In preparing its industries to accommodate the internet economy, Europe can easily avoid the mistakes made in the US, said Bill Bluestein, group director of Cambridge, Massachusetts-based Forrester Research Inc’s New Media Research, to a sizable audience of European IT executives last week in Paris. Partly because the consumer market is taking longer to develop in Europe than it did in the US, he said, companies should not allow themselves to be seduced by false promises of an enormous potential customer base. Having 35 million people on the net in the US provoked some foolish moves from companies, thinking that there would be this huge consumer market, he said. By and large, all of the publishing concerns that rushed to put their stuff online, change their subscription formulas and ad rates, have been failures or repositioned. It would be foolish to re-do the US mistake of focusing on the consumer market rather than on business to business, given the uneven adoption of PCs in Europe, he said. According to Forrester’s calculations, internet hosts with European domain names should number approximately nine million by the year 2000, more than double the nearly four million today.
Worldwide, he said, Forrester expects approximately 840,000 companies to be connected to the net, insuring that internet activity will be driven predominantly by business to business transactions. In fact, Bluestein said, Forrester predicts that of a $217bn internet economy in the US, half of it ($106bn) is from business to business activity. The second-largest area, says Forrester, will be content ($37bn), followed by access ($33bn) and infrastructure ($30bn). Within the content business, as well, Bluestein said, business to business content suppliers are likely to make more money. In the business-to-business market, we have seen much less price erosion than, in for example, the financial services business, where the cost of online trades is likely to move from around $30 to $10 next year, he said. For the consumer market, Forrester believes that only ad-supported content suppliers will make money, beginning in 1999. It will take about as long as it takes for a new magazine to make money – three years, he said, adding that the company does not believe that transaction-based schemes for consumer content will work.
Given its importance as a fourth channel of distribution for business, Bluestein went on to outline ways to acquire ownership of the channel and its corresponding user base. The first thing to do, he said, is to create a barrier to entry into the internet channel for your competitors. Creating a barrier to entry has a few aspects. One, an internet site can be designed to make it costly in terms of a user’s time – to switch web sites. The examples he gave were Cisco and Virtual Vineyards, which both require the customer to input lots and lots of data so that the company is able to send precisely targeted information about products and services. If I know that I’ve built up a sort of database with Virtual Vineyards so that it knows perfectly my tastes and regularly sends me information about new wines that it knows I will like based on my preferences, I’m certainly unlikely to go to another such site just because they send me a sales pitch, he said. Another barrier to entry would be the level of e-commerce skills a business has, Bluestein said. We are in a technology burst that is likely to last 5-10 years, and those companies who say ‘we’ll wait until the market settles down’ to get started will have to wait a long time, he said. In the meantime, he added, your competitors will be light years ahead of you. So, he continued, the best strategy is to get big on the net, and quickly, because you will lock out the others. Bluestein noted that there are several intermediary strategies to creating the barrier to entry for a company’s competitors. The first is to survey the company partners’ internet capability, and pay to put key resellers on-line, if they are moving to slowly on their own. Companies should also seek to work with some of the many new players in internet commerce, whether they be search engine companies or directory providers. But, he cautioned, don’t do this before you put your key resellers on-line, or they will get angry about you cutting them out of the loop. Finally, he said, develop products specialized for the net. So far, in the US, this has been limited to certain financial services products that have a different rate of return based on the cost factor of using the net, he explained. Another important element to succeeding with electronic commerce, Bluestein said, is to foster on-line communities. The conventional wisdom is that the Internet is about one-to-one marketing, but we prefer the idea of on-line communities. Certainly, selling to a market of one is not very interesting, he said. Fostering such communities comes from serving key market segments efficiently and identifying new markets and trends. Consultancy Ernst & Young has done a good job of this with its ernie.com site, Bluestein said.
Lower technology issues
By providing a forum where business people can post questions about, for example, supplier problems in Southeast Asia, and get an answer from another business person in a couple of days, Ernst & Young is creating a community, fulfilling its role as a consultancy, in providing answers, and providing itself with fodder for next year’s consulting projects! he said. Organizationally, Bluestein said, companies that are serious about e-commerce must create an internet commerce group, comprising 20-30 people from marketing, advertising, sales and IT, and hire a vice president with 10-plus years of experience. If you leave this project strictly in the hands of the IT department, it will be a lower technology priority, what with all of the other issues they have – Year 2000, euro, client/server applications – and it will also lack an understanding of customers and partners, he said. On the other hand, if you leave it to the marketing people, you will be taken to the cleaners by the technology vendors – they LOVE to sell to marketing people! A competent internet commerce group, he said, will allow a company to master this new, fourth channel and keep the consequent organizational dissonance caused by its arrival to a minimum.