Analysts show their figures

Before the dot-com bubble burst, analysts' predictions of e-commerce seemed to suggest the imminent extinction of bricks-and-mortar commerce. Now the reverse has happened - what are the analysts' e-commerce predictions? Tom Rodwell reports.

Predictions of e-commerce spending have been some of the most fertile grounds for analyst organisations in the past couple of years. Before the dot-com bubble burst, the numbers were reaching dizzying heights which seemed to suggest the imminent extinction of bricks-and-mortar commerce. Now that the reverse has happened — the dot-coms have become history while old-style commerce continues on — what are the analysts’ e-commerce predictions? Tom Rodwell reports.

Dot-com demise or no dot-com demise, Auckland-based analyst IDC is sticking boldly to its predictions of dramatic growth in New Zealand e-commerce. By 2004, IDC says, some $21 billion will be spent online, a huge leap from the $2 billion spent last year.

Growth, says IDC, will be driven largely by the e-procurement and e-distribution policies of big public and private organisations.

That will translate to a preponderance of business-to-business (B2B) spending ($16 billion of the total) over business-to-consumer (B2C) e-commerce. Even so, IDC picks B2C online business going from several hundred million dollars in 2000 to $4.4 billion by 2004. This will be down to expansion of the population of net users (rising from 1.4 million in 2000 to 2.5 million in 2004), a third of whom are expected to buy goods and services via the web.

Sydney-based analyst Strategic Research offers a shorter-term view than IDC, saying spending on online business in New Zealand will double this year from the “very low” $US80,000 to an average around $US180,000 per business.

Quoting a survey of 105 New Zealand e-commerce companies, researcher Rob O’Neill says on average 1.8% of each firm’s total business is being transacted online. “In three years’ time, that’s expected to rise to 18.7%,” he says.

Around 3.2% of B2B purchases are made online today, O’Neill predicting that to rise in three years to 29.2%.

“However, only 10% of New Zealand companies have the capabilities to earn online.”

So does that spell a faltering future for e-commerce?

“No, I don’t really think so,” says O’Neill. “What’s really strange about all this is that last year in our survey, which was before the dot-com crash, and this year’s survey after the crash, the intentions to develop e-commerce capability are still very strong.

“What’s happening is the bricks-and-mortar companies are really doing the thinking and the leading, right around the Asia-Pacific region. They’re thinking very hard about supporting their offline business strategy.”

This “offline business” is, says O’Neill, the dominant force. “Whatever you can do to cut your offline costs is smart. If you can give customer service offline, and then have fulfilment online, or have product information online, so you don’t have to send out a brochure, you’ve eliminated some costs.

“So people are thinking hard about how their online business will supplement and augment their offline component.”

IDC analyst Mark Cribbens concurs. “At this stage, the most successful people are the bricks-and-mortar companies that are integrating online processes into their normal revenue stream.”

But one purely online e-commerce model is predicted by analysts to make very big waves: the marketplace.

While marketplace sites that allow multiple businesses to trade with each other, such as local examples Southfresh, Fencepost and OneZone, took just 5% of online spending in 2000, IDC sees them exploding over the next few years.

While admitting that there are only a few successful examples, IDC predicts that by 2004 marketplaces will account for around one third of online spending.

“This model is great for small businesses, the kind of outfits which can’t afford a huge e-distribution or e-procurement site,” says Cribbens.

IDC says the heart of the marketplace e-commerce model is a simple business truth that has resonance both in the B2B and B2C worlds: partnerships.

“Let me put it this way,” says Cribbens. “The companies which are going to be the most successful in the IT industry in the future are those which have identified key partners and formed strong relationships with them.

“Everybody needs to do this. For companies which are small and have narrow product portfolios, or which are geographically limited — as in New Zealand — if they want to survive in the IT environment in the future, they’re going to have to create key alliances.”

One of those “key partners” in the limited New Zealand market is inevitably the government and public sector. Strategic’s O’Neill is quick to praise the work of the Labour-Alliance government in both e-procurement and the democratisation of information technologies.

“From being in a situation under the previous government where there was very little activity or impetus from the public sector for IT, it’s good to see a change,” he says.

O’Neill looks to the Singapore model, where most contact with government services and departments is now conducted online, thanks to the introduction of easy public access to relevant networks, via the net and public kiosks.

“I think New Zealand is heading in that direction,” says O’Neill, pointing to the work of the Inland Revenue department, which is reportedly considering accepting some tax returns online.

“There seems to be a willingness in New Zealand to take that kind of approach, but whether there is willingness to spend money to ensure everyone has access is another issue,” he says.

“In New Zealand Telecom is a privatised organisation, but in Singapore, Singtel is still government-owned,” O’Neill says, and can therefore be made to invest in rolling out cheap internet access nationwide.

While most of the action — and the money — is apparent at the B2B end of the e-market, online sales to consumers are also set to jump. But while IDC is predicting an eight-fold increase in B2C online spending by 2004, Strategic’s O’Neill says the consumer focus of many e-commerce ventures simply cannot pay dividends.

“Next to Hong Kong, New Zealand’s business-to-consumer figures in relation to size of market are the most negative that we’ve surveyed in the Asia-Pacific region,” he says.

“And the reasons for that are to do with the size of the market. Even if you’re a company that invests very heavily in B2C systems, you are limited, because the size of the market is limited,” he says.

O’Neill says that while e-commerce has been tarnished internationally by the overvaluation of dot-com firms and the stock market crash, New Zealand’s problem is its small size.

IDC’s Cribbens agrees. “I think the major inhibitor in New Zealand for B2C revenues is population, basically. You look at the overseas markets, and they are huge,” he says.

“A B2B company only needs a few large customers, but a B2C operation is dealing with very small amounts from individual consumers.

“You need mass involvement from end users,” says Cribbens.

So are B2C e-commerce companies simply fighting against a problem they have no hope of overcoming? Do they have a future?

Tentatively, O’Neill says yes.

“I’ve thought for quite a while that the whole B2C e-business area has been dogged by a failure in marketing,” says O’Neill.

“There’s been vast sums of money spent in marketing of consumer-orientated sites, but I think it’s all been misguided, because it’s all been brand advertising. If you’re selling appliances, for instance, you should take out a full-page ad to emphasise your products, not your branding,” he says.

“I have never seen a dot-com with a product-rich advertisement, as opposed to a branding-heavy one, and I really think that’s a missed opportunity.”

Strategic Research believes there is some hope. Niche products and companies that can internationalise their sales will do well. “But if you’re relying totally on the local market, then you are going to have troubles,” warns O’Neill.

For both B2B and B2C e-commerce to flourish, however, O’Neill says access to the network is crucial. “New Zealand can’t increase online interaction if not everyone has access,” he says.

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