E-commerce effecting all business operations
By Scott Desmarais
JAKARTA (JP): E-commerce is redefining businesses across the globe. It is revolutionizing existing business models and calling for new strategies appealing to Internet-ready businesses and online consumers.
Emerging new online retailers, such as amazon.com and CDnow have already established themselves as significant competitive threats to traditional brick-and-mortar retailers. Dot.com stocks continue to defy reality. The market valuation of amazon.com is now six times larger than that of Barnes & Noble and Borders combined. And amazon.com is barely three years old.
While e-commerce is still in its very early stages of development, it appears almost certain that it will dramatically alter the way nearly every corporation does business. Even in Indonesia where e-commerce does not appear to be right around the corner, companies, such as Indosat and Telkom, are developing their own e-commerce strategies, while leading banks such as Bank Bali are rolling out new online consumer retail services.
The critical question for Indonesian businesses is not whether the Internet will effect your business. Rather, it is what you should do now to position your business to take full advantage of the opportunities e-commerce will offer.
In our extensive recent survey and analysis of the online business-to-consumer market, The Boston Consulting Group (BCG), together with the leading online retailer trade association shop.org, found that online revenues generated by North American retailers for the first six months of 1998 amounted to nearly US$4.4 billion. Given current annual growth rates of about 200% and the explosive surge in sales over the Christmas holiday period, online U.S. retail revenues for all of 1998 will surpass $13 billion, far above earlier predictions.
Although the breadth of products and services offered by online retailers continues to expand rapidly, revenues are currently concentrated in a few categories. Sales of computer goods, consumer electronics, books, music and videos account for approximately 42 percent of online retail revenues in North America, with discount brokerages accounting for another 32 percent (see Chart I). BCG's e-commerce work in Asia and other markets has revealed similar high concentrations in a few key categories.
First mover advantage among online retailers is significant. The 10 largest U.S. sites currently account for over 50 percent of revenues. Moreover, the top three sites in each category usually account for more than 50 percent of volume. Leading online retailers such as amazon.com control 80 percent of their category revenues, despite the frantic efforts of the world's leading traditional booksellers to catch-up. Time-to-market, word-of-mouth, and a convincing online shopping experience count in today's Internet world. Size does not.
While the online consumer market dominates today's news, it's the enormous potential of the far larger business-to-business e- commerce market that will dominate tomorrow's news. Forrester Research estimates that some $43 billion in business-to-business e-commerce was done in 1998 and expects that number to soar to $1.3 trillion by 2003 as businesses move rapidly online.
One example of how the Internet is redefining industry value chains is VerticalNet, a collection of 33 industrial trading communities providing leading industry editorial content, online buyers guide, product search engine and sales-lead generation for suppliers in its vertical markets. By moving these trading communities online, VerticalNet has tapped into the significant information, time and cost efficiencies of the Internet. Buyers can more effectively issue RFPs/RFQs, suppliers can establish their own online storefronts and advertise directly to a highly targeted audience, and transactions that used to take weeks or days to close can be completed in a matter of minutes. VerticalNet's stock shot-up 184 percent on its first day of trading last month, ranking it among the top IPOs in history and confirming the potential of business-to-business e-commerce to create value.
The e-commerce revolution is not limited to North America or to Europe. Indeed, several markets in Asia are quickly moving up the e-commerce evolution curve away from emerging technology market status to a focus on enhanced services (see Chart II).
This acceleration will continue as convergence between computer and media/television technologies provides increasingly cheaper and easier access to the worldwide web. So while Indonesia may not be the Internet hot spot today, there can be no question that e-commerce will become a major factor in Indonesian business in the future. E-commerce will effect your business. The only questions are how soon and what you should do now to prepare your company to take full advantage of the opportunities e- commerce will present.
The writer is a staffer of the Boston Consulting Group who is based in Jakarta