With the rise of competing video streaming services, Netflix’s dominance in the online video streaming industry has begun to wane. Market saturation has increased in recent years and will continue to do so as new competing platforms emerge in 2019. This increase in the number of online streaming companies, each at different price points, has served to increase use of another “competitor”: piracy. This issue stems from what Techdirt refers to as “exclusivity silos,” a streaming service that carries popular content that cannot be found anywhere else, such as HBO with its popular show Game of Thrones. Right now, the video gaming industry is full of these exclusivity silos, with particular streaming services hosting particular games exclusively. The current business model, with its emphasis on these silos, will continue to suffer from piracy losses until providers agree to share content across platforms. In this model, the configuration of content will drive differentiation between companies that have different portfolios of games, rather than a monopoly over any given game.

 

The music streaming industry faced a similar problem with piracy a few years ago. The streaming service Tidal launched in 2015 as a new platform that featured popular content exclusively. As a result, Tidal was an exclusivity silo in the music industry, since the music it offered could only be listened to on its platform. According to The Verge, their model “has largely been ruled ineffective by the music industry,” noting that competitors Apple and Spotify have given up the practice altogether. Tidal then modified its practices, employing what is referred to as a “limited exclusive” policy—offering new content about a day before other providers.

 

The music industry has only benefitted from this development, with both increased revenue and decreased piracy. For example, in the United Kingdom, BBC news reported 2017 revenues not seen since the “Britpop boom,” a popular genre from the mid-1990s. The United States enjoyed similar growth in 2017, where total revenue in retail grew $1.2 billion, or 16.5 percent. Both increases are purportedly due to the ease of access offered by music streaming industries like Spotify and Apple Music. Streaming revenues overtook physical format revenues for the first time in the UK and the U.S. increased its streaming revenue 43 percent from 2016. Furthermore, this business model also decreased piracy. Tech consulting firm Muso has noted that music-based piracy decreased by 60 percent in 2018. Because people can access so much music at such a low cost, the incentive to resort to piracy is much lower.

 

Perhaps the challenge to the video streaming industry is not a glut of different services, but rather exclusive content. Exclusivity is the norm rather than the exception, due in part to the outdated business models of cable companies. Cable companies rely on a model that offer specific packages at different price points, with each package containing a different combination of channels. Video streaming services are following a similar model by offering content exclusive to their service (or “channel”). While this model has fueled rapid growth, it remains to be seen how the industry will continue as new services saturate the market, making more and more games exclusive and fragmenting the market.

 

Increased piracy is an issue stemming from both exclusivity and numbers. If the major services were still Netflix, Hulu, HBO Now and Amazon Video—each with reasonable price points—the problem of exclusivity would not be as acute, because there are only a couple of services for content to be available on.

 

Now, however, there more streaming services that those four. According to the Washington Post, there are currently eight popular streaming services, with four more expected in 2019. The biggest name is Disney Plus, but Apple, Facebook and D.C. are all launching streaming services as well.

 

The total price of all the basic streaming services adds up to an amount comparable to cable television. Tallying up all the prices given in the article for basic services, the total cost is about $70, a mid-tier price for several cable services.

 

In reality, consumers will not trend towards purchasing all of these services. This would likely be too expensive and too cumbersome. Instead, the fragmentation of the industry will see a sharp uptick in video piracy—through Bittorrent traffic or visits to illegal streaming sites. Bittorrent traffic rose in 2018, largely due to the fragmentation of the streaming industry. As there are services yet to be released in 2019, this traffic will likely continue to rise.

 

The solution is a reconfiguration of the streaming industry. To this end, there are “soft reset” and “hard reset” options. Both involve a major downsizing of exclusive content and a redistribution across streaming platforms. The “soft reset” would still include some exclusive content, while the “hard reset” distributes all content across at least two streaming services. It is perhaps unrealistic to consider the “hardest reset” option, which involves a redistribution of nearly all content across all services. There are many reasons this option is implausible, chief among them is the number of streaming services and the intricacies of licensing contracts. However, increasing overall distribution will cushion against the exclusivity problem and will help mitigate piracy, because consumers will have greater choice in providers of their favorite content.

Adblock Plus, a startup that poses a serious threat to internet advertising, won a significant precedent-setting case on April 22 that confirmed its right to block ads. Two newspaper publishers sought financial relief and challenged the legal status of Adblock Plus’ business model in a German court, but the court upheld the company’s right to block online advertisements.

“The Hamburg court decision,” Adblock Plus executive Ben Williams writes, “is an important one because it sets a precedent that may help us defend what we feel is an obvious consumer right: giving people the ability to control their own screens by letting them block annoying ads and protect their privacy.”

