The e-commerce buzz gets louder as firms ponder their on-line plot

We are in the early stages of experimentation; lots of firms will try lots of things - most of which will fail
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The Independent Online
THE electronic-commerce buzz grows ever louder. It is not just that Dixons' triumph with Freeserve has spooked British retailing ("why on earth didn't we come up with that one?" ponder rivals). Established businesses in many different corners of the commercial forest now realise that if they get their e-commerce strategy wrong, they could be wiped out.

But what strategy can they adopt, aside from trying everything on a scatter- gun principle and hoping that some of their shots hit the mark? From the point of view of European companies there is, in many fields, a useful rule of thumb which is to look at what works in the US and then try and adapt that to European circumstances.

Of course this does not always work, but you might imagine, since e-commerce has developed much more rapidly in the States than anywhere else, that in this case it would be a helpful approach. Up to a point that is true, but there are obvious areas where the US model is inappropriate.

"Free" Internet access is currently transforming the potential for e- commerce in the UK, but that model does not exist in the US for it only works in countries where people pay for local calls by time used, rather than (as is general in the US) by a flat monthly fee.

Still, it is helpful to start somewhere, and US experience remains the best place. The brokers Merrill Lynch have been pulling together the work on the impact of e-commerce on different aspects of the economy and some of their conclusions deserve a wider audience. For example, take the graph on the right. In general it looks as though the US is a clear two years ahead of the UK, and four years ahead of France and Italy.

The idea is that it takes about four years from the first serious application of the Internet to commerce (in the case of the US in 1998) to the final sectors adopting it for the first time. So the revolution will be mature in the US in about another 18 months' time, before it has even begun in the three laggard nations - Japan, France and Italy.

Cross-reference that to the second graph, which comes from a difference source and so gives slightly different start dates, and you can check off which sectors seem in the US to be most adept at employing the Internet.

Unsurprisingly, computing and electronics have led the way, and while you could quarrel a bit with the precise order of the various sectors, the conclusion that industrial equipment and construction will bring up the rear is probably right.

This is fine as far as it goes, but it does not help very much in highlighting possible differences between the US and Europe. Here are some suggestions of differences between Europe and the US, which might lead to US experience proving a poor guide to what happens here. Start with the retail e-commerce.

First, European customers seem in general to be less interested in price, and more in quality and service. The US discount stores have not been particularly successful in Europe, while in Britain at least it is possible to make large margins on very expensive fresh food.

So the "universal market" aspect of the Internet, the fact that it can search for bargains, will be a less serious threat to margins.

Provided European producers can assure buyers of the quality of their produce, they may not find that the Internet puts such a squeeze on their pricing structure.

Second, there is a further cultural difference between the UK and the Continent over clothing. Britons consistently not only spend a smaller proportion of their income on clothing, they also buy cheaper clothes, caring less about quality and more about style. So if ever Internet shopping for clothes takes off (and that depends mostly on point three below) there may be a better opportunity for using the search engines to hunt down bargains in the UK than elsewhere.

Third, catalogue shopping is much more established in the US than in Europe. It has been a natural step for US buyers to move from printed catalogues to electronic ones, and hence to buying, as well as browsing, over the Net. That tradition, largely because of shorter distances and the design of town centres, does not exist as strongly in Europe.

Fourth, computer use is in general lower in Europe and the computer will remain the main access point to e-commerce for the next three to five years at least, maybe much longer.

This raises a number of questions. Is this simply because we have been slower adopters of the computer technology, just as Europeans have been slower adopters of many US consumer durables? Or is it related to the dominance of the English language on the Net? Or is there some other factor at work?

My guess is that the slower adoption is mostly because we are following the typical pattern of technological take-up: things just happen more slowly in Europe.

In five years' time the proportion of UK homes with on-line computers will pass the 50 per cent mark, and so being "unwired" will cease to be any barrier, at least here. But that may be wrong and in any case the lags will be longer in countries like Spain and Italy, where computer penetration is lower still.

Five, if you are looking for models, Scandinavia may be a better one for the UK (and for the rest of the Continent) than the US. It certainly has been for mobile phones, which are currently seeing explosive growth in the UK but where market penetration is still much lower than in Sweden or Finland.

Indeed, if the mobile phone becomes an important access tool for the Internet (and it is not yet clear whether this will happen) then it could be for European e-commerce what the computer has been for the US e-commerce.

This is all retail; what about wholesale? Here I suggest that US and European patterns are going to be very similar, with e-commerce between difference companies becoming a more important aspect of the market than e-commerce between companies and final consumers.

There are a number of reasons for this: companies, even more than individuals, need to hunt down the keenest price. They have more knowledge of the products and so can buy "sight unseen" to a greater extent.

Because of the growing complexity of the production chain they increasingly need to co-operate, and the Net provides a technology which makes such co-operation much more feasible.

Problems of trust should be more manageable too, for inter-company relations depend even more on a long-term commitment than on company-to-final-purchaser relations. When you come to company organisation, the United States and European models are much closer, at least at an operational level, if not at a corporate governance one.

The Net is in the early stages of transforming intercompany relations; expect that to continue apace.

The big point here is that we are in the early stages of a burst of experimentation. Lots of companies are going to carry on trying lots of different things, most of which will fail. Applying US practice directly to Europe is unlikely to be a recipe for success. But adapting it to the different market-place is going to be one of the great growth areas.

Meanwhile, though, look at Europe's equivalent of California, Scandinavia, for many of the next generation of winning ideas are likely to come from up there.

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