Discussion Paper

2. The Internet and B2C E-commerce

Since the BPM was developed in the late 1990s, there have been important changes in the way consumers use the Internet and e-commerce. Australians have grown more accustomed to the Internet and its applications. Points of access to the Internet have continued to grow, and mobile devices have increasingly become Internet enabled. Australians now use the Internet to shop, make payments and access financial services with an ease and immediacy not previously available.

The following discussion examines the progress and experience of consumers and businesses in utilising the Internet. Amongst other things, the discussion highlights some of the problems which consumers encounter when engaging in e-commerce.

2.1 Consumer Use of the Internet and E-commerce

This section provides an overview of how Australian consumers have adopted the Internet and its applications. Unless otherwise stated, the data referred to were compiled by the National Office for the Information Economy (NOIE). In particular, the NOIE publications, Current State of Play⁵ and NOIE Information Economy Index 2003⁶ provide a detailed account of Australia’s online performance in the context of the global information economy.

There has been a steady increase in the percentage of households that have adopted the Internet and its related applications since the release of the BPM in May 2000. At September 2002, 65 per cent of Australian households⁷ either owned or leased a personal computer (PC), while 54 per cent of Australian households had access to the Internet at home (as shown in Chart 1⁸). The percentage of households with Internet access has grown by over 60 per cent since the release of the BPM.

Australian households are gradually shifting from narrowband to broadband services. In the period June 2001 to March 2003, the percentage of home Internet users accessing the Internet through broadband services in Australia increased from 5 per cent to over 13 per cent. A significant upward shift in the level of home broadband users in Australia has been particularly evident since June 2002. This trend reflects increased levels of connectivity for technologies and indicates an increasing level of awareness of the benefits⁹ of broadband services within the community.

Chart 1: Household Internet access 1998 – 2002

Source: Use of the Internet by Households, 8147.0, ABS (February 1998 – November 2000).

Australians use the Internet for a broad range of activities. The most popular uses for the Internet at home during 2000 were e-mail or chat rooms, general browsing, and searching for information related to work¹⁰. Since then, it appears that consumers have begun to use the Internet in a more interactive way, with the largest growth in use involving banking related services (such as accessing account balances and transferring funds), online shopping (especially flight bookings), and interactive gaming.

2.1.1 B2C E-commerce

AC Nielsen data commissioned by NOIE indicate that, on average¹¹, approximately one million Australians aged 14 years and over made a purchase online in any given week of 2002-03. This represented an increase of 85 per cent since 2000-01.

Since December 2000, there has been consistency as to the types of goods purchased online, with standard consumer goods such as software, hardware, books, food, clothing, music and videos/DVDs being amongst the items most commonly purchased.

Chart 2¹² shows the change in the number of persons purchasing various items online since December 2000. The greatest proportional growth was observed for purchases of travel and related services. This category accounted for purchases by an average of 320,000 persons a week in the twelve months to June 2003 compared to 58,000 in the twelve months to December 2000, an increase of 452 per cent. Travel related services are now the most popular online shopping category in Australia.

The chart also reveals that other product categories for which there was significant growth in B2C e-commerce transactions over the same period were books, computer software, computer hardware, music and videos, clothing and share trading.

Chart 2: Persons 14 years and over shopping online
(annual weekly average)

Source: Nielsen/NetRatings

2.2 Consumer Complaints

Data on consumer complaints provide a useful insight into the experiences of online consumers. Data for 2002 collated by the International Consumer Protection and Enforcement Network (ICPEN) indicate that, globally, e-commerce consumer complaints most commonly relate to catalogue sales, Internet auctions, and computer equipment¹³. Other complaints relate to Internet access/portal services, foreign money offers, the promotion of business opportunities, and adult websites¹⁴.

Chart 3 presents a breakdown of the consumer law violations relating to this complaint data. Violations most frequently concerned undelivered goods and services, an inability to contact the merchant, the failure of the merchant to honour refund policies or warranties and unordered or unauthorised billing¹⁵.

The international complaint figures appear consistent with the domestic trends observed by the Australian Competition and Consumer Commission (ACCC). In the year ending 30 June 2003, the ACCC’s Information Centre received 2,899 complaints relating to online conduct¹⁶ by businesses. This represented 5.4 per cent of all complaints received by the ACCC. The number and nature of online-related complaints had not altered significantly from the previous year.

Chart 3: Econsumer Complaints - Top Violations
January 1 – December 31, 2002

The issues or conduct which most commonly gave rise to e-commerce complaints to the ACCC are set out in Table 1. This table combines data on both B2C and business-to-business (B2B) e-commerce complaints. The table shows that misleading advertising or prices, domain name renewals and pyramid selling accounted for 50 per cent of all e-commerce complaints received by the ACCC in the twelve months to 1 July 2003.

Table 1: Types of e-commerce complaints received by the ACCC (1 July 02 -  1 July 03)

Issues or conduct	Percentage of complaints
Misleading advertising or prices	23
Domain name renewals	20
Pyramid selling and other scams	7
Unsolicited goods or services	4
Warranty matters	4
Anti-competitive arrangements	2
Unconscionable conduct	1

Source: Based on data supplied by the ACCC.