For those who are unfamiliar with the software, ad blockers, as their name suggests, block ads online. Gone are the days of in-video YouTube ads, preference-seeking Facebook ads or pesky “click this red button” ads. Although several similar services exist on the market, Adblock Plus leads the pack as the most downloaded browser extension of its type in the world.

Even though ad-blocking software has existed for almost a decade, it was never perceived to be a legitimate threat to Internet publishers. But now, armed with ever-growing subscription rates and the recent Hamburg victory, ad blockers are tightening their chokehold on advertisers and changing how websites make money.

Simply put, ad blocking is an affront to the traditional business models of no-fee websites, such as Google and Facebook. While sites that do not charge users have traditionally made revenue by running ads, they now face an unexpected problem – what if people don’t see their ads in the first place?

As Interactive Advertising Bureau general counsel Mike Zaneis recently confirmed, “Ad blocking is beginning to have a material impact on publisher revenues.”

If online ads lose their visibility or relevance, companies will place less value in online advertising, which will likely lead to a downward spiral for the revenue streams of websites.

According to a report conducted by Adobe and PageFair, use of ad-blocking software increased 70 percent in 2014 alone. Currently, about 30 percent of the Internet-using U.S. population subscribes to ad-blocking software, and a total of 144 million users worldwide subscribe to ad blockers, a statistic that continues to grow. These numbers seem to suggest that ad blockers are gaining even further leverage against advertisers.

The software’s growing popularity has even caused Internet giants such as Google, Amazon and Microsoft to pay Adblock Plus to “whitelist,” or unblock, their ads. According to a report by the Financial Times, Adblock Plus had requested fees equal to 30 percent of the additional revenue these sites generate after their ads are whitelisted. Although it is unclear what the final terms of this agreement were, when the most influential players in the industry are paying to unblock their ads, it’s time to take notice.

Rather than paying into ad blockers’ demands, however, some companies have taken another route. They are beginning to employ more aggressive tactics to combat the rise of ad blockers.

New York-based startup Secret Media has developed software that allows websites to run video advertisements, which escape the detection of ad-blocking technology. According to its founder, Secret Media is already helping large media websites run over 10 million ads daily. Last year, jolted by the meteoric rise of ad blockers, Yahoo acquired Clarity Ray, a startup exclusively focused on developing software to circumvent ad blockers.

Yet although Internet giants have suffered major hits from this brawl for the $140 billion online ad industry, smaller websites have taken an even sharper hit, mainly because they cannot mobilize large resources as Google or Facebook can. While large websites can easily file lawsuits, strike deals or temper the effect of ad blockers through other sources of revenue, small websites typically have a smaller pool of resources and generate revenue almost exclusively from pay-per-click ads. Without any ads to click on, these small sites can lose most, if not all, of their sources of revenue. This poses an ethical question: are smaller, mom-and-pop sites particularly vulnerable to the adverse effects of ad blockers?

Another ethical concern asks whether it is fair that “free” sites such as Pandora and YouTube do not receive compensation. These sites have been “free” because they make money from advertisements. In essence, these companies were providing a service at no cost to the user in exchange for the inconvenience of a few ads. But through ad blocking software, users are now enjoying these so-called “free” services while simultaneously cutting their revenues.

Yet, it is hard to conceive that free websites could, anytime in the near future, charge users for their services in the event that ad blockers reign supreme. According to the Adobe and PageFair report, only one in five people surveyed would be willing to pay a fee to use their favorite websites without ads.

This peculiar scenario compels Internet publishers to either directly attack ad blockers, as Yahoo has done, or cave into their demands, as Google did earlier this year, because they know a fee-for-use would likely be a disastrous business decision.

But despite ethical concerns, the explosive growth of ad blockers demonstrates what may be wrong with the current state of advertising. The incredible popularity of ad blockers may be reflective of consumer demand for less excessive ads.

A common criticism of advertising is hyper-commercialism, which articulates the belief that advertising is too excessive and invasive. While it was historically impossible to avoid most ads, such as a 48 by 14 feet billboard in the middle of a freeway, consumers today can elect to avoid online ads in their near entirety. Ad blockers might well be revolutionary because they give consumers a choice over what they see.

While it is true that ads can potentially provide useful information or create awareness of substitute products, the current state of advertising seems misaligned with consumers’ interests. All too often, Internet ads clutter and dominate the screen, seek to collect personal data or sell products through intrusive methods.

But whatever the exact distaste towards online advertising is, the recent meteoric rise of ad blockers suggests many are voicing their aversion towards current methods of advertising.  Coupled with the recent Hamburg decision, ad blockers are poised to be the biggest threat to the future of online advertising.

Some might say that 2004 was the end of the department store era. After a century of dominance, department stores were outpaced by online retail sales. Since then, the moat has widened even more as online sales continue to surpass department stores at an accelerating rate.

