Industry Committee on Oct. 17th, 2011

[The Chair, Conservative, David Sweet]

Good afternoon, ladies and gentlemen. Bonjour à tous. Welcome to the seventh meeting of the Standing Committee on Industry, Science and Technology.

We are advancing on our study of the e-commerce market in Canada. We have some esteemed guests with us. I'll take some time to introduce them.

Our first two witnesses, appearing as individuals, are Michael Geist, a Canada research chair in Internet and e-commerce law, University of Ottawa; and Jacques St-Amant, a lecturer in the department of legal sciences at the Université du Québec à Montréal.

From Canadian Manufacturers and Exporters we have Mathew Wilson, vice-president, national policy; and Martin Lavoie, director of manufacturing competitiveness and innovation policy.

I'll just advise members that an organization may have two representatives but they will be giving just one opening statement.

From Ryerson University we have Wendy Cukier, vice-president of research and innovation.

Finally, from the Ottawa Centre for Regional Innovation, we have Blair Patacairk, senior director of investment; and Samer Forzley, managing director of Market Drum.

I hope I got all your names correct. We'll start, as usual, with opening comments. You will have six minutes for your opening comments. Then we'll go to a rotation of questions from the members here.

We'll begin with Mr. Geist, for six minutes.

[Dr. Michael Geist, Canada Research Chair, Internet and E-commerce Law, University of Ottawa, As an Individual]

Thanks very much.

Good afternoon.

As you heard, my name is Michael Geist. I'm a law professor at the University of Ottawa, where I hold the Canada research chair in Internet and e-commerce law. I appear before the committee today in my personal capacity, representing only my own views.

I want to congratulate the committee for launching the study of e-commerce in Canada. It's a critically important issue, deserving of greater attention.

While the committee has identified some excellent questions, I would boil the issue down to a single one: why have Canadian consumers embraced e-commerce but Canada has failed to produce many significant global e-commerce success stories?

The Canadian consumer success story is well known. We're among the global leaders in Internet use and online video consumption. For several years, Canada was the world's largest per capita user of Facebook. Netflix launched online only, first in Canada, and quickly grew to one million subscribers. And digital music sales have grown faster in Canada than in the United States for each of the past five consecutive years.

Yet despite the growth on the consumption side, we punch well below our weight in creating global online companies, an issue recognized by a McKinsey study prepared for the G-8 meeting in France earlier this year. There are exceptions, of course—Club Penguin, Flickr, AbeBooks, and StumbleUpon, among them—but most are bought out by larger U.S. companies before they have the chance to grow into global players.

Canada does have its share of e-commerce SMEs, but the multinationals that employ thousands and generate billions in revenue have largely eluded us. The question is why. There are no doubt many factors—venture capital, market size, appetite for risk—but as they say, when you're a hammer, everything looks like a nail. When you're a law professor, you see legal and policy failures.

Over a decade ago, Canada established the e-commerce law basics, including enforceability of online contracts, privacy rules, and some online consumer protections. But these were just the price of admission. The success stories often lie in countries that went further. I believe companies like YouTube, Google, and Facebook could have been Canadian, but legal rules made it less likely.

For example, YouTube could have been Canadian. The company would have been called iCraveTV, a Toronto-based online video startup that launched in 1999. It streamed television programming, supported by advertising along the bottom of the screen. It was YouTube years before YouTube was YouTube, and it relied on Canadian law to do it. The U.S. objected, and within months of launch the service was shut down, and Canadian law changed as we caved to the U.S. pressure.

Google could have been Canadian. The company would have been called OpenText. OpenText is, of course, Canada's largest software company, based in Waterloo. Before Google was even a Stanford graduate student project, OpenText was providing the search technologies for companies like Yahoo. U.S. copyright law has a fair use provision that Google later relied upon to index the web and become a multi-billion-dollar company. Canada still has a more restrictive fair-dealing approach, and OpenText opted for managing content in the corporate market, which doesn't raise the same legal issues.

Facebook could have been Canadian. The company would have been called Nexopia, which is now an Edmonton-based social network that is still active. It was founded in 2003, a year before the launch of Facebook, but unlike Facebook and thousands of other U.S. companies, Canada does not have a rule that grants legal immunity to intermediaries for the postings of third parties. In the U.S., the Communications Decency Act, section 230, has been used by all the giants—Facebook, Amazon, Google, and eBay—to limit risk and liability for the postings of their users. In Canada, we don't have the same protections, and the risks faced by anyone operating online are far greater.

