IBD. Can U.S. Firms Ensnare European Sales With Net?
Date: 5/7/98
Author: Pete Barlas
The U.S. is invading Europe with a Net. In
recent months, U.S. companies have stepped
up efforts to connect Europe to the Internet.
The firms include Qwest Communications
International Inc., Network Appliance Inc.
and PSINet Inc.
In addition, industry observers say U.S.
venture capital firms are more actively looking
to fund European Web start-ups.
Why all the attention to a region that's about
18 months behind the U.S. in Web usage?
Because everyone wants to get a jump on
their rivals, says Kevin O'Connor, chief
executive of DoubleClick, a New
York-based company that last year started
selling advertising space on the Net in several
European countries.
''The first mover always has the best
advantage,'' O'Connor said. ''These are
emerging markets, and now is the time to
make the investment.''
The number of Web-surfing households in
Western Europe will jump to 53.2 million by
'01, from 17 million this year, says market
researcher Forrester Research Inc. in
Cambridge, Mass. In comparison, 109
million U.S. households will use the Internet
by '01, up from 66 million this year, says
market researcher International Data Corp.
In that same time, sales made online in
Western Europe are expected to rise to
$64.4 billion from $1.1 billion. U.S. online
sales are expected to rise to $158 billion from
$26.5 billion.
So while Europe's numbers pale compared
with those of the U.S., the country's growth
rate is faster. One reason is that European
countries are deregulating their
telecommunications industry. It had been
largely government controlled.
''Countries (in Europe) are realizing that
without Internet growth, they are going to
suffer economically,'' said Ron Rappaport, an
analyst with Zona Research Inc., a Redwood
City, Calif., market researcher.
Europe is ripe for investment, says Forrester's
Joe Sawyer. ''Europe offers an opportunity
for companies to get involved with a market
in its early stage,'' he said.
And many are. Separately, in the last 18
months, Denver-based Qwest and Fairfax,
Va.-based UUNet Corp., a division of
WorldCom Inc., have bought pieces of
EUnet International Ltd., a leading European
Internet service provider.
PSINet, a Herndon, Va.-based Internet
service provider, also is looking to build a
presence in Europe.
The company has signed up 6,500 Internet
business customers in Europe since acquiring
ISPs in France and Switzerland in the past
two years. It has also set up sales and
marketing offices in Switzerland, Holland and
Belgium.
PSINet expects the Net to grow in Europe as
more global companies demand access. The
company plans to buy at least a few more
ISPs in Europe this year, says Volker Kleinn,
president of PSINet Europe.
''If you look at the Internet in Europe, there
are only about two or three global (ISP)
players,'' Kleinn said, ''so we want to make
sure that we take advantage of the situation.''
Hardware companies also want a piece of
Europe's Internet growth.
In February, Network Appliance completed
a deal to sell software and hardware for data
storage and retrieval systems to Demon
Internet Ltd., one of Europe's largest ISPs.
Network Appliance has similar agreements
with about 50 other ISPs in Europe. This
year, Europe will account for about 20% of
Network Appliance's sales, says Chief
Executive Dan Warmenhoven, about double
last year's percentage.
Warmenhoven says Network Appliance is
better off grabbing market share in an area
where there are few rivals driving down
prices and profit margins.
''The markets (in Europe) are in their infancy,
and that's where you can get the least
expensive market share,'' he said.
Warmenhoven also is counting on more
carriers like PSINet coming into the market.
''Our customers are global customers,'' he
said. ''If we want to satisfy their needs, then
we need to be where they are.''
The expected growth in Internet use overseas
is attracting U.S. venture funds.
Geocapital Partners, a Fort Lee, N.J.-based
venture capital firm, is building a $50 million
fund to invest in European Internet
companies. These include service and content
providers.
''Information technology is a worldwide
phenomenon . . . . We are trying to go where
the opportunities are,'' said Geocapital
partner Larry Lepard.
Other U.S. companies taking the lead in
Europe include Waltham, Mass.-based
Lycos Inc. and America Online Inc. in Dulles,
Va.
In June '96, Lycos began offering its Web
navigation services in Germany in a joint
venture with Munich, Germany-based
Bertelsmann AG, one of the world's largest
media companies. Lycos now offers the
service to 11 countries in Europe. The growth
rate surprised Lycos executives.
''We are in more countries than we expected
to be in today,'' said Ted Philip, chief
operating officer for Lycos.
In December '96, AOL formed a joint
venture with Bertelsmann to provide Internet
service in Germany, France and the U.K.
Today, AOL and subsidiary Compuserve
Corp. have two million European subscribers.
They have 12 million overall.
''We were optimistic that there was a huge,
untapped market in Europe,'' said Jack
Davies, president of AOL Interactive.
Eastern Europe is a bigger challenge than
Western Europe, say executives. It often
lacks sufficient cable and related products
needed to deliver Internet service.
But NetSat Express Inc., a Hauppauge,
N.Y.-based company that delivers Internet
access via satellite, sees opportunity there.
The subsidiary of GlobeCom six months ago
started providing Internet service via satellite
to 10 ISPs in Romania, Bosnia and the Czech
Republic.
Frank Hughes, NetSat's director of
technology, says his company will focus most
of its attention outside the U.S.
''The reality is you're not going to find many
customers in a country that has the biggest
(phone network) in the world,'' Hughes said.
(C) Copyright 1998 Investors Business Daily,
Inc.
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