Charlotte Denny
Suddenly it seems everybody is at it. Every advert contains a Web address, and no self-respecting retailer would dream of ignoring the potential of e-commerce.
The Organisation for Economic Co- operation and Development (OECD) has estimated that e-commerce will be worth $1-trillion worldwide by 2005 – around 3% of global gross domestic product (GDP). Last month, international finance house HSBC pointed out that almost every forecast of potential e-sales to date has proved too conservative, and suggested that the $1- trillion mark could be breached within a few years.
From virtually zero in 1995, total e- commerce grew close to $102-billion in 1998 – equivalent to 0,4% of global GDP. The United States is the market leader. Eighty per cent of worldwide e-commerce took place within its borders, with Europe accounting for just 10% and Asia a mere 5%.
But despite the huge sums firms are spending on advertising their new sites to the public, the real transformation will occur behind the scenes, in business-to- business trade, according to HSBC.
“The consumer side gets all the attention in the media but the real impact will be on business-to-business sales – things like inventory and procurement,” says Gwyn Hacche, HSBC’s European economist.
Business-to-business already accounts for 80% of total e-commerce activity and by 2003 will be worth $800-billion a year, according to the OECD.
Meanwhile, e-sales to consumers will be worth $175-billion worldwide – or about 15% of the current sales through traditional direct marketing in the US through mail, telephone and newspapers.
The Internet has the potential to carve vast chunks out of industries’ supply chains and reduce the level of inventories firms hold.
One study suggests that US auto manufacturers could reduce inventory levels by 20% and increase profits by 10%. Or, of course, they could pass the benefits on to the consumer in the form of lower prices.
The consumer will be king of this new world. Although e-sales will not completely replace shopping on the high street, consumers will use the Net to compare prices on websites before making a conventional purchase.
“Consumers will be able to search among thousands of merchants for the lowest prices, increasing the downward pressure on prices and leading to a shift in market power from producer to consumer,” Hacche says.
Many conventional wholesalers and retailers could fall by the wayside. Such intermediaries typically add up to one- third to the cost of the goods which they handle, so cutting out the middleman has to be more good news for the final purchaser.
But new intermediaries will arise – advertisers to tell us how to make sense of the array of choices consumers will face, search engines for navigating the Web and new transport companies to deliver purchases to the home. Business costs will fall, making it easier for new firms to spring up and replace the old.
Some businesses clearly think the Internet is going to bring about a new gold rush. But the beneficiaries are unlikely to be the high-profile firms pushing their new websites, HSBC says.
“In the gold rush of the 1800s the real winners were not the miners but the suppliers that sold them food, clothes and pickaxes,” Hacche says. In the modern gold rush, the firms who stand to benefit are those providing the infrastructure e- commerce requires – the Internet service providers, the personal computer manufacturers and the inventors of encryption technology for credit card sales.