I could go on. We could talk about why Skype was unlikely to be Canadian because of the regulatory and competitive environment for telecom companies. We could talk about how Zillow, the online real estate giant, couldn't be Canadian because of restrictive rules over the use of listings data. We could talk about how Amazon couldn't be Canadian because of foreign investment restrictions.

Canada has failed to build the competitive legal and policy e-commerce framework, and we now live with the consequences.

So what comes next? There are numerous policy issues that ought to be put on the table, not all of them a matter for the federal government, as some fall within provincial jurisdiction. I'll quickly highlight four, and perhaps we can discuss more during the question period.

First are the privacy and marketing rules. We should move ahead with the anti-spam rules, not diluted through regulations, as some are calling for. Ensure swift passage of the just introduced privacy measures in Bill C-12. Moreover, the next round of privacy law review is due this year. We need tougher enforcement measures put on the table and retention of the principle of court oversight for mandatory personal information disclosure.

Second is copyright flexibility. Today and tomorrow's e-commerce businesses rely far more on the flexibility of copyright law, not the digital locks that form a cornerstone of the current copyright bill, Bill C-11.

Third, other countries have adopted fair use, and yet more are considering the issue. Canada should do the same. An equivalent of the CDA section 230, which I spoke about earlier, for Internet intermediaries is absolutely crucial. It would, however, require provincial cooperation.

Fourth, and finally, is removal of foreign investment restrictions and other competitive barriers in many sectors that touch on e-commerce. Foster a more competitive Internet environment with a set-aside for new entrants in the forthcoming spectrum auction.

Note that Canada may have been the first with an online-only Netflix, but we also hold the dubious distinction of having had Netflix offer bandwidth-reduced versions of its content due to Internet data caps and high costs. The impact extends well beyond the consumer market, as it directly affects e-commerce businesses as well. Canada may have missed out on a generation of e-commerce leaders. We must not miss out on the next one.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Geist.

Mr. St-Amant, you have six minutes.

[Jacques St-Amant, Lecturer , Department of Legal Sciences, Université du Québec à Montréal, As an Individual]

Please allow me to add a few thoughts to what Professor Geist said.

Imagine for a moment that mobile payments are in greater use in Canada than they currently are, that you were traveling abroad on business week ago and that, therefore, in order to pay your hotel bill and settle insurance premium and at home, you had been relying exclusively on your BlackBerry. You would have been rather embarrassed.

Mr. Chair, ladies and gentlemen, I thank you for inviting me to exchange views with you today. I teach consumer law at Université du Québec à Montréal and I have been especially interested in payment issues for over 20 years. I am currently a member of the Canadian Payments Association's Stakeholder Advisory Council and I've been retained since last April as an advisor on consumer issues by the Task Force for the Payments System Review set up by the Minister of Finance in summer 2010. However, I appear before you today on a strictly personal basis.

The questions you raise are numerous and complex. I will consider them primarily from the user's perspective, and especially that of consumers, but also to some extent to the challenges faced for instance by small businesses.

If I focus today on payment issues, it is because payments are vital to almost all electronic commerce activities and tend to be taken for granted, which is a grievous mistake.

On the web, cash is not king. We must rely on electronic payment mechanisms that are both increasingly diverse and offered by a growing range of providers. This evolution is desirable and may be beneficial, but it also generates new risks, which must be understood and mastered.

There is operational risk: payments can be lost, personal information can be stolen, networks can fail—and I owe an apology to Research in Motion: the last decade's experience with our banks, for instance, has shown that all networks are vulnerable.

There is financial risk: providers may go bankrupt or summarily close their doors while millions, perhaps billions of dollars sent to consumers or businesses might be at stake.

Contemplate for instance a sudden collapse of PayPal, which is unlikely to be sure, but which illustrates the consequences that the failure of smaller and more fragile providers might entail.

These issues also raise legal risk—I also teach law—as well as reputational risk for the whole payments industry. Yet there is practically no effective process or mechanism to manage these risks in Canada.

From a legislative standpoint, the United States have been relying since 1978 on the Electronic Fund Transfer Act, which has been complemented by other legislation. Over the past decade, the European Union has implemented a regulatory framework that is adapted to the new realities. Australia has been fine-tuning its e-payments regulatory framework for 15 years or more. But Canada has lagged behind and has not done enough.

