November 15, 1999
U.S. Internet Firms Must Hustle
To Catch Up in European Market
By CHRISTOPHER COOPER and STEPHANIE GRUNER
Staff Reporters of THE WALL STREET JOURNAL
LONDON -- They may be big shots at home, but as U.S. Internet companies
gird for control of Europe, many are finding that being a virtual global
company is a lot easier than being a real one.
A host of U.S. Internet companies have opened foreign offices and unveiled
country-specific Web sites in recent weeks in an attempt to capture the world's
second-largest Internet market. But marquee companies including eBay Inc.,
Amazon.com Inc. and America Online Inc. are finding themselves playing
catch-up with the locals in the early rounds. It isn't a role familiar to many of
these young companies, most of which gained prominence in the U.S. by
exploiting an early-to-market advantage.
Given the nature of their business, going global should be automatic to an
Internet company. And in some ways, it is. Online bookseller Amazon.com,
for example, derives a quarter of its revenue from foreign customers.
'Smart' or 'Stupid'?
But despite their reputation as swashbuckling upstarts, American Internet
companies are moving with surprising sluggishness. "Europe really seems to
stretch the brains of the U.S. companies," says David Clayton, head of
research for Credit Suisse First Boston in London. "Gaining market share isn't
going to happen by accident over here, the way it did in the U.S. I can't figure
out what they're waiting for. Are they being really smart or really stupid?"
To be sure, the Internet in Europe is still in its infancy, though growing
rapidly. And despite their huge stock-market valuations, many large U.S.
Internet companies are little more than start-ups themselves, contending with
huge domestic growth and confronting plenty of domestic competition.
Europe, with its cornucopia of customs and cultures, is a fragmented market
and will be difficult for anyone to conquer, local or not. "I think people
underestimate how difficult it is," says Sarah Skinner, an Internet analyst for
Durlacher Research Ltd. in London.
The rigors of going global aren't lost on eBay, the virtual auction house based
in California's Silicon Valley, with a $17 billion market capitalization.
Arriving in Britain this summer, the company learned what it was like to face
entrenched competition. As it fumbled to enter its first foreign market, eBay's
supposed Anglocentric Web site offered little more to locals than the U.S.
version: few unique offerings and everything marked in U.S. prices. While the
company has since remarked its goods in local currency, it concedes it may
have alienated some British customers. But after surveying the competition,
eBay felt a need to get cracking. "This would have been a lot easier a year
ago," says Michael van Swaaij, vice president Europe for eBay.
Formidable Locals
While Mr. van Swaaij says the locals were also slow in exploiting the potential
local market, eBay is clearly being given a run by some of its competitors.
Among the most formidable of the local auction outfits is QXL.com PLC of
Britain, which began auction sales in late 1997 and now offers language- and
currency-specific sites in five European countries.
EBay's German site, obtained when the company purchased local competitor
Alando.de in June (www.alando.de), is locked in a fierce market war with a
local company, Ricardo.de AG (www.ricardo.de). This is perhaps not what
eBay, which invented the Internet auction, had expected. "Over here, you've
got to take the markets one at a time," Mr. van Swaaij says. "It's a challenge
for a company that was sort of born No. 1, and it may take some getting used
to."
As a former European executive with AOL, Mr. van Swaaij knows the market
well. His former employer has run into similar difficulty as it has tried since
early 1996 to penetrate Europe. While AOL has captured a slice of the market
in several European countries, it dominates none of them the way it does the
U.S. In Britain, for example, AOL lags far behind upstart Freeserve PLC.
And people familiar with the company's international operations say AOL
enjoys an uneasy relationship with its European partner, German media
company Bertelsmann AG.
Price-Structure Confusion
While AOL says it is adding European subscribers more rapidly than its
competitors, the company was clearly flummoxed by local telecommunications
price structures, which charge users by the minute for local calls. The price
structure flies in the face of AOL's flat-rate price scheme, which worked
brilliantly in the U.S. but hasn't in Europe.
An AOL official says U.S. managers were slow to grasp the problems of
Europe, and one spent the summer in Europe to fully understand the issues
there. AOL Europe's Chief Executive Andreas Schmidt says Americans as a
rule should have moved more quickly. "There's a window of opportunity for
European companies," he says.
Not all of the U.S. companies have stumbled. Some of them -- Yahoo Inc., for
example -- arrived early and expanded their reach so far in Europe that they
seem almost to be local companies. Since arriving in 1996, Yahoo has entered
eight European markets with country-specific content. Company co-founder
Jerry Yang says that paranoia drove the expansion. "If you're the only game
in town, then maybe your users are willing to accept a worse product. But
clearly [local Internet firms] have proven that you just have to be marginally
better than the U.S. imports and you can be very, very successful."
The Portable-Product Advantage
Yahoo has the advantage of selling a portable product -- information, in this
case -- which doesn't require warehousing or traditional distribution methods.
Amazon, by contrast, has had to do more than throw up a Web site -- it had to
find warehouses and set up a distribution system for its books and other wares.
The company has moved slowly in comparison with competitors. Arriving in
April 1998 with the purchase of rivals in the United Kingdom and Germany,
Amazon faces a raft of competition for book sales and CDs, which it began
offering last month. Among the competitors are BOL.com (www.bol.com), a
unit of Bertelsmann AG, which launched in March. The difference: Amazon is
in two markets; BOL is in six. Jupiter Communications, an Internet analysis
company, estimates BOL will lag behind Amazon by 15% in revenue for
1999. Perhaps more important in the long run, Jupiter says BOL covers 75%
of the market, compared with 55% for Amazon.
"Amazon really gave us time to catch up," says Alexander Broich, managing
director of BOL Ltd., in the U.K.
By not launching music until October, Amazon granted other competitors a
cushion. Boxman Group, a Swedish music merchant that opened in 1997 and
has multilingual sites in seven European countries, has managed to capture
25% of the pan-European market, according to Jupiter.
'Complex Endeavor'
Amazon.com Chief Executive Jeff Bezos is remarkably calm about the
competition. But he says expanding globally is tough.
"What do they say about the British and Americans: 'A common people
divided by a common language'? That's really true," Mr. Bezos says. "It's a
complex endeavor, setting up operations outside of your home country."
Amazon isn't the only U.S. music vendor falling behind. CDNow Inc., a U.S.
music merchant, said last summer that it planned to open a string of virtual
record stores by year end, each tailored to a local market. Though the
company recently opened a London office and hired four Americans to run it,
CDNow's European sites continue to carry a U.S. flavor. A recent visit to the
company's German Web site, for example, found that though much of the
content was written in German, the prices weren't.
The company's international vice president, Clive Mahew-Beggs, says the
tailored storefront idea is a work in progress. "We're not really behind," he
says. "It's early. The European market is not one market yet."
Fractured Market
Indeed, it is early in Europe. Even the task of measuring electronic
commerce, a tricky business in the U.S., is doubly difficult here, where the
market is fractured and few companies attempt to collect data. But one
company, Metromedia Inc., is compiling a list of the most popular Web sites
on a country-by-country basis. There are a number of U.S. sites represented
on the list; what isn't clear is what draws people to them.
Mari Kim Coleman, managing director of MMXI United Kingdom, suspects
that some Internet companies are popular in Europe simply because they
represent strong brands in the U.S. That may not prove much help to
companies that plan to compete for a European audience on the local level, she
says.
"A strong brand in the U.S. may not carry you if your goal is to be, say, the
Internet company of France," Ms. Coleman says. "You need global vision, but
you also need a local touch. You have to localize yourself." |
