FC: Testimony from FTC hearing on state threats to e-commerce

From: Declan McCullagh (declanat_private)
Date: Sat Oct 12 2002 - 07:40:36 PDT

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    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
    
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    -----Original Message-----
    
    From: Jonathan Zuck [<mailto:jzuckat_private>mailto:jzuckat_private]
    Sent: Friday, October 11, 2002 1:33 PM
    To: Declan McCullagh [<mailto:declanat_private>mailto:declanat_private]
    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
    jzuckat_private
    
    
    
    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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