Following a background report from Lee Hochberg of Oregon Public Television, Margaret Warner leads a discussion of shopping on the Internet.

MARGARET WARNER: For more on Internet shopping this holiday season, I'm joined by Darryl Peck, CEO of Cyberian Outpost, a company that sells computers, printers, software, and computer games online; Maryfran Johnson, executive editor at Computerworld Magazine; and Andrew Whinston, a professor of computer science and information systems at the University of Texas at Austin. He's also author of several books on electronic commerce.

Darryl Peck, put what we just saw in some perspective for us. What percentage - how big a bite of all holiday sales this year do you think is being taken by online shopping?

DARRYL PECK, CEO, Cyberian Outpost, Inc.: I think it's probably a pretty small bite, but it's a very rapidly growing bite. It certainly has grown an awful lot since last Christmas. I'm not sure what percentage of overall retail sales -- it's probably less than 1 percent, if even that. I don't really know the math on what retail sales are. It's in the trillions, I would imagine. But it's certainly a growing phenomenon that retailers and other direct marketers are having to face on a daily basis.

MARGARET WARNER: Maryfran Johnson, what's your sense of it, fast-growing area?

MARYFRAN JOHNSON, Executive Editor, Computerworld: Oh, it's definitely fast-growing area. It's just that the experience we've had covering the issue for Computerworld is that a lot of the shopping experience online still isn't very good. There's a lot of things that the Web sites need to be doing that they just either don't have the technology yet for, or don't have the people to do.

MARGARET WARNER: Such as?

MARYFRAN JOHNSON: Such as customer service. It's actually very difficult. There was one survey by Forester Research in Boston the show that of 2/3 of the shopping carts that get started by people on various sites get abandoned before they get to check out.

MARGARET WARNER: Now, we should explain for people who've never shop online that a shopping cart if you pick out an item, you click on it with your mouse, you put it in the shopping cart.

MARYFRAN JOHNSON: Right. It puts it - it basically -

MARGARET WARNER: It's a virtual shopping cart.

MARYFRAN JOHNSON: It's the virtual -- it makes a list of your purchases. And then at the very end is when you would put in your name and address and credit card number and all those details.

MARGARET WARNER: And, Professor Whinston, what's your sense of how big a phenomenon this is and whether it's got huge potential?

ANDREW WHINSTON, University of Texas: I believe that it has tremendous potential and, in effect, will really transform the world economy. So you have not only the electronic shopping, especially the Christmas shopping, you have as well the electronic trading. More and more people are trading electronically through E Trade and other companies.

MARGARET WARNER: You're talking about brokerage trades now.

ANDREW WHINSTON: Brokerage trades. More and more people are buying online plane tickets, transportation services, which, of course, those of around the holiday times. So, I think you're seeing really a broadening of activity on the Internet as kids get hold of inexpensive Web oriented computers to play games, as adults are playing their games with trading securities, so the world is really - especially the U.S. - but the rest of the world will follow - the world is really transforming itself and becoming more used to having interactions by the Web.

MARGARET WARNER: Darryl Peck, let's go back to retail sales for now. And, if I were a consumer who didn't know even what a virtual shopping cart was, but I decided I wanted to buy something online for this holiday season, how would I know where to start? Let's say I wanted to buy - I don't know - a CD player or a blouse, how would I know where to go?

DARRYL PECK: Well, there are several different ways. Obviously, most of the premier online merchants, such as ourselves, right now are running aggressive television advertising campaigns and campaigns, so certainly if you watch television, you're probably going to see our ads. And you know if you're looking for a computer, you can go to Outpost.com. If you're looking for CD, I'm sure CD Now is doing television advertising at the same time. Also, all the search engines online have great listings of all the premier merchants online and some of the smaller merchants as well. While there are an enormous number from sites now, it's gotten easier to find them in many ways because of the - there are so many search engines and they do such a good job of bringing the cream to the top. And obviously, with all of the off-line marketing that most premier Web sites are doing now, it's easier and easier to get ahold of the URL's or the addresses of these stores.

MARGARET WARNER: But how would I know if this was a legitimate vendor, a legitimate store?

DARRYL PECK: Well, I think that's where really the off-line advertising comes in a lot. Clearly, there are some people who are concerned about shopping online, whether they're dealing with a reputable merchant. But we have done a lot research at Outpost.com that shows that consumers have seen television advertising are far more likely to buy from the merchant online than if they've only seen advertising for the merchant online.

MARGARET WARNER: Ms. Johnson, there are advantages, are they're not, to shopping online? I mean, I'm just thinking, for instance, if I don't have time to go to the store when my stores in my town are open, because I'm at work, I can shop any time.

MARYFRAN JOHNSON: Oh, absolutely. Actually, one of the best ways to have a good experience shopping online - and I'm an online shopper myself on occasion -- is to know what you're looking for and where you want to go to get it. A lot of people buy their books right now from Amazon.com, but the important thing that seems to be emerging with Internet shopping are some of the things that are very traditional in the real world of retail - brand name, whether you get a good discount, how good the customer service is, if you have a problem on a site. I bought some pens on an Office Max site just last week and was having problems filling out one of the forms, and after about three tries, I got very frustrated, and I searched around on the site and I found the 800 number and I called and talked to customer service person. And they were smart about the way they handled me because she was willing to take my order over the phone and take my charge card. She didn't try to make me go to back to the site and deal with it more, because then I probably wouldn't have.

MARGARET WARNER: And, Professor Whinston, how do the prices compare online?

