From...

by Julia King

(IDG) -- Online auctioneer eBay Inc. is officially on record as having "zero tolerance" for selling illegal items on its wildly popular Web site.

Yet that didn't stop online listings for a human kidney, followed by various other body parts and at least three babies, from making their way onto the auction site earlier this month. EBay shut down the sales after learning of the listings.

These and other incidents serve up some critical lessons for e-commerce companies.

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First, "the Web is not the Wild West anymore, but it's not that far away from it either. You can't just put up an online service or store and then ignore it," said Jeremy Jaffe, vice president of e-commerce at Liberty Financial Cos.

Second, policy statements alone pack zero punch in the online marketplace.

What's also needed, experts said, are business processes and computer systems to ensure compliance.

Boston-based Liberty had to revamp its real-world business processes to work in the online world. For example, all information the company publicizes must be compliant with regulations set by the National Association of Securities Dealers Inc. Yet initially, the process for posting information online included no such compliance review.

One reason is that "initially, doing business on the Web was seen as a hobby, a kind of experiment," Jaffe said. Now, online posting procedures have been changed to include review by a compliance officer.

At Crossmarket.com, a Medford, Mass.-based business-to-business online auction, executives like Jayson Score have imposed on themselves the same rules and procedures that apply to real-world auctioneers as a means of protecting themselves against online fraud.

"We take fiduciary responsibility for all transactions, and we police our site and have strict agreements between buyers and sellers, who sign contracts up front," Score said.

Buyers on the site send payment for goods they purchase online to Crossmarket.com, which forwards the payment to the seller, if all conditions of the sale are met.

Sellers sign legally binding agreements to ship their products to the highest bidder in the condition in which they were advertised.

EBay, by contrast, makes money from listings and doesn't get involved in the actual buying and selling of the 2 million items per day that its 5.6 million users buy and sell.

Policing the site for illegal items for sale or other inappropriate material is left largely to the site's users, who can post their concerns to the site's community watch bulletin board. EBay spokeswoman Kristin Seuell said that's how the company learned of the kidney listing. Once it found out, it stopped the auction and suspended the posting privileges of the Florida user who put the kidney up for bid. It also notified the police.

"When we look back, we'll see this incident has helped to educate people in the eBay community about what our policies are, what actions we take and how closely we work with law enforcement," Seuell said.

But even after the incidents, eBay has no plans to prescreen listings, she said.

Others have very different ideas about the lessons the incidents have taught.

"The lesson to be learned from eBay is that if the [online] auctioneer is not taking any responsibility, it becomes a free-for-all," said Score.

"The reason this auction got attention is that it was for a human organ. What if it were for bootlegged software or a stolen car? No one would know the difference," he said.

Buyingedge.com Inc, which runs a so-called reverse online auction service through which buyers post orders for goods and sellers bid on the business, uses a combination of business processes and information technology to prevent the sale of illegal items online.

The site provides buyers with formatted electronic order forms for goods in specific categories such as sports and fitness equipment and musical instruments. An electronic order form for a stereo system might include fields for whether the system contains a CD player or Dolby technology.

"What we're trying to do is not be a free-for-all. We've set parameters. We have predesignated forms, and there is no form for cocaine, for example," said Jacques Wagemaker, a company spokesman.

"If you went in and tried to buy a body part, there's no way the system would distribute it [to potential sellers] because it's not programmed to do it," he said.