Wake up Europe and smell the American coffee! The US has an undisputed lead in eCommerce and is coming here fast. European businesses have had the opportunity to see such phenomenal US growth but many have failed to act fast enough to seize it themselves. Learn from this. The intellectual satisfaction of having an idea first is exceptionally shallow when you read of the bold and brave who did it first, even if they failed.
There is a damaging misconception that this lack of action can be traced solely to an inferior European infrastructure or a lack of customers online and buying. Sadly, the single greatest difference between US and UK Internet businesses is the lack of quality transactional sites. It is a supply side issue more than a demand side issue. Those that wait for more customers online or increased computing power before they develop their business will see the supply side issue solved by the US competition or entrepreneurial start-ups. Ironically, for most managers or entrepreneurs, setting up a transactional site is the only factor they can influence. There are some strong indications that Europe is smelling the coffee. An Andersen Consulting survey has tracked the changing attitudes of European businessmen. Based on interviews with European business managers, the study, eEurope Takes Off, shows bricks and mortar firms beginning to 'get the e-thing'– a worrying trend for the entrepreneur trying to beat them to the action. Although many see tremendous ePotential, not all are eImplementing:
The message is clear – if the bricks and mortar firm is your competition of the future, you have a race on your hands. Take heart from the venture capitalist principle that they 'invest in people that are doing, not people that are going to do'. So do. If you are fast enough, these firms could be looking for your skills and may provide a suitable partner.
European firms that don't grasp the opportunity will lose sales and customers to US Internet businesses entering Europe. A Boston Consulting Group report found that a fifth of the Western European online retailing market was dominated by US businesses. In today's market, sales losses may be small as the total eCommerce sales are a small percentage of most markets. However, a small percentage decline in sales numbers can have a dramatic effect on the profitability of businesses with high fixed costs. Failing to react to the market shifts now will store problems up for later. Losing customers is the greater issue. Procter and Gamble used to argue that it cost six times as much to win a lapsed customer back than to have kept them in the first place. In the Internet-enabled world, it may cost significantly more. This reflects the increasing returns to scale that will enable the best sites to scale fast and lock in the best customers. This dynamic is the function of three key virtuous circles:
Community size drives community value: As the e-start.com Internet entrepreneurial community grows, the value that entrepreneurs realise will increase dramatically. Visit e-Start, tour their site and imagine the virtuous circle of community growth – value growth – that would occur throughout their site. As the human resource centre successfully places people in jobs, more of the hunters and hunted will be drawn. As the offline courses and conferences result in higher attendance, there will be more events and more segmented events, driving greater and greater value.
Scale enables incremental offer development: Visit geocities.yahoo.com and you can set up a Web site for free, but to set up a European scalable Internet-based business that can dominate its market could cost well in excess of C50m. Much of the technology, staffing and marketing costs will be fixed. As a major Web business's sales increase, the fixed cost component per unit sold will decrease. This incremental margin can then be reinvested in lower prices or incremental marketing to drive sales further and beat your competition. This emphasises the need to scale fast.
Boston Consulting Group estimate that 93% of European retailers who have set up Internet businesses have restricted them to their home country. This is an enormous lost opportunity in a business environment where you can scale a business across major European countries within six months. If you are an entrepreneur you need to build scale fast to compete with domestic businesses. The fastest way is probably across geography.
Customer loyalty can be increased as the Internet enables tailored experiences: The best sites have the capability to learn about their customers. As they do, they will tailor the shopping experience which may increase the level of satisfaction and consequently customer loyalty. Customer learning will be pieced together from many different sources. Most sites will attach cookies to visitors to understand how often they visit. As customers surf through Web sites, their route 'down the spine' will be tracked. They may be asked a 'quick quiz' question to detail their beliefs. On some sites customers will happily register to gain access to a restricted area or to buy a product, detailing their personal information. Leading sites will collate this information to rapidly improve the customer shopping experience next time they visit. BroadVision.com, Escalate.com, and other one-to-one technologies will enable business to recommend products that 'people like you like'. Sites can tailor the merchandising of their products to the individual customer. Many portals (for example my.yahoo.com) will let the customer tailor the site to better meet their needs. They can then reduce repetitive tasks such as form filling, by recording your details (for example amazon.com, 1-click purchasing). All of these applications are designed to collate customer knowledge and use it to increase customer satisfaction. This satisfaction will rapidly build loyalty and the cost to the customer if they choose to move to the competitor who has little information available. This can be summarised in the rather insightful 'the more you give (whether you know it or not) the more you get' model.
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