E-Commerce: Measurement and Measurement Issues
By BARBARA M. FRAUMENI*
E-commerce is a hot topic; however, little is
known about the actual size and impact of e-
commerce in the United States. In part this is
because e-commerce is a recent and rapidly
evolving phenomenon, but it is also because the
measurement of e-commerce presents a num-
ber of challenges. Some of these challenges
are essentially unique. Others are similar to,
or extensions of, old economy measurement
challenges.
I. E-Commerce Estimates
Many estimates and forecasts of the size of
e-commerce exist. As Table 1 demonstrates,
there is a considerable range between the high-
est and lowest estimates of business-to-business
(B2B) and business-to-consumer (B2C) e-com-
merce. Differences in methodology, coverage,
and general outlook are several possible reasons
for the differences in the estimates and fore-
casts. It is frequently difficult or impossible to
determine the specific methodology or coverage
underlying the estimates and forecasts. Without
a clear understanding of the methodology em-
ployed, it is difficult to evaluate the estimates. A
common concern is the extent of double-count-
ing (e.g., intermediate inputs being counted as
well as the full value of the product produced by
these inputs). Another concern is the validity of
comparisons to gross domestic product (GDP)
(e.g., the contribution of e-commerce-generated
transportation-sector activities to GDP includ-
ing the value of the product being shipped,
instead of only the margins that are included in
the national income and product accounts
[NIPA] GDP). Even if coverage differences are
known, comparisons are difficult, as break-
* U.S. Department of Commerce, Bureau of Economic
Analysis, Washington, DC 20230 (e-mail: barbara.
fraumeni@bea.doc.gov). This paper represents the view of
the author and is not an official position of the Bureau of
Economic Analysis or the U.S. Department of Commerce. I
thank Nicholas Brannick for his assistance in collecting
e-commerce estimates and forecasts.
318
downs of e-commerce activities are typically
not available. Some forecasters are very opti-
mistic about the future of e-commerce, others
less so. For example, Jupiter Communications
has an optimistic outlook, recently estimating
that 42 percent of all B2B trade would be con-
ducted over the Internet by 2005 (PSINet, 2000
p. 65).
The fact that there are fewer B2C forecasts
than B2B forecasts probably reflects the exis-
tence of Bureau of the Census (Census) survey
programs that are emphasizing the estimation of
the size of B2C as opposed to B2B (Thomas L.
Mesenbourg, Jr., 2000). In the third quarter of
2000, e-commerce retail sales increased 15.3
percent from the second quarter but are still less
than 1 percent of total retail sales (U.S. Depart-
ment of Commerce, 2000). There is general
agreement that the size of B2B e-commerce is
significantly larger than the size of B2C e-com-
merce. As Table 1 indicates, on average, the
corresponding B2B estimate (e.g., comparing
lowest to lowest for a specific year) is over three
times the B2C estimate.
II. Is E-Commerce Covered in Aggregate
U.S. Economic Statistics?
E-commerce activities are embedded in the
U.S. national accounts, including the GDP ac-
counts (Fraumeni et al., 1999). Many are trans-
actions formerly done in more traditional ways,
undoubtedly some previously via mail order.
These transactions are picked up by surveys
conducted by the Bureau of Labor Statistics
(BLS), by the Census, by tax records from the
Internal Revenue Service (IRS), and by other
data sources drawn on by the Bureau of Eco-
nomic Analysis (BEA). However, these activi-
ties could not be separated from other types of
activities (e.g., to estimate e-commerce GDP)
without special surveys or additional questions
on existing surveys.
Looking beyond the national accounts to
aggregate U.S. economic statistics in general,
the consensus is that the vast majority of
VOL. 91 NO. 2 E-COMMERCE E-CONOMY 319

TABLE 1—E-COMMERCE ESTIMATES categories that have grown most rapidly over
a
AND FORECASTS ($BILLIONS)
the post-World War II period (Sherlene K. S.
Lum et al., 2000). With the absence of price
Year Lowest estimate Highest estimate
indexes (mainly in consumer spending on ser-
B2B: vices such as insurance, education, and medical
1998 12 92 care), over 10 percent of consumer spending,
1999 23 114 and almost 25 percent of GDP, is measured
2000 52 406 using either physical inputs as extrapolators
2001 91 717
2002 131 1,510 (mainly labor hours) or as input-cost indexes,
2003 634 2,940 which produce zero or low growth in labor
productivity and often negative growth in multi-
B2C: factor productivity (J. Steven Landefeld and
1998 4 27 Fraumeni, 2001). There are other components,
1999 9 95 such as brokerage services, where real output
2000 7 200
is estimated using partial output measures
Notes: The B2B lowest estimate for 2001 was interpolated that probably do not capture improvements in
between the 2000 and 2002 estimate. service quality associated with information-
Sources: Boston Consulting Group (1999), Goldman Sachs technology innovations. Also, additional work
(1999), B. K. Atrostic (2000), Steven J. Kafka et al. (2000), needs to be undertaken to measure the value
Stacy Lawrence (2000), PSINet (2000), and Julie Sturgeon
(2000). of investments and quality-adjusted prices for
a
Billion ⫽ 109. e-commerce infrastructure, such as servers and
telecommunications equipment.
