’Tis the time of year when the primary function of the Internet switches from being a communication or information gathering tool to being a shopping tool. And this year we’ll be shopping online–and spending more than ever before, according to Adobe’s holiday shopping forecast. Starting with Black Friday and continuing until Christmas Eve it’s projected we’ll spend $83 billion buying online goods this holiday season, with $3 billion alone spent on Cyber Monday.
Those dollars will be spent on everything from iPhones to cat-scratching DJ decks, as we snap up deals from behind our screens in the comfort of our PJs and near a plate of leftovers. But what was the first actual encrypted online transaction?
A new video made by Shopify, an e-commerce software company, delves into this bit of Internet history to track down the first official e-commerce transaction. The trail begins on the ARPANET, with a 1971 deal between computer science students at Stanford and MIT to buy some pot. But, explains the narrator, that technically didn’t count because money wasn’t exchanged online: they only used the network to arrange a meeting place.
Next, the trail leads to 1984, when a 74-year-old British grandmother named Jane Snowball used a Videotex—essentially a TV connected to telephone lines—to order provisions from her local grocery store: margarine, eggs, cornflakes. However, the groceries were delivered by hand, and Snowball paid for them in cash. That’s not exactly e-commerce.
The first true e-commerce transaction didn’t happen until 1994 with the advent of the Internet as we more or less know it today. Though Pizza Hut often gets credit for the first e-commerce transaction (they started selling pizzas online in late August 1994) the actual credit goes to Dan Kohn, a 21-year-old entrepreneur who ran a website based in New Hampshire called NetMarket.
On August 11, 1994, Kohn sold a CD of Sting’s Ten Summoner's Tales album to a friend in Philadelphia, who used his credit card to spend $12.48, plus shipping costs, in a transaction that, for the first time ever, was protected by encryption technology.
"Even if the NSA was listening in, they couldn't get his credit card number," Kohn told Peter Lewis of the New York Times in an article the following day about NetMarket—what Lewis called "a new venture that is the equivalent of a shopping mall in cyberspace."
The site required that customers download a special browser that ran only on Unix in order to conduct secure transactions. Philip Zimmermann, the creator of the PGP encryption standard that NetMarket relied on, told the Times that the technology was a significant stepping stone toward digital currencies. "I think it's an important step in pioneering this work, but later on we'll probably see more exciting things in the way of digital cash... a combination of cryptographic protocols that behave the way real dollars behave but are untraceable."
Not everyone agrees on the NetMarket milestone. The Internet Shopping Network, which began selling computer equipment online in 1994, beat NetMarket by about a month, the site's former CEO, told CNet in 2004. (The Internet Shopping Network was later acquired by the Home Shopping Network, while NetMarket lives on under a subsidiary of hotel and rental car company Cendant.) And CDconnection.com claims on its home page to have been selling CDs online since 1990.
Meanwhile, a form of non-secure online shopping was already happening in Europe in the 1980s, thanks to a slew of terminal-based services like France's Minitel and Germany's Bildschirmtext, which offered banking, stock prices, and weather reports, as well as air and train tickets. In the U.S., early Internet users could use services like Prodigy, CompuServe, and AOL to conduct transactions.
This year, market research firm eMarketer projects consumers worldwide will spend $1.672 trillion online, a figure that represents 7.3% of overall global retail sales, which are expected to reach $22.82 trillion in 2015.
More than twenty years later, it's ironic that e-commerce as we know it today all started with a CD, a format that e-commerce subsequently decimated, becoming the dominant—and uneasy—distribution method for music.
For a partial rundown of this long, strange trip, "Proceed to Checkout: The Unexpected Story of How E-commerce Started," is well worth a watch.
This article has been updated to include the Internet Shopping Network, CDconnection.com, and other early online services.