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A European Initiative in
Electronic Commerce

Communication to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions

Executive Summary
I - The Electronic Commerce Revolution
II - Ensuring Access to the Global Marketplace
III - Creating a Favourable Regulatory Framework
IV - Promoting a Favourable Business Environment

The electronic commerce revolution

5. Electronic commerce is about doing business electronically. It is based on the electronic processing and transmission of data, including text, sound and video. It encompasses many diverse activities including electronic trading of goods and services, online delivery of digital content, electronic fund transfers, electronic share trading, electronic bills of lading, commercial auctions, collaborative design and engineering, online sourcing, public procurement, direct consumer marketing, and after-sales service. It involves both products (e.g. consumer goods, specialised medical equipment) and services (e.g. information services, financial and legal services); traditional activities (e.g. healthcare, education) and new activities (e.g. virtual malls).

Electronic commerce: the Internet revolution

6. Electronic commerce is not a new phenomenon. For many years companies have exchanged business data over a variety of communication networks. But there is now accelerated expansion and radical changes, driven by the exponential growth of the Internet. Until recently no more than a business-to-business activity on closed proprietary networks, electronic commerce is now rapidly expanding into a complex web of commercial activities transacted on a global scale between an ever-increasing number of participants, corporate and individual, known and unknown, on global open networks such as the Internet.

Table 1: For traditional electronic commerce the network is a means to move data: for Internet electronic commerce, the network is the market
business-to-business only business-to-consumers


business-to-public administration


closed "clubs", often industry-specific open marketplace, global scale
limited number of corporate partners unlimited number of partners
closed proprietary networks open, unprotected networks
known and trusted partners known and unknown partners
security part of network design security and authentication needed

7. Electronic commerce covers mainly two types of activities: indirect electronic commerce - the electronic ordering of tangible goods, which still must be physically delivered using traditional channels such as postal services or commercial couriers; and direct electronic commerce - the online ordering, payment and delivery of intangible goods and services such as computer software, entertainment content, or information services on a global scale. Both direct and indirect electronic commerce offer specific opportunities. Both are often undertaken by the same companies who, for example, sell software online as well as off the shelf. Indirect electronic commerce is, however, dependent on a number of external factors, such as the efficiency of the transportation system. Direct electronic commerce - which enables seamless, end-to-end electronic transactions across geographical boundaries - exploits the full potential of global electronic markets [4].

Next-generation markets

8. Electronic commerce, of course, is not limited to the Internet. It includes a wide number of applications in the narrowband (videotex), broadcast (teleshopping), and off-line environment (catalogue sales on CD-ROM), as well as proprietary corporate networks (banking). However the Internet, with its robust and network-independent protocols, is rapidly federating different forms of electronic commerce. Corporate networks are becoming intranets. At the same time, the Internet is generating many innovative hybrid forms of electronic commerce combining, for example, digital television infomercials with Internet response mechanisms (for immediate ordering), CD-ROM catalogues with Internet connections (for content or price updates), and commercial websites with local CD-ROM extensions (for memory-intensive multimedia demonstrations).

9. Electronic commerce is an emerging market. In this fast-moving and highly fluid environment, we are seeing the development of a wide array of innovative virtual businesses, markets and trading communities. Companies are now routinely outsourcing over the Internet functions such as order fulfilment and shipping to distributors which specialise in such services. Distributors themselves are "going virtual" [5], outsourcing the physical warehousing and movement of goods to logistics specialists such as commercial courier companies. Buyers, sellers and intermediaries are forming industry-specific Internet markets in such diverse fields as real estate, automobile parts and construction equipment. Similarly, global manufacturing industries, such as automobile, computers and aerospace, are actively integrating their supply chains through the Internet.

10. New functions are now being created. Innovative virtual middlemen are providing value-added services - such as brokering, search and referral - to businesses and consumers. Catalogue aggregators offer buyers "one-stop shops" to select products at the best price from many niche merchants. Classified advertising supersites present single points of access to scores of other sites carrying advertisements. Government-sponsored gateways, such as the United Kingdom's Department of Trade and Industry's Trade UK website, provide a single path to large numbers of selected companies trading on the Internet. Network operators, banks and computer companies are generating new revenues in their "hosting business", offering turnkey virtual store-fronts and virtual malls.

11. The era of the Web as a gift economy is ending. New forms of individual-to-individual commerce are appearing, as users themselves can charge small sums for content they publish on the Web. Similarly, commercial publishers can now sell information on the Web "by the sip, rather than by the gulp", page by page, article by article, photograph by photograph. The very small payments for such services generate new revenue streams, maximise the use of archives, and encourage widespread content development.

Opportunities for Europe

12. Electronic commerce offers enormous opportunities for Europe. It is estimated that electronic commerce revenues, both direct and indirect, on the Internet may increase to over 2 billion ECU worldwide by the year 2000 [6]. This revolutionary growth will lead to profound structural changes. Sectors such as retail and distribution with 20 million employed and tourism with 6 million employed, will need to adapt to exploit these opportunities, expand existing businesses and launch new ones. Some existing services will be substituted by new ones. Significant efficiency gains will be realised.

