The Future of E-Commerce: Caught in a .NET?

What would happen to e-commerce if transaction information, and the way in which private customer data is authenticated, were based on a single open Internet standard?

If Microsoft (Nasdaq: MSFT) has anything to do with it, we may begin to discover the answers sooner rather than later. That’s because Microsoft’s new architecture and set of XML Web services, collectively called .NET, aims to create just such a universal standard.

But issues of consumer trust, pressure from the Sun Microsystems-backed Liberty Alliance Project, and a lack of consumer sophistication when it comes to digital identity may make such an e-commerceutopia — at least one run by Microsoft — a hopeful but distant vision at best.

“These are very difficult areas [to standardize], but in theory it’s feasible,” Jupiter Media Metrix analyst James Van Dyke told the E-Commerce Times. “And if it were to work right, you would have a significant increase in consumer shopping because [a universal standard would address] the concern of fraud.”

The Gatekeeper

The series of offerings collectively known as .NET is essentially a set of interoperable Internet services that will be sold initially as packages and updates to existing Microsoft products such as Windows XP. As Forrester analyst Frank Gillett put it, .NET is “software designed to be used by other software over Internet protocols and formats.”

The backbone of these services is Microsoft’s Passport authentication service. An electronic wallet that never took off with e-merchants, Passport has now been rolled into .NET.

Passport lets consumers enter all their personal identification information into one place, which is then in theory used to access virtually any type of application or service with the user’s permission. According to Microsoft, the user controls which entities are able to access their personal data and for what purpose.

“Microsoft understands well that whoever controls the traffic will have the opportunity to reach significant revenue,” said Van Dyke. “If they get to decide whether consumers choose one site or another, they have only to extract a small transaction fee for their services to be extremely profitable.”

A Wide Net

The .NET My Services platform uses an open access model, which means it can potentially be used with any device, application, or service, regardless of the underlying platform, operating system, object model, programming language or network provider.

What does that mean for e-businesses and consumers?

“.NET reduces the consumers’ need to enter their information repeatedly and reduces fraud by significantly reducing the identity theft problem,” Van Dyke said. “It adds convenience and potentially requires me to trust fewer entities without putting limits on the amount of services I receive.”

Connect the Dots

For e-businesses, the biggest impact may be felt in B2B, said Gillett.

“[Companies] can connect their selling application itself to their backend systems for customer information, service, billing and so on,” Gillett said. “This could enable companies to cut costs, make changes to their sites faster, and achieve easier backend integration for improved customer service.”

Another Tollbooth?

Despite the potentially strong benefits for both sides of the e-commerce transaction, whether .NET actually becomes the quintessential e-commerce transaction standard is still up for debate.

“Microsoft is moving into an area where they would become much like a toll-taker, where the toll is taken on the transactions that move between a consumer and a business or B2B,” said Van Dyke.

That’s a role that .NET’s main competitor, the Liberty Alliance, finds a little too autocratic.

“Without an open federated identity model for the Internet, there’s risk that only a few companies and their preferred sets of partners will become firmly established as the service brokers of the Internet,” the Alliance states on its Web site.

Give Me Liberty

According to Gillett, the essential difference between the two architectures is that the Liberty Alliance platform will let users store their own personal information, rather than placing it in a vendor-controlled repository.

And while Microsoft wants to be paid by usage, the Alliance will leave it up to the users to choose their own service providers.

“Microsoft should seriously consider turning over its database [of Passport information] to an outside financial company rather than trying to persuade us that they are the ones to trust,” recommended Gillett.

The irony, of course, is that having more than one standard contradicts the purpose of having such a solution in the first place.

“Can [more than one standard] survive long-term — no,” Yankee Group analyst Rob Lancaster told The E-Commerce Times.

“Consumers have gotten beyond the newness of the Web. [The standard] has to be useful and efficient. The early adopters who were online five years ago are ready for this application. They’re ready for something new.”

Branding Boom

But in the next year, analysts do not expect a direct impact from either .NET or the Alliance standard, but instead say that the two will engage in quite a bit of branding in an effort to gain consumer trust and eventual consumer adoption.

“The barrier is skepticism,” Gillett said. “[Adoption] will happen, but it will take several years before it’s widespread.”

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