UK Experiencing an E-Commerce Boom

E-commerce has overtaken communication as the driving force behind Web developments in Britain, according to the UK Internet Survey 2000 by Fletcher Research, the UK Research Centre of Forrester Research.

In 1999, the majority of companies (59 percent) were using the Web primarily to communicate with consumers, employees and investors. Today, almost half of all sites are attempting to exploit the e-commerce opportunities on the Web.

Fletcher’s report also asserts that the relative youth of the UK Internet means that large corporations are not necessarily disadvantaged by Web-based start-ups, and although competition is fierce, many big businesses are moving quickly to secure online success.

“Strong competition from FTSE 250 companies has not given standalone businesses an easy ride,” said Rebecca Ulph, senior analyst at Fletcher Research. “If anything, UK corporations have put up strong competition to Web-based start-ups. For instance Smile, backed by The Co-operative Bank, is one of the strongest brands in UK online financial services; the BBC has aggressively leveraged its offline brand in a portfolio of Web operations; and BT has remained one of the UK’s largest ISPs in the face of aggressive competition from Freeserve.”

The UK remains an attractive market for established US Web businesses, according to Fletcher. In many cases, UK services are being led by competitors that have their origins in the US, and at present, a great many standalone Web businesses operating in the UK are extensions of successful US businesses. Amazon, for example, controls more than 50 percent of the UK online book retailing market. But as yet, UK-based start-ups have made little impact and the UK market has only a small number of standalone Web businesses, such as Freeserve, First-e and BOL, attempting to compete with bricks-and-mortar firms.

“As UK Web businesses increasingly seek to capitalize on e-commerce and lock-in customer loyalty, the quality of that customer experience is of paramount importance,” Ulph said. “Many sites have introduced interactive features — 85 percent now offer some sort of interactivity. Also the use of user-generated content has doubled as sites realize the advantages of fostering a community and with it, customer loyalty. Also, information on user behavior is an increasingly valued commodity. Cookies and registration are increasingly being used to extract personal and behavioral information from users — 53 percent of sites have cookies, 43 percent employ some type of registration.”

The increased competition in the UK Internet economy is boosting investment in Web operations, and the cost of setting up and running Web companies is growing rapidly. It now costs around £1 million to set up a competitive commerce-enabled Web site, up more than 100 percent from last year. Also, the cost of maintaining a Web operation in the UK is skyrocketing. The typical UK Web site is costing £590,000 a year to run, up almost 160 percent from last year, but in many cases, site traffic is not increasing in line with these increases in costs, which could indicate some misapplication of investment.

“Online commerce is soaking up more internal resources. Sites are employing more resources in development and maintenance,” Ulph said. “The number of internal staff involved is increasing, as is the level of outsourcing of day-to-day web site management functions. Few sites run their entire Web operation in-house — just 11 percent of the companies claim not to outsource any aspects of the running of their Web site.”

An increasing range of interactive devices such as interactive digital TV and mobile phones will drive tremendous growth in the online retail market over the next five years, according to Fletcher’s report “UK Online Retail: From Minority to Mainstream.”

The report predicts that 7.5 percent of the UK’s retail sales will move online by 2005, a massive rise from the 0.25 percent of all retail sales in 1999. This translates to the total of 1.7 billion pounds sterling in online retail revenues in 2000, rising sharply to 20 billion pounds sterling by 2005.

“Currently, half of all British Internet shoppers have bought books, and while Amazon has comfortably the largest share of the market, it faces an increasing challenge from traditional retailers such as W.H. Smith and new entrants including Bertelsmann’s BOL,” said Shobhit Kakkar, Fletcher analyst. “However, leisure travel and computer products are the two largest sectors. The online leisure travel market will be worth 490 million pounds sterling in 2000 and computer products will reach 410 million pounds sterling.”

TV and wireless devices are emerging as new access points and will drive online retail spending, Fletcher found. Already, interactive TV players such as Open have reported impressive sales and interactive services for mobile devices are being rolled out. These devices will be valuable tools at multiple stages of the sales and service process. Fletcher’s report also found that retailers will increasingly concentrate of fulfillment, dynamic pricing, and channel integration. Retailers will shift emphasis from transparency and ease-of-use of their online offerings, and consumers will expect integrated, customized services.

“Personalization and the utilization of consumer data distinguish the best online retail offerings,” Kakkar said. “Most sites track consumers using cookies (nearly 80 percent of sites surveyed) but only 26 percent personalize the user experience.”