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 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

13. Network 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

14. Network 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

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 (= Where’s 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 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

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