Sunday, Sep 7, 2008
What does the failure of e-commerce experiments tell us about the potential for making money on the Net?
Oct 20, 2000 | Sen. Orrin Hatch, R-Utah, doesn't want us to buy wine on the Net. His argument is that minors are using online ordering to get their hands on booze. Maybe so. Or maybe the wholesale distributors of alcoholic beverages would rather not deal with online competition, and have found some friends in high legislative places.
Either way, Hatch's bill -- attached at the last minute to another piece of legislation about traffic in sexual slavery, of all things -- passed the Senate last week 95-0, and President Clinton is expected to sign it into law. The measure would bring the federal courts into the enforcement of states' laws against the direct shipping of alcoholic beverages and help turn what was a patchwork quilt of conflicting state regulations into a more uniform national prohibition.
Personally, I think it's absurd that I won't be able to order my favorite boutique pinot noir or microbrew from out of state just because the government can't figure out how to stop a 16-year-old using a parent's credit card from doing the same thing. But my inconvenience is trivial compared with the larger lesson here: Clearly, it's time to abandon any lingering notion you might have that the Internet is somehow a free-market paradise, in which buyers and sellers connect with one another beyond the reach of existing (and sometimes arbitrary) social and political restraints.
Can the Net cut out the regulators and the middlemen? It can try. But they will strike back.
In this time of plummeting stock prices and dot-com bankruptcies, it's hard to remember back a mere two or three years ago, to an era when analysts spoke adoringly of the Internet's power to make good on the promises of "friction-free capitalism." The friction-free vision was bold and more than a little Utopian: Somehow, the technological power of the network itself would overwhelm all the messy government regulations and trade-restraining business practices that placed a drag on our economy -- all the "frictions" that prevented the free market from doing its thing.
Friction, however, seems to be alive and well. The offline alcoholic beverages industry isn't sitting back and thinking, "Gee, guess the Internet makes us irrelevant!" It's fighting for its turf by grabbing for all the usual levers of power. If you thought that the Internet's ability to evade the traditional state-by-state sales tax was a sign of some inherent freedom from government interference endowed by the Net's sheer coolness, the saga of the Hatch wine bill should make you think again.
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