The Internet has the potential to revolutionise European businesses. Like all revolutions most won't change, but it is clear that participation is no longer an option. At some point in time all firms will join in, or be downrated by the financial institutions, although the speed with which that will happen depends on the nature of the business. An entrepreneur that can get ahead of these firms is a likely purchase as they try to catch up before they are downrated. If you are setting up a business venture, where is the value? How much is there? How much will go online? Will you be number one or two? You may find compelling business value in:
Increasing sales and profit. Amazon 1999 revenues of $1.6bn are still increasing at 300% per year (fuelled by a cash rich business model with inventory turns over five times faster than bricks and mortar competitors). This growth will fuel forecast profit within 2000. Dell is generating in excess of $18.5bn sales in 2000, growing at 40% per year with net income of $1.3bn with an eEnabled supply chain. Internet retailing can and will be a very profitable business for the market leaders. Goldman Sachs judge that Internet businesses will have a long term incremental pre-tax profit advantage over bricks and mortar stores of 1% point. Judge your long-term success by your ability to deliver sustainable profits and shareholder value. The two are inextricably linked, even if the markets are being patient in their desire to make the association.
Decreasing transaction costs. The magnitude of improvement is high. Consider the decrease in transactional costs available in the banking industry where a single Internet transaction can cost as little as one cent. The UK Internet bank egg.co.uk reports costs per Internet customer to be a quarter of a telephone customer and a tenth of those who shop through a branch network. Lower cost transactions are only significant when you have enough scale to get above the fixed costs of setting up the business. Barclays, the UK bricks and mortar bank, expects little saving until 10% of its customer base is online. This reduction in transactional and customer costs has the potential to enable first movers to find superior competitive advantage. How will your business decrease transactional costs? How big do you need to be to realise competitive advantage? How will you use this advantage?
Decreasing procurement costs. Forrester and IDC corporation are forecasting that business-to-business (B2B) transactions will be 9% of business sales in 2003, growing at a compound annual growth rate of nearly 92–99%. This may seem pessimistic when British Telecommunications estimate that the Internet will reduce the average procurement cost from £50 to £5.3 Hardly surprising then that Cisco is using the Internet to introduce internal catalogues, where individuals can buy direct from suppliers at the corporate rate. These purchases are routed electronically for approval and out to the supplier. As catalogue content management is standardised and the benefits are clarified with proven examples, eProcurements will increase in importance. The end point in this development is the fully integrated supply chain throughout the industry. How will your business procure from suppliers? Can it afford to implement leading edge Commerce One and Ariba systems at launch? When is the right time to introduce these systems?
More efficient markets. Visit market makers like e-steel, buildonline. co.uk and Chemdex. These sites bring together buyers and sellers into their site and enable the two to trade cost effectively . In return they take a small percentage of the transaction. If you are looking for big ideas, find a fragmented and relationship-based market and set one of these up. The opportunity is as huge as the market. Can your business idea fit into a market-making role?
More visible value. In the old world, those who relied on imperfect information to make money may lose out to those who provide more perfect information. These people fit into two camps. The first was the buyer's 'agent' who, like the insurance broker, helped people navigate through the information to find the best deal for them. The offline buyer's agent will lose out to the online buyer's agent that enables the customer to navigate through the information themselves. The second is the business which relied on imperfect information to boost profits. There was probably always a better deal for the customer, but they weren't likely to find it. With the emergence of shopping robots (for example Valuemad.co.uk, mysimon.com, askjeeves.com) customers are more likely to find that deal. How will your business deliver visible value?
Helping store-based retailers survive. Retailing is a high fixed-cost business where small changes in volume sold can have a serious impact on the profit. Andersen Consulting research indicates that 12% of electrical goods will be sold online by 2003, forcing a few electrical store closures. However, 88% of people prefer to shop in stores. Stores own the customer masses today and in the foreseeable future. In fact, stores can use the Internet to dramatically add value to their customers. Gap has introduced Web seats in its stores to enable an increase in product range and breadth. Computer retailers are considering removing in-store inventory by linking up networks to shell computers. Complex sales can be better handled by introducing Customer Assisted Selling Processes, where the assistant is prompted by a computer to help detail all the information required by the customer. Sophisticated customer relationship management (CRM) processes can be introduced across channels with Siebel type systems. The store has a rosy future because of the Internet. How will your business use stores?
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1. The European market appeals to online businesses
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