As a result, our regulatory framework has the consistency of lace and it is incoherent, incomprehensible and largely unknown. As a result, providers such as financial institutions, which are best placed to prevent and manage the risks associated with the payment mechanisms they offer, strive mightily to transfer risk and cost to users, be they consumers or merchants, through standard form contracts, which is as unfair as it is economically inefficient.

As a result, in addition, some providers such as financial institutions must at least comply with prudential and solvency regulation, while others do not, which creates discrepancies in the market as well as it generates risk. Something must be done.

Mobile payments are currently on everybody's lips, in Canada and abroad. It may well be that, indeed, they are the future of payments and smartphones will replace our plastic cards. It may also be, however, that other electronic payment mechanisms will win the race, or will at least play significant second parts. The issue is therefore not merely mobile payments: it is rather the whole electronic payments ecosystem which requires an overhaul.

But why should we regulate at all? For the same reason we have implemented traffic lights and lines on the pavement: there must be clear rules of the road which everybody complies with to reduce risk, sustain trust and facilitate involvement and participation.

At lease two broad principles should therefore underlie a new Canadian framework for electronic payments: trust and accessibility. Without mutual trust, of course, no payment is possible.

We need to ensure safety and soundness from a financial standpoint, as well as reliability. Rules that allocate risk, advantages, costs and liabilities must be clear, coherent and fair, which they currently are not. All stakeholders must be able to become involved in the evolution of the regulatory framework and their needs and concerns must be addressed, which is currently not the case.

However trustworthy our payment mechanisms may be, they must also be accessible. Affordability is a crucial issue, especially with regard to mobile payments, if only because our mobile phone services are among the most expensive in the world.

Territorial accessibility is also an issue outside the more populated urban areas. And let us not forget that almost half our adult population is functionally illiterate: complex interfaces can quickly become a challenge. Add to that issues, such as the inclusion of persons with a disability.

These are only some of the issues pertaining to mobile payments, and electronic payments in general, and I have barely touched on them. For example, I have not even mentioned virtual money, such as Facebook credits.

Of course, I will be happy to discuss all of this and more with you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. St-Amant.

Now on to the Canadian Manufacturers and Exporters.

Mr. Wilson, go ahead, for six minutes.

[Mathew Wilson, Vice-President, National Policy, Canadian Manufacturers and Exporters]

Thank you, Mr. Chair and members of the committee.

Thank you very much for inviting us here to discuss the state of e-commerce in Canada today and how it's being utilized by our members.

CME represents about 10,000 members from across Canada. We chair the 47 member associations of the Canadian Manufacturing Coalition. About 85% of our membership are SMEs that use this type of technology on a daily basis.

Our views are probably slightly different from the first two guests', where our focus is much more heavily concentrated on the business use of technology and the B2B electronic commerce marketplace.

While the majority of the attention generally is focused on the consumer end of the transaction—because that's what impacts our daily lives—about 80% to 90% of all e-commerce transactions are actually conducted between businesses. There are several prominent examples you always hear about: Walmart's infamous inventory control system and its supply chain; automotive industry giants like GM, Ford, and Chrysler have a $500 billion marketplace with their suppliers; large food and beverage companies such as Procter & Gamble, Coca-Cola, Nestlé, and Unilever have about a $200 billion marketplace for the purchase of goods and services for their suppliers. Other organizations like B2B steel and other companies like FedEx and other major B2B service providers are areas where companies provide services and offer services on a day-to-day basis.

But e-commerce has also dramatically changed the way products are brought into the market. Today companies are able to develop, design, test, market, and sell all manner of consumer products using e-commerce tools and tie various global supply chains together virtually. For example, cars and trucks—which a decade ago took five to seven years to bring to market—are now being brought to the showroom floor in two to three years. Corporate R and D, while still centrally controlled, is now conducted throughout various portals globally. The process, including tying suppliers and sub-assembly contractors, and R and D and design with product testing, can be completed almost entirely virtually and 24/7 with offices around the globe.

Where products once were introduced globally one or two markets at a time, products can now be manufactured in multiple locations globally for sale in almost every market simultaneously.

While this change in product development has had noticeable impact on consumers, it has also fundamentally altered business relationships and the way successful companies can operate globally. From a policy-making standpoint, there are also a number of critical electronic commerce tools that are essential for Canadian businesses. Some of them are in addition to what has already been noted.

There are four, in particular, I'd like to talk about, primarily about infrastructure and business investment.

