E-commerce is already the next big thing
+8* ABL Column China Japan Korea ThoughtsPublished September 12, 2008 at 11:54 am 2 Comments+ This article is a monthly column written for the Chinese magazine Asian Business Leaders in August 2008 +
While social networks have been very hot until early this year, in the past few months we saw interest growing about e-commerce from many clients. As we were deepening our research, we were in for quite a few surprises.
Status of e-commerce
The first thing we noted is that it is quite difficult to compare the status of EC development in different countries due to market size, Internet population, GDP and purchasing power. How could one compare properly between such diverse markets such as the US with China, Japan and South Korea?
After working on various models, we identified the share of e-commerce in the total retail market as a usable metric to highlight the development of EC. This confirmed our intuition that South Korea is the most advanced, with 6.5% of all retail being EC. US and Japan are somewhere around 4%, whilst China is still at a very early stage with about 0.6%, but poised for explosive growth.
If Japan is not that advanced on EC, it is the world leader in mobile commerce; the leading B2C player Rakuten gets 20% of its revenue from mobile commerce. The whole market represented over 6 billion USD in 2007, far ahead of any other market and even close to the entire Chinese EC market at 8 billion USD.
Why and how to grow a successful EC market
This was a question discussed at a recent seminar between China’s MOFCOM and the EU where we contributed as invited experts. A successful EC market actually develops the retail market and helps companies sell more, but more than anything is able to create jobs. Well over a million users make a living from eBay globally and there is huge potential in job creation with Taobao and other services in China as well.
One might then wonder how to enable EC and accelerate its development. There are many reasons for EC development that can be attributed to culture, purchasing habits, regulations, logistics reliability, credit card usage, GDP development… However we found that the strongest differentiator was the level of development of broadband. Here we face an issue: in the US, broadband is anything advertised to be above 200Kbps, often around a few Mbps, while most Korean households have ultra-broadband or FTTH (100Mbps). This is like comparing a walking person (5km/h) to a jet fighter (such as Lockheed Martin/Boeing’s F-22 Raptor which reaches mach 2 with afterburners). Makes kind of a difference, isn’t it? We became quite convinced that the main enabler for EC or mobile commerce was IT infrastructure.
Korea leads in Internet speed and in e-commerce, while Japan leads in 3G and… mobile commerce, which seems in line with their IT infrastructure development. The key element aside from the presence of a sophisticated IT infrastructure seems to be the duration during which said infrastructure has been around. For instance, Japan developed its fixed broadband more recently than Korea and has less experience with it, but Japan is expected to grow rapidly.
Just like governments have a responsibility in developing roads, bring electricity and water, we tend to think that building a strong IT infrastructure is the best enabler to develop the knowledge economy and retail market, and that government should – directly by financing or indirectly by stirring up competition – support a rapid IT development to enable its economy to go digital.
Future trends
As a conclusion, here are some key trends in e-commerce we identified:
(1) B2C (e.g. Amazon) and C2C (e.g. eBay) models are converging. B2C is generally a guarantee of quality but not of price, while C2C offers good price, but quality and payment is generally more risky. This year, eBay’s “fixed price auctions” are going to represent half of its revenues.
(2) Mobile commerce is going to happen. In fact, it is already happening in Japan because of their advanced infrastructure. Other countries will have the same happening when they will catch up, within the next few years.
(3) Social networks will blend with EC. Remember the time when there was no Internet? There was also a time when there was no advertising. At that time, people mostly asked their friends about what to buy and what was good. As people become more and more disenchanted by advertising, this time is coming back and we saw the first signs of convergence in some services like Alimama and Japan’s NicoNico Video.
(4) Online and offline will connect. While an increasing number of offline stores are going online, already some online stores in South Korea are opening offline shops. Some Korean and Japanese auction and EC sites are using existing retail networks such as convenience stores or subway stations as delivery and pick-up points.
(5) Meta-shopping will develop. This is a new concept in Korea. If you remember Korea is the world’s most advanced EC market, this is worth looking into. It follows the development of numerous online shopping malls (several thousands in Korea), and provides a sophisticated-yet-easy-to-use combination of price comparison and user reviews. It has been created by Korea’s largest Internet portal Naver, who call this service “Knowledge Search”.
Just like China sells today more music online (PC and mobile) than offline, we think the combination of strong SNS usage and online shopping development are able to help the country leapfrog from an offline to an online economy. More, China has the advantage of having few legacy industries, whose established business and lobbies constitute barriers to the new business models of the digital age. So here is our advice to retailers in or coming to China: think digital!
For more ideas, here is a presentation we gave to China’s Ministry of Commerce a few months ago.
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[...] Pat Doyle wrote an interesting post today onHere’s a quick excerptKorea leads in Internet speed and in e-commerce, while Japan leads in 3G and… mobile commerce, which seems in line with their IT infrastructure development. The key element aside from the presence of a sophisticated IT infrastructure … [...]