Future visions: A new way for e-commerce

It is almost conventional wisdom that the best way to encourage electronic commerce is to let the markets reign. Not according to Wingham Rowan. The Internet journalist advocates a new system to encourage online shopping - Guaranteed Electronic Markets (GEMs).

In an interview with BBC News Online, Mr Rowan explained how a government-built system would not stem trade but encourage everyone - big businesses, small businesses and individuals alike - to trade on the Internet.

How would GEMs work?

GEMs would create an open automated marketplace in which all sellers were equal.

Car hire is a very simple example. If I want to rent a carr, I simply tell GEMs my location, my preferred type of vehicle and my required timeframe. Then it matches me with the nearest/cheapest available vehicle. Once I've selected the one I want the system constructs a contract between myself and the hirer.

Central to the process is adjudication. If I don't return the car in time, or damage it, the contract will automatically be referred by the owner to an adjudication panel who can use my deposit or the owners bond to finance resolution.

The crucial point about this is it doesn't matter if the car owner is an individual motorist who doesn't need his vehicle for a day or Hertz/Avis/Budget. The contract and the money-holding mechanisms protect both parties as soundly as any brand name.

You might say individual motorists will be reluctant to let out their cars. But the system can compile a trading record of hirers. An owner might stipulate his car is only let to people with 50 complaint-free car hirings on record.

There is more to it than this. Once you get funding for a mass system it can have all sorts of layers of user protection and sophistication in matching built in. The real point of GEMs is that it is one system that enables franchisees to run thousands of market sectors. The aim is to trade periods of work, travel, accommodation this way.

It sounds wonderful. Is it pie in the sky?

It can't happen without a government deciding to make it happen. That's partly because it needs a raft of laws to underpin it and automated interaction with state bodies which even the most ambitious Silicon Valley entrepreneur can't muster.

For the deep benefits of electronic trade to be released you need a massive safe system running very cheaply, not a mass of confusing incompatible online marketplaces.

That's the principle behind GEMs. A government decides it wants one big universally accessible marketplace for its population. It outlines the benefits it will offer its operator, including legal protection and "must carry" status alongside national broadcasters for digital TV. Then it defines the concessions it expects from a winning consortium - predominantly that they erect public access terminals around the country so even those without the Net or iTV can start trading. The consortium that plans to charge the lowest commission on each trade wins.

Three crucial principles apply to this process: 1) No one is ever to be forced to use GEMs. 2) There are no constraints on alternative e-com channels. If you would rather hire a car from www.hertz.com no one will stop you. 3) No taxpayer's money is used to fund the system.

What are the advantages of GEMs?

There would be more choice and prices would fall. It would be similar to the success Reuters achieved with its world currency trading system, 2000-2.

2000-2 works like this: If a curency dealer in London wants to buy $100 million and pay in yen, he inputs that into his terminal, together with a price at which he will trade. If there are buyers anywhere willing to sell at his price the transaction is done instantly with the money transferred electronically between accounts.

The 2000-2 system almost instantly drove down prices, brought countless new players into the fold and increased the "granularity" of deals on offer. (An equivalent in car hire terms might be people willing to hire out their vehicle for half an hour rather than by the day.) Crucially it multiplied turnover because trading was so safe and so cheap that it required no caution. GEMs could bring the same conditions to bear on the marketplace for babysitters, groceries, cash loans, etc.

But there are also serious disadvantages to established market leaders.

Absolutely. What role do high street banks have in a world where £300 that I have to lend can be instantly matched with someone who needs to borrow that amount for that time and has a credible track record of paying back their loans?

More tangible service providers would be affected as well. What happens to the AA and RAC if any verifiable mechanic can enter the market for car breakdown recovery and know that if their price is right they will be matched with motorists near by in a wide open market? The AA's central office/marketing overheads then become a millstone. The opposition to GEMs will come from big companies. It will be resourceful and in many countries successful.

Can opposition be overcome?

GEMs will not be born in the US or UK because of the dominance of big companies who would have so much to lose. But consider the Russian government perhaps deciding to set up such a system.

They could put the laws in place and let a winning consortium fund the project. Those companies would be gambling that with progressive "GEMification" of the Russian economy banditry and inefficiency would be unable to flourish.

As the economy hardened the consortium's daily flow of commissions on countless transactions could add up to a valuable income line. This despite the enormous expenditure required to install the system and public access terminals in the early stages. If it were to work in Russia how long could the US hold out?

Note: Wingham Rowan's book, Guaranteed electronic markets: the backbone of a 21st century economy, was published by Demos in November 1997. His new book, Net Benefit: Guaranteed Electronic Markets: the ultimate potential of online trade, will be published in the UK by Macmillan in February.