Transcript Regulations  Many regulations affect e-commerce – Data Protection Act 1998, and – Consumer Protection (Distance Selling) Regulations – Consumer Credit Act 1974 – VAT and.

Regulations

Many regulations affect e-commerce
– Data Protection Act 1998, and
– Consumer Protection (Distance Selling) Regulations
2000
– Consumer Credit Act 1974
– VAT and tax regulations
– Financial Services (Distance Marketing) Regulations
(SI 2095/2004)
– Consumer Protection (Distance Selling) Amendment
Regulations (SI 689/2005
Data Protection Act 1998

Applies to any personal data
– names, address, orders, credit card information
etc
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Eight Principles
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Establishes rights
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Additional protection for “sensitive”
information
– race or political opinion
– Need to show essential need and explicit consent
Data Protection Principles

Eight Principles:
– processed fairly and lawfully
– processed only for one or more specified and lawful
purposes, and not further processed in any way that
is incompatible with the original purpose
– adequate, relevant and not excessive
– accurate and, where necessary, kept up to date
– kept for no longer than is necessary for the purpose
for which it is being used
– processed in line with the rights of individuals
– kept secure with appropriate technical and
organisational measures taken to protect the
information
– not transferred outside the European Economic
Area (the European Union member states plus
Norway, Iceland and Liechtenstein) unless there is
adequate protection for the personal information
being transferred
Data Protection Rights 1

The right of subject access –
– gives individuals the right to obtain information
held about themselves.
– To comply the company must have a documented
procedure for dealing with a request under the Act.
How to request this data should be shown on the
site.

The right to prevent direct marketing –
– individuals can ask you at any time not to use their
personal information for direct marketing purposes.
An individual must put their request in writing and
you must act on the request in a reasonable period
of time. In most cases, this should be within 28 days.
– It is normal to have a tick box on the site to opt in or out of
direct marketing as part of the registration process, but
should be accessible at any time.
Data Protection Rights 2

The right to have personal information
corrected –
– an individual has the right to have corrected factual
personal information held about them that is
incorrect or misleading. If you don't do this, the
individual could obtain a court order directing you
to correct, delete, block or destroy the information.
If this happens, it will be up to the court to decide if
the information is inaccurate and what (if anything)
to do about it. The individual may also ask the court
for compensation and costs.
– There must be a mechanism to correct account information,
which should be documented.
Data Protection Rights 3

The right to compensation –
– allows individuals to claim for any damage they
have suffered as a result of a breach of the Act.
Damages must relate to physical or financial harm
caused by the breach and will have to be claimed
through the courts. If they suffered damage,
individuals can also claim compensation for distress.
However, compensation for distress can't usually be
claimed on its own.
– This is usually handled on an individual basis as part of
the complaints procedure

The right to prevent automated decisions
– this allows individuals to stop important decisions
about them being made by solely automated means for example, decisions made only by a computer.
– A sensible course of action is to allow the individual
the right to appeal a decision taken in this way.
Distance Selling regulations
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
Consumer Protection (Distance Selling) Regulations
2000
– Implements EU Directive 97/7/EC
In summary:
– The right to receive clear information about goods
and services before deciding to buy;
– Confirmation of this information in writing (eg
email);
– A cooling off period of seven working days in which
the consumer can withdraw from the contract
• Except for information goods and the like;
– Protection from credit card fraud
Information required prior to
the conclusion of the contract
The supplier shall provide to the
consumer the following information – (i) the identity of the supplier and,
where the contract requires payment
in advance, the supplier's address;
(ii) a description of the main
characteristics of the goods or services;
(iii) the price of the goods or services
including all taxes;
(iv) delivery costs where appropriate;
– (v) the arrangements for payment, delivery or
performance;
More information required
– vi) the existence of a right of
cancellation except in the cases
referred to in regulation 13 (immediate
delivery);
(vii) the cost of using the means of
distance communication where it is
calculated other than at the basic rate;
(viii) the period for which the offer or
the price remains valid; and
– (ix) where appropriate, the minimum
duration of the contract, in the case of
contracts for the supply of goods or
services to be performed permanently
or recurrently
Distance Selling cont.
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(b) inform the consumer if he proposes, in
the event of the goods or services ordered
by the consumer being unavailable, to
provide substitute goods or services (as
the case may be) of equivalent quality and
price; and
(c) inform the consumer that the cost of
returning any such substitute goods to
the supplier in the event of cancellation
by the consumer would be met by the
supplier.
Distance selling cont. 3

(2) The supplier shall ensure that the
information required ...is provided in a
clear and comprehensible manner
appropriate to the means of distance
communication used, with due regard in
particular to the principles of good faith
in commercial transactions and the
principles governing the protection of
those who are unable to give their
consent such as minors.
– Some proof of age, competence and identity, such as
the possession of a credit card is usual.
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(3) ...the supplier shall ensure that his
commercial purpose is made clear when
providing the information required by
paragraph (1).
Implementation

Appropriate wording should be in the
terms and conditions.