According to research from the St. Louis Federal Reserve, online e-commerce sales have increased 1,400 percent since 2000 and over 100 percent since 2010. The Census Bureau has further determined that online retail sales have tripled as a percent of total retail sales since 2005, and the current growth rate shows no signs of slowing down.

graph 1

With a 50 percent decline in oil and gas prices since the summer, the Wall Street Journal has predicted that lower gas prices will translate into over $50 a month in savings for consumers. Even though consumers have extra cash in their pockets, a quick view of the retail sector looks pretty dull. Retail sales have been lackluster over the past three months, and even declined 0.9 percent in December. Nevertheless, by examining the commerce report data in closer detail, online retail sales have averaged over 15 percent for the last five quarters (as a percent change from the same quarter a year ago).

In order to address the changing landscape, retailers have been forced to respond. Although this trend should have been expected back in 2004, the last four months have been a turning point. Chains across the nation have begun shutting down stores, firing workers, and restructuring their corporations to focus on an e-commerce presence.

On January 8th, Macy’s Inc. released a surprise press release announcing the closure of fourteen stores across the nation. Furthermore, they hope to decrease their payrolls by letting go of two to three associates in each of the 830 Macy’s and Bloomingdales stores they run across the nation. Macy’s predicts this will account for a staff reduction of around 2,200 sales associates. While Macy’s has continued to exceed analyst estimates in comparable sales and earnings, their business model is changing. The fourteen stores Macy’s is closing accounts for $130 million in annual sales but the restructuring program is expected to generate over $140 million in savings per year. Macy’s has announced that the savings will be reinvested into technology and growth initiatives focusing on an enhanced shopping experience for online and mobile customers.

The company explicitly mentioned how it hopes to reinvest savings from merchandising and store initiatives into digital retailing and an improvement in the customer experience on macys.com. The chief executive officer of Macy’s, Terry Lundgren, explained that the retail business is “rapidly evolving in response to changes in the way customers are shopping across stores, desktops, tablets and smartphones. We must continue to invest in our business to focus on where the customer is headed – to prepare for what’s next.” In January, Macy’s told investors that it would increase its digital technology group by hiring more than 150 workers.

Macy’s is not alone in closing department stores. On the same day that Macy’s announced its restructuring program, J.C. Penney informed investors that it would be closing approximately 39 stores, which will decrease the company’s workforce by 2,250 employees. The cost-saving measures are expected to allow the company to focus on future growth, especially in online sales.

Target is in the same boat. Since November, Target has announced plans to close 144 stores by the end of 2015. Even though the majority of these store closures will occur in Canada, the company will let go of over 18,000 employees across Canada and the United States. The business picture is prettier online. Target’s online sales grew 30 percent in the third quarter and the company is projecting around 40 percent online sales growth for the fourth quarter of 2014. Even though online sales are a small portion of Target’s revenue, they are increasingly refocusing towards e-commerce.

Across the sector, more and more retailers are cutting jobs and closing stores. Sears announced a total of 235 store closings in 2014, and the layoffs are expected to be around 8,000 employees. Abercrombie announced plans to close 150 stores in 2015, and Aeropostale over the past two months has told investors that it will close 75 stores over the quarter. As the economy continues to recover from the depths of the recession, department stores are currently moving in the opposite direction, and the pace has picked up dramatically in the last four months. Although many executives have reorganized to focus on online growth, the real loser is the storefront.

Retail employment has still not recovered from its 2007 – 2008 peak, and its growth rate is slowing. The growth of the economy since 2007 might portray the retail sector labor market as recovering. However, when you graph the percent of the workforce composed of clothing and accessories retail workers as a percent of the total workforce, the proportion is dropping fast. Research from the Economic Policy Institute has also demonstrated that most retail workers have lower real earnings today than they did 35 years ago.

graph 2

The decline in retail sales associates can also be viewed from an efficiency standpoint. Dividing a company’s total sales by the number of employees, many department stores have a sales-per-employee ratio of around $100,000 to $200,000. Although Amazon has a different structure than department stores, the company’s sales-per-employee ratio is over $600,000. Amazon is not just the biggest e-retailer; its web revenues are larger than the next nine biggest companies’ sales combined.  Department store chains have revolved rapidly in the last four months by shrinking square footage, but companies still need to substantially improve their online presence.

Following the infamously grueling midterm weeks at Dartmouth College, I try to relax by spending time outside. However, when I invited my friend to come along, he insisted that he was going to celebrate instead by shopping. Yet, to do this my friend had no plans of leaving his bed. He was going to shop online, where he can search for anything he may be looking for without ever having to visit a department store.

Mention “Alibaba” and people tend to associate it with two things. First, that it completed the largest Initial Public Offering (IPO) in history with $25 billion (compared to Facebook’s $16 billion). Second, that it is an e-commerce company that threatens domestic icons Amazon and eBay and wants to take over the United States. Alibaba certainly looks formidable by sheer volume of business- it had $80 billion in gross merchandise volume in the second quarter of 2014, compared to eBay’s $20 million.

