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Dr. R.H. Rusli
CITI Institute

E-commerce

1999 has been a wild and wacky time for anyone looking to start an Internet based business in the UK. We had the vision of Tony Blair admitting that he had trouble with technology and was even going to have to take a course in how to use a computer. We also saw the launch of a new "e-envoy" in the shape of Alex Allen, the current UK High Commissioner to Australia who takes up his new job in January 2000 and a new "e-minister", Patricia Hewitt. The message from the top in the UK is clear: "If you don't see the Internet as an opportunity, it will be a threat, and getting online and getting selling is the objective.

There are also reports of multimillion pound savings emerging from UK use of the Web, curiously not as a result of selling on the Web, but by buying from the Web! Investment bank Schroders are looking to cut over one million pounds ($1,600,000) from their annual buying costs, by streamlining the buying process, as the seller has to use the bank's Web-based system to sell to them. There are plans to extend these savings much further during 2000, when they extend the system to IT purchasing. Then come the benefits of knowing your customers well. Water Utility, Sutton and East Surrey Water have introduced an online payment system after they uncovered the fact that over half of their customers have regular access to the Internet. This is forecast to save them another million pounds a year.


It's not all a smooth ride, as Freeserve, the largest Free ISP (Internet Service Provider) in the UK, will confirm. Their shares crashed significantly on the London Stock Exchange in the last week of September when they announced another quarter of losses. So where does all this leave the CEO or small business owner who knows that the Internet is the future and wants to make the most of it, but has to cast an eye over the numbers or risk the wrath of his backers?

Perhaps the word "confused" would be a good description, and if you read some of the major computer journals published in the UK, there are so many pressures acting on an Internet entrepreneur that you would be forgiven for running as far away as you could from anything remotely connected to the online world. There are now a huge number of sources of information and products relating to the Internet and electronic commerce in the UK. Anyone looking to put their business online risks drowning in the flood of available information. In addition, there are Internet or e-commerce exhibitions and events on an almost weekly basis somewhere in the country, so on top of it all, there is an increasing level of pressure from both the software houses and hardware manufacturers to sell their products as well.

Making sense of it all is really not very hard but in the marketing frenzy that nearly all the vendors of these solutions are working themselves into, most of those who are new to the net often find themselves quite distracted from the fundamental issues. As in all business, it's these fundamentals that really matter and it's a brave or foolhardy entrepreneur that ignores them. So what needs to happen and just why was September 1999 such a roller coaster ride?

We need to remember that on the net, time goes much quicker than in real life. Changes occur at such a fast rate that the equivalent of one real year's time goes by in about two months. This means that by the time the latest Government appointees get into their new jobs and start to think about making policy changes (let alone making them), at least two and possibly three "Internet years" will have gone by. If you are looking to get on the net in the UK now, you need to understand that by the time our new "e-envoy" and "e-minister" get to work, your e-business will have started up, matured and possibly even be looking towards the end of its life! Now I don't want anyone to get me wrong about this. I am actually very happy indeed to read all the good words being issued about the net and e-commerce by the UK Government just now. If the good ideas and intentions are backed up with changes in the way things happen in the UK, the future looks great. In the short and medium term however, the question that needs to be asked is just what difference will they make?

The typical time lines for new Government appointees are perhaps one or two real-time years, so what impact will they make to you if your Internet business horizon is six, eight or perhaps ten real-time months?

What are the things that a new UK Internet based business needs to concentrate on? Lets start with perhaps the most fundamental thing of all - funding.

In all the Government announcements this September, perhaps the most frequently heard counter argument is that for many years now, the online business world actually managed to get on quite well without any e-minister or envoy. The inevitable laws and regulations they will bring are only going to get in the way of things developing naturally. Just consider that the new e-commerce bill has already taken three years to get to the stage it is at now, so how many Internet decades will have gone by when this piece of legislation gets enacted?

Whilst it is very tempting to state the obvious fact that the UK is far behind the US in Internet and e-commerce matters, the UK does have its fair share of online innovators, including Freeserve and QXL. Reading IDC's recent survey on just this subject, the UK has $1.4 billion of online revenues. Only Germany of all the European countries has a higher figure ($1.7 billion in 1998), so the UK is no sloth in these matters. Willingness to use the net for business and commerce is also at a high with the UK standing in third place in the entire world. Taking a broader view of the number is very sobering indeed. We return to the inevitable fact that the USA completely dwarfs anything from Europe (online revenues for the USA in 1998 are expected to be over $37 billion). Another survey released during September revealed that rates of growth vary wildly and that Europe is the place to be if rapid growth is needed. If Europe is growing fast (albeit from a low base) and if within Europe, the UK is at or very close to the top of most measures, what are the problems?

