|
Cannibalizing
Bricks and Mortar
By Michael Alan Hamlin
December 20, 1999
The big Internet buzz these days
is about B2B commerce, which globally is supposed to grow to US$1.3
trillion by 2003 by some estimates, and even earlier than that by
others. B2B growth in Asia appears set to grow rapidly, too. China
alone has about two-thirds the total number of e-commerce servers
all of Europe has, and throughout Asia, large retailers and manufacturers
are linking their firms electronically by the Internet, digitizing
supply chain management.
But economist James Surowiecki writing in Slate magazine last week
suggested that all the B2B hype is overblown, at least in terms
of the shadow the hype has cast over B2C commerce. He paraphrases
a B2B proponent who recently urged listeners to, "Think of
all the parts that GM has to buy every day just to keep its business
going, and multiply that by all the giant companies out there that
have to buy parts."
"But," Mr. Surowiecki says,
"let’s remember this: GM spends less on parts in a year
than consumers spend on GM cars. That’s by definition. Otherwise,
GM would go out of business. In fact, if you add up all the money
GM and its suppliers spend on parts and databases and infrastructure,
it’s less than consumers spend on GM cars, again by definition."
Critics of the potential of B2C commerce
discount arguments like Mr. Surowiecki’s with a lot of cultural
malarkey, that generally goes like this: "Consumers enjoy shopping.
It’s as much a social activity as an economic one." To
which I say, "Anyone who has to go to a grocery store to meet
a girl (or a boy) is dysfunctional and is probably a menace to society."
Granted, it’s more comfortable window shopping with your wife
or girlfriend at the mall than it is to cybershop huddled together
at a computer (Hmm, sounds rather nice, actually.), but not necessarily
if you are serious about buying something, and getting the best
price, and are surfing on your living room TV while sitting on your
couch instead of trying to find a parking space at Megamall after
dodging the MMDA’s rogue traffic enforcers.
Here in the Philippines there are
also other reasons to give B2C short thrift. Last week at an end-of-the-year
party of techno-types, for instance, I was told about the number
of hits a new site developed by a local consulting company was receiving.
The consulting firm built and is maintaining the site for a high-profile
media company, and hopes to make its money from advertisers. Given
the hits it is receiving, I suggested that some sort of B2C initiative
be considered.
Why? Because as consultants Philip
Evans and Thomas S. Wurster write in a recent article, "Getting
Real About Virtual Commerce," which appears in the November-December
1999 issue of Harvard Business Review, "navigation is the battlefield
on which competitive advantage will be won or lost" in the
retail sector. For instance, "Many people continue to view
Amazon.com as an on-line bookseller, but its true business is navigating,"
they argue.
"Navigating has three dimensions.
Reach is about access and connection," and includes not just
eyeballs or hits, but upstream products and suppliers; or rather,
how many products and suppliers can be connected to a great many
customers. The second dimension is affiliation, which really means
customer relationships so close that the site becomes a consumer
advocate, delivering on its customers’ desires and wishes.
Third comes richness, or the depth
and detail of information that can be provided on the Internet,
as opposed to the general level of product knowledge available through
sales people in a typical bricks and mortar mall.
The site my friend was describing
sounded to me like a natural navigation site, already attracting
significant numbers of users with a common interest. Why not provide
additional services, especially retail of products that appeal to
the type of user already spending time regularly at the site? The
objections were two. First of course was that electronic commerce
is hard to transact because legislation and banking practices are
not yet in place.
However, legislation and banking
hasn’t stopped some B2C pioneers, who are both experimenting
— with the cooperation of their banks — with secure online
credit card transactions and other forms of payment, such as COD.
Early next year, based on the anecdotal evidence available to me
from retailers and their consultants, the number of Philippine sites
offering B2C opportunities will grow dramatically.
The second objection was that the
Philippines doesn’t have that many users yet, and with the
economy uncertain, growth in users may even slow. There are three
reasons why I think this won’t be the case. First is that user
growth in Japan throughout its recession has grown 50 percent annually.
While traditional sectors have slowed, new engines of growth have
emerged (Japan’s problem is that it is trying to keep the traditional
sectors alive, and is creating a huge debt bubble doing that, and
it’s not helping. More companies went bankrupt last quarter
than ever before.). That's pretty much the case for the rest of
Asia, too.
Second, there are significant efforts
to extend usage into the provinces. One is directed at individual
users, and will involve putting up Internet kiosks (instead of cafés)
in pawn shops (consumer finance companies!). This is the initiative
DFFN.com recently announced. Another effort evolves from corporations
operating nationally. Better infrastructure and new technologies
allow them to use the Internet to connect their operations. This
can result in the sudden creation of hundreds of new users almost
overnight.
The third reason I think it would
be strategically imprudent to delay B2C initiatives is that individual
Filipinos love and quickly absorb new technology: the Philippines
is not the texting capital of the world for nothing.
There is one more reason that B2C
Internet-commerce hasn’t gone as quickly here as it might,
and that is that traditional retailers are reluctant to cannibalize
their existing retail business. That’s too bad, according to
Messrs. Evans and Wurster, who say of retailers’ efforts to
protect traditional models, "They must expect the new business
to cannibalize the old."
Because if they don’t go after
the business, someone else will.
|
