RegulationsRegulations

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 1998Data Protection Act 1998 Applies to any personal data

– names, address, orders, credit card information etc

Eight Principles

Establishes rights

Additional protection for “sensitive” information

– race or political opinion – Need to show essential need and explicit

consent

Data Protection PrinciplesData 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 1Data 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 2Data 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 3Data 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 Distance Selling regulationsregulations

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 Information required prior to the conclusion of the contractthe 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 requiredMore 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.Distance Selling cont.

(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. 3Distance 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.

(3) ...the supplier shall ensure that his commercial purpose is made clear when providing the information required by paragraph (1).

ImplementationImplementation

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 EffectsNetwork Effects 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

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 ExternalitiesNetwork Externalities

The more people, the valuable the network

– Examples: Telephone late 19th Century– Fax 1985-8– Email 1995-9– Credit cards 1980s

“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 EffectsNetwork Effects

Utility

Users

Almost nobody uses it

Almost everybody

uses it who ever

will

Virtual NetworksVirtual Networks

Example: PC and Software– Virtuous circle:– People buy PCs because lots of software available– Developers write software because lots of

customers

Many other examples– Credit cards and merchants– VCR/DVD standards and media content

Winner takes all– Dominant firm model

• Development of effective monopoly/oligopoly• Not always: e.g lots of FAX machine makers

NetworksNetworks 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 Network allows opportunity to extract value

even when marginal costs are near zero– Price controls

*** “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

LiquidityLiquidity 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

E.xamples:– Ebay vs Yahoo Auctions– Stock exchanges

Business models (= Where’s the money?)

– Landgrab– Merchant– PPV or Subscription– Market– Advertising hoarding– Lotteries & scams

Extracting ValueExtracting Value

Land grabLand grab

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

MerchantMerchant

Sells goods or services for more than they cost Basic to most businesses Internet technologies add maybe 20%

efficiency– 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 SubscriptionPPV or Subscription

Pay per View– E.g phone rates

Subscriptions– Actuarial calculations– All you can eat models– Administration issues – charging model never

says simple!• Matrix of services and products• Freebies etc

Copying issues– Provide service– Street Performer Protocol

MarketMarket

Commission on other people’s trades– No stock costs– Low barriers to entry

Place for buyers and sellers to meet– eBay, B2B auctions, lastminute.com, bookfinder.com.

Instinet

Liquidity Liquidity Liquidity– Network effects

Settlement issue– Paypal, CrestCo, Bolero

Novel pricing models (e.g auctioning demand)– Agent technology

Death of the portal

Better ways to tradeBetter ways to trade

Networks effects– Single marketplace for each class of goods– Markets illiquid for large trades, inefficient for

small trades– What is a “fair market”?

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

AdvertisingAdvertising Typically rate £10 pcm (thousand impressions)

– More for personalisation and targeted adverts– Advertising industry, and advertisers are very

conservative– Monitoring

High traffic sites– ISP home pages– Need to drive traffic to the site– Need to refresh site often/build community to keep

users returning Agency sales

– E.g. Double-click, Real Media, Tempus Market saturating

– Rates dropping– Different formats – Flash inserts; streaming media– Email, digital TV etc

Lotteries and ScamsLotteries and Scams

Lotteries: tax on the ignorant– Poor estimate of low probability events

Premium rate telephone scams– TV quiz shows and auctions– Phone this number to win…

Straight frauds– Ponzi schemes (Pyramid sells)– Credit card and other personal details misuse– Telecom scams– Boiler room operations