Free services, particularly information provi-
sion, seem to be a hallmark of the web. There
e-commerce activities are covered (Fraumeni et may be less of a connection between informa-
al., 2000). However, as surveys are conducted tion provision and sales because of the web. For
and sample rotations are carried out on various example, a customer can now obtain flight in-
time schedules, there may be some lag and formation and tickets on the web, over the tele-
differences in survey capture rates. These are phone, or in person at a brick-and-mortar
the same sort of issues that arise for data col- establishment. There are simply more options
lection in dynamic sectors of the economy. It is open, which increases the possibility that sales
not believed that this contributes to significant and information are provided by different
e-commerce under-coverage. agents. In some cases, there may be a shift from
fee for products to free products (e.g., the cur-
III. E-Commerce Measurement Challenges rent day’s newspaper). Advertising revenues,
and Issues including charges to have a link appear on a
web page, represent an important source of rev-
The question of whether e-commerce is in- enue for many e-commerce businesses, accord-
cluded in aggregate U.S. statistics is just a ing to anecdotes. For sites that provide for free
starting point for discussion of e-commerce search engines, content, e-mail or Internet-
measurement. Although e-commerce is included service provision, advertising is frequently the
in the statistics, measuring it is frequently only source of revenue. As is true with radio
problematic. and television, those who enjoy the free services
E-commerce exacerbates preexisting old may be different from those who buy the ad-
economy measurement problems. A number of vertised goods and services. The Census retail
e-commerce-intensive sectors are in difficult- e-commerce surveys do not count free goods
to-measure active or emerging e-commerce and services; therefore it is unclear how these
sectors such as banking, insurance, brokerage activities would be included in a study of e-
services, education, and medical care. In gen- commerce’s contribution to economic growth.
eral, the difficult-to-measure sectors are concen- Between businesses and consumers, who pro-
trated in services and in finance, insurance, and vides what may be changing. For example, if a
real estate (F.I.R.E.) industries, the broad sector consumer makes an e-commerce purchase, the
320 AEA PAPERS AND PROCEEDINGS
purchase is sent electronically (e.g., software)
or delivered to the home (e.g., most goods).
Formerly, except in the case of most mail- and
telephone-order purchases, the consumer drove
to a brick-and-mortar facility to pick up the
good. The full e-commerce home-delivery trans-
portation cost is included in the output of the
U.S. economy; the transportation-margin com-
ponent of it is included in GDP. When the
consumer picks up the good himself, a much
smaller transportation-related cost appears in
output and GDP, including items such as con-
sumer expenditures for gasoline, motor-vehicle
depreciation, and so forth. In addition, the con-
sumer is now typing in the order and billing
information on the e-commerce site. Formerly
salesmen performed these functions and their
wages were reflected in product prices. There
are a number of activity shifts between the
nonmarket (not in the national accounts) sector
and the market (in the national accounts) sector.
It is not clear that the overall level of activity
has changed at all, yet output and GDP may be
higher.
Time savings (or loss) and the convenience
(or inconvenience) of e-commerce are not cap-
tured in the national accounts. Often the asser-
tion is made that these aspects should not be in
the national accounts, yet to a limited extent,
they are already included. When computers be-
come faster and easier to use, at least some of
this is reflected in the quality-adjusted computer
price indexes. It is a matter of degree. Unless a
satellite household production account is con-
structed, most time savings (or losses) from
e-commerce and other aspects of the digital
economy will not be measured. It is unlikely
that a household production account would in-
corporate measures of convenience. Therefore,
perhaps an important element of e-commerce
would be missed, unless convenience is cap-
tured by quality adjustments.
A general question which encompasses the
provision, time, and convenience aspects of e-
commerce goods and services as well as other
features is whether e-commerce goods and ser-
vices are really the same as brick-and-mortar
goods and services? Are there quality differ-
ences between, say, a paper book brought on the
web, a paper book bought in a bookstore, and an
electronic book bought either on the web or in a
bookstore? A paper book can be lent to some-
MAY 2001
one else, an electronic book perhaps cannot be
lent. Is an electronic ticket, which may or may
not be bought on the web, the same as a paper
ticket? If a customer loses a paper ticket, they
have to pay a penalty to have it replaced, but
they can normally use it on another airline if
their original flight was canceled.
Finally, e-commerce may blur the distinction
between goods and services. Is an on-line news-
paper a good or a service? A delivered paper
newspaper is a good, but an on-line newspaper
might be categorized as a service.
