While the European market is very attractive because of its size, it is highly fragmented and can not be treated as a homogenous whole. To give a sense of the extent of European fragmentation, consider these facts:
Anyone setting up a European Internet business will need to navigate carefully through this fragmentation to identify the most attractive markets. Attractive markets are big, with high online growth rates. They have a rapidly developing and supportive infrastructure, a positive socio-economic context and a positive regulatory environment. Of course, not all markets that seem attractive will be relevant to every business concept, but taking a quick view on which markets are attractive will enable you to focus more intensive concept research in the right areas.
The overriding driver of attractiveness is size and Europe is big. Key considerations are not just the size of the population, but also the extent to which that population is getting online and buying from the Internet.
The top 15 European countries contain 373m people, over 100m more than the US. Over 80% of this population can be found in just five countries: the UK, Germany, France, Italy and Spain. By conquering these countries a European business can start to achieve the scale needed to compete with the US. This need for European scale is even more acute for an Internet start-up, as the Internet still only represents less than 1% of European retail purchasing. Those that only play on their home ground will be unable to compete with local and European 'bricks/clicks and mortar' retail players with access to the other 99% of the market. Equally, it is difficult to imagine a local Internet start-up competing successfully with European and global Internet players. For many local businesses, success for entrepreneurs will come from joint ventures with or even selling out to those who will compete across many geographic markets. But you can't rely on the sale option: people only buy attractive businesses and attractive Internet businesses are scaling fast, often geographically. The message is simple: if you plan to stay at home, go home.
Some of the countries with the highest online penetration are still not the most attractive to Internet businesses because they are so small. Scandinavian countries may have been enthusiastic early adopters of the new technology and have generated many new ideas, but the biggest opportunities are now in the UK, Germany and France. Although Finland has the highest percentage of its population online, its small population of only 5m makes it unattractive for most businesses. The costs and complexities of entering new geographic markets are relatively fixed. An Internet business entering a small country will still have to cope with the costs associated with changing the language of their site, they will still need to find a critical mass of suppliers to give authority to their offer, and resolve the local fulfilment issues. It is difficult, therefore, to see small countries as a priority, as the return of these investments will not be justified by the opportunity. The UK and Germany are the most attractive Internet countries, with a combination of large populations, which are increasingly getting moving online and spending significant amounts of money there. For most business, capturing the UK, France and Germany equals European domination.
Most analysts judge the European Internet markets to be 18–24 months behind the US, but beginning to catch up. The pace of change in Europe may have been accelerated by the AOL/Time Warner merger in January 2000 which showed the potential for American firms to dominate eCommerce in Europe. To illustrate the size of these mega deals, the combined value of both companies is roughly equal to 30% of the gross national product of Spain. However, there are indications that Europe is catching up with the US. European retailers doubled their online revenue in 1999, outpacing growth in the US market of approximately 150%. The gap between US innovation and European imitation is also rapidly diminishing. European consumers going online for the first time have far more sophisticated content and services available to them than US consumers did only a few years ago. Numerous Europeans have English language proficiency and visit US sites, so that European sites are now benchmarked against current US sites. Some innovations are even appearing earlier in Europe than they are in the US. Businesses can no longer rely on a two-year gap before the US competition arrives, nor can they start Internet businesses with poor sites in the same way that the original US pioneers did. Today's customers expect more and successful businesses will need to raise the money to deliver it. It is also fair to assume that any 'white space' in an online market will have many businesses charging towards it: in this environment, the growth of online competition is even more important than the growth rate of online users.
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1. Target audience for an online business varies by countries
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