More bang for your e-buck
It may not be on the same scale in South Africa as it is in the United States, Europe and Asia, but e-commerce is here to stay.
While most people still only see it as a means of shopping or doing transactions online there is actually much more to e-commerce, especially when businesses deal directly with each other.
The most critical success of e-commerce has been in the business-to-business sectors, where it has revolutionised the corporate world, says Arthur Goldstuck, MD of World Wide Worx, a leading independent IT research organisation.
“From a business perspective, e-commerce has been an overwhelmingly success. But because it is happening in the enterprise environment, it doesn’t get the kind of credit it deserves,” he says.
Transactions have become so seamless that most business decision-makers don’t realise how much they rely on various e-commerce processes.
“The full value chain of a company, in other words, between the company and its suppliers, its partners and clients ... has been changed forever,” Goldstuck says.
Andrew Hardie, a director at ATOS KPMG consulting, says that the Internet has become an extension of normal business practice.
The debate about whether e-commerce has lived up to its promise is over, Hardie says, and should now focus on how to use this technology to be more effective and more efficient.
He believes that, as more people come to understand e-commerce and e-business, companies can look for new ways to reach their customers.
“You can look at the banks, for example. They are using the Internet to great effect,” Hardie says.
Goldstuck says e-commerce appears to be less successful in the business-to-consumer market because a very small percentage of South Africa’s population is online (an estimated three-million people out of about 42-million) and only a fraction of them perform online transactions.
“Consumer e-commerce has not lived up to the expectations of retailers, but has certainly lived up to [those of] consumers, who saw it as a route to making their lives more convenient. The problem is there are not enough of them.
“Because our market is so small and the number of people transacting is relatively small, the margins are completely different and you can’t hope to emulate the economies of scale that you find in the US. That is likely to be the biggest potential danger for even our most successful e-commerce operators,” says Goldstuck.
Meanwhile, the US e-tailer market is expecting “another banner e-commerce year”, according to CyberAtlas, an industry website that tracks Internet trends and statistics.
“E-tailers who experienced the online holiday retail growth in 2002 should be prepared — analysts are already anticipating increased e-commerce spending by the end of 2003,” CyberAtlas recently reported.
“Excluding travel, research from eMarketer indicates that 2003 will bring in $58,2-billion in business-to-consumer retail revenues and, similarly Jupiter Research predicts $51,7-billion for the year’s online retail sales, led by 97-million consumers (59% of the online population).
“The future of e-commerce continues to brighten, according to Jupiter’s research. Driven by online population growth, increased spending by buyers, and higher percentages of online shoppers Jupiter expects online retail spending to reach $105-billion by 2007, accounting for 5% of all US retail spending and influencing 34% of all US retail spending.”
CyberAtlas also cites an estimate by the US Department of Commerce that there was about $45,5-billion in e-commerce spending last year.
South Africa is far behind these lofty figures, Goldstuck says, but there are notable successes.
“The best South African case studies compare very favourably with the best international examples. Pick ‘n Pay Home Shopping has nothing to be ashamed of when you compare it to Tesco in the United Kingdom. Their model improved on a lot of international models,” he says.
The same is true of Kalahari.net.
“It is doing a very good job. Our market is much smaller so Kalahari [.net ] can’t emulate what Amazon[.com] does. In the South African context Kalahari is really a role model for e-commerce, just as much as Amazon is a role model for US.”
“The good news,” says Anton Gaylard, general manager of the ASP division at M-Web Business Solutions, “is that although it is coming off a small base, e-commerce is increasing month on month. There’s a definite linear growth if one looks at the number of transactions we’re doing through our gateway, SafeShop. The average basket value is also increasing. Over the past two years it has increased from around R250 to R750. There’s definitely an uptake on e-commerce.”
M-Web hosts some of the most successful consumer e-commerce sites in the country: Pick ‘n Pay, Kalahari, Netflorist, Incredible Connection, Look & Listen, Cybercellar and Ascot Direct.
“The advent of Internet banking got consumers to trust the Internet to handle [their] money,” says Gaylard.
Indeed, Internet banking has grown rapidly and is arguably leading the way for online transactions.
All the major banks use it as a channel for their customers, while the entirely online 20Twenty managed to capture some 40 000 customers and lost only 6% of its clients when its parent, Saambou, collapsed. This low loss of customers is both a sign of confidence in Internet banking and in a “pure play” Internet venture that is still in curatorship.
To increase consumer confidence banking groups have online payment mechanisms that do not require consumers to use their credit cards, which are the principal means of purchasing over the Internet.
First National Bank has eBucks, Standard Bank has Autopay and Bluebean. Then there is Nedcor’s Netbank Secure Payment, Absa’s online payment and icanonline.
Banks are extremely tough about providing the online acquiring accounts that allow would-be Internet ventures to process transactions, Gaylard says.
“You can be sure that if you can trade with someone online the banks have really vetted and scrutinised them. At one point, only one in 10 applications resulted in an online acquiring account and as a result cleaned up the market. This increases the confidence all round.”
The success of Kalahari.net is largely due to customer service, says the company’s general manager Hein Pretorius.
“[The success is] simply based on choice, convenience and exceptional customer service. The fact that we constantly add value to the customer.”
Kalahari ended the financial year in March 2003 with a just below triple digit percentage increase on the previous financial year.
“There’s a trust relationship [with the customer]. We always deliver on promises and sometimes when we don’t ... we take responsibility. We’ve stuck to basic, fundamental business principles.”
Trust is a key ingredient that is always highlighted in the industry and with good reason.
“The [e-commerce operations] that are doing well are those with strong, real world brands,” says Gaylard. “Our most successful clients are Pick ‘n Pay, Makro, Incredible Connection, the Pro Shop and Look & Listen. That’s because consumers know them, know their products [and] trust what they sell ...”
Consumers need to know what they are getting and that they will get it, if they buy goods online.
“In the consumer environment, every transaction is a renewal of the relationship, but in business, it is ongoing, steady and even standard. You know what to expect from your client because it is usually based on some form of contract,” says Goldstuck.
“In the consumer sphere, you have no idea what the client is going to want next and who your client is going to be.”