The T&C’s should also specify
– That the offer is an offer to treat, rather than a
contract to supply. The actual purchase only occurs
when the goods are shipped and the payment
mechanism such as credit card charged
– Applicable law, jurisdiction and place of court.
– Complaint mechanism
Network Effects
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Dominant firm markets -> Huge amount
to play for
Control of key de-facto standards
Huge first-mover advantages
– Can be displaced by larger entity
• MS: “Embrace and Extend”
– Spreadsheets, word processors
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Need to create bandwagon effect with
makers of complimentary products
– Need to court developers rather than
users (e.g. MS)
Price to value
– But still need to make a profit
Network Externalities

The more people, the valuable the
network
– Examples: Telephone late 19th Century
–
Fax 1985-8
–
Email 1995-9
–
Credit cards 1980s
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“Metcalfe’s Law”: The value of a network
is proportional to the square of the
number of users
Not completely accurate, as the value to
each user is non-linear
Network Effects
Utility
Users
Almost
nobody uses
it
Almost
everybody
uses it who
ever will
Virtual Networks
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Example: PC and Software
– Virtuous circle:
– People buy PCs because lots of software available
– Developers write software because lots of customers
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Many other examples
– Credit cards and merchants
– VCR/DVD standards and media content
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Winner takes all
– Dominant firm model
• Development of effective monopoly/oligopoly
• Not always: e.g lots of FAX machine makers
Networks
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The increase in value of a network is an example
of what economists call an “Externality” – an
external factor other than price
Netwwork means that my purchase benefits all
other users as well as myself.
Once a network passes a critical size it grows
rapidly
– Success disaster
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Network allows opportunity to extract value even
when marginal costs are near zero
– Price controls
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*** “Combination of high fixed/low marginal cots,
high switching costs and network externalities
lead to a dominant firm model” ***
– One sentence summary of information economics
Liquidity
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Liquidity is the ease with which an asset
can be traded without creating a
substantial change in price or value.
Liquidity is a Network Externality
– a single marketplace tends to dominate for any
single class of goods
– Reputation
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E.xamples:
– Ebay vs Yahoo Auctions
– Stock exchanges
Extracting Value
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Business models (= Where’s the money?)
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–
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Landgrab
Merchant
PPV or Subscription
Market
Advertising hoarding
Lotteries & scams
Land grab
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Maximise market share now; worry about
profitability later
Since there are not yet profits, stock
market values the company (for a while)
on number of customers
Typical of new “Bubble” companies: cable
TV, airlines, radio, Railways in 19th C,
colonial exploration in 18th C
Now discredited: later never comes
– At least, not until the next bubble
Merchant
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Sells goods or services for more than they cost
Basic to most businesses
Internet technologies add maybe 20% efficiency
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–
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Disintermediation
Lower cost market comms
Lower cost order taking
Lower cost distribution, esp for informational goods
“just in time” gives lower cost for stock and inventory
Better modelling and control
• Mexican cement plant example
BUT still must be a sound business!!!
– Established players may be asleep, but are not dead
PPV or Subscription
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Pay per View
– E.g phone rates
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Subscriptions
– Actuarial calculations
– All you can eat models
– Administration issues – charging model never says
simple!
• Matrix of services and products
• Freebies etc
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Copying issues
– Provide service
– Street Performer Protocol
Market
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Commission on other people’s trades
– No stock costs
– Low barriers to entry
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Place for buyers and sellers to meet
– eBay, B2B auctions, lastminute.com, bookfinder.com.
Instinet
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Liquidity Liquidity Liquidity
– Network effects
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Settlement issue
– Paypal, CrestCo, Bolero
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Novel pricing models (e.g auctioning demand)
– Agent technology
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Death of the portal
Better ways to trade
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Networks effects
– Single marketplace for each class of goods
– Markets illiquid for large trades, inefficient for
small trades
– What is a “fair market”?
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Clearance and settlement
– Issues for very large and very small trades
– Warranties provided by CC & banks
• Dispute resolution
– Bearer certificates?
– Tax and jurisdiction?
– Privacy vs money laundering
Advertising
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Typically rate £10 pcm (thousand impressions)
– More for personalisation and targeted adverts
– Advertising industry, and advertisers are very
conservative
– Monitoring
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High traffic sites
– ISP home pages
– Need to drive traffic to the site
– Need to refresh site often/build community to keep users
returning
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Agency sales
– E.g. Double-click, Real Media, Tempus
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Market saturating
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Rates dropping
Different formats
Flash inserts; streaming media
Email, digital TV etc
Lotteries and Scams
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Lotteries: tax on the ignorant
– Poor estimate of low probability events
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Premium rate telephone scams
– TV quiz shows and auctions
– Phone this number to win…
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Straight frauds
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Ponzi schemes (Pyramid sells)
Credit card and other personal details misuse
Telecom scams
Boiler room operations