13. As a result, electronic commerce will have considerable impact on the structure and operations of the labour market. Further analysis is needed to fully assess these changes. Already at this stage it is apparent that new employment potential will principally be in information-based, high-value services. Training and education for these new skills will be needed. Faced with intense, global competition in a borderless digital environment, we must ensure that these new jobs are created and maintained in the European Single Market.

14. In Europe, electronic commerce already offers considerable incentives for both established and new players. SMEs are capitalising on the unprecedented opportunities to access global markets which the World Wide Web offers. Similarly, large economic sectors, such as the distance selling industry in Europe, are actively integrating the Internet into their marketing and order-fulfilment strategies. Electronic commerce offers improved transaction management and enhances business efficiency. It brings increased responsiveness and accountability - as well as cost reductions. It lowers barriers to entry, enlarges existing markets and creates whole new business areas for knowledge-based intangible products - potentially one of Europe's greatest strengths.

15. Consumers also stand to gain significantly. Electronic commerce revolutionises the relationship between consumer and provider. The consumer benefits from increased choice by being able to compare and choose instantly from a wide range of offers. Specialised products are increasingly available. Lower prices are possible as overheads and "bricks and mortar" costs fall and efficiency improves. A personalised, one-to-one relationship is replacing traditional mass-marketing and mass-distribution techniques, bringing more responsive service.

16. By its very nature, electronic commerce is transnational and encourages cross-border ordering and delivery of goods and services. It directly stimulates competition in the Single Market. The Single Market, in turn, offers electronic commerce the prospect of a critical mass of businesses and customers across national borders. In addition, electronic commerce gives peripheral regions new opportunities for accessing main markets. Electronic commerce represents, therefore, a potentially vital factor for cohesion and integration in Europe.

Electronic commerce: international comparisons

17. The opportunities electronic commerce offers have all too frequently been seized most energetically by Europe's main competitors. In the US, the Internet is fostering a thriving Internet core economy, creating new businesses, new revenue streams, and, more importantly, new jobs. Traditional economic sectors, such as the travel industry or catalogue business are migrating substantial parts of their commercial activities online.

Table 2: New business in the Internet: initiatives and innovations
  • Internet commerce in the US is building on a specific structural strength: innovative micro-enterprises. The US already boasts more than 250 000 "cyber companies" using the Internet commercially in a variety of ways.
  • In the US, travel services and flower distribution are particular success stories. Travel services currently amount to more than half of electronic commerce. The current market leader, launched in October 1996, is already claiming 250 000 users. There are nearly a thousand Internet flower distributors on the Web, with the market leader boasting of $30 million in sales in 1996.
  • In Europe, the direct marketing industry, which represented revenues of ECU 37 billion in 1995, is vigorously embracing the Internet. For example, one of the largest mail order companies in Europe claimed electronic commerce sales of DM 400 million in 1996. Similarly, the largest supermarket chain in the Netherlands offers an innovative "Internet teleshopper" service.
  • Similarly, new businesses are emerging in Europe in such strategic areas as electronic commerce tools and technologies. Success stories include, for example, the world leader in smartcard technology, a secure electronic payment pioneer, and a market leader in the Internet secure "virtual storefront" business.

18. This is a crucial area for future growth and competitiveness. Driven by corporate players, Internet commerce in the US is also drawing strength from a dense network of micro-companies. Ideally suited to the Internet environment, and enjoying essentially the same access to world markets as multinational corporations, some of these start-ups claim impressive growth rates and profitability [7]. At this stage, the US has built a substantial lead over Europe. A similar lead is opening up in the strategic sector of electronic commerce tools products and technologies which underpin the future development of electronic commerce. Similarly, Japan and the Asia/Pacific region also are rapidly catching up. Spurred by industry and government, these countries are enjoying huge growth in Internet connectivity and electronic commerce. Based on today's growth rate and investments, they could rival Europe in terms of electronic commerce revenues by the year 2000 [8].

Marshalling Europe's strengths

19. Recent figures indicate that in some Member States Internet commerce usage has caught up with, and sometimes overtaken, the US. Finland and the Netherlands [9] are now among the most dynamic online markets in the world. In this highly competitive environment, Europe can and must marshal its specific strengths.

Europe has a strong base in technology and infrastructure. It has powerful telecommunication operators (incumbents as well as new players), highly reliable basic infrastructure, and early deployment of advanced digital networks. Commitment to standardisation, exemplified by the success of industry-driven standards such as the GSM and the DVB, is another crucial asset. So is Europe's commercial advances in key electronic commerce technologies such as smartcards and intelligent agents. Content development is another of Europe's greatest strengths. Content - computer software, business information, video entertainment - is the very essence of immaterial electronic commerce. European companies, in particular publishing and multimedia industries, are harnessing their considerable resources and know-how in the global electronic information markets. Similarly, highly innovative SMEs are positioning themselves successfully in specialised markets such as multimedia production and multilingual content localisation. Europe also has a competitive retail sector, with adapted product ranges and an in-depth knowledge of the various consumer tastes around the continent, a strength which can be leveraged too.