But will Alibaba necessarily be a threat to the existence of Amazon and eBay? Its differences with the two domestic giants, as well as inherent challenges it faces, suggest not. For one, it is more similar to eBay than Amazon. Instead of selling goods directly to customers (which is what Amazon does), Alibaba provides an online bazaar that matches buyers and sellers. Unlike Amazon, Walmart or Staples it does not have a vast network of warehouses. Alibaba has multiple marketplaces: Taobao, China’s biggest consumer-to-consumer shopping site that is home to 7 million merchants and a billion products; Tmall.com, China’s largest third-party platform for brands and retailers; and Alibaba.com, the world’s largest online business-to-business trading platform.

It earns revenue primarily from charging merchants for advertising and transaction fees on its sites. Like Google, Taobao charges sellers for putting their names on top of search queries- in contrast to eBay and Amazon, who pay Google to have their products listed. Thus Taobao gets a hearty portion of the revenue that would otherwise go to search engines. While it offers all basic services free to both buyers and sellers, it charges for online advertisements, and extra services like website design- expenses that sellers clearly think worthwhile in differentiating themselves on the messy, chaotic Taobao cyberspace. Alibaba’s lower fixed costs in terms of infrastructure and fewer employees allows for its astounding profit margin of 80%, and a net income of $1.35 billion in the October-December quarter, trouncing Amazon’s mere $247 million of net annual income and eBay’s $2.86 billion.

 

Revenue, 2Q 2014 (Billions)                                                                            Net profit margins, 2Q 2014

revprofit

It is no secret that Alibaba aspires to expand its e-commerce business globally. This June it launched 11 Main, a US shopping website in high-end fashion, sporting goods, toys and jewelry, which aims to appeal to US customers. In Europe, Alibaba made deals with the Italian and French governments for easier sales on TMall. It is also partnering with Brazil’s state-owned postal services company, Correios, to allow small businesses to use its electronic payment system, Alipay, to sell products in China. Alipay is Alibaba’s very own payments system which buyers can use to purchase everything from movie tickets to taxi rides. Just this week, news about a possible “marriage” between Alipay and Applepay (Apple’s own version of a mobile wallet which lets iPhone 6 users make payments at retailers with their smartphones) has been causing excitement in the business community. Besides launching 11 Main, Alibaba is looking for other ways to increase the number of consumers it has. The company intends to get into video creation to propagate its sites, and Alibaba founder Jack Ma allegedly intends to travel to several Hollywood studios to strike content deals.

However, it is clear that Alibaba does not have a very strong presence amid retail consumers in the United States, and indeed elsewhere in many developed economies. One reason is that it is a relatively new player, but it is also because it suffers from a reputation of counterfeits. The reputation is both real and by association with China, which has been globally condemned many times for its thriving market of fake luxury items. Up until the end of last year, Taobao was on the American government’s list of “notorious markets”. Its removal reflects the effort the firm has put into cracking down on fakes by working with multinationals, but fakes are still too readily available throughout the site. Ma has an exceptional track record of building trust among buyers and sellers in China and has also been celebrated for his philosophy of putting customers before employees and shareholders. Yet, despite all this, the trust of consumers in developed economies continues to elude Alibaba.

Furthermore, the fact that Alibaba is a from a country that is perceived to be the economic and military rival of the United States, immediately inclines Americans to stick with home companies they perceive to be safer. This is perhaps why the primary focus of Alibaba in the near future remains to attract Chinese consumers, especially given the ferocious competition it faces with domestic competitors. In fact, its recent US acquisitions reflect the company’s awareness of the need to stay ahead. Alibaba has been buying American start-ups focused on mobile and e-commerce, such as messaging app Tango ($280 million) and peer-to-peer ridesharing app Lyft ($250 million). These apps might give Alibaba an edge over domestic competitors back in China such as Tencent, which is a behemoth collection of businesses that is also a leader in mobile apps. Tencent launched messaging app WeChat, which is hugely popular in China and has 438 million active users globally (compared to Whatsapp’s 465 million).

In fact, Alibaba’s greatest potential for overseas expansion lie in emerging economies with conditions similar to those in China that allowed Alibaba to rise to prominence in the first place. Countries in Africa, Latin America and Asia are likelier to have plenty of small to medium sized businesses that rely on low capital and infrastructure, which stand to benefit the most from the online market platforms offered by Alibaba. As some have already pointed out, it is unclear that Alibaba’s marketplace business approach, which allows it to do without warehouses and other tangible assets, will be successful in a country like the United States, where there are already dominant internet retailers.