First, on infrastructure, open access policies are critical to Canada's digital competitiveness. A report from Harvard's Berkman Center for Internet & Society earlier this year ranked Canada poorly in terms of Internet prices and speeds. This has a significant direct negative impact on businesses' ability to employ e-commerce technologies and strategies in Canada.

In 2009, the CRTC ordered phone companies to make their new and expensive fibre Internet infrastructure available to smaller firms that could not afford to build their own networks. It is essential that the government implement open access rules that will force Internet network owners to share their infrastructure with smaller competitors.

Second is implementing incentives for businesses to invest in ICT technologies. ICT technologies account for approximately one-third of total investments in machinery and equipment made by Canadian businesses. But ICT is also embodied in other products and process technologies deployed across business. Despite this, Canadian companies have lagged behind U.S. business in investing in machinery and equipment since about 1992. And about 20% of the Canada-U.S. ICT investment gap is due to differences in industrial structure between the two countries. There is a higher share of output in ICT-intensive industries in the U.S. and a higher proportion of small firms in Canada, which tend to invest less in ICT.

Weaker investments in ICT is the reason explaining Canada's poor productivity levels compared to other countries. Canada should introduce a specific business ICT investment tax credit as a result.

We want to keep investment in parallel infrastructures aimed at providing academics and businesses with the ability to share mega database and prototyping services. CANARIE, Canada's Advanced Research and Innovation Network, which provides more than 19,000 kilometres of ultra high-speed fibre optic cables, is a crucial enabler of Canadian innovation.

Globalization has not only revolutionized the way businesses make products and deliver them but also radically changes the way they access worldwide resources to foster innovation. Research is becoming increasingly data intensive, which requires fast and reliable networks, allowing businesses, academics, labs, and other innovation stakeholders to work together.

CME was pleased to hear that CANARIE's mandate had been renewed for another five years; however, we'd like to see that lengthened into another five-year term as well.

Finally, on helping businesses invest in high-performance computing systems, as research is becoming increasingly data intensive, it not only requires dedicated infrastructure, but also high-performance computers to handle and process mega databases. HPCs, or supercomputers, are relatively unknown in many business sectors today in Canada, but their potential to increase productivity is enormous.

Some R and D intensive manufacturing industries, like aerospace and automotive, already use HPCs extensively to conduct complex simulations and share them with their business and research partners. The U.S. Department of Defense and some states are already developing strategies to become world leaders in the use of HPCs in the manufacturing sector. We believe that Canada has to start paying attention to the huge benefit the supercomputers can provide in all manufacturing sectors.

I'm pleased to inform you today that CME, in partnership with Canadian Advanced Technology Alliance and other stakeholders, is currently building a survey to map out the use of HPCs in Canadian manufacturing sectors.

With that, I'll conclude, Mr. Chair, and look forward to the conversation.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Wilson.

Now we'll go to Ms. Cukier for six minutes.

[Prof. Wendy Cukier, Vice-President of Research and Innovation, Ryerson University]

Thank you very much. I'm very pleased to be here today.

Rather than reinforce some of the comments that have been made by the other panellists, I'd like to speak on behalf of Ryerson with respect to our view on innovation processes, on the role of universities in research and development as well as in developing digital skills. I will follow up with a brief; I'm afraid I wasn't able to have it ready for today's presentation.

When we think about innovation in Canada as a process, or entrepreneurship, there are essentially three levels. We've heard a lot about the importance of creating an environment that enables innovation and enables entrepreneurship. There are two other pieces that are equally important; that is, having entrepreneurial processes and understanding the processes of technology adoption, as well as having individuals with the appropriate entrepreneurial mindset. I think the universities play a particular role in those two levels, and that's what I'll focus on.

When we look at the adoption of e-commerce in Canada, I think it's important to differentiate between access to the Internet and the use of e-commerce. The data I've recently reviewed with my colleagues suggests that in fact the Canadian adoption of consumer-based e-commerce is far beneath what we see in the United States. Whereas about 8% of retail expenditures in the U.S. are e-commerce-based, in Canada it's only about 1%. There are numbers of reasons for that, but I think it's important that we actually consider where we are from a global perspective.

One of the reasons for that.... That's simply the consumer side, but if we look at the business side and B2B, which has already been mentioned, we see a tremendous variance between sectors and also within sectors. So when people comment on low rates of productivity and low rates of technology adoption, I think it's very important to understand that often the data reflects averages. Very often, what you have in a sector--for example, retail--is a very high investment with very high payoff and perhaps a low investment with no payoff, or a high investment with no payoff. It's critically important to disaggregate the data so that you have a really good picture of where the success stories are and where the failures are. I don't think we do that enough.

