E-Commerce Market Underestimated by Perhaps $30 Billion, Researchers Say

Accurate e-commerce estimates are crucial to the project’s lobbying, a spokesman for the project’s Small Seller and Vendor Compensation Task Force told us. The group is pushing legislation in Congress that would require remote sellers in project-member states to collect taxes from purchasers in any state, but the legislation has become hung up on the so-called small seller exemption, currently set at $5 million in sales. The task force may try to come up with a new threshold, and the Maryland study will be useful in gauging the effect on potential state revenue from a given threshold, the spokesman said. The task force is also trying to estimate the costs of tax collection for sellers (WID Aug 22 p4), he said.

Small sellers online “really have been overlooked by the traditional mechanisms to … judge industry size,” said Joseph Bailey, research associate professor at the university’s business school. The largest players online, such as Amazon.com, are overrepresented as a share of the e- commerce pie, due to having their own Web sites and advanced shopping-cart technology, which make them easier to analyze, he said. The researchers use the Web 2.0 cliche “long tail” to refer to small sellers in general, not to continued small sales of a diverse range of products and services long after initial release.

Most surveys underestimated Internet retailing by 20 percent or more in 2004, the latest data set the Maryland researchers could obtain from comScore, Bailey said. The U.S. Census Bureau’s quarterly e-commerce figures are partially drawn from publicly traded companies with millions of dollars in revenue each quarter, while sellers with around $1 million in revenue yearly are only analyzed by the agency every five years, said a draft paper by the researchers. The Internet Retailer leaves eBay off its Top 500 e-commerce firm list, despite eBay having four times more revenue than Amazon in 2007. Google, Microsoft and other companies that provide payment services for small sellers are also left out, the paper said.

The researchers estimated the 500 largest Internet retailers to comprise $55.7 billion of the e-commerce market in 2004, using purchasing data from 52,000 users tracked by comScore. That becomes $85.6 billion when adding in medium- sized online retailers, who have sales between $1 million and $10 million a year and operate their own sites, the paper said. Using the “relatively constant scaling ratio” from the sample of users and nearly 29,000 companies surveyed, plus the 5 million small sellers estimated by the researchers from eBay data, they estimated a total e-commerce market of $151 billion to $160 billion in 2004. That would make the Census Bureau and private surveys up to $30 billion short of the researchers’ estimates, the paper said.

Asked to explain the discrepancy between the estimates of the government and the researchers, Bailey noted a meeting with Census officials following the researchers’ results: “They and we don’t necessarily agree on what constitutes retailing.” The agency doesn’t use some of the Standard Industrial Classification codes that the researchers included, he added. We couldn’t reach the Census Bureau to explain its methodology.

The researchers would like to update their findings with 2007 data, but it’s too costly, Bailey said. They have asked comScore, “pleading poverty … but they're not too receptive on that,” with comScore instead giving the researchers a price quote, he said. We couldn’t reach comScore to explain its policies with regard to academic research. In the meantime the researchers are raising funds to be able to afford the 2007 data, Bailey said, making a pitch to the National Federation of Independent Business, which had a representative on the call.