Global E-Commerce: Australia

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GLOBAL E-COMMERCE: AUSTRALIA

The development of e-commerce throughout the world ranges from the widely adopted use of the Internet as a medium for both business-to-consumer (B2C) and business-to-business (B2B) commerce transactions in North America, to the relatively embryonic stages of basic telecommunications service in many Third World countries. E-commerce development in most other areas, including Australia, tends to fall somewhere in between these two extremes, depending on factors such as existing technological infrastructure; the technological expertise of residents; the available of qualified employees; funding available for e-commerce ventures from governmental, commercial, and individual sources; and national, regional and local commerce regulations. Fueling the North American e-commerce boom was an unprecedented level of venture capital available from a variety of sources, as well as access to the world's largest base of technical experts, many of whom had obtained the skills to not only work for other e-commerce businesses, but also to establish their own ventures. Although both funding and technical expertise were available in Australia, they existed on a much smaller scale. Australians also tended to be skeptical about the potential of e-commerce ventures, which meant that many existing businesses were in no rush to build Web sites. In addition, Australia's technological infrastructure had developed more slowly than that in North America. As a result e-commerce there grew at a slower pace. However, the growing number of Australians with Internet access—an estimated 7.4 million, or 55 percent of residents, in early 2001—does position Australia as a potential e-commerce leader in the Asia/Pacific region.

EARLY HISTORY OF INTERNET USAGE

The Australian Overseas Telecommunications Commission created an international dial-up service in the mid-1970s that allowed a few Australians to connect to ARPANet, a U.S. Department of Defense network that proved to be the predecessor of the Internet. At roughly the same time, the Australian Computer Science Network (ACSNet), a modem-based network using the Unix-to-Unix Copy Protocol (UUCP), was developed by computer science professors at the University of Melbourne and the University of Sydney. It was in the early 1980s that Australia put in place a permanent e-mail connection to ARPANet. A few years later, an e-mail gateway was added to ACSNet. ACSNet's storing, forwarding, and transferring features allowed Australia's computer scientists to engage in many of the same technologies, such as e-mail and file transfer protocol (FTP), that had recently been embraced by their colleagues around the world. Ironically, it was the success of this early network that many industry analysts blamed "for Australian computer scientists gaining access to the Internet about 5 years later than they should have," wrote Roger Clarke in May of 2001.

Efforts to expand network access to non-computer science areas of academia resulted in the creation of the South Pacific Education and Research Network (SPEARNet) by the Australian Vice-Chancellor's Committee (AVCC). In the late 1980s, work began on the creation of a national network for data, voice, and fax services. Eventually, this project evolved into what became known as the Australian Academic & Research Network (AARNet), which was officially launched in 1990 as an Internet protocol (IP) network without voice or fax capabilities. Like SPEARNet, AARNet was operated by AVCC. Melbourne University helped to oversee the development of Pegasus Networks, an early Internet Service Provider (ISP) that granted international Internet access via a connection to AARNet, in 1991. Within a year, several thousand Australians signed up for the service. Also in 1992, the Australian Public Access Network Association was created to offer hosting services to a growing number of bulletin boards and newsgroups; it eventually evolved into a noncommercial Internet access provider. The Asia-Pacific Network Information Centre, which was created in 1993, began to oversee IP address registration in the Asia-Pacific region shortly after its formation. That year, ARPANet decreed that acceptable use of the Internet could be expanded beyond research-oriented endeavors; this decision proved to be a major milestone in the transformation of the Internet into a commercial medium.

The advent of the World Wide Web sparked increased demand for Internet access across the globe. To better facilitate the growth of the Internet market in Australia, AARNet decided to implement a Value Added Reseller (VAR) program, through which it would allow ISPs to connect to its Internet backbone for a fee based on usage. In May of 1994, connect.com .au became the first ISP to sign up for the VAR program. That year, iinet Technologies, based in Perth, also began offering dial-up connections to the Internet. Australia's public telephone company, Telstra, launched its own ISP the following year. According to Clarke, "In mid-1995, AVCC transferred its commercial customers, associated assets, and the management of interstate and international links to Telstra. Telstra thereby acquired the whole of the infrastructure that at that stage constituted 'the Internet in Australia."' Many analysts, including Clarke, believe that Telstra's sluggishness in responding to the demands of Internet growth worked to hinder the development of an Internet infrastructure, and thus e-commerce, on the continent. "During 1994-97, the international linkage represented a serious bottleneck, but gradually Telstra started releasing additional capacity at something closer to the rate at which demand was growing."

GROWING E-COMMERCE EFFORTS

It was in the mid-1990s that e-commerce efforts in Australia began in earnest. One of Australia's first CD e-tailers, SiteZero, emerged in 1996. That year, Melbourne IT secured a license to oversee administration of the com.au domain name registry. The firm began charging roughly $125 for domain name registration, prompting a surge in requests for net.au names, which were still free. Unable to keep up with demand, net.au registrar Connect.com began charging fees comparable to those of Melbourne IT. In 1997, Microsoft Corp. made its way into Australia with the creation of ninemsn.com. A joint venture with Australian media giant PBL, the new site was able to pull content from Nine Network television programming and ACP magazines. It also allowed its users to access a variety of free Microsoft services, such as e-mail service Hotmail, MSN search, and Messenger. By 2001, more than five million visitors every month were visiting ninemsn.com, which had grown into Australia's leading Web site. Other top Web sites by then included Yahoo!, eBay Australia, Excite Australia, and Telstra.com.

