred to in much nicer language. In Austria , for example, it is estimated that the "shadow economy" (a western euphemism for the black market) consists of a considerable portion of the country's GNP, and that the only reason the government is hesitant on cracking down too hard is because an estimated 70% of the revenue generated within the shadow economy finds its way back into the official economy.
Given the rate that poor countries are becoming poorer and rich countries are becoming richer, black markets and other such basic economic activities will remain the predominant means of doing business for the majority of the world's consumers. Subsequently, the hype surrounding the global economy and the cashless society will remain the dream of western, industrialized nations; elsewhere, it will be business as usual conducted in the "old fashioned" way.
Something old turning into something new
In western industrialized nations what we see happening is a pattern of economic history repeating itself.
[...] no one brings up the fact that these policies have been tried before and were found sorely wanting - that they led to economic instability, monopolized markets, cyclical depressions, political corruption, worker exploitation, and social depravity - and that generations of reform were required to re-introduce competition into markets, to stabilize the financial system, and to institute more equitable employer/employee relations.Richard Moore
Some may object to this, arguing that the present trend toward the liberalization of certain markets - in our case, the telecom sector -has benefited consumers with low prices and better service. In fact, when comparing Internet use between North America and Europe, it is generally acknowledged that one of the main reasons for low Internet penetration in Europe are telecom costs and its regulated markets. For this reason, the European Commission has repeatedly emphasized the advantages telecom liberalization will bring to the EU in its drive toward the "information society".
To steal a glimpse of what to really expect from telecom liberalization, a precedent exists in the case of commercial air transport. When this market became liberalized, predatory pricing brought the cost of air travel down to the point that it was the cheapest form of travel. For consumers this was an obvious benefit. Two decades later, however, we see fares steadily rising again, with the market now dominated by alliances of major carriers. "The trick," writes Greg Guma , author of the Maverick Chronicles, "as applicable to energy and retail sales as air travel, was to 'weed out' small competitors with price wars and, once a market was safely in the hands of the surviving giants, raise prices (and profits) back to satisfying levels."
We can see this exact same strategy being applied to the Internet in terms of the corporate shakeout as predicted by McGovern (1997) and the Internet Retailing Report (1997). Although ecomm is fragmented and characterised by lots of players at the moment, it will eventually be dominated by only a few large companies. The only question remaining is when it will happen. Yet as soon as it does, what we can then expect to see is an erosion of the supposed benefits for consumers (i.e., lower prices and better service); as for SMEs, most will not survive.
In the end, it becomes painfully obvious that the world of economics has become nothing more than an elaborate game of monopoly played on a vast (i.e., global) scale. It is ironic that the original game of monopoly was invented in the 1930s during the depression in order to bolster faith in the capitalist system that seemed, at the time, to have collapsed. In much the same way, today's computerized version (under the guise of ecomm) was spurred by the commercialization of the Internet which began during the recessive years of the late 1980s, for much the same reason. The object is to buy and sell everything for the purpose of accumulating enough wealth to crush all competitors. The strategy is to "trump" others; equally, people in the technology field are looking to develop the next "killer" application.
Additionally, current corporate tactics are not dissimilar to the rules of the Monopoly boardgame, in where you make almost any trade in order to get a chain established. "Global markets" are thus opened with promises of philanthropy, efficiency, savings, and greater choice. But what usually comes along with these are mergers, acquisitions, hostile takeovers, and predatory pricing. Telecom liberalization, in this case, is not the best way to ensure fair prices for consumers, for it will eventually reduce competition and sweep away consumer protection; indeed, it's merely the latest step in the corporate concentration of public infrastructure.
John Horvath: The Cashless Society Part I
Part III is coming soon. (John Horvath)