Indeed, as Yahoo Finance reports, Brazil has a fragmented retail economy and millions of small merchants like those that Alibaba already targets in China. It also has a growing middle class eager for shopping bargains in Chinese-made goods, making it the fastest growing e-commerce market in the world after China. These factors have allowed Alibaba to be successful in its ventures in the region. Last year, Alibaba opened a Portuguese e-commerce site and integrated a locally dominant payment forum known as Boleto. In July, 12 million Brazilian visited AliExpress, almost ten times the traffic garnered one year ago.

Thus it remains very unlikely that Alibaba will immediately swallow up Amazon and eBay in the foreseeable future. Alibaba does not sell directly to American consumers, while Amazon retains the heavy capital for its retail services. A resurgent eBay holds the upper hand in reliability and consumer trust. The interest and buzz surrounding Alibaba’s IPO and stock prices are from companies and individuals seeking to profit from its status as a large, promising and stable company with strong ambitions to continue to grow. Yahoo, which owned about 24% stake in Alibaba just before the IPO, has seen its profits soar, earning no less than $6.3 billion from selling part of that stake. While these profits are impressive, Alibaba’s future will remain hinged on its ability to make smart investment decisions both at home and abroad.

 

 

Do you remember when Myspace was the king of social networks? Launched in 2003, Myspace dominated the online social sphere from 2005 until 2008 when Mark Zuckerberg’s Facebook made it obsolete. Facebook gained popularity so quickly that by August 2008 it had over one million active monthly users. Now, Facebook has more than 1.32 billion monthly active users. However, like all products, Facebook too has slowed in growth. The social network makes enormous amounts of money by selling users’ data to third parties and by selling advertising space. Although Facebook is constantly evolving, many users are now becoming concerned about their privacy. Facebook began as ad-free, but then quickly changed its privacy policies in order to gather and sell users’ data to advertisers. In contrast, Ello began as a private social network, but due to high demand is going public. Many attribute this high demand to its unconventional privacy policies that users realized were very important to them.

Ello, founded by Paul Budnitz and a team of six other artists and programmers in March of 2014, is described by many as being a sort of “anti-Facebook.” The small team consists of Budnitz, who came up with the idea for Ello, Todd Berger and Lucian Föhr, two well-known graphic designers from Colorado and three programmers, Gabe Varela, Matthew Kitt, Jay Zeschin and Justin Gitlin. The main features of Ello are complete privacy and no advertisements or data collection. Ello only gathers site usage statistics that it compiles so as to ensure that the data cannot be tracked back to any individual user. If one really wants too, Ello even allows individual users to opt of this tracking if they so wish. The layout of the website is stylistically very clean and simple, and the social network is still in beta mode which means that users can only join by invite.

Despite being so young, Ello has been drawing a lot of publicity. Awareness about Ello exploded in September 2014 due to LGBTQ+ issues that Facebook ran into. Facebook requires that users use their real names which some argued would exclude drag queens from the social network.  As a result, Ello began to see record invite requests, which reached a peak of 35,000 requests per hour in late September. Invites became so coveted that some people were able to sell their invites on Ebay for around $500. With no advertisements, complete privacy and such high initial demand, it is not difficult to see why some think Ello could trump Facebook. In order to topple the king of social networks however, Ello will need to overcome many challenges.

Some of the most stringent criticism Ello has received address the design of their website. Although it is very clean with lots of whitespace, many complain that the user interface is not very intuitive. There is only one omnibar which acts as a multi purpose tool, serving all at once as a place to post, search content, send messages and tag people in posts. While some find this useful, many others find it very confusing. Typing “@” will tag someone in a post while typing “@@” sends a private message. Additionally, since Ello is still in beta mode, there are many glitches and bugs. This is partially due to the tiny team that currently manages the social network and also partially due to interface specialization. The trick is to make a social network unique enough to offer a differentiated product that will draw users away from the big players such as Facebook and Twitter while being similar enough to make the transition smooth and effortless to these same users.

Finally, Ello lacks a business model that outlines a cohesive plan as to how they will ultimately generate cash flow and revenue. Facebook makes money by selling advertisements and data collected from its users. Since Ello’s selling point hinges on its promises to never have ads or track users, how exactly will it generate revenue?  The company was funded by an initial investment from a venture capital firm that will certainly be expecting  returns. Initial critics had thus hypothesized that the future would force Ello founders to face a stark dichotomy: bail on their values of privacy and no advertisements or go bankrupt. However, on October 23, 2014, Ello officially became a USA Public Benefit Corporation (PBC). A PBC is defined as “a special for-profit company” that operates to produce a benefit for society as a whole. As a PBC, Ello is legally obligated to take into consideration its impact on society in every decision it makes. The agreement codified a set of rules that effectively prohibits Ello from ever selling user data or displaying paid advertising. Instead, in order to generate revenue, founder Paul Budnitz claims that Ello is looking into a “freemium” model in which users would pay a small amount for extra features. This however remains very vague and would most likely not be able to deliver substantial returns. Since hosting and monitoring a social network requires vast amounts of financial and human capital resources, even just to stay afloat, Ello will have to figure out a way  to cover its costs and pay its employees.

