Give the Internet a break
Simon van Wyk says we should stop caning the Internet and recognise it for the business phenomenon that it is and continues to be.
OK, so all the hype about the new online companies nimbly side-stepping the lumbering dinosaurs of the traditional economy in the race to the future was shown to be just that - hype. But then those dinosaurs picked up where the dotcoms left off and began using the Internet to transform their existing business.
For a while, at least. By all appearances, the post-tech-wreck slump has now spread through traditional businesses. And the September 11 terrorist attacks in the US have made an already-soft global situation even squishier.
A Forrester Research survey in May found that 17% of large companies had decreased their e-business budgets since the beginning of the year. A follow-up survey in October, however, found more than 30% had made cuts. And while the average reduction in May was only 0.3%, by October the average had climbed to nearly 6 per cent.
And while many industry observers expected that September 11 would result in a drastic drop in business travel and a big influx in spending on online alternatives such as videoconferencing and instant messaging, the survey revealed a different trend: an anticipated 6% decrease in remote-meeting technology and a more than 6% increase in business-travel spending among big companies this year.
In Europe, Gartner Research has discovered that the number of companies planning to reduce their IT budgets increased by 10% compared to last year. Investments are moving away from capital investment to cost containment and business processes, adding pressure to the already troubled hardware and telecommunications industries.
Thinking small
If cash-strapped Australian businesses could afford to enlist researchers to conduct a similar survey in Australia, they’d find similar figures, if not worse.
Players such as David Jones are likely to cut back on their online spend over the next 12 months. After buying ill-fated online retailer The Spot in June 2000 and using it as the foundation for its online operations, DJs has reportedly spent $19 million dollars bringing its store back online over the past 18 months, but has sold nowhere enough merchandise to recoup its costs. Having said that, traffic is up on the site, with Jupiter Media Metrix measuring 269,000 unique visitors to the site in September 2001 compared with 100,000 during the whole Christmas sales period in 2000.
So why are traditional companies pulling back on Internet spending, when all indications are that more people are willing to make purchases online than ever before? It could be because it’s simply harder to make it work than everyone wanted to believe.
As Chicago entrepreneur Ronnie Goldfinger told the Boston Globe, “The fact is that the Internet is a club, and not everybody has joined. It just isn’t the way people naturally do things. The technologists figure that since it’s better, people will do it. But people are not motivated by better.”
“The e-tailers basically served up what they had and expected people to come,” according to John Cole, president of Isurus Market Research & Consulting. “They didn’t understand either that they needed to get people to change or how to get them to change. They expected people to change instantaneously. That behaviour isn’t occurring, either because the perceived cost is too high or the perceived benefit isn’t enough. We haven’t figured that out.”
A major mistake made by many dotcoms, is that they started thinking - and spending - like big companies, instead of like start-ups.
A big company has to focus on big successes; small victories are mere rounding errors in the quarterly filings, as Chris Yeh writes in Clickz. A start-up has to focus on getting quick revenues, while big companies place bets on strategic initiatives and have the patience to wait for results. Having the flexibility to win small victories allows a start-up to try a lot of different things and experiment its way to success. Big companies invest for the long-term, while start-ups minimise costs.
If David Jones spent $19 million on its website, the question has to be asked: what did they spend all that money on? They picked up a solid ecommerce technology platform built by Cortex eBusiness for a fire-sale price when they purchased The Spot. It would have been a quick win to simply take The Spot’s technology platform and replace The Spot’s merchandise with its own. Instead, it appears they started thinking like a big company and tried to build a future-proof, long-term solution.
Some Australian companies have managed to think small when it comes to the Internet. Wishlist.com.au, the only Australian pure-play online retailer of note left in the market, has concentrated on keeping logistics costs down by making lateral-thinking deals with BP for parcel pick-ups instead of investing in a huge infrastructure. Toyota relied on its website and an online viral marketing campaign - no other advertising - to promote its new Prius hybrid car ahead of its release in Australia in October 2000, and sold 40 cars on pre-order.
Unrealistic expectations?
The early growth curve of Internet take-up was never going to be sustainable. But despite the slowing of growth, the statistics on Internet use are pretty impressive. It took the telephone 35 years to get into 25% of all homes in the US. It took TV 26 years, radio 22 years and PCs 16 years. It took the Internet only seven years.
According to IDC Research, more than 100 million new users are now coming onto the Web every year, and nearly 1 billion people will be using the Internet by 2005.
IDC predicts that by the end of this year, Australia will receive more than 8% of revenue from Internet-influenced sales. By 2005 the balance of Internet users will shift, with Asia/Pacific rivalling Europe and both ahead of the US.
Worldwide ecommerce revenue meanwhile, is expected to climb from US$350 billion in 2000 to more than US$600 billion in 2001, despite the post-September 11 slump.
Josh Hyatt wrote recently in Fortune Small Business: “Nobody’s disputing that consumers didn’t take to the Internet in the numbers that many business plans projected. But could it be that the real laziness lies with those who expected such an unprecedented phenomenon?”
Let’s get real. Internet use and ecommerce revenue are no longer doubling every year, but growth is still well into double figures. Most businesses dream of sustainable growth of 5% a year. Internet growth is a good-news story.
As Fast Company reports, the new economy “is not and never was just about dotcoms. It is not and never was just about IPOs, venture capitalists, or irrationally exuberant stock markets. It never did belong to just one industry or one part of the country. It is about three things: the expansion of individual opportunity, the disruptive energy of ceaseless innovation and the transformative power of information technology and communications. At its heart the new economy represents the convergence of these forces - forces that challenge the conventional wisdom of the Industrial Age and that unleash entirely new ways to make strategy, launch products, serve customers and organise for creativity and productivity.”
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