Data from the ACCC also show that sixteen online traders accounted for nearly half of all online-related complaints received by the Commission during this period. These traders generated consumer complaints concerning: domain name renewal; dissatisfaction with Internet broadband/ADSL services; modem jacking¹⁷; warranty issues in relation to goods sold over the Internet; Internet service refunds; misleading advertising on the Internet; slow Internet downloads; STD charges for dialling ISPs; and changes to terms and conditions which resulted in additional charges for Internet usage.

2.3 Business Use of the Internet and E-commerce

In July 2003, Telstra released its Yellow Pages Business Index: E-business Report¹⁸ (the E-business Report) on the online experiences of Australian small and medium enterprises (SMEs). The report examines the attitudes of SMEs towards e-commerce and their experience with it. While the report does not distinguish between B2C and B2B e-commerce, it does provide valuable information on the extent to which Australian SMEs have adopted e-commerce.

The E-business Report found that the proportion of small businesses with a website increased over the 12 months to July 2003 from 34 per cent to 36 per cent. Website penetration rates for medium-sized businesses were significantly higher and grew more strongly over the same period, from 71 per cent in 2002 to 82 per cent in 2003.

In contrast, almost all large businesses had a website and access to the Internet in 2002. Data from the ABS¹⁹ suggest that larger businesses access the Internet in a greater variety of ways than do smaller businesses. While 46 per cent of large businesses using the Internet had access via a dial-up modem in 2001-02, other methods of access included ISDN and other high-speed technologies²⁰. In contrast, 88 per cent of small businesses with Internet access used dial-up modems, with other forms of access being far less common.

The E-business Report indicated that the proportion of SMEs that used the Internet to sell products and services has increased. 33 per cent of all SMEs took orders online in 2003, as compared with 30 per cent in 2002. The proportion of SMEs that received payment for sales over the Internet grew more quickly, increasing from 26 per cent (in 2002) to 32 per cent (in 2003) for small businesses and from 50 per cent to 63 per cent for medium sized businesses.

The strongest area of growth in Internet use by SMEs has been accessing and using online catalogues (undertaken by 53 per cent of SMEs in 2003, as compared with 46 per cent in 2002) and receiving payments for products and services (a rise from 27 per cent to 34 per cent). The largest group of customers that SMEs sold to online were those based in the same city or town as the SME.

Finally, the E-business Report indicated that security, including the ability of others to compromise security systems, was the primary concern cited by SMEs when queried about the barriers to engaging in e-commerce. Another common reason for not adopting e-commerce was a judgement that the technology was not suited to the nature of the business.

2.4 Questions for Discussion on B2C E-commerce

Questions for consumers:

1. What concerns do you have about shopping over the Internet?
2. What factors have contributed to these concerns?
3. How have you addressed these concerns?

Questions for businesses:

4. What challenges have you faced in dealing with consumers over the Internet?
5. How have you addressed these challenges?

Questions for government, academia and industry organisations:

6. Are you aware of any feedback from businesses or consumers on the inhibitors to B2C e-commerce? Can you point to any research or data of interest in this regard?

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⁵ The latest edition of The Current State of Play is available at www.noie.gov.au/publications/NOIE/NOIE_index/Aug03/index.htm

⁶ The NOIE Information Economy Index 2003 is available at www.noie.gov.au/publications/NOIE/NOIE_index/Aug03/index.htm

⁷ A household is defined as a group of one or more persons in a private dwelling who consider themselves to be separate from other persons in the dwelling, and who make regular provision to take meals separately from other persons.

⁸ Based on data provided by NOIE.

⁹ Broadband access offers many benefits to consumers as it supports a more sophisticated and intensive use of online content, particularly through high bandwidth interactive services such as web-casting. However, consumers using broadband services may also be faced with increased risks, which are discussed more fully in section 4.1.2.2 of this paper.

¹⁰ Household Use of Information Technology [8146.0], Australian Bureau of Statistics, 2000.

¹¹ AC Nielsen annual average estimates are based on monthly surveys of household use of information technology.

¹² Based on research commissioned by NOIE from AC Nielsen.

¹³ This data is collected through the econsumer.gov website administered by the US Federal Trade Commission, and is available at www.econsumer.gov/english/contentfiles/pdfs/PU15JanJun2003.pdf

¹⁴ It should be noted that these products and services were also amongst the most popular areas of e-commerce. It is therefore difficult to establish whether consumers experienced a disproportionately high number of problems when purchasing these products or services.

¹⁵ The percentages shown in Chart 3 are based on the total number of e-commerce consumer law violations reported (3,848) between January 1 and December 31, 2002, as distinct from the total number of e-commerce consumer complaints. One complaint may correspond to multiple law violations.

¹⁶ Based on data supplied by the ACCC.

¹⁷ Modem jacking is a technique used to alter the Internet access and Internet Service Provider of victims without them being aware of it.

¹⁸ The Yellow Pages Business Index – Small and Medium Enterprises is an ongoing series of surveys designed to track confidence and behaviour amongst small and medium sized businesses. The May 2003 Yellow Pages Business Index survey included questions on technology usage and e-commerce. Responses to these questions form the basis of the E-business Report. Interviews were conducted with 1,800 small and medium businesses over the period 15 April to 9 May 2003. Small and medium businesses are defined as those with 0-20 and 20-199 employees respectively.

¹⁹ Business Use of Information Technology, Australia [8129.0], Australian Bureau of Statistics, 2003.

²⁰ Large businesses are defined by the ABS as those that have over 100 employees.

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