 
Selling Across the Net: Bits vs Atoms
 |
| Physical
Goods |
The first stores on the Net sold physical
goods: flowers, CDs, books. Many businesses of this type still thrive
in Cyberspace. In some ways, the sale of physical goods over the
Net is the easiest for a company to get into. An order comes in,
probably including a credit card number for payment. The vendor
needs to verify the credit card number before shipping the product
but he needn't verify it in real time (30 seconds or less) while
the customer waits across the Net.
If there is a problem with a delivered product, returns and proof
of purchase are handled in the obvious way: the customer sends
the product back to the vendor along with the receipt. |
| Electronic
goods |
Selling electronic goods--bits in one
form or another--is very attractive because of the potential for
low cost of sales. At first glance, one can put a file on the Net,
take a credit card order (which credits the seller's account without
human intervention) then ship the bits at no charge. The seller
is done except for the burden of figuring out how to spend all that
money rolling into his account.
In practice, selling electronic goods is more complex than that.
Here are a few things to consider. |
| Realtime verification |
A customer placing an order at a Web
site wants to put in his credit card number and see the bits begin
to ship. That implies credit card verification within seconds or,
at the most, minutes. Realtime credit card verification services
are available across the Net at a cost of about $1-2 per transaction.
|
| Deferred shipment |
Another approach is to defer shipment
of the bits until the credit card has been verified. The bits might
be delivered attached to an e-mail message. This approach will work
if the file to be delivered is about 500 kBytes or less...more than
that will lock up some mailers at the receiving end. Key shipment.
Yet another approach: let the file go immediately. In fact, make
the file freely available for anyone to download, but encrypt it.
The purchase is then not for the file itself but for the key that
will decrypt the file. The key could be delivered immediately at
the Web site or by e-mail without concern for file size. |
| Reshipment |
Anyone who has downloaded files across
the Net is aware that they don't always arrive intact. Sale of bits
across the Net requires a scheme for allowing the customer to come
back for multiple downloads. And since customers don't always thoroughly
check out new software as soon as they get it, these attempts must
be permitted to take place over a period of days or weeks. |
| Returns |
What happens if the customer is not
satisfied with an electronic product? If it were a physical product,
the customer would ship it back and receive a refund. But not with
bits...it makes no sense to ship the bits back: the vendor already
has them and the customer still retains them. The current approach
is to have the customer sign a statement called a Certificate of
Destruction swearing that the bits have been deleted. |
| Credit card fraud |
Credit card fraud is a problem whether
selling bits or atoms, electronic goods or physical goods. One of
the safeguards with physical goods is only to ship product to the
billing address of the credit card, and view with suspicion special
shipping instructions like "leave the box on the front porch."
There is no shipping address on the Net known to the credit card
companies. Besides, much of the credit card fraud on the Net is
not done be people who actually want the product. Rather it is done
by pranksters who order goods simply to beat "the system."
A software vendor may think, well, it's just bits. We haven't
actually lost anything, so no big deal. Not so. When the money
for a stolen credit card purchase is then refunded to the person
whose card was misused, the seller is charged a refund fee of
$20-30! The refund fee applies even after the credit card has
been "verified." If a bunch of hackers pass around your
store address as a place to play their pranks, it can quickly
become very expensive for you. |
|
©1997, Harry Tennant & Associates |
|
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By Dr. Harry Tennant,
Harry Tennant & Associates
3212 Cedar Ridge Drive
Richardson, TX 75082
harry@htennant.com
(214) 340-0694 Fax: (214) 652-4226 |