Caught in the Web of Lies

With Internet fraud reports on the rise, is there any way for legitimate e-tailers to avoid a bad rap?
Magazine Contributor
4 min read

This story appears in the January 2003 issue of Entrepreneur. Subscribe »

The economy aside, e-tailers now have another reason to be concerned about a lack of sales: the recent backlash against the Internet. Blame it on the frequent news reports that discuss the dark side of the Internet. Every day, the American public reads reports and watch TV updates detailing the latest in Net fraud, where scam artists hijack online shoppers' credit card numbers or Social Security numbers. Others are concerned about the growth of sites promoting violence, pornography and gambling. Many fear it's a matter of time before online users constantly bombarded with spam, turn against the Internet and contribute to the backlash against legitimate e-tailers.

According to experts, fraud is negatively affecting entrepreneurs in the short term-and harming them in the long run. "If fraud is allowed to grow, then the online marketplace won't develop to its full potential," says Eric Wenger, a lawyer and chair of the Bureau of Consumer Protection's Internet Coordinating Committee at the FTC in Washington, DC.

Wenger says that spam is one area that could affect the growth of the Internet. He points to the increased volume of spam complaints the FTC has received from consumers. In 1998, when the FTC set up an electronic mailbox and requested that consumers forward spam messages to that address, the organization received 712,788 complaints. In 2002, it received 11,485,056 complaints. While Wenger explains that the growth in numbers stems from the fact that more people are aware of the spam database, "a significant portion of people are rather annoyed," he says.

Some experts and entrepreneurs, however, insist they haven't detected a large-scale avoidance of or defection from e-commerce sites--despite the bad publicity some have received. Most consumers have realized that the Internet's benefits outweigh problems.

"Fraud has been around since the beginning of time," says Chris Gwynn, president and founder of Fridgedoor Inc. (, a Quincy, Massachusetts, online retailer specializing in novelty and custom magnets and magnetic supplies. "It shouldn't surprise anyone that it occurs online."

Gwynn, 44, adds that bad publicity isn't a death knell. "[Toll-free] numbers received similar bad press when they were first available," he says. "The current levels of consumer acceptance and consumer mistrust are natural for this early stage of the Internet's life."

Gwynn also believes that the tabloid press has overblown claims of Internet fraud. "The current story line creates the wrong impression with consumers," he explains. "Most Internet fraud involves consumers ripping off merchants, not the other way around."

The Brighter Side

According to Max A. Kalehoff, senior manager at Reston, Virginia-based ComScore Networks Inc., which provides behavioral data based on more than 1.5 million Web surfers, news reports won't have "an overall negative impact on small online retailers, [because] so-called 'underworld activity' is everywhere. It's part of life."

Kalehoff also doubts news reports are harming Internet sales. According to ComScore, Net sales are growing. In the second quarter of 2002, consumer spending at U.S. Web sites was $17.5 billion, up from the second quarter of 2001, when online spending was $12.5 billion.

Falling for the first time in history,online sales for Q3 2002 totaled
down from $20 billion in Q3 2001.
SOURCE: Forrester Research

Kalehoff also points out that the recent spate of news reports is nothing new. "The Internet's underworld got media attention years ago," he says. "It was first reported [in the early 1990s] that porn was one-third of Internet usage. So, the media attention it has been getting goes in cycles, just as it would in the offline world."

Either way, many believe that the fraud perception does exist and must be addressed by online merchants. "Rather than assume visitors understand a merchant is legitimate, merchants must assume the opposite and work from there," Gwynn says.

Successful online merchants, says Gwynn, earn consumer trust by personalizing customers' experiences and displaying competence through different points, such as detailed product and shipping information; a well-organized site; and responsive customer support.

Although you can't control the underhanded actions of others on the Net, you can make gaining customer confidence a top priority. After all, as online users gain more experience, they'll not only gravitate toward a smaller number of trusted Web sites, but also pass on positive word-of-mouth to others.

Melissa Campanelli is a marketing and technology writer in Brooklyn, New York.

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