Privacy Protection and First Mover Strategy in E-Commerce

Privacy Protection in E-Commerce Websites

Back in the 1990s, websites were primarily digital brochures that served registered users with monthly electronic newsletters. Today, however, websites are powerful and complex information platforms that not only store and process data but also allow for the sharing of information across a wide range of online platforms. Personal data shared on these websites often passes to numerous other parties, compromising security for individuals and families. The situation is especially problematic in e-commerce, where specialty retail has become accessible within a few clicks but has simultaneously created opportunities for thieves to obtain personal information and credit card numbers from unsuspecting shoppers.

A 2001 study by Culnan (as cited in Ackerman & Davis, 2003) found that most people provide false information on e-commerce websites either because they do not believe their information is well-protected or because they feel they have very little control over how businesses use their personal data. In response, companies are increasingly adopting fair information practices directed toward safeguarding user information. This section outlines fundamental privacy protection features implemented by key e-commerce companies to protect information revealed on their corporate websites.

To address the problem of users lacking control over information revealed on e-commerce websites, companies have adopted privacy control features that give users substantial control and specificity over data-sharing activities. Most websites allow users to choose whether to provide personal information and to define whether they wish to receive legal notices or terms of use from the company. More sophisticated websites such as Amazon.com actually give users the power to decide whether their information can be used to personalize displayed advertisements. Amazon and Barnes & Noble grant their users substantial control over the acceptance or rejection of cookies, a critical feature for managing online tracking.

Privacy Controls and User Empowerment

A company's privacy policy communicates its privacy practices to outsiders. It is typically a lengthy document detailing the personal information collected, reasons for collection, collection methods, information use, security measures, and third-party sharing. Privacy policies help website users understand the inherent data relationships on a site. The FTC requires all websites to have a privacy policy and advises users to look for one whenever asked for personal information or registration. If no policy is visible, users should ask the company to post one.

Privacy Policies and Security Infrastructure

Any website that handles personal information ethically must implement stringent measures to ensure that third-party providers also respect user privacy and security. Third-party seals ensure that affiliated providers take personal information entrusted by users seriously. The five classes of security seals common in e-commerce websites and their respective security assurance indices on a scale of 1–5 are as follows:

Security Seals and Third-Party Verification

These seals vouch for a company's identity by validating email addresses, telephone numbers, and mailing addresses, giving assurance that the company is what it claims to be. They signify that the entity is an incorporated company. However, reliability seals have an extremely low security guarantee index (1 of 5) because they provide no information on how companies use user information and offer no safeguards against fake companies setting up fake contacts. Comodo Authenticity and BBB Online Reliability Seal are two commonly used reliability seals.

These include GeoTrust, Comodo, and VeriSign and validate that an entity has SSL (Secure Socket Layer) protection safeguarding personal information transmission. They are represented by symbols such as "https://" in the address bar or the "lock" feature at the footer of the browser window, meaning criminals cannot intercept transmitted information. However, the security assurance index remains relatively low (2 of 5) because the seal only protects data in transit and offers no protection once data is stored in the site's database.

These seals have a 3 out of 5 security assurance index and include SquareTrade and HackerSafe. They offer assurance that the site is scanned for vulnerabilities on a regular basis.

These include ESRB Privacy, BBB Online Privacy, and TRUSTe and have a 4.9 security index. They extensively cover internal data usage and data collection processes, allowing users to file complaints if they believe their sensitive information has been mishandled.

Anonymity Services and Payment Protection

These are reviews from other shoppers who have interacted with the company's website. Such seals offer a security assurance of 4 out of 5 and often provide shoppers a glimpse of what to expect from the site. However, they offer no guarantee that the site is free from security and privacy risks.

Comparative Analysis of Major E-Commerce Platforms

E-commerce websites should provide anonymity services for online payment, web surfing, and email exchanges. The main idea behind anonymity services is to equip users with self-defense tools to hide sensitive information from unscrupulous collectors and privacy violators. These services include anonymous email (using remailer chains with message encryption at various stops), anonymous web-surfing (using proxy servers so websites capture only the proxy's identification, not users' personal information), and anonymous payment (adopting smart cards or digital cash so banks cannot link a user's identity to electronic transactions).

In its privacy statement, Amazon reiterates its commitment to securing sensitive information provided by website users and maintains that such information is used solely for customizing individual shopping experiences and maintaining user communication. Information collected includes user location, telephone number, address, and mobile device identity. Cookies obtain these details, but the website grants users substantial control, allowing them to enable or disable cookies, choose whether to receive emails, and decide whether information can be used by third-party subsidiaries for telemarketing. The site protects sensitive information through SSL software and maintains anonymity in payment by revealing only the last four digits of credit card numbers during order confirmation. Having received the BBB Online privacy seal, the site maintains adherence to Safe Harbor Privacy Principles.

Like Amazon, Barnes & Noble uses cookies to collect sensitive personal information and grants users discretion over cookies, promotional emails, and third-party telemarketing use. Unlike Amazon, B&N employs additional tools—web server logs, GIFs, targeted advertising, geo-location services, wireless networks, and social networking sites—to automatically collect user information. However, there is no clear evidence that users have control over all these sources. The site protects personal information through SSL software, and its credibility is assured through the TRUSTe personal privacy seal.

eBay, like most competitors, collects personal information including names, addresses, telephone numbers, and web log information, reiterating its commitment to securing this data. Personal information is used to resolve disputes, customize customer experiences, and personalize communication. eBay grants users privacy controls, allowing them to choose whether to receive marketing communications and whether to allow or reject cookies. Unlike Amazon, eBay does not implement security measures ensuring third-party providers maintain personal information integrity. Passwords and encryption mechanisms protect stored information alongside the TRUSTe personal privacy seal.