The other thing that I think is critically important to understand—and we did fairly extensive research with ITAC and CATA on this dimension—is that many of the barriers to adoption in the SME sector are not, strictly speaking, technology barriers. There is a lot of focus on technology, and clearly it's important. Clearly, infrastructure is important. But we also see that very often the skills needed to assess the links between technology and corporate objectives are simply missing. The business case for technology adoption is often missing. Many of the vendors exacerbate this problem by pushing the technology rather than looking carefully at market demand.

I won't talk about that in great detail, but there is very good evidence to suggest that if you want to accelerate the adoption of e-commerce, you have to ensure that the business case is well understood, because particularly for the S's among the SMEs, if they don't see an impact on the bottom line, they're not going to invest in the technology and they're certainly not going to invest in the people who are required to make the technology work.

When it comes to post-secondary institutions, then, there are really four levels at which they can contribute. One is in terms of digital skills, and I want to say a couple of words about that. The second is in terms of research. There, we're talking about the discovery-based kind of research that has helped Canada build its infrastructure, and also about market-driven research, which helps develop products and services as well as new processes. Universities play an important role in terms of innovation and commercialization processes, and they can also play a much more important role than they currently do as model users.

Just as government ought to be a model user when it comes to e-commerce—and Service Canada is a good example of how government has done that—universities are often lagging behind with respect to the adoption of technology.

When it comes to digital skills we hear a lot about STEM: science, technology, engineering, and mathematics. There is no question that STEM education is fundamental to creating a digital economy, but it's not sufficient. We would argue that an equal emphasis on things like entrepreneurship and management is important if we're actually going to get the promised benefits out of the technology as well as basic digital literacy. We need to ensure not only access to the tools, but also effective use of them.

At the high level, it isn't simply engineering and computer scientists that we need; we also need content creation. If you look at what will accelerate certain segments of the e-commerce market, it has more to do with content creation, effective narratives, and understanding consumers than it does with bits and bytes.

The focus of Ryerson's digital media research and work in e-commerce is very much driven by partnerships with industry. There are a number of federal government programs that are particularly valuable in promoting market-driven research.

We have a number of recommendations. To begin with, understanding the nature of innovation is critical. Second, we need to understand that digital skills are part of the human infrastructure, if we are to make use of e-commerce effectively. Third, we must unleash the talent of young people, something that we don't do enough of. Fourth, we should be making sure we have collaborative models to support research that brings industry together with the universities. Finally, we must ensure that we understand not just conventional academic measures for judging research, but also measures that reflect value for money and impact. There's a lot more that can be done in these areas.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you, Madam Cukier.

If that's going to be in the outline that you're going to send, then send it to the clerk. He'll translate it, and everybody will have your recommendations for the record. And that goes for anybody else on the panel who would like to submit documents afterwards.

Now we have Mr. Patacairk.

[Blair Patacairk, Senior Director, Investment, Ottawa Centre for Regional Innovation]

Thank you for the opportunity to present today.

Thank you very much for asking us to be here today.

The Ottawa Centre for Regional Innovation was established 26 years ago to facilitate commercialization between federal labs, universities, and our emerging technology industry. We've grown since then—we're now at approximately 700 members, representing 120,000 employees in the Ottawa region.

The Ottawa region has made a commitment to cluster-based economic development as a means to ensure that its economy remains sustainable, innovative, and diversified. OCRI works closely with all levels of government, our exporting communities, our colleges and universities, and our local support infrastructure to make the region a model for success in the knowledge-based economy.

Today my good friend Samer Forzley is here to talk a little bit about the industry. Far be it from me to talk about the industry when I have an industry expert with me. Samer is a former executive at eBillme, a company that has just been sold. Market Drum is a consulting company that he works for right now, and he's going to give a little bit of insight into that.

Before I go on, I'd like to say that Canadians have spent about $6.5 billion on online billing since 2010 and are expected to shell out about $30.9 billion in 2015. Half of all Canadians made a purchase online last year, according to Forrester Research. The average value of order for Canadian consumers is higher than that of U.S. consumers, but this is probably offset by the lack of online competitors in Canada, in comparison with the U.S. Large multinational brands and specialty retailers make up the majority of online retailers in Canada. But again, far be it from me to tell you what we need to do in our city, in our country, to improve on this.

