The Canadian Internet EconomyThe Canadian Internet EconomyPresentation to University of Ottawa Regulation of Internet Commerce Class

Richard SimpsonDirector GeneralElectronic Commerce BranchJanuary 21, 2008

Richard SimpsonDirector GeneralElectronic Commerce BranchJanuary 21, 2008

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INTERNET USERS

88%

76% 74%70% 70% 68% 68% 68% 68% 66%

58%53% 53% 52% 51% 49%

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Source: ITU, OECD Key ICT Indicators, 2005

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The Internet has become ‘the platform’ for commerceThe Internet has become ‘the platform’ for commerce

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32 32

30 29 29 28 2726

2423

2220 20 20 20 19

17 17

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10

15

20

25

30

35

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Au

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DSL Cable Fibre/LAN Other

Broadband adoption is a main driverBroadband adoption is a main driver

BROADBAND SUBSCRIBERS PER 100 INHABITANTS

Source: OECD, 2006 Broadband Statistics Dec. 2006, April 2007

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Source: IDC, Worldwide Internet Usage and Commerce 2005-2009 Forecast update, April 2007

$3,407$4,516

$5,600$6,716

$7,602$3,824

$5,079

$6,326

$7,612

$8,758

$417

$563

$726

$896

$1,156

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

2005 2006 2007 2008 2009

B2B B2C

In billions of $

Allowing the internet economy to explode Allowing the internet economy to explode

WORLDWIDE E-COMMERCE SALES

• Worldwide e-commerce spending projected to grow at CAGR of 23%, exceeding $8.75 trillion in 2009

• The growth of B2B spending is comparably strong at CAGR of 22%, amounting to $7.6 trillion by 2009

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ICTs and telecom networks are the foundation

of the modern global supply chain

. . .supply chains to go global. . .supply chains to go global

• Permits globalization of investment- Trade liberalization, mergers and acquisitions, emerging

markets, offshoring, border security, outsourcing

• Promotes firm efficiency and productivity- Channel coordination and integration through new technology

• Increases value- Reductions in cycle time, more reliable on-time deliveries, wider

variety of products and packages

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• The “mainstreaming” of electronic commerce has created an e-economy in which the Internet and supporting ICTs are the central infrastructure

– E-marketplaces– Social networks– Virtual worlds

• E-business applications have become the primary tool for the transformation of business processes and marketplace innovation:

– Digital products and services– E-logistics and supply chains– E-payments and online banking– Online shopping– Online procurement

. . .creating new markets and businesses . . .creating new markets and businesses

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32%

22%

18%

11%

26%

31%

31%

19%

11%

36%

35%

20%

26%

8%

27%

0% 10% 20% 30% 40%

Lower costs

Reach newcustomers

Better coordinationwith suppliers

Reduce time tomarket

No benefits 2004 2005 2006

% of enterprises that use the Internet

Source: Statistics Canada, Survey of Electronic Commerce and Technology, April 2007

Canadian firms are seeing the benefitsCanadian firms are seeing the benefits

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60%

47%

36%

27%

20%

14%10%

35%

48%

59%

66%72%

81%85%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2000 2001 2002 2003 2004 2005 2006

Low speed (Regular telephone dial-up )

High speed (Cable, ISDN/xDSL line, T1 line or greater)

. . .and moving to broadband . . .and moving to broadband

Source: Statistics Canada, Survey of Electronic Commerce and Technology, 2000-2006

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• Internet sales in Canada continued to grow in 2006 to $49.9 billion, up 40% from 2005 (Statistics Canada, April 20, 2007)

• Canadian online advertising revenues totalled $1.01 billion in 2006, up 80% from $562 million in 2005 (Interactive Advertising Bureau of Canada, April 2007)

Source: Survey of Electronic Commerce and Technology 2006, The Daily, April 20 2007, Statistics Canada

$5.5 $6.3$10.8

$18.2

$26.4

$32.8

$46.5

$5.7 $6.5

$11.1

$18.9

$28.3

$35.8

$49.9

$-

$10

$20

$30

$40

$50

2000 2001 2002 2003 2004 2005 2006

Private sector Public sector

. . .which contributes to growth . . .which contributes to growth

Value of Canada’s Total Internet Sales2000-2006 (Billions)