Finally, Ello will be facing a steep upward battle against Facebook who has the first-move advantage. Facebook already dominates the social scene and has recently acquired several new companies such as Instagram, which gives it a huge amalgamation of power. It is very well refined, and offers many more features than just posting information (games, apps etc.) Facebook thus benefits from vast economies of scale as well as network effects. The point of a social network is to connect with a wide range of people and Facebook’s staggering 1.23 billion monthly users make it a powerful force to contend with. By comparison Ello has only a little over one million users, of which only 36 percent have yet posted. Of those, only 27 percent have posted more than three times. Thus, Ello, with its strong emphasis on customer privacy, has introduced an interesting new value proposition. However it is clear that it faces many challenges. Ultimately time will tell whether Ello has a chance at success or if it will fail like so many other social networks before it.

 

 

 

In Verizon v. FCC, the D.C. Circuit Court of Appeals struck down certain Federal Communications Commission (FCC) regulations that mandate net neutrality which allows for free and open access to the Internet. Many have denounced this ruling as the death of the open Internet, which could lead to the corporate corruption in attempt to restrict access by charging additional fees. The Court ruled that the FCC’s 2010 Open Internet Order was not “within the scope of (the FCC’s) statutory grant of authority” as given by Congress.

The FCC relies on the outdated 1996 Telecommunications Act, an act that was legislated when smartphones were nonexistent and dial-up was the sole form of accessing the web, for the authority to regulate internet service providers. Because no major Congressional legislation has since addressed the changing face of the Internet, the lack of technologically up-to-date laws has stymied the FCC’s attempts to further regulate the industry.

Comcast’s proposed union with Time Warner Cable, which would create the largest internet service provider in existence, has been a recent example of the FCC’s lack of ability to regulate the industry. Besides raising antitrust concerns as the entity would service one-third of Americans, the merger has tremendous ramifications for net neutrality given the size and scope of the proposed fusion. The FCC has not yet been able to issue a new order regarding the proposition that complies with the Court’s ruling. The inability for the FCC to take the necessary regulatory actions could be detrimental to upholding net neutrality.

The continuation for net neutrality is fundamental. With services such as Netflix using large amounts of data, the desire to treat all communications equally seems unreasonable given the potential costs to comply with such the Court’s decision. However, setting a precedent to differentiate between various content sources could lead to discrimination against many providers and subjugation of ideas. For example, a telecommunications company could decide Facebook videos consume too much bandwidth and thereby charge an additional fee to post these videos. This hypothetical scenario raises free speech concerns as new systems could create barriers to free expression and free enterprise. Small startups would face tremendous financial barriers to market entry if they were required to pay large telecommunications companies. Net neutrality levels the playing field, enabling economic opportunity and global interaction.

With the goal of net neutrality, the FCC promised to rewrite its bylaws to comply with the Court’s ruling. Due to the urgency and importance of the issue, the FCC plans to act within coming months to refine the Open Internet Order. Chairman Tom Wheeler stated that “preserving the Internet as an open platform for innovation and expression while providing certainty and predictability in the marketplace is an important responsibility of (the FCC).” Wheeler’s comment suggests that the FCC will act forcefully to promote an Internet that favors the creativity and interactivity of its billions of users. Should the FCC renege on its policy to “ensure that no one, not the government and not the companies that provide broadband service, can restrict innovation on the Internet,” America could suffer due to a shift toward other countries with freer, more innovative policies. The FCC therefore has an obligation to ensure the freedom of the Internet as a means of promoting American capitalism.

The United States should lead the world in promoting innovation. The American economy remains the bedrock of the global economy and American companies offer the innovative services necessary to adapt to the modern age. Nothing in the Court’s ruling precludes the FCC from championing policies that preserve America’s status as a global technological leader. However, the FCC must act within its Congressional mandate or it should press for more authority. With legislative action unlikely in the currently-polarized Congress, refining a broad rule to conform to Verizon v. FCC seems the best option for preserving the status quo in the Internet and providing for the technological innovation that could transform society.

 

The growth of Facebook has often been associated with the increasing connectivity of people all over the world, bringing into contact those who could never before be part of the same network. New York Times columnist Thomas Friedman views the rise of social media as a factor in the shaping of a “bottom-up” world whereby individuals have more power than ever to enact change. Yet for all its global functions, Facebook’s universality also has a powerful force at the most local level: it can foster community between small-town stores and their customers. In fact, behind the entertainment industry, local entities rank #2 in terms of Facebook users’ engagement.

