Tooling-up For E-commerce

February 1999

Tooling-up For E-commerce

By Marc Phillips

Christmas 1998 will go down in history as the time when on-line shopping hit its stride. Jupiter Communications, the leading US Internet research organisation reported that total ansactions over the holiday period reached US$3.14 billion. America Online said that sales through its sites alone reached a staggering US$1.2 billion.

More significantly, the Dell/Louis Harris and Associates survey concluded that around 43% of American computer users made at least one on-line purchase during the run up to December 25th.

Immediately after Christmas, US Investors poured money into Internet companies in general, but particularly e-commerce vendors. The logic behind this lay in the expectation that last Christmas. s booming e-sales are only the start. It remains to be seen whether the Internet companies can maintain high stock valuations. At the time of writing Yahoo. s market evaluation makes it bigger than Apple or American Airlines. More surprisingly, its market value is around one quarter of Microsoft. s. Likewise US investors have made bookseller Amazon.com the third largest retailer in the US by market value even though it has yet to make a profit.

However, despite the speculative bubble, there. s little doubt that e-commerce is here, it works and, most important of all, it can make money. In some cases, it makes lots of money. And there are those elite e-tailers who are already profitable.

But the news isn. t entirely upbeat. Jupiter Communications surveyed US customers following the Christmas buying spree and found that only 74% considered online buying a positive experience. This number sounds good until you realise that it represents a 14% drop on the similar statistic for last year. And Jupiter discovered that only 37% of respondents said they expect to spend more money online next year.

The main complaint was that online stores ran out of stock. Some consumers said that they found shipping costs to be higher than expected. Significantly, the well-documented worries about security issues seem to be on their way out. This bodes well for the longer term.

Australian on-line retailers also did well over Christmas, though not quite so spectacularly as their US counterparts. While there were some important successes, by and large, Australian e-commerce companies can expect to wait until next summer to break through the important sales barrier.

There are three main factors affecting online sales in Australia. The first is simple, we may be ahead of most of the world when it comes to adopting on-line technologies, but we. re still a little way behind the US when it comes to implementing them. While the gap between Australian use and American use can only be measured in months, that. s a long time on the Internet. In this business a three-month lead translates into a lot of e-commerce sales.

The second factor is that Australian on-line brands must fight for mind space with the larger, more powerful and longer established US brands. Ask the average Australian web user in the street . who sells books on-line?. Chances are they. ll name Amazon.com, even though a number of well-known Australian booksellers offer on-line sales. Dealing with this mind space gap is going to be one of the major challenges for Australian vendors in the coming years.

Indeed, some local newspapers carried reports in January with estimates that as many as 40% of connected Australian users made an online purchase during the run up to Christmas. It. s a plausible number, yet if it is correct, the overwhelming majority of those purchases must have been made overseas.

Factor number three lies in the infrastructure. Many of the basic components and technologies required to make e-commerce work are only now being installed in Australia. This year, we can expect to see a huge investment in e-commerce infrastructure that, in its scale, will match the physical building going on in Homebush Bay as Sydney prepares for the Olympics. In other words, Australian companies are tooling up for e-commerce.

One company that. s helping Australian companies turn into e-tailers is Brisbane-based WebCentral. The organization developed from a regional ISP into an e-commerce hosting operation with a clear focus on supplying value-added e-commerce services. Most of WebCentral. s customers are small and medium sized enterprises, though it does host a few very large sites for major companies and even the Royal Australian Navy. WebCentral now manages commercial hosting for OzEmail.

WebCentral director Lloyd Ernst said his company offered three tiers of service. At the bottom end are its Internet in a Box products, which provide small retailers with a simple and low-cost way of establishing an e-commerce site. Slightly upmarket is a partner plan where WebCentral handles hosting for commercial web designers and smaller ISPs. At the high end, WebCentral operates a sophisticated e-commerce outsourcing operation.

The high-end offerings include enough redundancy to ensure client sites will continue to operate through power cuts and other crises. There are also high-bandwidth 100Mb links to ensure fast and reliable connections to the Web.

Many Australian e-tailers are bypassing the outsourced option and doing it themselves. One reason for doing so is that employing in-house e-commerce teams enables them to stay in touch with technical developments in a fast changing market.

In technical terms, Australian companies are generally opting for integrated e-commerce server systems. There are a number of systems on the market, yet to date, it appears most companies selling these systems can report few Australian sales.

For example, Oracle now offers a front-office e-commerce solution that integrates with Oracle Financials and its back-office database software. Pascal Grant at Oracle said his company had waited until the Australian payment gateways was established before getting serious about taking the Oracle e-commerce product to market.

Over the past year, Oracle and the other companies selling sophisticated systems have been dancing around each other and selecting partners so they can go to their customers and offer a full, integrated solution. Like Oracle, they. ve been waiting for various infrastructure components to fall into place before firing up their sales teams.

Companies selling e-commerce products are reluctant to talk openly about pending sales, but most are optimistic that 1999 will be the year they make sales breakthroughs in Australia.

There. s definitely a sense in the marketplace that Australian retailers are tooling up for e-commerce. However, despite the publicity given to online retail sales, there. s a more important market to conquer. The behind the scenes world of business-to-business e-commerce is currently doing about five times as much trade as business-to-consumer e-commerce.

According to leading US based IT researcher, Forrester Research Inc., Business-to-consumer e-commerce will be worth US$17.3 billion in 2001. However, business-to-business e-commerce will be worth US$183 billion in 2001.

Business-to-business e-commerce is extraordinarily sophisticated. Typically business-to-business e-commerce systems integrate large corporate databases with financial systems and Internet technologies. Implementing these systems is far more complex than building e-tailer sites. If anything, Australia is more in touch with the US when it comes to this important e-commerce market.

By next Christmas, most of the e-commerce infrastructure will be in place and Australian companies will be in a position to compete for a larger slice of the projected US$8 billion plus online sales. The next challenge will be to establish worthwhile local e-brands in the face of overseas competition.

For further information contact APT Strategies at info@aptstrategies.com.au

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