Policy ChallengesPolicy Challenges

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47%44%

42%

51%

45%

37% 35% 34% 35% 37%

18% 17% 18% 19% 17%

52%

36%

13%

0%

20%

40%

60%

2001 2002 2003 2004 2005 2006

Goods do not lend themselves to Internet transactions

Prefer to maintain current business model

Security concerns

Electronic commerce adoption in Canada faces consistent barriersElectronic commerce adoption in Canada faces consistent barriers

Source: Statistics Canada, Survey of Electronic Commerce and Technology, 2000-2006

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6%

18%

26%

63%

7%

22%

29%

71%

7%

43%

37%

7%

43%

38%

8%

45%40%

82% 82% 83%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Sell Online Purchase Online Web Presence Internet Access

Pe

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ge

of f

irm

s

2000 2002 2004 2005 2006

Online Business Activities in Canada 2000-2006

Source: Statistics Canada, Survey of Electronic Commerce and Technology, April 2007

Resulting in low adoption of advanced applications Resulting in low adoption of advanced applications

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Source: Symantec Corporation - Symantec Internet Security Threat Report, Trends for July-December 2006

MALICIOUS ACTIVITY BY COUNTRY PER INTERNET USER

• 90% of spam is relayed from zombie computers• A network of zombie computers is capable of sending hundreds of

millions of spam messages in a couple of hours

Internet threats remain a challengeInternet threats remain a challenge

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Consumers:

• Criminal misuse of personal, online banking and other financial information to steal money

• Luring individuals to counterfeit websites via spam e-mail (phishing)

• Deceptive marketplace behaviour, using false or misleading product claims in the online marketplace

Businesses:

• Electronic theft of corporate information holdings and transaction records

• Counterfeiting of web addresses to defraud individuals and businesses

Networks:

• High volumes of spam that can equate to 75% of all e-mail traffic clog and slow networks. Providers forced to spend millions to prevent spam from entering their networks

• Networks are threatened by viruses, worms, botnets, and other malicious based software (Malware) which can lead to attacks that threaten the reliability and stability of the Internet, electronic commerce and online banking

What are these threats? What are these threats?

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• Privacy fears discourage electronic commerce in Canada:– Canadians more concerned about security and privacy than U.S.:

– 40% Canadians avoid online shopping compared to 24% of Americans. (Canadian Alliance Against Software Theft (CAAST) - November 2005)

• Users change their online behaviour due to security concerns:– Majority (91%) of U.S. Internet users have altered online behaviour. (Pew

Internet and American Life Project – June 2005)

– Number of U.S. phishing attempts grew 28% in 2005 and will inhibit three-year U.S. e-commerce growth rates by 1% to 3%. (Gartner, June 2005)

• Consumers lose trust in online banking:– 74% of online Canadian online have concerns about e-mail fraud which

affect their online financial behaviour. (Forrester – April 2005)

– 80% of consumers in the U.S, Canada, Germany and the U.K concerned about someone stealing their online identity to access online bank accounts. (Entrust Internet Security Survey, 2004).

Impacts on the internet economy Impacts on the internet economy

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• The costs to both business and consumers is estimated at $100 billion per year globally

Ferris Research, February 2007

• Cost of phishing per incident estimated at $850, while total damage to US economy is $630 million

Consumer Reports, State of the Net 2006

• Cost of spyware per incident estimated at $100, while total damage to US economy is $2.6 billion

• Spyware infections prompted nearly a million U.S. households to replace their computer

Consumer Reports, State of the Net 2006

The costs are significantThe costs are significant

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% OF INTERNET USERS WHO SAY THE FOLLOWING IS AVAILABLE ABOUT THEM ONLINE

Yes No Don’t Know

Home address 35% 40% 25%

Company or employer 35% 44% 11%

Email address 32% 20% 38%

Home phone number 30% 47% 23%

Things written that have your name one it

24% 59% 17%

Photos of you 23% 67% 10%

Video of you 2% 92% 5%

And our digital profile is growing. . . And our digital profile is growing. . .

Source: Pew Internet & American Life Project Tracking Survey, November 30 - December 30, 2006 Margin of error is ±3% for results based on total internet users [n=1,623]

Policy ResponsePolicy ResponseIn many ways, we are at the very beginning. During the next digital decade, technology will make our lives richer, more connected, more productive, and more fulfilling

Bill Gates, January 2008

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• Ensure clear and consistent ground rules for the online environment to:– Promote consumer trust and business confidence

• Network Protection– Develop best practices to protect the global network

• Standards– Keep them open and interoperable

• Coordinate laws, policies and regulation across borders

Creating the right environmentCreating the right environment

“… “… Government’s role is to provide a supportive and responsive policy Government’s role is to provide a supportive and responsive policy environment for business and consumers… Countries that can provide environment for business and consumers… Countries that can provide such an environment will be better positioned to compete internationally.”such an environment will be better positioned to compete internationally.”