First Mover Advantage Versus Fast Follower Strategy

Compared to eBay, Best Buy appears to have a more precise privacy policy that not only grants users privacy controls but also protects personal information through SSL software and the TRUSTe privacy security seal. Like most competitors, Best Buy collects information on demographics, lifestyle, credit card details, names, and addresses, using this data to resolve disputes, customize experiences, and personalize communication. Anonymity in payment is maintained through in-store kiosks.

Based on comprehensive evaluation of privacy features, Amazon.com scores 9 points, Barnes & Noble and Best Buy each score 8 points, and eBay scores 7 points. Amazon leads due to superior privacy controls, comprehensive policy documentation, and strong security seal implementation alongside anonymity services.

First mover advantage is a popular mantra in the business world, often taken to symbolize the economic benefits a firm enjoys from early entry into a particular market. Most business leaders believe that being a first mover provides a head start and market dominance that later entrants cannot match. However, academic research has disputed this assumption. A plethora of studies demonstrate that the optimal innovation strategy may be to wait for others to develop ideas and then replicate and improve upon them. For nearly every study proving first mover advantages, another proves the contrary, raising the critical question: What is more advantageous—being a first mover or a fast follower?

Technology Leadership and Market Position

The question of whether to enter a new market first or wait for others to identify risks and then address them lacks a definite answer, particularly because numerous examples support either option. Coca-Cola, a first mover in soft beverage production introducing its product in 1886, has maintained leadership and remains the largest player in the industry. However, Ford Inc., which launched the Model T in 1921 and held 60 percent market share, saw its share drop below 30 percent when General Motors introduced the more adaptable Chevrolet Model. Similarly, Overture (now part of Yahoo Inc.), which launched the pay-per-click search engine in 1998, faced short-lived leadership and near bankruptcy in 2000 when Google invented the AdWords system, capitalizing on Overture's weaknesses. Today, Overture is a subsidiary of Yahoo while Google generates billions from AdWords.

These instances indicate that some markets have first mover advantages while others do not; firm strategists must decide whether moving first or following is more beneficial. Lieberman and Montgomery (1988) posit that first mover success depends not only on market nature but also on (i) luck and (ii) how well the firm captures first-mover benefits. eBay and Amazon, both first movers in their respective niches—online auctions and books—have remained dominant by capitalizing on first-mover benefits through firm-specific strategies. Lieberman (2007) points out that "to be successful, a pioneer must be able to draw upon at least one of these mechanisms."

Resource Control and Consumer Loyalty

Observers have shown that the internet environment offers limited opportunities for pioneer e-commerce companies to enhance positions through proprietary technology because the internet is more prone to imitation than other technology-driven sectors. Market followers can relatively easily learn new technology and reduce first-mover advantages. Amazon and eBay have circumvented this issue by "racing around the learning curve ahead of competitors." Through unique "one-click ordering" and "reverse auctions" features, they established their products as industry standards, making it difficult for later entrants to gain consumer acceptance. By patenting their business methods, these leaders have essentially kept their products free from imitation.

First movers often maintain superiority by preempting control of various resource types, from customer positions to geographic locations and physical assets. In the internet marketplace, geographic positions and physical assets are impractical; therefore, eBay and Amazon have relied heavily on long-standing reputations to nurture consumer recognition and broaden product lines to expand and defend initial positions. Amazon began as an online bookstore but expanded to consumer electronics, jewelry, toys, food, furniture, apparel, video games, and software. eBay began as an online auction but diversified into online money transfers, event ticketing, classified advertisements, and "Buy It Now" shopping. However, Lieberman (2007) notes that the actual effect of strong customer perception on success cannot be fully ascertained given that other internet retailers like eToys failed despite establishing huge name recognition.

First Mover Disadvantages and Strategic Responses

First movers also benefit from high consumer switching costs. Early entrants in e-commerce platforms gain significantly from large initial investments buyers must make when entering trade deals. Customization of user experiences further helps early movers maintain buyer loyalty. The one-click ordering feature, for instance, allows "experienced buyers to search more efficiently on Amazon than on competitors' websites." Buyers may also stick with early entrants because of their long-standing reliability reputations, avoiding uncertainty and risk associated with switching to less reputable competitors.

Conclusion: Market Timing and Competitive Strategy

The primary disadvantage of early entry is that followers can free ride, using your experiences to learn about suitable sales and marketing strategies, effective manufacturing and design techniques, and consumer tastes. If they capitalize quickly on your weaknesses, they may even surpass you, as occurred with Ford and Overture. The only way to succeed as a first mover amid these uncertainties, as eBay and Amazon have demonstrated, is to develop effective firm-specific strategies enabling full use of technology leadership, resource control, and consumer switching cost benefits.

Evidently, there is considerable uncertainty about whether firms should strive to be first-movers or wait for others to identify risks and capitalize on their weaknesses. Being a first-mover offers benefits including market dominance, strategic resource control, and technological advantages. Followership too has benefits, primarily avoiding the risk of uncertainty. Some markets have first mover advantages and others do not. Company strategists must determine the market timing approach best suited to their firm, benefits from being first, whether the firm possesses resources to sustain first-mover costs, how difficult catch-up would be if someone enters first, and whether benefits accrue from being a follower. If a firm decides to venture as a first mover, it must devise firm-specific strategies enabling sustained leadership position.