Regulations

1
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

2
Data 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

3
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

4
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.

5
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.

6
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.

7
Distance Selling regulations

• 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

8
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

9
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

10
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.

11
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.
• (3) ...the supplier shall ensure that his
  commercial purpose is made clear when providing
  the information required by paragraph (1).

12
Implementation

• Appropriate wording should be in the terms and
  conditions.
• The TCs 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

13
Network Effects

• Dominant firm markets -gt 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

14
Network Externalities

• The more people, the valuable the network
• Examples Telephone late 19th Century
• Fax 1985-8
• Email 1995-9
• Credit cards 1980s
• Metcalfes 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

15
Network Effects
Utility
Users
Almost nobody uses it
Almost everybody uses it who ever will
16
Virtual 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

17
Networks

• 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

18
Liquidity

• 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

19
Extracting Value

• Business models ( Wheres the money?)
• Landgrab
• Merchant
• PPV or Subscription
• Market
• Advertising hoarding
• Lotteries scams

20
Land 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

21
Merchant

• 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

22
PPV 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

23
Market

• Commission on other peoples 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

24
Better 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

25
Advertising

• 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

26
Lotteries 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