A Brief History of E-commerce

In 1971 a group of Stanford and MIT students commandeered the ARPAnet— an early version of the Internet — to facilitate the world’s first online trade. Few people know about the transaction though, not least because it involved cannabis. Others argue that because payment was made offline, the trade was not really e-commerce. The students simply used the ARPAnet to arrange a meeting place and that was far too basic to be classed as e-commerce. Regardless, this transaction planted a seed of potential that decades later would pave the way for a multi-trillion dollar industry.

The Internet network in ‘70s (source)

Even though it was possible for networked computers to facilitate trade in the ’70s and ’80s, it wasn’t until the summer of ’94 that e-commerce as we know it today started to take off. It’s when Cadabra Inc was incorporated by a 30-something financier who’d quit his job so he could build a Internet company. Cadbra Inc would later morph into Amazon, which started as an online bookstore in 1995. But prior to that, another company had beaten Amazon to the punch.

In 1994 the first true e-commerce transaction took place when Dan Kohn — a 21-year-old economics graduate — sold a CD to a friend who was 300 miles away. Dan’s friend, Phil Brandenburger, had to place the order via a Unix machine loaded with a web browser called XMosaic. Completing the purchase wasn’t exactly user friendly but thanks to advances in PGP encryption and the work of the technical team in Dan’s startup, Net Market Company, Phil was able to securely transmit his Visa card number to a vendor website to complete an online purchase. Phil’s card was charged with $12.48 and a music CD was subsequently delivered by Fedex.

What web browsers looked like in the early 90s (source)

This was arguably the world’s first real e-commerce transaction, however, it did not receive the coverage you’d expect. In fact the relevant press article was hushed away in a low-key section of the New York Times. The reporter who authored the piece saw things differently. In his view, this was history in the making so he gave the article a title it deserved: “Attention Shoppers: Internet is Open”. You can still read the original piece here.

Article by Peter H Lewis in 1994 (source)

One of the things I love about technology is the concept of abstraction. Engineers can take a complex solution, place it in a black box of sorts, and offer it to the masses for creative use in lots of areas. E-commerce has benefited immensely from such abstraction. Tools that were historically only accessible by computer scientists, well-resourced internet pioneers, cryptographers and other industry specialists, are now available to the masses. Such abstraction can be seen in services like…

  • Shopify - rapidly build a web store without technical knowledge;
  • Stripe - securely handle payments with just seven lines of code;
  • Zendesk - provide cheap, fast, and scaleable customer service;
  • Clarifai - add visual search and machine vision to your online store without being an AI expert.

These services have abstracted away the engineering complexity of buying and selling things online and that has played a massive role in the success of e-commerce over the last two decades. The next few years will see even more frictions being eliminated at the merchant and customer level. Examples include returns management, alternative payments, and omni-commerce. Putting my VC hat on for a moment, if you know any founders working on similarly innovative technology, do get in touch.

Going further into the future, the global e-commerce market is set to double last year’s $2 trillion, growing to almost $5 trillion by 2021. Such numbers would have been unimaginable to the rebel students in the ’70s whose cannabis deal on the ARPAnet started it all. But for the rest of us, this growth is merely the result of something that has become so prevalent and natural in our shopping habits that you risk sounding ancient if you dare call it e-commerce.

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