ANDREW WHINSTON: The prices actually are comparable with the prices in the physical stores. In some cases, they're less, especially, for example, if you want to buy a book. If you use one of these smart agents that will find you the best price, you can often find lower prices on some of the smaller online bookstores than if you were to go to the big brand names, such as Amazon or Barnes & Noble.com.

MARGARET WARNER: I'm sorry. Explain that a little more; I didn't know about this. They're what, a site you can go to that will find you - shop for you?

ANDREW WHINSTON: Yes. That will actually find the best price, so you can indicate a particular book and it will give you the prices of places that are really more competitive than for that particular book than some of the well-known online bookstores. So you have choices, and, of course, you have to use the technology to help you find the right choice, which in the case of a book you want is really the lowest price.

MARGARET WARNER: Ms. Johnson, you were trying to get in here?

MARYFRAN JOHNSON: Yes. I was going to say, of course, you have to factor in things like the shipping in handling charge. And if you buy something like clothing on Web, you have to factor in the fact that you may get it and not like it because of the quality or the fit, and then you need to pay the postal charges to send it back. I happen to think one of the biggest benefits of Internet shopping is once you know what you're looking for, of course, is to also be willing to deal with a certain amount inconvenience. And it's supposed to be very convenient at this point, but there was one study that we wrote about in Computerworld that showed that only about 5 percent of the sites out there now selling things actually offer what's considered a really compelling shopping experience, where it's very easy to find what you want, very easy to order it, and then it comes to you quickly in the mail.

MARGARET WARNER: Darryl Peck, as someone sells online, what is the key to being successful, to taking care of the problems that say Ms. Johnson just outlined?

DARRYL PECK: Well, she's absolutely right. And there are a lot of keys. Customer service has been our number one priority for the nearly four years we've been selling on the Web. We respond to almost all the e-mails within 24 hours. And if we can't respond within 24 hours, we tell them why we can't. We have worked very hard to create good shopping experiences. As a matter of fact, right now a third party, called, Binary Compass, rates a shopping by experience by customers' evaluation - own evaluation at Outpost.com as number one for both computer hardware and computer software. So, we've worked real hard at creating a good shopping experience. If you order by midnight Eastern Time, we'll have it to you tomorrow morning, up to three pounds, the cost of that is only $6, so there is clearly a way to address all the things Ms. Johnson has found in her studies that create problems. We really believe you have to create a compelling shopping experience to get people off the phones or instead of walking down the street to the retail store to make them want to shop online. And we have been trying really hard to do that for nearly four years.

MARGARET WARNER: Go ahead.

MARYFRAN JOHNSON: I'm sorry. I was going to say it's also important to keep a perspective about what a very small percentage this still is. There was a study that Odyssey, a marketing research firm in San Francisco did, that showed that 88 percent of U.S. households were going to purchase absolutely nothing on the Internet this year. And of that, that other 12 percent of us that are online and going to buy something, most of us are going to only spend, on average, about $275 online. So the growth is interesting. It certainly is moving along at a pace, but I don't tend to believe the predictions that say this is going to transform the global economy in a number of years. I think we're looking at maybe a ten to twenty year period that it will take to actually be transforming business on a global scale.

MARGARET WARNER: Who was that who wanted to get back in here?

DARRYL PECK: That's Darryl. I think it's going to be much faster. I mean, it may only be 12 percent - and if that's correct, fine, but a year ago it was probably 1 percent. And that is dramatic growth, and it's growing exponentially. Next year, I imagine it will be considerably more than 12 percent; we're seeing new customers come online every day at a fantastic rate right now, and you know, I don't know, I've been to a couple of malls - not this Christmas - last Christmas - went to two malls - it took me an hour and a half to find a parking spot each time and then waited in line for 20 minutes at each store I went in to. And I can tell you that was not a very fun shopping experience. I did most of my shopping online this year. But I think that it is going to grow very rapidly and the other thing - keep in mind - is that it is global. The Web represents the world's first and only global consumer marketplace, and that's where I think you're really going to see the scale develop as you go overseas.

MARGARET WARNER: Professor Whinston, one of the issues that people cite as a reason for their resistance to buying online still is apparently the security of their private financial information. How valid a concern is that?

ANDREW WHINSTON: It's certainly a valid concern and companies, I think, are working to reduce that concern as was discussed in the introductory part. There's a lot of very strong cryptographic support to protect your -- the information that you're sending to the - to the company. So I think companies are concerned about that, and they're going to do their best to make consumers feel comfortable with the shopping experience and not fear that information they have will be - will be compromised or that their credit card will be, in effect, stolen from them.

MARGARET WARNER: Ms. Johnson, how do you see the financial - the privacy angle?

MARYFRAN JOHNSON: It's actually - it's a very important concern still to people when they are asked why they do or don't shop online. Most of the sites - you'll notice - when you go to them, if you go all the way through that virtual shopping cart, you'll find that you can also call an 800 number and read your credit card number to someone over the phone. Personally, I think that the secure server technology that's used on a lot of the sites is very valid; there haven't been any stories of any - yet anyway - of any big hacks of a database where numbers are stolen. I believe there inevitably will be a certain amount of crime online, like there is in the real world, but I don't think it's as much the concern as the fact that people sometimes feel like shopping the Web is like wandering around in one of those giant shoe discount places. You don't really know exactly what you're wandering in to, and it takes a while to find it.

MARGARET WARNER: All right. Well, thank you all three very much.