The Canadian Electronic Commerce Strategy (1998)The Canadian Electronic Commerce Strategy (1998)

“… “… Government’s role is to provide a supportive and responsive policy Government’s role is to provide a supportive and responsive policy environment for business and consumers… Countries that can provide environment for business and consumers… Countries that can provide such an environment will be better positioned to compete internationally.”such an environment will be better positioned to compete internationally.”

The Canadian Electronic Commerce Strategy (1998)The Canadian Electronic Commerce Strategy (1998)

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Threats to the Internet and online commerce require a concerted, cooperative approach with combined public and private sector efforts:

Governments

• Responsible for the legal framework, providing strong laws with meaningful penalties to address threats, and for effective enforcement

Industry• Voluntary standards, guidelines and best practices

• Systematic blocking of spam messaging – ISP filters, better network management, corporate firewalls

Joint• Increased consumer awareness and education

• Improved international cooperation and coordination

Protecting the internet economy: network threatsProtecting the internet economy: network threats

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Strengthen laws for the protection of personal information and privacy as part of the statutory review of PIPEDA.

• Currently considering the Report of the Parliamentary Committee (ETHI) and its recommendations concerning: the definitions of lawful authority and mandatory security breach notification

• Other areas of work:

- Enhanced related authentication requirements for accessing/disclosing personal information

- Measures to counter deceptive or fraudulent acquisition of personal information (pre-texting)

- Measures to address harmful/fraudulent information-handling practices

Protecting the internet economy:personal privacyProtecting the internet economy:personal privacy

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• Global harmonization of Internet laws, policies, standards, regulations, and business practices:

– Common guidelines to protect the privacy of personal information across borders

– Cooperation to address global cyber-threats such as spam

– Alignment of rules and standards for the conduct of e-business trans-nationally, e.g. recognition of electronic signatures and contracts, authentication

• Cross-national cooperation essential among government, industry and consumers

– The Messaging Anti-Abuse Working Group (MAAWG), a private sector body, leads coordination of anti-spam efforts of Internet Service Providers (ISPs), technology providers and bulk email senders, from around the world

International cooperation is essentialInternational cooperation is essential

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• The 2008 Ministerial will mark the 10 year anniversary of the milestone Ministerial Conference held in Ottawa in 1998

• Since 1998, the Internet is increasingly critical to our economies and societies – with implications for all policy domains.

• Key challenges include:– Expand access to all people around the world– Empower and protect Internet users, especially the most vulnerable– Ensure a secure and trusted online environment– Promote Internet-based innovation, investment, competition and

choice– Make better use of the Internet to address global challenges such as

climate change

2008 OECD Ministerial Meeting“The Future of the Internet Economy” 2008 OECD Ministerial Meeting“The Future of the Internet Economy”

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‘Shaping policies for Creativity, Confidence and Convergence in the digital world’‘Shaping policies for Creativity, Confidence and Convergence in the digital world’

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• Build awareness of the importance of the Internet economy– All public policy should favour development and use of Internet

– Publish better metrics for benchmarking and monitoring the Internet economy

• Use the Internet to improve social welfare- Online delivery of services

- ICTs and environment

• Make the Internet economy truly global– Capacity-building for non-OECD economies

– Cross-border regulatory enforcement cooperation

And addressing . . .And addressing . . .

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• Internet as platform for innovation, research, economic opportunity

• ICTs and the environment

• RFID and sensor-based networks

• Regulatory frameworks for converged networks

• Internet infrastructure issues: investments and access

• Internet services issues: intermediaries, traffic management, discrimination, blocking, control and reporting, etc.

• Anti-malware collaboration model

• Security and privacy in the participative web

• Digital identity management

• Effective cross-border enforcement cooperation

• Measurements / indicators: converged networks, access, uses, trust, and impacts on productivity, innovation and society

Agenda for 2008 and beyond Agenda for 2008 and beyond

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• Policy Development and Implementation

• Research and Statistics

• International Development

• Strategies for e-Business Adoption and Diffusion

www.e-com.ic.gc.ca

Electronic Commerce BranchElectronic Commerce Branch