E-BUSINESS SPECIAL REPORT

Should the U.S. Government Be an E-Commerce Cheerleader?

As e-commerce goes mainstream and stands on its own two feet, experts say the industry can no longer count on receiving the kid-glove treatment from the U.S. government.

Nevertheless, as long as the economy remains fragile, it is also unlikely that the government will lift the current tax moratorium or repeal other hands-off policies.

While the online sales channel has matured to a point at which special government encouragement is no longer necessary, analysts say policy makers know full well that any changes made to e-commerce regulation could create unwelcome ripple effects across many industries.

“The best move at the present time is for the government to stick with the status quo, as radical as that may sound to some who follow the industry,” Yankee Group program manager Paul Ritter told the E-Commerce Times.

No Change for Now

Ritter said that even if the rah-rah phase is over, he does not foresee any changes in the government’s overall stance on e-commerce — including the ongoing moratorium on online sales taxes — in the next year.

Even though online sales still account for just over 1 percent of total retail sales in the United States, ramifications of changing the e-tail sector’s economic model could be significant in the current climate, and lawmakers will be especially wary of rocking the boat in an election year.

In the wake of the dot-com implosion, stock market troubles and recent revelations about shifty business practices at several online and offline firms during boom times, experts noted that government leaders are not in much of a tech cheerleading mood.

Still, officials are aware of what makes e-commerce tick with consumers and businesses, and they are wary of endangering its momentum.

Worries About Ripples

For one thing, said Giga Information Group research fellow Rob Enderle, many Internet companies depend on the lack of sales tax to offset shipping costs. Adding a tax poses a risk not only to sales at mom-and-pop e-tailers, but also to the fiscal health of major shipping firms like UPS and Federal Express.

“At this point, the government doesn’t want to both increase a tax and damage the chances for a recovery,” Enderle told the E-Commerce Times.

In addition, a number of non-tax issues affecting e-commerce have been put on a back burner on Capitol Hill.

Forrester analyst Christopher Kelley noted, for example, that proposed legislation to limit how marketers use spam remains tied up in committee processes and is not likely to move forward soon, especially with lawmakers focused on other pressing matters.

Less E-Focused

With the Bush administration generally maintaining a hands-off stance toward business, agencies like the Federal Communications Commission and Federal Trade Commission have moved toward more of a multichannel approach on issues like privacy, rather than focusing specifically on e-commerce enforcement.

Going forward, policy will likely reflect a position that e-commerce does not require overt cheerleading or warrant more scrutiny than other sales channels.

“The idea is that it’s just another retail channel, and government should treat it the same,” Kelley told the E-Commerce Times. “There’s a feeling that e-commerce is no longer a special guest in the house. It lives here now.”

On consumer-oriented issues, Yankee Group analyst Lisa Melsted said that the executive branch of government has moved to emphasize enforcement of existing laws on issues like privacy and security, rather than pushing for new ones aimed at e-commerce.

“The climate right now is much different than it was two years ago or even a year ago,” Melsted told the E-Commerce Times.

More Than Shopping

Melsted added that government leaders realize that e-commerce has become not just a shopping channel but a key element of how companies operate, especially in the area of business-to-business processes. In this sense, some might view moves to regulate e-commerce as attempts to regulate companies’ internal operations.

“It’s become more of a strategic tool for companies,” she said, noting that many companies now depend on e-commerce and its inherent cost savings to stay competitive.

E-commerce has gradually become so ingrained in business, in fact, that even recent news about shady corporate practices is unlikely to bring down the legislative hammer on e-commerce.

“The changing mood could bring legislation in other areas, but that remains to be seen,” Melsted said.

Role To Play

Even if government does not lead e-commerce’s cheering section, the Yankee Group’s Ritter said government does have a role to play in encouraging additional use of the Internet for its potential benefits in other areas, like education and community service programs.

Government also can help stimulate innovation in Internet-based technology that makes businesses more productive and efficient, Ritter added.

Because e-commerce is currently supporting several cottage industries, including many run by people who were laid off from tech and other jobs, Giga’s Enderle said that government needs to keep up its support for now, “then revisit [the issue] at a time when the industry can take the extra stress.

“That may not be for several years, and likely would only be undertaken by a new Democratic Party administration,” Enderle added.

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