Furthermore, the ability to trade electronically in a single currency - the Euro - across the world's largest single market will give European businesses considerable competitive advantages. Cross-border price transparency resulting from the Euro will stimulate the use of electronic commerce; conversely, electronic commerce will facilitate the transition to the euro.

20. Europe must tap the tremendous power of the entrepreneurial process and the force of the market. The ability of the Community and its Member States to steer developments is particularly important: if our companies are to succeed in today's competitive global electronic commerce market, they need an optimal environment to operate in.

This means competitive telecommunications, the availability of standards and interoperable solutions, and focused R&D. A sound and flexible regulatory framework which generates confidence for both business and consumers and ensures full and unlimited access to the Single Market is an essential key to Europe's success. Such a regulatory framework will be a major competitive advantage in itself. Steps must also be taken to improve the business environment: to exchange best-practice, facilitate access to venture capital and stimulate training. Ultimately, global solutions must be found. The Community should be in the lead in exploring and offering solutions at international level. The changes described and the actions to be taken are developed in the next chapter. They are ambitious. And they will take effort and political will to carry through. But if they succeed, Europe will be well placed to become the heartland of electronic commerce.

The need for global consensus

21. Electronic commerce is inherently a global activity. Improved access to global markets is accompanied by the challenge from other parts of the world. Multilateral dialogue, involving governments and industry, is currently being pursued in many forums. The private sector has been playing a pioneering role, for example, in the process leading to landmark global agreements such as the Information Technology Agreement (ITA) and the Mutual Recognition Agreements on conformity assessment (MRAs). With the successful conclusion of the World Trade Organization (WTO) negotiations on services (1993) and telecommunications (1997), the Community has committed itself, together with Member States, to the opening of most electronic commerce activities. Any European action on electronic commerce therefore has to be compatible with those WTO commitments.

At the same time, the Community will continue to fight trade barriers, in order to secure access to infrastructure and services in other countries. This will be achieved by enforcing multilateral commitments made by the European Union's partners in WTO. Many trade issues specific to electronic commerce will also need to be pursued at a bilateral level, in particular with the US. In this perspective, the New Trans-Atlantic Agenda, the Information Society Dialogue and the TransAtlantic Business Dialogue will continue to play a major role.

22. An issue of growing concern is the challenge posed by the emergence of cyber-crime, such as electronic money laundering, illegal money gambling, malicious hacking, or copyright infringement. International cooperation is already well advanced in a number of key areas, such as the fight against organised transnational crime on new communication networks. Faced with new forms of high technology and computer crime on global networks (reported criminal hacking cases are doubling every year), governments have responded vigorously [10].

In Europe (Europol), as well as in the wider international environment (P8), specialised task forces have been set up, and transborder operational cooperation reinforced in such key areas as the real-time "trap and trace" of online criminals and "search and seize" of digital evidence. Efforts are similarly being made to harmonise the criminalisation of computer offences and avoid digital havens. A high-level Group, set up following the Dublin Council, is finalising an Action Plan to fight cybercrime. These efforts are crucial to reinforce trust and confidence in transnational electronic commerce.

[4] The Minitel experience in France shows that "intangible" goods and services companies initially stand as the main beneficiaries of online commerce development.

[5] The most successful Internet bookstores and music stores in Europe and in the US are thus truly "virtual companies": orders and shipments are made directly from publishers' warehouses, and providers' databases are fully integrated with those of transportation companies.

[6] Source: ActivMedia, ROMTEC in European Information Technology Observatory (EITO) 1997.

[7] A recent market survey of 1100 Web-based firms suggested that over 30% were profitable after a year, and that 30% more expected to be profitable within two years. Reported profit margins of twenty per cent and above are common (Figures from ActivMedia, reported in Business Week, 23 September 1996, Making Money on the Net).

[8] Source: Gartner Group.

[9] The Netherlands is now one of the most developed electronic commerce markets in the world, with high PC penetration (38% of households), high use of Internet (22% of PC users have access to Internet, against 16% in the US, and 12% in Germany), and high use of electronic commerce (33% of Internet users use it to buy online, against 22% in the US). Source: International Data Corporation/Link

[10] The US Federal Trade Commission and the Gendarmerie Royale du Canada each maintain Web sites to inform users of various types of illegal schemes and abuses on the Internet. See http://www.ftc.gov and http://www.rcmp-grc.gc.ca/html/scams-f.htm respectively.

Executive Summary
I - The Electronic Commerce Revolution
II - Ensuring Access to the Global Marketplace
III - Creating a Favourable Regulatory Framework
IV - Promoting a Favourable Business Environment

This document is located at http://www.cordis.lu/esprit/src/ecomcom1.htm
It was last updated on 16 April 1997 by esprit@dg3.cec.be