We have already looked at the speed (or rather the lack of it) that Government changes will most likely work at - and there may well be projects launched during next year that will bring much needed training and advice to the small and medium enterprise sector. It's likely, however, that even this will be little more than a sideshow to the real issues. These real issues are best summed up in two words: "Finance" and "Infrastructure"

At first sight, the finance sector in the UK appears to be falling over itself to pump cash into Internet start-ups, but is this really the case? Has anyone re-written the rule book as far as patent law is concerned? Are investors any less willing to put money in where there is no "hard" product to work with? In a world where unemployment is still a big problem, will e-commerce really deliver the huge number of jobs in otherwise badly depressed areas of the country? Does intellectual capital or the value of a Web site appear in many UK companies' annual accounts yet? The answer to all these questions is a resounding "no". There are also some very deeply engrained attitudes towards failure that need to change in the UK before the financial logjam is cleared. It is a story so often told that I can cut it to the bare bones and it will still be a familiar one. In the US, the attitude towards failure is a pragmatic one. "How else is an entrepreneur going to learn how a business works except by making mistakes? Just don't make the same mistakes and improve your performance each time". In the UK, failure is simply not allowed. In some way a UK businessman that has a couple of failures behind him (even if they are not his fault), is seen as inadequate and bound to fail again. This attitude simply has to change.

Another thing that has to change in the UK is the state of the communications infrastructure. Only now are we seeing trials of xSDL technologies, such as ADSL. There are now several other countries in the world where high-speed data transmission over the plain old telephone system (POTS) copper cables is common and/or cheaply available. The effort by British Telecom (BT) to introduce xSDL to the UK market place seems to be a defensive move to try and protect its only recently popular ISDN services. Why is ISDN only recently popular? The price has only recently come down to anything other than stratospheric levels. BT let it slip in September that the estimated pricing for xSDL will be anything from one to two hundred pounds per month and this at a time when the market was expecting prices of about forty to sixty pounds per month. The argument goes that there is so very little new cable to go in and the cost of installation is largely offset by the use of commodity equipment in the exchange and for the line termination unit and the length of time an xSDL user will keep such a high speed connection, which is estimated as very long indeed. The feeling on the streets is that BT are about to kill another goose before it even gets a chance to lay a golden egg. If anyone wanted a way of preventing the Government's objectives for e-commerce from being fulfilled, then the proposed UK xSDL pricing by BT is it.

Some commentators are already looking forward to the date when the monopoly enjoyed by BT on the local loop between exchange and the phone user is ended as the only viable start date for an e-commerce 'revolution' in the UK. That such a view is even being considered is a sad indictment indeed of the undue influence that BT has over the UK online world.

Whilst we are on the subject of telecommunications, it's worth noting that the market for Internet Service Providers (ISPs) has become rather confused during 1999. It has long been possible to buy space from an ISP that does not run its own servers - they just rent the space and email addresses from someone who does and then they sell them on to the end user. You can now get Internet space from a so-called 'free' ISP, with branding from a football club, a newspaper and even from the grocery store. The choice is very wide indeed and September saw a great advert from the new AOL/Netscape free ISP hit the TV screens. They show three guys, two with hats that resemble different foods, both talking to each other and looking very pleased with themselves and the third just with a baseball cap. Oh yes! The food-hat guys are nowhere near a computer and the one with the baseball cap (you can guess the logo on it) is sitting at a PC with a browser screen on the display. The message is clear - buy your Internet time and space from an Internet company - at least if you want to be taken seriously. It's a message that has a great deal of merit. You may well pay more for going to a professional Internet company, but you will more often than not get a more professional result than getting your Web space from a butcher!

September really was a wild and wacky month for the net in the UK. We had our politicians wake up to the net but if they stay awake on it is another matter entirely. Come what may, the amount of time they usually take to make any changes mean that most of the Internet businesses out there today won't be too worried by them, except perhaps now that the Prime Minister is to take a computer course, who is going to be the lucky training company that gets the job?

E-Commerce Part 2

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