IV. E-Commerce, the Digital Economy,
E-Business, and E-Business Processes
How are e-commerce and the e-business pro-
cesses changing the way businesses do busi-
ness? One of the challenges is to determine the
potential impact of process changes. A typical
set of economic data does not record directly
how businesses do business; rather, the data just
record transactions indirectly and incompletely
by the inputs used in production. The digital
revolution may be having an impact on indus-
trial composition and structure not only because
some industries may grow at the expense of
others, but also because some businesses who
take a greater advantage of process changes,
including supply-chain changes, may have a
competitive advantage over others.1 We may
not have a clear picture of what has occurred
for a number of years. The BEA input– output
matrices, which are the source for the industry
accounts underlying the GDP accounts, are
constructed only every five years because
they depend upon the quinquennial censuses
(Fraumeni et al., 1999).2 Relative to the pace of
the web, five years is an eternity. In addition,
e-commerce may open up new opportunities for
consumers and businesses in the domestic and
global economy, changing the geographic dis-
tribution, reach, and distribution channels of
businesses. E-commerce and the digital econ-
omy may be facilitating the global economy.
Many believe that changes in business pro-
1
See Luis Garicano and Steven N. Kaplan (2000) for a
discussion of possible transaction-cost savings from B2B.
2
The BEA input– output accounts also appear with a lag.
For example, the 1992 input– output accounts were released
by BEA in late 1997.
VOL. 91 NO. 2 E-COMMERCE E-CONOMY
cesses may be the truly revolutionary impact of
e-commerce and the digital economy.
There are additional measurement problems
because B2B transactions are intermediate trans-
actions that do not show up as GDP. If one
wants to know the impact of B2B and B2C
e-commerce one needs to measure the impact
of both on real GDP and productivity. For
example, are the prices of consumer goods
and services falling, and are there greater
efficiencies as a result of the e-commerce rev-
olution, including B2B, and the associated high-
technology infrastructure? For goods, many
of the efficiencies of the new economy are
likely to be captured in the estimates. However,
for services the absence of adequate price data
makes it difficult, if not impossible, for mea-
sures to reflect higher measured output and pro-
ductivity arising from the new activities and
technologies.
V. Intangibles
Measuring intangibles is another old-econ-
omy problem which may be exacerbated by
e-commerce and the digital economy. The web
and the Internet have facilitated the speed and
ease with which knowledge and information are
transmitted. There is no question that knowl-
edge and information are important, but difficult
to quantify as inputs. Other types of intangible
capital that are frequently mentioned include
intellectual, organizational, institutional, and
reputational assets. Although some progress has
been made in measuring R&D and human-
capital investments, these are usually not inte-
grated into a set of national accounts. Very little
is known about how to quantify intangibles,
yet they seem to be a particularly important
source of market valuations for new-economy
firms, including those involved in e-commerce
(Margaret M. Blair and Steven M. H. Wallman,
2000).
VI. Data Needs
A by-product of e-commerce is the need for
more timely and new data. More timely data
would be useful with respect to distribution
methods, changes in point-of-sale, new products,
and compensation for all workers. E-commerce is
changing distribution methods, as mentioned be-
321
fore, with home and electronic delivery common.
Manufacturers, such as Dell, also can more readily
sell directly to the customer, bypassing wholesal-
ers and retailers. The pace of innovation seems to
be accelerating, facilitating e-commerce and in-
creasing the need for quicker incorporation of
new products. Information on production workers
is reported monthly; the advent of e-commerce
and the digital economy increases the need for
monthly reporting on all workers, including non-
production workers and the self-employed. New
data needs include regular reports on new forms of
compensation, new sources of statistics on exports
and imports, information to facilitate construction
of price and output indexes for difficult-to-
measure sectors and e-commerce infrastructure,
and incorporation of virtual stores into point-of-
purchase surveys. Stock options represent a po-
tentially important new form of compensation
that anecdotally is more commonly received by
e-commerce and digital-economy business em-
ployees.3 As e-commerce facilitates commerce
across international boundaries, information on
exports and imports may be reduced, as there are
no customs agents on the web and e-commerce
country of origin and destination may be uncer-
tain. As prices and quality of e-commerce goods
and services may not be the same as those ob-
tained in brick-and-mortar outlets, both clicks and
bricks should be included in point-of-purchase
surveys. These are just a few of the additional data
needs suggested by the growth of e-commerce.
VII. Conclusion
As a practical matter, it does not seem feasi-
ble to separate e-commerce activities from other
activities. Even without attempting a separation,
e-commerce presents a number of measurement
challenges and issues. As is true in any period
of rapid change, the measurement community
needs to rise to the occasion and devote the
additional resources to address these issues. Al-
though at this point e-commerce may represent
a relatively small percentage of both B2C and
B2B, its future size and impact on e-business
processes and economic growth may be large.
3
BLS recently conducted a pilot survey on the incidence
of stock options. For more information, see Bureau of Labor
Statistics (2000).
322 AEA PAPERS AND PROCEEDINGS
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