In Hanover, look no further than the wildly popular Morano Gelato to see how Facebook’s marketing potential can be deployed even in such a small town. On its Facebook page, owner Morgan Morano has posted its available flavors for certain days, and held sweepstakes to draw them in—for example, “like” this page for a chance to win free gelato for a month. It’s likely that the winner will bring friends and post their victory as their own Facebook status, creating a ripple effect to attract even more customers. In the future, Morano is considering a sweepstakes that encourages followers to vote on a flavor they’d like to see, with ten participants getting it for free.

These tactics are fundamentally about building a more personal relationship with customers. Morano has heard people tell her that they saw today’s flavor on the Facebook page and just had to come in. Her Facebook posts are a reminder that even in the frigid cold, you can still have access to a dessert that is usually considered a summertime treat. It is, of course, difficult to quantify how marketing directly translates into further foot traffic, which explains the rationale for the more intangible goal of enhancing local people’s intimate connection to Morano Gelato.

Morano Gelato, which has emerged as the go-to place on Main Street, began in 2010 merely as a stand at the annual summer Hanover Farmers’ Market on the Dartmouth green, where Morgan—a Long Island, NY native whose mother now lives in the Upper Valley—sold her gelato to eager Dartmouth students and others. The next month she rented a spot in the back of a café in town, and then moved to the shop’s current location on Main Street.

Morano had never before done any advertising, relying instead on word of mouth in a town where it was nearly impossible to not know what or where Morano Gelato was. The new emphasis on Facebook marketing was spawned by Sebastian De Luca ’14, founder of PromoteU, which equips small businesses with digital marketing skills. De Luca has been designing many of Morano’s Facebook posts and sweepstakes, and has been collecting data on which people are engaged in the group’s Facebook page.

De Luca is looking to harness the computer-savvy abilities of college students to make social marketing more accessible and affordable for small businesses. As so many young people possess an understanding of these new technologies, there’s a less of a need for professionals within consulting companies. Instead, business owners can turn to college students who can work for much lower pay than expert consultants, in the same way that students can offer their SAT tutoring services for a much more affordable price than a private company.

PromoteU’s focus is on building the capacity of business owners to manage their own social media tools, departing from many firms’ approach of taking control of these tools. The key, De Luca says, is to reduce the cost- and time-efficiency of marketing. That’s why he connects them with the existing, least costly outlets such as Facebook and Twitter. And teaching them how to use these services effectively reduces the amount of time they have to spend on advertising efforts.

As Facebook has seemingly made us more connected than ever, we must also wonder whether it’s coming at the expense of more meaningful personal interactions and of our sense of community. Yet what Morano Gelato shows is that Facebook may indeed be a powerful force for strengthening bonds in local communities.

Since the dawn of the internet, transactions between buyers and sellers have moved from the physical to the electronic realm. While cash and check transactions still rule for smaller purchases, very rarely do consumers still insist on using a physical medium of exchange for larger expenditures. Credit cards, online banking, and other instruments of E-commerce have made it possible for actors in the modern economy to not only transfer larger amounts of currency, but also to do so more rapidly, efficiently, and safely. As a result, a number of economic activities such as stock exchanges, bank transfers, and even everyday shopping have begun to move to the internet.

The magnitude of this move is anything but insignificant. For example, online retail transactions have experienced rapid growth, doubling from $74 billion in 2004 to $145 billion in 2009. E-commerce manufacturing transactions experienced similar gains, increasing from a little less than $1 trillion in 2004 to $1.8 trillion in 2009. Even in this last year (2010-2011), total e- commerce retail sales increased by 10.9%, despite the economic downturn that continues to affect many traditional businesses. Most importantly, e-commerce growth has not shown signs of slowing in the near future. Online retail transactions are projected to further increase to $250 billion in 2014.

The reason for this phenomenon can be attributed to a number of factors distinct to either the consumer and or producer side. However, both producer and consumers are faced with the same truth: e-commerce will play an increasingly significant role in the American economy. Businesses will need to learn how to harness the potential of the internet lest they lose an important competitive edge. Likewise, consumers will need to adapt to a rather different marketplace, where in some cases the store may not even exist in the physical world, to gain the best value for their purchases.

The Internet. What is the nature of this new marketplace? The internet is a world of electronic data, where information and ideas can travel at the speed of light. Socially, it is a means by which individuals who may be separated by great distances can talk as if they are at the same location. Politically, it is the bastion of free speech, nearly untouchable by government hands (though potential legislations put that in question). Economically, it is the new way for sellers and buyers to connect, for businesses to communicate with each other, and for companies to show themselves to the world. E-commerce is becoming the mode of choice for transactions of all types in America.

