Of tax, security and acceleration

The participants:

John McCarthy is group director of research for Forrester in the US. He applied his knowledge of the US market to make a few suggestions for accelerating local trends.

Gordon Graylish is director of marketing for Intel Architecture in the EMEA region. He does not believe that an e-commerce tax will influence the future of online shopping.

Eddie van Rensburg is M-Web Business Solutions GM and previously headed the PQ Africa e-commerce drive.

Sheldon Cohen is CEO of e-company, the acquisitive venture that plans to eventually list on the JSE and carve itself a niche in local e-commerce.

Some form of tax on e-commerce transactions seems almost inevitable, the consensus goes, with governments the world round slavering over the potential revenue. Not everyone opposes such legislation, and some think the Internet can gain from it. If it goes hand-in-hand with a respect for digital communication, that is.

Will it slow down the growth of e-commerce and its adoption by current merchants? Yes, says Eddie van Rensburg and Sheldon Cohen. No chance, says John McCarthy. Probably not, says Gordon Graylish.

"Would it slow down the adoption rate? Absolutely. For a merchant who wants to go online just the banking regulations are already stiff enough," Van Rensburg says, referring as an example to the six-month reversal period on credit card transactions. "It is enough of a challenge to adopt the Internet as it is." But he points out that the government task force seems more than willing to consult the industry before making a recommendation. It is early days yet, he adds.

Cohen believes e-tax will slow things down a bit, especially consumer adoption, but will not prevent merchants from making the leap. "Guys will make a commercial decision and either absorb it as an investment or include it in their pricing, in which case consumers will make a commercial decision. If it is more expensive to buy on the Web and not much more convenient, people will go to traditional stores." He hopes the government will adopt a Singaporean attitude of "making money on corporate tax and not putting too many other forms of tax in the way".

McCarthy and Graylish see e-commerce tax as a fact of life with very little influence on the future of the market. "The Internet will not live or die by taxes," McCarthy notes. "People don`t stop buying because of taxes now. Look at it this way - people aren`t going to stop going to E-bay because they have to pay 5% tax. It is still 20% cheaper than the price they would get otherwise."

Graylish has some concerns, but with the final tax structure rather than the fact itself. "This is an inflection point, something that happens every 50 years. It is critical to get it right." He would like to see a clear and simple structure in place, and believes taxes will have little impact if the implementation is practical. "We want to avoid jurisdictional confusion and multiple taxes. When there is uncertainty it turns into a raffle, and then you have problems."

All four point to the difficulty in the implementation of a system for the government to monitor the e-taxes. Governments, they say, are inevitably less tech-savvy than the private sector, and may find it more of a task than they bargained for.

Whatever their feelings on financial regulation, everyone agrees that regulation around the issue of security is long overdue. McCarthy makes no attempt to hide his loathing for those who commit sabotage of any kind on the Internet and its structures.

"Those virus guys, hang them up, put the thumbscrews on. I am not screwing around. Those things are a huge pain in the ass and cause huge damage. There should be at least a $100 million fine for stuff like that." And while he does not say that the Internet is a safe trading ground, McCarthy feels the issue has been blown out of all proportion. "The world isn`t safe anymore; people still rob banks. At some point you make a risk-reward calculation. Companies cannot secure their sites completely, because then the consumer will not be able to do business."

Van Rensburg does not favour such drastic measures, but is equally worried about the situation. "The Internet is by its very nature a hostile environment to do business in. If you are not aware of the issues you will suffer threat or abuse."

He does not, however, consider security issues as insurmountable. "Preventative measures today are more than adequate for what we need in terms of e-commerce." He too points at the fine line between a secure server or site and an unusable one.

Graylish believes the reality is far removed from the perception. "How many people have had problems with their credit cards? At least with the Internet you have a documented audit trail," he says, referring to the example of giving a waiter your credit card. He has no easy answers as to changing that perception, but sees it as a gradual acceptance.

Van Rensburg and McCarthy agree that banks and other institutions will lead the charge to change this perception and convince people that Internet transactions are secure enough for comfort. "We will get to a point where they go: `If it is safe enough for them, it is good enough for me,`" notes McCarthy.

Graylish offers an example - Intel is already transferring highly sensitive product information via its extranet.

Despite these concerns about regulation and security, e-commerce is taking off in SA according to all indicators. Research and projections point at a rising curve from a low base, and forecasts have moved into the double-digit billions of rand. But even taking into account relative market sizes, SA is still far behind the States. McCarthy believes SA is as much as two years behind in the global race. He expects a lot of action soon, however. "Some of the leaders in their respective fields will do something in the next 18 months or so," he predicts. "The business-to-business side will play out in the next two to three years." And there is a lot of money to be made by the early adopters.

So with their outsider`s viewpoint, what do the Americans think can be done to accelerate the process? The main difference between the US and SA is bandwidth, says Graylish. "The one thing I wouldn`t do is lay copper," he says. "Where possible I would use a cellular infrastructure. But you need a good fibre optical backbone, something that connects to the main Internet infrastructure at a very high speed. "

McCarthy agrees, but takes it one step further. "You need to deregulate." But this could bring its own problems in the unique local situation. "Everyone will say there won`t be investment in the rural areas [after deregulation]. I don`t know how the hell you do it. Maybe you need to deregulate but impose a tax to subsidise rural areas. But you need to deregulate."

Both agree that the government needs to reflect on the whole telecoms situation. "SA has very legitimate issues about making sure everyone has a telephone," Graylish says. "You can`t ignore that. But what you can do is look at priorities. Are you spending money on other activities that should be lower on the list [compared to telecommunications]?" McCarthy`s thoughts run in much the same vein. "The SA government needs to realise that it has to get a little more creative on the telecoms side. But I don`t think people would put this on the government`s to-do list. There are obviously many other issues."

The big boys are ready to jump in, say Van Rensburg and Cohen. Up till now it has been the small specialist making money on the Internet. Van Rensburg dismisses the American behemoths out of hand. "Are the Amazon.com`s successful? No. They are not making money." The niche players, the opportunists have been making the money, both locally and overseas, he says, pointing to various wine merchants, scuba equipment sellers and even rare spare automotive parts. The big retailers have seen that the concept is sound, and are about to make the leap. M-Web is therefore shifting its focus slightly to attract these retailers.

Cohen is equally confident that adoption is reaching the next level in the food chain. Not only that, but he thinks these bigger players are better positioned to satisfy the market than Internet-only start-ups. Again Amazon.com is a handy example. "Amazon is still trying to figure out warehousing. It has the selling figured out, but warehousing is still a headache." E-company, he says, will rather enable existing retailers and leapfrog these problems.