The Price is Byte

The internet economy is changing the way we buy things – and changing what it means to buy something.

E-commerce, the online trade of good physical and otherwise, is a digital boomtown. The value of online markets has from under 1 percent of retail sales in 1999 to more than 7 percent in the beginning of 2015. That means that online retail is growing at roughly 3 times the rate of physical retail sales. For some perspective, we can look at whole number figures. That 7 percent of retail sales is nothing to sniff at; it represents a value of something like 350 billion dollars.

What remains to fully realized are the ramifications of these online sales. There’s not much difference between buying a t-shirt online today and placing a mail order for the same fifty years ago. T-shirts, no matter how you buy them, are not exactly a game-changer.

Instead, the neatest feature of online marketplaces is the sale of digital products. Online novels, movies, television, textbooks, games, and software are all available for a credit card number and a few clicks. Today all of it can be downloaded to anywhere there’s an internet connection and a person who wants it. If I want software to edit a movie or shop a photo, it’s at my fingertips. By the same token, if I want to stream the show I missed last night, or listen to a symphony written 300 years ago, I can in an instant.

There’s a price to this convenience. Sometimes this price is in cash. Convenience costs. I need to pay a phone bill for the data that I stream remotely, and I need to pay my service provider to keep my home wired in. Subscriptions to services like Netflix, or Hulu, need to be paid monthly. There’s a whole new world of service costs and utilities that have been opened up to the public.

At other times, the price is less tangible. Earlier I mentioned that the internet economy changes what it means to purchase. Oftentimes purchases are no longer an exchange of goods, so that one party is compensated for the transferal of property. Instead, the case is becoming more a matter of leasing than selling. In the modern marketplace, this takes the form of ‘licensing’.

Licensing is the process by which a seller grants a buyer a ‘license’ to use a product. The buyer agrees to a license agreement, an ‘EULA’, during the purchase. Typically, this takes the form of a wall of text, heavily encrypted behind a jargon firewall, presented with an ‘accept’ and ‘reject’ button. Most people have almost certainly seen this in one form or another. This document allows the seller to revoke the buyer’s access to the product on any violation of the terms of the license agreement.

This bait-and-switch, the replacement of the product with the license behind the same ‘buy’ button, has been a recent occurrence. The earliest examples were the software licenses for products like Photoshop in the mid-90’s. A holdover of the transition from business-targeted products to retail, the first software licenses were almost impossible to enforce. With limited development of software to report or even detect license violations, the dichotomy was in name only. People became used to scrolling down the text of an EULA to reach the accept button without reading a word.

As technology has progressed, however, the ability of companies to enforce these EULA’s has increased. Software can automatically report license agreement violations over the internet. Licenses can be revoked with extreme prejudice.

A modern example is the Amazon kindle library. A woman was revoked access to her library of eBooks because Amazon’s computer system though she has violated the EULA she agreed to by using Amazon’s marketplace.  What many people believed to be an exchange of ownership turned out to instead be closer to an expensive lending program.

The digital marketplace is herald of the future. Some things can only be bought in person, and there will always be holdovers, but by and large people love convenience. Private companies have the power to shape the retail experience online because they’re the orchestrators of the experience. However, with enough pushback from consumers, the public can also participate in crafting the shape of online retail.