Depsite the launch of successful sites like dstore, which grew into Australia's leading online department store, Australians proved hesitant to embrace e-commerce. A mere 2.7 percent of Australian adults made online purchases in 1998; in 1999, that percentage grew to only six percent. A February 2000 study conducted by Australian law firm Freehill, Holling-dale & Page surmised that privacy issues were at least partly to blame. Although 80 percent of the online companies surveyed in the study adhered to some sort of a privacy protection standard, only 12 percent bothered to publish a privacy statement, which is a brief description of what it is a Web site does to protect the private information—such as credit card numbers and e-mail addresses—of its visitors. In addition, roughly 25 percent of the firms were unable to provide an online method of payment that was encrypted. However, despite their impact on e-commerce, security concerns certainly did not prevent Australians from getting online; during 2000, nearly 1.9 million new users, many of them residents of more rural areas, signed up for Internet access.

By then, the world's largest online services provider, America Online Inc. (AOL), had made its way into Australia via a joint venture with German publishing giant Bertelsmann AG. In March of 2000, AOL forged an alliance with AAPT Ltd., the third largest telecommunications provider in Australia. The joint venture, dubbed AOL Australia, took the place of the previous joint venture with Bertelsmann. The deal between AOL and AAPT called for the continuing development of content and e-commerce options on the AOL Australia Web site, as well the creation of wireless Internet access services for the continent.

According to a November 2000 press release by Jupiter Research Inc., "Despite Australia's current 40 percent online penetration rate—one of the highest in the world—revenue opportunities for both advertising and commerce have yet to materialize." According to a study conducted by Jupiter, online advertising in 2000 garnered $35 million, roughly 0.5 percent of total ad expenditures on the continent, compared to the 1.7 percent of total ad spending that online ads accounted for in Canada, a country with a 42 percent online penetration rate. Although the percentage of Web surfers in Australia making online purchases doubled that year from six to 12 percent, e-commerce rates continued to lag behind those in North America, where nearly 25 percent of Canadian Internet users and 40 percent of U.S. Internet users completed online purchases. The study cited a lack of e-commerce players in Australia as one culprit; a survey of 100 retailers revealed that less than 40 percent had made an effort to launch Internet operations, and many of those not conducting Internet-related business had no plans to do so in the near future. By the end of the year, e-commerce activity in Australia reached $2.9 billion; although sales were well below those of both Europe and North America, they did position Australia as one of the e-commerce leaders of the Asia-Pacific region.

Australia's two largest telecommunications firms, Telstra and Cable & Wireless Optus Ltd., began to make substantial advances in connectivity options in 2000. Although the copper wire infrastructure of the continent sorely needed updating, high-speed DSL connections were available to many residents. In addition, faster dial-up connections were also made more accessible to a wider range of Australians. In 1998, only 30 percent of rural Internet users had access to modem connections of 28.8 kbps or faster; by 2000, this percentage had doubled. In metropolitan areas, 73 percent of Australians could access the Internet at speeds faster than 28.8 kpbs. This compared to 80 percent of U.S. Internet users, 93 percent of British users, and nearly 100 percent of Canadian users.

Unlike North America, where a multitude of dot.com upstarts saturated the e-commerce arena well before many traditional firms made their way online, most Australian e-tailers in 2000 were the online outlets of brick-and-mortar firms. According to a January 2001 article in E-Commerce Times, "Australian e-tailing is dominated by the traditional retailers who have entered the e-commerce realm. Currently, 50 percent of online stores in Australia are the e-tailing arms of traditional retailers. The next 35 percent of Australian e-commerce sites are online-only merchants, while the remaining 15 percent are wholesalers who use the Internet to sell directly to customers."

Early in 2001, in an effort to foster increased levels of e-commerce, the Australian government passed the Commonwealth Government Privacy Act, a series of privacy stipulations that all online businesses were required to follow by the year's end. The requirements included publishing a privacy policy and making its location obvious to Web surfers. Other e-commerce efforts by Australia's government included continued deregulation of the telecommunications industry, a move designed to increase competition and thus drive down prices and foster the release of innovative products and services. In July, the government set aside $6.64 million in funding for B2B projects through 2006. Projects that secured grants from this program, dubbed Information Technology Online, included MarketBoomers, an online marketplace for the hotel and hospitality industry of Queensland, and Pharmaceutical Electronic Commerce and Communication, an online marketplace for health care products manufacturers.

E-commerce continued its steady pace of growth in Australia throughout 2001. Although only 5.4 percent of Australians used high-speed Internet connections that year, many analysts believed the DSL market would grow as telecommunication firms continued to make those services available to rural areas. Several market researchers also predicted that improved privacy measures on Australian e-commerce sites would entice more Australians to make online purchases. According to Ernst & Young, e-commerce in Australia will grow to $39 billion by 2004, as the number of online shoppers jumps from 2.2 million in 2000 to 5.84 million.