I'd like to turn it over to Samer, so that he can tell you a little bit more.

[Samer Forzley, Managing Director, Market Drum, Ottawa Centre for Regional Innovation]

Thank you very much.

For a transaction to happen online, three needs have to be met: the need of the consumer, that of the merchant, and that of the bank.

Consumers need to go online and find something. Once they find it, they need to find it at a good price. Then they need to pay for it in a way that's safe and secure. Once they pay for it, it needs to be shipped to them in a timely manner.

What happens in Canada when consumers shop online is that they don't find products. It's very difficult to find a good selection of whatever it is you're looking for--DVDs, TVs, you name it. Specialty stuff, of course, is easy to find.

But suppose they find the TV they're looking for. The price is not good. We're going to talk about that when we come to the merchant side of the business, but the prices in Canada are not competitive at all. This actually restricts the merchants from marketing because they don't have much of a margin to work with.

Assuming the consumer is willing to put up with the price anyway and buy the TV, the availability of payment options at the checkout is minimal. In Canada, 89% of the payments happen by credit card. Canadians love Interac, but Interac is not available at all. Actually, debit cards in general are not available, because they're not network branded and available. So I will echo the comments about payment options: they're very restricted, and they're restricted by the banks, so there's an issue that needs to be addressed.

Also, then, shipping costs are a problem. Whether you're shipping to Canada, across to the U.S., or to anywhere in the world, our costs of shipping are extremely high, so consumers tend not to complete the checkout process.

When you look at the main issues on the merchant side, you see that one issue is the cost of actually doing business online, primarily because of payments. A mid-tier merchant like DNA 11, here in town, has to pay a deposit of about $100,000 for a credit card processor, in holding fees for fraud. Now, know that DNA 11 actually is a DNA company, so it's as safe as it can get online; I mean, you can't get anything safer than somebody processing your DNA. But because of the way the banks select merchants, or pick them, the costs have to be incurred.

So it's very hard for small or medium-sized merchants to actually set up in Canada, and once they do, their cost for a credit card transaction is about 3.5%, which is high. Let's compare that to the U.S. As a mid-tier merchant in the U.S., I actually don't have to chase the credit card processor. What I do is go to one of the many sites and submit my volume online. They bid on my process, the way you get a mortgage here, and I get a rate. For DNA 11, I'm giving you actual data: it's 3.5% in Canada and 1.9% in the U.S. It's the same business, with the same customers. It's almost unfair. So because the price is so high just for payment transactions, they can't be competitive. Imagine this in the electronics world: that cost cannot be borne because the margins are so low.

Next is the issue of shipping. In Canada shipping is expensive because of the distance, of course, but even for shipping across the border.... When I grow as a merchant, I have to ship across the world. My customers could be mainly in the U.S, and when you ship, your costs are not only for shipping.

Some of the credit card companies levy a foreign trade fee on top of those costs--about 6%--just for the luxury of shipping to the U.S. What many Canadian merchants actually do is rent a truck, put the equipment or product on it, and send it to Ogdensburg, where somebody actually processes it and ships it to the U.S. Eventually, when you grow big enough, you move. DNA 11 just rented a big facility in Vegas. As well, Cymax, out of Vancouver, moved to the U.S., as did Coastal Contacts out of Vancouver, and so on.

Once you move to the U.S., the problem is that you cannot process anymore in Canada, because your main focus is the U.S., and that's where your market is. Your selection ends up being less...it's a vicious cycle for Canadian merchants, especially the small and medium-sized ones.

I'm running out of time. If you have any questions, I'll take them, but the equation is not balanced, and it's fairly heavy towards the banks in Canada.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Forzley.

There were some good opening remarks. I'm certain there are plenty of questions.

We'll move to Mr. Lake for seven minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thanks, Mr. Chair.

Thanks to the witnesses.

I was going to start somewhere else, but I'm going to continue with Samer. When we're talking about the consumer side of things, it sounds pretty much as though most of those problems are business problems, problems that good businesses have to resolve, and for the most part on their own.

On the merchant side, though, it sounds like we're dealing with issues that are not necessarily all electronically related. Some of them are just trade related, I guess, in a sense. Maybe you could elaborate on that a little.

