Bridging the Digital Divide, Cheaply


By Alex Salkever On Nov. 21, the U.S. Commerce Dept. announced yet another blowout quarter for online shopping. E-commerce sales hit $13.3 billion, rising 6.6% over the prior quarter. That outpaced the overall retail sales growth of 1.6%. Even more impressive, the online tally increased 27% year-over-year from the third quarter of 2002. While online shopping still represents only 1.5% of total retail sales today, Web retailing could grab 10% of the total pie by 2006 if current trends continue.

That's good news for consumers, who increasingly turn to the Web for better prices, better selection, and convenience. Good news, that is, if for those who are well-heeled and computer-savvy. The truth is, the benefits of the Web have disproportionately gone to a class of Americans who are also mostly white and predominantly male. They're also likely to have college degrees, earn relatively high incomes, live in nice neighborhoods, and use the Internet for online banking.

Good for us. But I think America is missing a golden opportunity by not bridging the digital divide faster between the haves and have-nots in the cyber-world. A growing body of evidence suggests that broadband Internet connections could become a potent tool for empowering poor and working-class people to improve their lives. I think Uncle Sam should subsidize broadband access for the neediest Americans.

THRIFTY AND INDUSTRY. Why do I bring this up now? Because in this holiday season of giving, Congress and the White House have seen fit to give billions to Big Oil and coal companies under the guise of bills which claim to improve U.S. energy independence. They have given billions to drug companies under the guise of Medicare reform.

Left out in all this giving have been poor, working families and young people who don't have Medicare coverage and worry more about paying the electric bill each month than about national energy independence. So why not give them a broadband tax credit or a tax rebate for purchasing broadband? It could help them improve their lives at a heck of a lot less cost to the Treasury.

With the Bells offering digital subscriber line (DSL) service at $30 per month and cable companies offering sign-up bonuses of six months free service, the cost of broadband has never been lower. If the government gave a $300 tax credit to the roughly 30 million U.S. households with an annual income of no more than $15,000 for individuals and $25,000 a year for families, the subsidy would cost Uncle Sam no more than $4 billion a year. To pay for it, why not shave 1% off the Bush tax cuts to the very rich?

ESSENTIAL SERVICES. I'm quite serious. For one thing, universal broadband access could make every American a better educated, more efficient consumer in the modern marketplace. It's not just the miracle of online banking and Amazon.com (AMZN). Today, in America's largest cities, online grocery shopping is a viable option. FreshDirect in New York promises to undercut local supermarket prices by double-digit percentages and deliver fresher food to boot. Drugstore.com offers discounts on nonprescription orders and ships to any Zip Code in the country for a $5.00 charge.

Big store grocery and drugstore chains such as Rite-Aid (RAD), Safeway (SWY), and Wal-Mart (WMT), have the best prices for basics. But they generally shun the poorest urban locales. "In the poor neighborhood there's often not a chain supermarket. If you're limited to buying stuff at the corner store, you're almost surely paying higher prices," says Judith Chevalier, a professor at the Yale School of Management who has extensively studied Internet pricing phenomenon.

For an individual who doesn't own a car -- and that's about 55% of the poorest Americans -- the Internet can allow access to Wal-Mart prices at WalMart.com and save torturous, time-consuming bus rides. Those precious hours could be put to better use caring for children or hunting for jobs rather than worrying about cereal prices.

SMARTER SHOPPERS. And if a poor person wants to buy a car, the Internet provides a better way to do it. Witness a July, 2003, study by researchers at University of California-Berkeley, University of California-Los Angeles, and Yale University that examined how much people could save by using an online intermediary. These intermediaries, such as Carpoint, Autobytel, and Edmunds.com, route quote requests directly to dealers. The study found an interesting phenomenon: Minorities and women, who represent a bigger chunk of the poor than other groups, saved an average 2.2% of the purchase price by using these Web intermediaries.

The authors attribute this savings partly the fact that the poor generally have less information and come to the table less equipped to negotiate a better price. For some of them, the cyber-intermediaries can do the haggling better. For others, the intermediaries apparently turned up enough Web research to educate them on current dealer incentives, the true invoice cost of the cars, and other key data that's readily available on the Internet and nowhere else.

With even the cheapest cars running $13,000, a 2.2% savings is close to $300 -- no small potatoes if you're earning $15,000 per year. "We certainly have found consistently across our studies of car buying that this is a medium that helps the weak the most. You can tie that to income and education levels. It levels the playing field across socioeconomic groups," says Florian Zettelmeyer, on of the authors of the study and a professor at Haas School of Business at UC Berkeley.

PRIVATE TIME. Getting a better price is only half the benefit. Better info is also key in complex purchases such as cell-phone plans, cars, and computers. "Should a shopper purchase a brand new car from a less reliable brand or a used car from a very reliable brand? With the Internet, it's much easier and cheaper for you to figure out that this car is not very reliable. So it helps you make the calculation that you would be better off with a better car," says Chevalier.

True, my fantasy tax rebate still wouldn't help folks get computers. But basic PCs with monitors have now fallen into a price range around $500, and are still coming down. And a decent used system can be had for $300.

Also true, most Americans can access an Internet connection at the library or someplace nearby, often for free. But some of the areas where online access is the most useful also involve topics people prefer to keep private. "In public-access points, such as schools and libraries, people are less apt to use the Internet for some of the things they need most, such as personal financial services and health-care information. And a lot of the use we see in the poor who do have access happens after mom has tucked the kids in for bed at night, when schools and libraries are closed," says Alec Ross, vice-president for corporate development at One Economy, a nationwide nonprofit that promotes broadband access for low-income housing residents.

QUALITY OF LIFE. Let's face it: Broadband makes surfing the Web almost effortless and enjoyable. According to online shopping comparison portal Shopping.com, broadband users are five times more likely to actually make a purchase then their dial-up counterparts, who often have to wait for downloads and transactions to register, creating anxiety and uncertainty.

There's plenty of precedent for government subsidizing the buildout of infrastructure that benefits all Americans. It seems only fair to ask for a broadband subsidy that, if done right, could not only save the poor a mess of money, but also help them live a richer, more productive life in the Information Age. Salkever is Technology editor for BusinessWeek Online. Follow his Nothing But Net column every week on BusinessWeek Online


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