A Student Article
Darrell Logan, a freshman at Salt Lake Community College, wrote this article while he was a student in Robert Nigohosian's course, Essentials of Economics, a mix of micro and macro economics as applied to social and political issues. The students in this course were given an option to research the area of e-commerce because it is evolving quickly and has become a significant factor in the marketing and distribution of goods and services. Logan's interest in e-commerce is an outgrowth of his interest in Deming's "New Economics." In this article his example of e-commerce is the online auctioneer site eBay.
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Online Payments Paypal/Billpoint
Popularity and Status of eBay Inc. Today
Advantages of Online trading
Buying on eBay Inc.
Selling on eBay Inc.
Disadvantages: E-Crime, E-Criminals and Fraud
E-Commerce; Online Auctioneers: eBay Inc.
There are few inventions that have forever altered our lifestyle and revolutionized the way we work and play. Some include: capitalism, the combustion engine (automobile, airplane), the personal computer, and now e-commerce through the medium of the internet. Ecommerce is simply the buying and selling of products or services by businesses and consumers over the internet. Business to business, business to consumer, or consumer to consumer types of 'E-tailers', or e-commerce transactions, have recently overcome security issues to become the popular multi-billion dollar services of today. Ebay Inc. provides a home for each type of the aforementioned transactions. Employing eBay as reference, the development of the e-commerce industry, its advantages and disadvantages, including new e-crime, and its future will be discussed.
From five to ten years ago, though the internet technology has remained the same, online auctions were unheard of. Why would one send their hard earned money, or worse yet, give their credit card number to an anonymous, faceless, P.O. Box or email account? What would one do if they disappeared? Write them another email? One can’t go down to their house, and bang on their door. And how secure is sending an credit card number over email? What if a dozen hackers obtained the credit card number? Who’s to say they will not disappear? News stories and movies have dramatized people losing their identity through this new invisible electronic medium. Problems persisted, consumers were justifiably cautious, and online transactions laid dormant.
Catalysts to eBay’s popularity; Advancements in Technology and Accessibility
A simple reason why this market has grown so quickly is because of the resolution of several security issues that such companies like eBay have faced. With the implications of their feedback systems, fraud protection programs, and ‘SafeHarbor" systems, masses of bargain hunters have joined in. Additionally, the modernization of online escrow services, or I-escrow, online/even mediation, and more protection have helped users resolve disputes quickly and fairly.
To counter the reluctance that consumers held in sharing sensitive information, advancements in encryption began to build consumer trust. Advancements in non-auction transactions via 40, 56, then eventually 128-bit encryption hyped that it would take thousands of computers thousands of millions of years to crack protected information. Mammoth corporations invested millions into developing these secure transactions and technologies for them, soon to be borrowed by others. Like eBay Inc.
With these advancements of 128-bit encryption, consumers now feel more secure when sending private addresses, phone numbers, credit card numbers, bank account numbers, during an age in which one's identity can be stolen too easily. Here is an evolutionary chart on how long it would take super computers to crack the consumers' encrypted data. Since it would theoretically take over a trillion-trillion years to crack one's credit card number, consumers could sleep better at night.
4-bit Encryption 2 seconds
56-bit Encryption 35 hours
64-bit Encryption 1 year
80-bit Encryption 70,000 years
112-bit Encryption 10 (x14 power) years
128-bit Encryption 10 (x19 power) years
The advancement of encyription paved the road for services that sould take advantage of encrytion. such as online payment services, which satisfied a huge demand. Paypal (2) and Billpoint (3) are the most popular. They enable the average credit card, debit card, checking account, or even a basic bank savings account to pay another user, without that other user having a merchant account (the credit card processing hardware, and software verification). So sellers can be paid instantly, without having to process the credit card themselves, thus making the buyer feel safer not having to give their personal financial information out over the phone or internet.
An escrow service is like an unbiased middle man to insure that both parties’ requests are satisfied. Traditionally, escrow services are used for insurance and taxes. Yet with these new electronic escrow services, or I-Escrow services, such as Tradenable™(4), two party satisfaction is easily possible. Tradenable is eBay Inc.’s suggested escrow service. The advantages of this type of managed payment are clear: both buyers and sellers are protected. Tradenable helps to ensure that buyers receive what they paid for and sellers receive payment.
To the sellers, escrow services provide an affordable, hassle-free way to attract hesitant customers with the convenience and security of credit card payments. By giving buyers a more comfortable transaction environment, business-customer friendship grows. Also, with escrow payments, businesses can guarantee that funds are available for payment prior to shipping. Online escrow solutions curtail buyer remorse and help small businesses grow.
Escrow services provide a safer and more convenient alternative to money orders, cashier's checks, and personal checks for shoppers buying on eBay. Buyers can use credit cards with much more protection than credit card companies or eBay alone can provide. They can also view the status of a transaction at any time in the payment process, so all uncertainty is gone, and left in its place is peace of mind. This assurance, however, does come at a price - usually a flat fee and a percentage of the cost of the item (which can be 4% for items up to $50,000!). (5)
Most items on eBay are covered up to $200 (less the standard $25 deductible) by the eBay Fraud Protection Program, which is backed by Lloyd's of London, the industry's premier odd-ball insurance carrier. Every eBay user is covered at no charge under the terms of this Fraud Protection Program.(6)
Buyers and sellers can also use dispute resolution through online mediation called SquareTrade, which is an independant, neutral third party. SquareTrade claims to be an "unbiased method that can help you resolve disputes that may arise involving eBay transactions." (7) They offer two services: a free web-based forum which allows users to attempt to resolve their differences on their own, or if necessary, using a professional mediator. This costs $15, yet eBay Inc. will subsidize any additional costs.
