The Story of the Very First Thing Securely Sold on the Internet

But the internet wasn't always a sprawling shopping mall, and as hard as it can be to separate the current landscape from today's colossal tech companies, the idea to use it to buy and sell physical goods wasn't baked into the infrastructure from the start. That idea—that the web could be used as a medium for the exchange of commercial products—came, in part, from a 21-year-old college student named Dan Kohn, who on August 11, 1994, changed history forever with the world's first secure credit card transaction for a physical good. The Swarthmore student sold a CD copy of Sting's 1993 album Ten Summoner's Tales to a friend in Philadelphia, who, for $12.48 plus shipping, received a copy of the disc by mail a few weeks later.

"It was just such a mind-blowing experience," Kohn says, a few days before the 25th anniversary of transaction.

At the time of the event, Kohn says, the number of websites was "in the dozens," and few people thought that the internet had any use for financial exchange. The idea came to him while studying abroad at the London School of Economics, where he was able to remotely connect to his Swarthmore computer to check his email and read updates on the early web forum Usenet. "As I was using it every day, thinking about it, and also just reading a lot about business ideas and startups, it just sort of dawned on me: Why aren't people doing commerce on this network?"

Of course, Kohn wasn't the only one thinking of using the internet to sell something. As far back as 1971, students at Stanford and MIT were using the pre-WWW ARPANET to sell pot across the country, as noted by Shopify in a video on the history of e-commerce. While the sale was organized via digital connection, the exchange itself took place in-person, and is radically different than the kind of e-commerce transaction associated with online shopping today. Similarly, a 74-year-old British woman Jane Snowball used an early internet connection to purchase groceries in 1984, but because the cash was exchanged in person, it still considerably different from the kind of encrypted exchange used by Kohn.

Twenty-five years since that first transaction, the landscape of the internet is naturally a different place. For one, online shopping is now one of the world's largest industries, fundamentally reshaping the landscape of brick-and-mortar retail. CD sales, too, are far from the most popular form of music consumption, which remains indisputably dominated by ad-supported and subscription-based streaming platforms. Through it all, Kohn remains committed to the internet freedom that allowed him to start NetMarket, attributing much of his success to the open-source movement. "We were standing on the shoulders of giants of Unix, the internet, cryptography, PGP, Tim Berners-Lee, and the web, all of these folks," he says. "But we were also an important signpost saying, 'Okay, this is where things are going. This is in a lot of ways going to be the future of commerce.'"

VICE: It's been a few years now since you started NetMarket.
Dan Kohn: I actually had the idea to start it when I was studying abroad at the London School of Economics, so I would've been 20. After a huge amount of hassle, I was able to get a VAX minicomputer to connect across to the Swarthmore computers where I had accounts. Today, all that seems kind of trivial and not that big of a deal, but at the time, it sort of blew me away that I was able to remotely connect.

I remember it taking me a week or two to actually get it working. The computers at Swarthmore were named after spices, and at the London School of Economics, it was 10:08 a.m., [so] when I connected it to the Swarthmore computer, the little prompt came up that said "Oregano 5:08AM." It was just such a mind-blowing experience. As I was using it every day, thinking about it, and also just reading a lot about business ideas and startups, it just sort of dawned on me: Why aren't people doing commerce on this network?

Was it important to you guys to be the first to solve this challenge? I know there's been some debates about other sites like The Internet Shopping Network selling something around the same time.
I would say, at the time, we were very focused on building a business. So sure, in retrospect there's some excitement or fun about having been first, but at the time, we were just heads-down trying to do something. We were all living in this house in New Hampshire and just working all the time.

It just seemed obvious as we were launching it that security was going to be a huge deal, and so we were really focused on coming up with an answer there, telling a story, and being able to explain how this was going to be a hurdle that was going to be surmounted. But certainly we got a ton of attention for it; I love that New York Times headline—["Attention Shoppers: The Internet Is Open"]—because that is very much the story that we were trying to tell.

