Business
Making A Buck On The Illusive Net
Leonie Wood
04/19/1999
The Age
Page 1
Copyright of John Fairfax Group Pty Ltd
Computer retailers, booksellers, brokers and second-hand car dealers do
have something in common. For many reasons peculiar to their industries,
they are at the forefront of e-commerce.
For readers that haven't grasped the finer points of dots and coms in the new
business landscape, these are the savviest traders on the Internet. These
industries have claimed substantial attention from consumers who would
rather scan their computers at night than wander down to the local shopping
centre.
They are finessing marketing styles faster than many shops change window
displays, and their selling route enables them to retain more profit than their
bricks-and-mortar rivals.
But the success is limited so far. As Australian booksellers contend, the
conversion rate for people browsing retail websites - Windows shopping, if
you like - to an actual sale is barely above 1 per cent. In the US, even the
direct marketing method of messaging regular customers by electronic mail
only secures sales from about 3-4 per cent of e-mail recipients.
A US specialist in the area of e-commerce, Boston Consulting Group's Mr
David Edelman, argues one reason for the limited success to date may be the
absence of decent distribution systems to enable suppliers to get goods to
customers swiftly.
While Australians, Indians and Egyptians might all access the same
bookseller site - say Amazon .com, a purist US-based Internet retailer now
capitalised at $US27 billion - their chosen books ultimately are shipped,
trucked, or flown from foreign warehouses.
As Mr Edelman contended, if Amazon .com were to set up an Australian
distribution arm, its sales here might rise accordingly. Local customers
would benefit from better service, and the local book industry might benefit
from a higher level of local content.
Still, Amazon .com is a clear example of a nimble Internet seller that found
a market need, quickly ramped up to cope with the customer demand, and
has retained a loyal customer base. The bookseller now employs more
telephone operators at its customer call centre than most telecommunications
companies, Mr Edelman contended.
A recent study of Internet commerce by the Boston Consulting Group, The
State of Online Retailing, indicated the value of all Internet transactions
between US suppliers and their US-based customers totalled about $4.4
billion in the six months to June. But Internet acceptance and retailing styles
are developing rapidly, so the value is rising exponentially.
For the full year 1998, US Internet transactions totalled about $US13 billion,
and about 20-25 per cent of the volume of goods was sent offshore. Mr
Edelman estimates this will escalate to $US68 billion by 2004.
Australia's acceptance of the possibilities of Internet commerce, he said,
trails the US by about 18 months. Still, it is a dynamic industry, and even the
techno-heads developing the web platforms are trying to simplify every
aspect of e.commerce, from plugging in the computer to filling in page after
page of personal financial data.
Sellers, however, are yet to crack the code for identifying and retaining
customers. Some, like US casual clothing retailer The Gap, succeed by
decking their stores with their website address, teaching customers in store
how to order on the Net, and incorporating their Internet capability into
every aspect of their corporate culture. On the other hand, another major
bookseller, Barnes and Noble, runs parallel companies: one for its street
stores, and the other dedicated to Net commerce. As a result, it bears a much
higher operating cost structure than its logical competitors, such as Amazon
.com, Mr Edelman argued.
Boston Consulting contends some of the barriers to e.commerce growth
include customers' fears about security of transactions and trust in the
product offered, and the notorious unreliability of the Net as a
communications system as it slows, stalls or cuts out altogether.
This lack of reliability has been cited by several industry analysts as a major
handicap to the development of certain Internet markets, such as gambling.
A recent report by Mr Rick Horne of Johnson Taylor brokers noted that
while the Internet gambling industry could evolve into a substantial export
industry, Internet gambling operators must be forced to use ''reliable and
fully accredited betting and gaming transaction processing platforms''. A
single systems failure, he said, could significantly undermine the industry's
credibility.
Still, Boston Consulting's Mr Edelman argues e-commerce is an
ever-evolving route to market - so dynamic that the concerns of today might
be as valid tomorrow as once were our parents' fears about supersonic
travel.
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