Cross-Border Shopping

In Toronto for the long weekend (blogging in the strangely futuristic indoor patio of Richtree in BCE Place) and thinking about some of the lesser known reasons for the success or failure of e-commerce:

• Sales Tax: Often its cheaper to buy online, especially from companies that have no business presence where you live. In New York its a little over 8%, but in Canada there's usually provincial and federal sales tax, potentially adding up to 15% or so.
• Bank / ATM cards with credit card insignias: Any bank card issued in the states will almost always have a Visa or Mastercard label on it, and can be used as such. Canada bank cards have no equivalent label, and always require the entry of a PIN in order to operate. This means that if Canadians want to shop online they are obligated to use credit cards (not necessarily a financially wise move) or to use a solution like PayPal (requires a level of sophistication beyond some shoppers).
• Import / Export restrictions: You know, wine is an e-commerce tragedy. A closed bottle of wine is relatively non-perishable, has a range of pricing from discount to premium, has easy differentiation across the industry, is (with care) extremely shippable, and is primed for a great online service to offer a level of variety vastly beyond what a local provider could offer. Unfortunately its absolutely screwed by the law. Cross-border shipping restrictions, prohibition-era laws preventing the ordering of out-of-state liquor, import taxes - all combine to create a completely inviable (or at least inhospitable) environment for what would otherwise be a great e-commerce product. In Ontario its a complete non-starter: only the government can sell alcohol: its more or less illegal to run a private wine enterprise.

When I was running my little start-up in Toronto in the 90's, I always felt like a great opportunity was being missed by Canada. With its highly-educated population and its modern infrastructure (and, at the time, an exchange rate which made it extremely attractive to shop there from the States), it seemed like a short hop for it to become an e-commerce powerhouse. But the legal and financial support just never materialized, allowing other countries to pull ahead of it. I knew a couple of people from Toronto who were successful, but they became so by leaving.

I had dinner with (Torontonian) Jeff Skoll, co-founder of Ebay, a few years ago, and we puzzled over what was missing from the Canadian start-up landscape. He basically said that four things were required to form a great start-up environment:

1. Smart people with great ideas.
2. Angel investors willing to put up seed capital to fund it.
3. Venture capital funds willing to put up larger amounts of capital to allow a company to build up its business.
4. Larger underwriters willing to take the companies to IPO.

Canada is missing 2 and 3. I believe him, Jeff has always seemed to be right a lot.