The Myth of the Level Playing Field in E-Commerce

The argument that e-commerce allows price and product quality to trump large marketing budgets has been crushed by, well, large marketing budgets.

One of the core beliefs among e-commerce cognoscenti is that the Web serves as the great equalizer, allowing 20-employee retailers to effectively compete with Fortune 100 giants with $100 million ad budgets.

Of course, those Fortune 100 ad budgets certainly help consumers think about clicking over to the big Web sites; so the Webs populist response is to rely on price-comparison sites that—in theory—put all vendors on an equal footing so that price is the only differentiator.

If that were true, the smaller retailers would have a fair fight. Much lower overhead sometimes allows them to charge less than the big boys could, though much weaker volume discounts might force them to charge more. All in all, it often washes out.

Recently, though, identity theft and related security concerns have entered the equation, returning the odds to strongly favor the major players.

What do security and identify thieves have to do with wooing more consumers while charging 15 percent more for the identical product? Paradoxically enough, the answer is "trust."

Rightly or wrongly, consumers tend to trust larger sites more for three reasons.

First, they want to trust them more, in the way that a 4-year-old wants to believe his/her parents know best and that blind obedience is in their best interest.

Secondly, they emotionally believe that a larger outfit is more professionally run and would have the resources to take proper security safeguards. (The fact that most large IT departments never bother to install the most crucial OS patches is something they either dont know or choose to conveniently forget.)

The third reason is more logical, as it is steeped in cynical theories that retailers will do things only that are in their self-interest. That reason is that if customers of a large site get bloodied by thieves, its quite likely that bad publicity would result and the retailer would get beaten up.

In a strange twist, the Web has succeeded in giving all companies equal access to consumers, but security fears make them long for the comfort of a major established player.

Could it be that consumers dont truly want to be able to shop for the best price, regardless of source?

"Consumers, they dont know anything about PCI compliance, but they are afraid of identity theft so the larger sites give them a feeling of security," said Asa Holmstrom, president of security firm Columbitech.

Most consumers, Holmstrom said, will use Google and other search engines for looking for products and will strongly examine price, but when they choose the site that theyre going to give their credit number to, "they are probably going to pick a big one."

The CEO of one of those price-comparison sites freely volunteers the view that consumers dont want to make purchase decisions based solely—or even mostly—on price. "Trust is the single most important factor," said CEO Michael Yang.

The man who arguably has the most to lose from aggressive price-comparison sites—Amazon CEO Jeff Bezos—said he has little to fear.


Bezos doubts that price comparison sites will hurt his company much, but hes trying to fight back with lower prices and better delivery options anyway. (Duration: 42 seconds)

Bezos, who was talking with me on an entirely different subject Friday afternoon, said his site is well-positioned to shine brighter than small sites in those comparisons.

"We have been working on lowering prices, increasing selection, having great availability. The Internet—whether its price-comparison shopping sites or anything else—is this fantastic world where consumers have terrific information," Bezos said. "What we seek to do is to provide the best all-end value for customers so that customers choose us."

Amazon has argued that their free shipping and related services provide an edge that other sites cant match. And, yes, the relative stability and large size of Amazon—and the strength of its brand—certainly doesnt hurt.

In a sense, the major vendors have been passively taking advantage of the computer industry standby of FUD (Fear, Uncertainty and Doubt) to tweak the e-commerce equalizing factor to once again favor the largest vendors. Be suspicious of a large vendor touting their security features too much.

Next Page: The abuse of the card verification number.