EBay Inc.’s biggest advancement, however, toward its now extreme popularity was the adoption of a system of feedback. With this system, users can leave a positive, neutral, or negative feedback for the parties with whom they have done business. Mostly all users have an entire public online record of their purchases and items sold, recorded in either a positive or negative number next to their user name. An example follows:
|Overall profile makeup|
Items 1-10 of 10 total
This enables users to read a short synopsis of how this person has dealt with past transactions. The item, date, and even the email address of the person is available if more information on a transaction or person is wanted.
With all of these advancements in place, and the constant growth of the internet, the stage was set for eBay Inc. and other online actions to explode into mainstream E-Commerce. Ebay Inc. was incorporated in September of 1995. Popularity followed.
Popularity& Status of eBay Inc. Today
In popular auctions alone, it is estimated that over 7,470,000 auctions are currently rotating, most every 3-10 days, as of Q1, 2001 (9), spread across over 2704 different auction sites(10). The most popular is eBay Inc., boasting to hosting over five million, or over half of all the auctions on the internet. (11) (12) Less than six years ago, there was little or no market for online transactions. Now, the eBay community transacts over $5 billion in annual gross merchandise sales (value of goods traded on the eBay site). (13) That’s a company in which only six Few markets throughout history have grown so much, so fast. Additionally, market research studies have estimated that online auction sales will total about $25 billion by 2005. (14) These auctions are very popular, with about one third of online Americans, or about 3.5 million people, using the services. Singly, in just a year, eBay doubled it’s popularity to a whopping 22.4 million registered users in 2000. (13) Ebay of Q2 of 2001 estimated that half a billion items in just over five and a half years of business have been listed.(15)
Imagine a super-store open 24 hours a day, 7 days a week, which boasts better-than-wholesale prices and a gargantuan selection. Then imagine that one can search for any item in seconds. No, it’s not a new super-store which encompasses a million mini-mall strips; it’s eBay. It’s a true free market, where even the little guy (all of them), can be fairly heard. All small businesses can make their name known from a reliable word-of- mouth system. Even the big businesses can’t get away with customer dissatisfaction, while in the retail world of big businesses, mostly every unresolved customer complaint goes unnoticed. How different would the world be if all transactions were posted on the storefront?
Buying on eBay Inc.
With over 4 million listings on eBay, (being cycled within about a week), one can imagine the quantum amount of odd goods for sale. Anything imaginable can be found on eBay: collectibles, art, computers, and even an occasional soul (16). Finding something always wanted or needed is as simple as typing in a keyword, and within seconds, dozens of items announce their availability with pictures and descriptions. Most auctions start off with very low prices, and if no one else bids, you win. Price is one of the biggest advantages of eBay. Typically, one can obtain good products at less than half of their retail price.
Selling on eBay Inc.
Garage sales can be conducted without ever leaving the house; advertizing is as simple as a digital snap shot and some well thought out keywords. Anyone can sell on eBay, regardless of education, diplomas, the size of ones company, age, sex, race, religion - all is mostly fair. As fair as it becomes. Extra incomes can be easily generated. EBay Inc. doesn’t require credit checks or huge ammounts of start up capital. Anyone that has an idea or a product, basic computer knowledge, and the ability to read and follow directions can be selling to the world in less than an hour.
As always, caveat emptor: buyer beware. Consumers may feel trapped when a product they have received has gone bad or isn’t working right. The price of obtaining a good at such a bargain is, in most cases, that the seller is not readily accessible. Shipping back and forth may also get expensive and warrantees may not exist. The price of shipping may actually make the product more expensive than buying it locally. Yet these trade-offs seems to be a small price to pay, according to their current popularity.
A primary fear of the consumer and disadvantage of the market is fraud. Ebay, which has taken great measures to prevent fraud, estimates that 1 in 40,000 auctions is fraudulent.(14)-quite low numbers. Considering that there are approximately 5 million auctions currently rotating (12), less than 200 of these are not valid. However, invalid auctions are rarely overlooked. Most follow a pattern: they advertise "hot" items, which sell quickly; the seller insists on money-orders or wires and refuse to do business any other way; they refuse to use the secured payment services such as PayPal, or Escrow services. The new ‘E’ industry brings lays ground for new E-Criminals. It is almost impossible to track a person on the internet. Fake accounts or complete identities can be set up in minutes. Multiple accounts, also easily do-able, can give the illusion of a highly reliable and honest user with perfect feedback, making fraudulent auctions seem credible. It’s a crime, and it’s growing.
"Shilling" is when someone puts up an item for auction and secretly has their friends bid on the item to raise the price. This happens, yet eBay Inc. seems to be indifferent about this, “EBay’s not going to do anything about it. As long as they’ve got their fees, they don’t care,” said Colleen, a detective who has been buying and selling on eBay since November 1998. (14) This type of fraud is almost impossible to detect, and is another e-commerce trade-off. (17)
Ebay provides the most fair, flat playing field that this global economy has ever seen. Everyone starts out equal. May the best businesses win. In times past, the biggest store in the best location, with the nicest looking employees, or the store with the biggest named investors backing them up, won. Now anyone with some computer knowledge, a good idea, and a digital camera can make millions in their underwear, without leaving home. Ebay awards good ideas with success and eliminates many of the business world’s success tactics, like politics, investors, office games, or luck. Few can complain now that the ‘little guy’ can't be heard. If a business has the right product at the right price, people will come, they will hear, and they will make the business rich.