[Samer Forzley]

Sure. On the consumer side, there are some situations that I'm not sure how consumers could address, even if they chose to, especially on the payment side. When you are security conscious or privacy conscious and you go online and the only choice is a credit card where you have to give up that info, it's an issue for many consumers. Actually, just to let you know how big a loss this represents in the U.S., in 2009 it was a $20 billion loss because people were not comfortable checking out when the only available payment method was by credit card.

That's almost equal to all the e-commerce in Canada. So it's a serious problem, and in Canada it's worse because there are only credit cards, in general, and banks are not allowing other payment options to be used. It's that simple. For example, we are a Canadian company, six years plus in operation, and we don't have a single merchant or customer in Canada. It's all U.S.-based. We can't get on the network.

So it's structural, and for consumers, when they go to check out, I'm not sure how they would resolve these issues.

On the business side, again, the core issue—there are two issues here. There's the cost of doing business in Canada. It's very expensive, both on the payment side and on the shipping side. The shipping side could be resolved. Canada Post is making an effort. They have set up a subsidiary that actually does channel some sales back and forth between the U.S. and Canada, but on the payment side there's not much happening.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Right. My notes from your comments on the consumer side say that products were hard to find. I find that too when I'm shopping for something. Usually it's a problem with a company having a terrible website and you can't find what you want. Price not good--well, that sounds again like a business problem.

[Samer Forzley]

But it's also structural...sorry to interrupt. In the U.S., for example, if I'm a small merchant or a medium merchant, I don't have to hold all these products for inventory. I can go through a drop shipper or join a marketplace, at which point my catalogue will get filled up. In Canada, it's not available, simply because there are not that many merchants joining the network, to start with, to add their products. So in many cases in the U.S., you will see two merchants who may be competitive but who actually collaborate. You buy from one merchant but the competitive merchant ships on their behalf, simply because that's how the network grows, as a matter of fact. That does not exist in Canada.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I want to move on, if I could, to Ms. Cukier.

You talked about disaggregating to find out where the successes and failures are, which led me to think about the question, where are the successes and failures?

Where are the successes when you talk about that, when we're looking at e-commerce? What is a model of success out there for you? What is a model of failure? What does that look like?

[Prof. Wendy Cukier]

At this stage, we don't have a lot of disaggregated data. There was a project proposed with ITech, the Retail Council of Canada, and REALpac—a commercial real estate association that handles lots of the big shopping malls—to actually try to unpack that answer.

One of the things that people have pointed to recently is Groupon, as an example of a Canadian success story. Canada has been quite successful in developing some very specific apps to support e-commerce that are based on context-sensitive computing and so on, but the economies of scale, quite honestly, for many of the big consumer-oriented businesses, simply are lacking in Canada, and that is a big challenge.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I may follow up on that a little bit later.

Mr. Geist, in your comments you hit a section where you said you could go on, and then you touched on a few things about regulatory and competitive environments. You talked about the online real estate giant, which couldn't be Canadian because of restrictive rules over the listings data, and Amazon couldn't be Canadian because of foreign investment restrictions.

Go on.

[Dr. Michael Geist]

All right. Those provided three more examples. There are in the United States a number of companies that have emerged based on open government data. So they've used government data that might be made available in open format, they've added their own value-add, and have become viable commercial companies.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

But specifically in those three that you talk about—

[Dr. Michael Geist]

Oh, sorry, for those three.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

You talk about Amazon, for example. It couldn't be Canadian because of foreign investment restrictions. Why?

[Dr. Michael Geist]

You may recall what happened when Amazon tried to enter the Canadian marketplace. It functions as amazon.ca, and it's largely run through the post office. Owing to restrictions on the requirement for booksellers to be Canadian owned, it couldn't function in this country the way it functions in other jurisdictions. We have restrictions on ownership, so unless Jeff Bezos happened to be a Canadian, there would be a problem. But he's not.

With something like Skype, there are ongoing issues on the telecom side with respect to VoIP. Even accessing phone numbers has been challenging. It's one of the reasons you don't see the same number of Internet telephony services in Canada that you see in some other jurisdictions.

As to the listings data, that's actually an issue that the commissioner for competition has been quite active on. MLS has been aggressive in retaining these data, so that it's difficult for other services to make use of listings data. In the United States, there is a true Web 2.0 Ecosystem for real estate data, where they build Google-like maps, street views, and a range of other data, so that you can layer it all into a much richer experience than Canadians are able to obtain.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Do you have any recommendations or thoughts on the foreign investment issue?