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Internet
Commerce On Our Minds
By Michael Alan Hamlin
June 7, 1999
Remember back in 1994 when it was
popular to dismiss the Internet as a fad because no one had figured
out how to make money on the net? That was the year the first Internet
stock transaction took place, completed by a company that would
eventually become part of Ameritrade. Despite continuing skepticism,
on-line trading houses proliferated, and in 1996 E*Trade Group went
public and launched a campaign encouraging clients to "Boot
Your Broker."
As late as 1997, Merrill Lynch chairman
David Komansky argued that his firm didn’t need the Internet,
and that, "we do not see ourselves competing with the on-liners
and the discounters." He was right. Merrill wasn’t competing,
and as a result, a year later the stock-market value of discount
brokerage Charles Schwab surpassed that of Merrill.
Last week, Komansky admitted that,
"it really got to the point where we all felt the viability
of that segment of the market was indisputable," to explain
why his firm had belatedly decided to enter the Internet fray. Because
30 percent to 35 percent of all individual stock trades now take
place over the Internet and the segment is dominated by pioneering,
market-leading competitors like E*Trade and Schwab, Merrill will
be coming from far behind.
Merrill’s case is a classic
example of a market-leading firm ignoring signals that the rules
of the industry were changing. The firm and its brokers were also
ignoring outright complaints by clients who were frustrated with
Merrill’s intransigence. While many maintained Merrill accounts,
they also opened up Internet accounts with competing on-line brokerages.
To add insult to injury, among the stocks Merrill’s clients
traded using their Internet accounts was Merrill itself, according
to published reports.
Internet trading is just one area
companies have made the Internet pay off big time. Business to business
enterprise has also exploded, with technology companies like Dell
and Cisco seeing the volume of Internet sales rise dramatically.
Yahoo! — with a market cap of US$34.5 billion — has demonstrated
that a company that does little more than organize the Internet
for users can make insane amounts of money. Although Amazon.com
has yet to turn a profit, it is capitalized at US$23 billion and
by next year revenues are expected to reach US$2 billion.
All this makes the pessimists of
1994 look pretty toady. But we see a lot of that same skepticism
here in the Philippines surrounding the Internet and its potentials.
This despite the fact that business to business e-commerce —
which increasingly takes place over the Internet — is already
a vital component of establishing and maintaining business relationships
between retailers, suppliers, and manufacturers. Modern supply chain
management just can’t take place efficiently outside e-commerce.
Skeptics are fond of noting that
there were less than 250,000 Internet users in the Philippines at
the end of last year, although that number is expected to grow 40
percent annually over the next five years. That will boost the number
of users to well over 1.3 million, or significantly more people
than subscribe to English-language newspapers in this country. That
would account for virtually every A, B, and upper C household today.
A better indication of the interest
in Internet commerce issues is the 500 people who showed up last
week to listen to DFNN.com’s Ramon C. Garcia, Jr. talk about
his plans for the Internet. DFNN.com is a new financial portal service
that will provide individual investors real-time financial information,
the means to execute on-line stock trades, and the ability to manage
their financial life on-line, via the Internet.
Mr. Garcia — also a broker —
has invited other brokers to join the network to allow their clients
to trade on-line. Based on the U.S. example, brokers would be well
advised not to follow Merrill’s example, but to get into the
game early. On-line trading of Philippine stocks is likely to significantly
boost individual investor interest in the local equity market, something
it badly needs.
Part of that interest will come from
overseas Filipinos as well, many who are experienced on-line traders
but have not invested in Philippine equities because they couldn’t
trade on-line. The importance of overseas remittances to the Philippine
economy — somewhere around US$6 billion annually — is
well known. Individual investor flows into the stock market offer
the prospect for dramatic growth in the market, and a viable source
of equity financing for smaller cap firms as well.
Given the Philippines’ woeful
inadequacy in debt and venture financing resources — critical
components of industrial cluster development — as well as the
capital thirst of established corporations gearing up for increased
competition, enticing overseas Filipinos to put their money into
Philippine enterprise is an enticing — and probably critically
important — opportunity.
Other signs of increasing interest
in Internet commerce include Citibank’s recent initiative to
provide local enterprises the digital infrastructure they require
to safely retail products and services over the Internet by accepting
credit card payments. Marivic Puyat, managing director of Magoos
Pizza, has started accepting delivery orders by e-mail, and it’s
likely that she will likewise be among the pioneering Philippine
retailers who soon offer seamless, secure Internet transactions.
Not unexpectedly, the Internet initiative
is being led by fairly young entrepreneurs and corporate rebels
who don’t accept "It can’t be done." The Philippines
is fortunate to have them. While others stand around laughing about
the Internet and its potential for Philippine business, people like
Mr. Garcia and Ms. Puyat are changing the competitive landscape,
and the rules of competition.
Copyright © 1999 The Events
& Awards Managers of Asia and
Hamlin-Iturralde Corporation. All rights reserved.
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