Were you worried initially that people might steal your intellectual property, being the first ones to do this?
We just didn't think of it that way. It's similar to writing software and saying, "Oh well, am I worried someone else will steal that idea." And I genuinely believe that software ideas shouldn't be protectable in that way. We saw ourselves as innovating and trying to address a market and expand as quickly as possible.

The person who purchased the CD, Phil Brandenberger, he was a friend of yours at the time?
He was. We had gone to college with him. I actually found out that he's in New York now, I need to get lunch with him. But the initial configuration, especially for the first couple weeks, was kind of challenging to set up and so we pinged him on it and said, "Hey, can you configure this and set it up and everything?"

So it was kind of a transaction between friends and not really a public-facing company in the same kind of way.
I wouldn't quite agree with that. He was already a customer of our site, so it was a natural thing to ask him to do.

What was your relationship like with suppliers like at that stage? You were selling on behalf of this music company, right?
No, we didn't deal directly with the music company; we dealt with this company in New Hampshire called Noteworthy Music that has since gone out of business. The reason we were familiar with them is that they were huge with college students, and so when I was in college, I used to look through their print catalogue… and then pick out the CDs I wanted and then mail in the order form, or maybe, if I could find one, use a fax machine for the order form. So it was kind of a natural thing for us to go to them and say, "Hey, we want to put your music online." And so they shared the catalog with us, and then when the order came in, we connected into their servers and submitted it.

Were their other companies you were doing this with outside of music?
We started with them and then the second one we did was flowers. We had planned to go into books or travel or other kinds of stuff, but then wound up taking an acquisition offer with this company Cendant, which is the biggest membership services company.

Where do you see cloud computing and e-commerce moving in the future given your current work?
One of the fun things about it, having been a pioneer in the e-commerce space, is just that so many e-commerce giants today are leveraging the software that my foundation hosts and helps support. Our servers, they were all physically in the office with us underneath our desks. There is just a direct line of system administration skills, how the software runs and all this other kind of stuff, to how things work today, but it is kind of fun to get to work with companies like eBay and Mastercard and Salesforce and the New York Times and others that are now looking to operate at scale, where they want to dynamically expand out from dozens to hundreds of servers when a flash demand comes in, then shrink down again when the demand passes.

I guess it's kind of important to you guys to own your own servers and move the open-source movement forward in a way that isn't limited to software but also is connected to the hardware as well.
No, in some ways it's not. When we started NetMarket, we had to own all of our computers, there was no other option. Literally, the cloud didn't mean anything, but when I was a venture capitalist in 2000, companies would come to us and say, "Oh, well we need to raise a few million dollars of funding because we have to buy all these physical servers."

It's just a sea change in terms of how much easier it is from an idea or conception of an idea to actually being in production on the web. It's almost magical when you look at the free software out there and tools like GitHub and the fact that you can find contractors all around the world who are eager to convert your designs into code. Now the opposite side of that is that it's so much harder to get noticed today and build up a brand. At the time, we were among the first few dozen, maybe first few hundred websites. I remember at the time, there was a manual directory that somebody was creating. Of every website. And we were one of about three of them in New Hampshire.

This was even before search engines, probably, right?
Exactly.

Yeah, I guess AOL was just taking off then, that was right around the time they had their first search.
This earlier technology Gopher, and it had a search engine built into it, hilariously called Veronica, which I'm embarrassed to say that I still remember stands for Very Easy Rodent-Oriented Network-wide Internet Computer Archive, which is like the worst fake acronym. The reason they came up with Veronica was that the previous technology FTP, which was used for file transfers, had an internet-wide archive called Archie, like archive with the 'V' removed. And so when they created a search for Gopher, they wanted to call it Veronica.

But in any event, AOL was out there, it was growing incredibly fast and we had tons of people come to us and say, "Why are you wasting your time on this internet thing? AOL is where everyone is going." They want the walled garden, etc. And so there was a lot of other directions at the time and it definitely was the case that the internet at the time felt like a frontier town or the Wild West, where today it's Manhattan.