There are a number of advantages to e-commerce over traditional commerce (commerce without use of the internet). The main benefit is connectivity. Traditionally, interactions between businesses and consumers took place inside an actual, physical building, like a store. However, a physical store is only able reach potential customers within a certain distance, and a business is limited in not only the number of stores it can build but also the locations in which the business can build them. However, an online store is granted access to approximately 240 million American internet users, simply by being online. The benefits of connectivity go even further beyond access, as advertising, news updates, and payment handling are all far more convenient and cost efficient through electronic means. For business to business interactions, e- commerce provides a way for different companies to connect, whether between cities or between continents. Other benefits of using e-commerce range from elimination of paper records to consolidation of operations in a single or a few locations.

Despite the move toward e- commerce, and despite the advantages of using the internet for economic activities, one significant problem still remains. It is not the technical limitations of computing technology, nor is it the increased security risks of online data storage. These are small problems compared to the big issue: information asymmetry.

Historically speaking, the seller always knows more about the product that the buyer. Whether the product is a physical good or a business product, the disparity between the information that the buyer needs to make a proper judgment about making a purchase and the information that the seller provides has existed since the beginning of trade itself.

Traditional commerce has done an adequate job of managing this disparity. For retail transactions, the buyer can view the product in real life, touch the product with his or her hands, and in most cases test the product out. In the case of business contracts, the buyer would be able to obtain all the information he or she needed by visiting the company’s facilities or by simply asking the seller. In both cases, the buyer rarely makes a wrong judgment solely because he or she lacks sufficient information.

The advent of e-commerce has widened this disparity to a significant degree. Although it is much easier to publish information through the internet, it is also much easier to conceal information from potential buyers. With e-commerce, there is no physical product for the customer to hold, inspect, or test. Instead, the customer is given a set of data pertaining to the product, which may include specifications, descriptions, and pictures. The customer pays for the product as shown by the seller, which may not be what the buyer wants in the first place.

As for business to business interactions such as investment, contracting, and other purchases, e- commerce has made calculation of risk increasingly difficult. Because barriers to entry are notably lower for online businesses, they are less likely to be successful, or permanent for that matter, than their traditional counterparts. Making sound judgments regarding such online businesses requires much more information, leading to the widening disparity between needed information and given information.

This information asymmetry has further affected a fundamental value of the American economy: trust. For business to consumer relations, establishment of trust is one of the key foundations if the business wishes to sell its products. However, the prevalence of online scams and phishing emails has severely eroded people’s trust in the internet, and consequently in online businesses. In a recent study, more than 90% of online consumers have refrained from completing an internet transaction due to fear of being defrauded.

Both sides lose here; the customer will not always buy the cheapest and highest quality product, and the best businesses will not always come out on top. Similarly, information asymmetry has led to a decrease in trust among online businesses themselves. Again, this is due to easy of entry, but ultimately the lack of trust in an online company may lead to its very downfall. While e-commerce has made doing business much more efficient and convenient, it has take a severe toll on the foundation of trust between economic actors.

Re-establishment of trust will need to go much farther than simply verifying “you are who you say you are.” Online buyers, both businesses and consumers, need to know not only the identity of the seller, but also past performance of the seller, previous opinions, and a host of other data in order to make a sound judgment. In fact, an online survey showed that 87% of online consumers “feel safer buying from websites that feature information about the business behind the website and its financial track record.” Unfortunately, this information is not always available to the public, and rarely is it made easily accessible by the company itself. Thus, the key to solving the information disparity will be transparency.

Transparency is a concept that has long been promoted in the political realm. Members of the public have routinely called for government on all levels to make clear the reasoning behind their actions and the flow of money supporting that action. I believe that this same concept should be applied to e-commerce, where instead of government transparency, we have business transparency. Businesses should be encouraged to show their past performance, their current goals, and their future investments.

The benefits of this change would only begin with the re-establishment of trust. The information disparity would be made insignificant, and the e- commerce world would receive a massive stimulus, one that perhaps could propel us out of this current economic recession.

Information transparency for now remains an idea in its infancy. Many websites already have mechanisms that track the past performance of other online businesses and independent sellers. Yet these systems often only cover small portions of the total online sellers, and they only track a specific profile, not a specific person. What we need is a truly universal system that can track individuals and business entities all across the internet and that provides a comprehensive analysis of past performance and credibility. What we need is a system where trust can be gained based on readily available data.

E-commerce in the American economy is growing at a remarkable rate. The internet has transformed the way that consumers and businesses interact and how businesses interact with each other. However, the current state of e-commerce has produced an information asymmetry, where a disparity exists between the information a buyer needs to make a sound judgment, and the information the seller provides. As a result, trust between entities on the internet is significantly lower than in traditional commerce. The key to solving this problem is transparency. A system is needed where information is made public, and business credibility is made clear.