Will UK consumers ever learn to love e-commerce?

While business-to-business e-commerce is flourishing, UK consumers still have some way to go to catch up with their US...

While business-to-business e-commerce is flourishing, UK consumers still have some way to go to catch up with their US counterparts

Though the Internet bandwagon just seems to keep on rolling, it is in danger of slowing down as legislation and the speed of technology adoption by the mass market gets in its way. Internet-based companies are traditionally fast moving, but as the web spreads, it is meeting resistance from slower moving organisations that just aren't used to the speed at which the Internet market is moving. We need to ask what can be done to help get over that final stretch and make Internet use, and therefore e-commerce, so prevalent that it reaches that mass market throughout the world.

A recent report by Forrester Research predicted that in the US alone the business-to-business e-commerce market will be worth $2.7 trillion by the year 2004. This is an upwardly revised estimate from a previous report that stated it would reach $1.3 trillion in four years time. US business-to-business e-commerce is currently only worth $55 billion, a small fraction of its future estimated value.

Steven J. Kafka, eBusiness trade research analyst at Forrester Research, says: "US businesses are universally preparing to buy and sell online, leveraging the Internet to build deeper relationships with their business partners. But the rampant growth of online trade through these one-to-one business connections will taper off after 2001, as firms more actively participate in eMarketplaces to connect with a wider universe of buyers and sellers."

In the UK, the situation is slightly different. The UK so far does not have the kind of economic environment that actively encourages trade over the Internet. There are still issues of legislation that have to be resolved, such as taxation. The government is currently looking into the situation, and has appointed its own e-minister to look after the Internet and the commerce that takes place over it.

No one yet knows how successful the government will be in giving incentives to encourage e-commerce. Unfortunately, government involvement is likely to slow down the Internet revolution in Britain. Getting the right legislation could take much longer than anyone has envisaged. Nevertheless, companies who are determined to immerse themselves in business-to-business e-commerce, and have sufficient resources and technical experience, should have no problem despite the limitations. Setting out on this path will invariably lead to the vast majority of company-to-company trade being carried out on the web. Britain is unlikely to catch up to the sheer volumes of business-to-business e-commerce that takes place in the US, but it can have its own very healthy e-economy.

It is, however, below this level, where trade to the consumer is concerned, that problems can arise. Currently, it is believed that around 30 per cent of the UK's population have access to the Internet, whether at home or at work. If that number is to increase substantially then some technology and cost barriers have to be broken down, and soon. The mass market is unlikely to accept online trading until it is quick and easy and secure enough to inspire confidence and trust in such transactions. But before that happens, it has to be affordable.

One of the biggest barriers to business-to-consumer e-commerce is actually getting potential customers online. Costs are one of the biggest factors preventing people from accepting the web. Firstly, there is the cost of a buying a PC, which, even at its cheapest, will cost several hundred pounds. Several schemes have been tried in America where a PC is offered for free if they buy the Internet access that goes with it. Lately, these schemes have died out, either through lack of interest or because it was not a viable business model. Although there is some talk of similar plans happening in the UK, "free" PCs are never going to be the solution to getting large numbers of people online.

Last year saw a large fall in the prices of many PCs, leading companies to believe that they would soon be available at relatively affordable prices. Unfortunately, since then, prices have slowly begun rising again, and the low prices that were hoped for have failed to materialise.

Other forms of cheaper Internet access are arriving however. Sega's Dreamcast was the first games console to offer web access, email and browsing capabilities. With the arrival of the Playstation 2 later this year and the rumoured X-Box from Microsoft also coming soon, access to the Internet could be available to a much wider audience through these "set top box" devices. Although WebTV has so far failed to make an impact, some form of this technology may still bring the net to the mass market. WAP (Wireless Application Protocol) cell phones are also starting to appear, offering (restricted) access to the Internet from almost anywhere in the world.

The cost of access devices can become minuscule compared to the current costs of logging on. Most consumers currently use modems to access the net over normal telephone lines. BT and many others currently charge the same for Internet access as for the price of a local call. During peak time periods, costs can escalate to enormous levels through prolonged use, and off peak call charges can also be misleadingly expensive. It is estimated that it costs £237 to surf the net for five hours a day, 20 days a month in Britain - compared to just £26 in America.

A recent survey undertaken by ITNETWORK.COM, on behalf of First Tuesday, asked what the government should do to help promote e-commerce in the UK. The single most important issue that arose from this survey was the cost of Internet access. Most stated that e-commerce cannot fully flourish until a large proportion of the population has the ability to go online at their convenience, and what was stopping many was the cost of telecommunications access to an ISP.

BT and its competitors are currently looking at ways of reducing the costs to consumers. Several companies, including BT, have set up schemes that offer access to the Internet for 1p per minute alongside a fixed monthly charge. Still, many believe that this does not go far enough and that metered calls to the web need to be abandoned completely. Step forward cable company Telewest, which recently announced its intention to launch toll free web access for a fixed monthly cost. Following this announcement BT has also hinted that it expects to announce a similar service soon.

It isn't just telcos that are getting in on the act. March has seen the start of what could turn out to be a full scale Internet price war, which should lead to a dramatic fall in prices. ISP AltaVista recently stated it was to introduce a scheme where customers had unlimited access to the Internet for only £10 a year and a start-up cost of around £30, with costs being covered by advertising revenue. The scheme would probably only be available to around 500,000 customers and many of the details have still to be sorted out. Following hot on the heels of AltaVista was NTL, who promised to beat the ISP's prices and with no start-up costs. The offer was dependent on the customer signing up to NTL for telephone access and making a minimum of £10 a month in call charges.

As the Internet continues to expand, the number of users continues to grow, and the content on sites becomes more advanced, the speed of access permitted through a telephone line is now looking inefficient, especially when compared to other access technologies. For the net to progress, consumers have to be offered a faster, cheaper and more reliable way of using the web.

ADSL (Asynchronous Digital Subscriber Line) promises to give mass Internet adoption the kick-start it needs. With high bandwidth and constant access available, it should bring a new dimension to web use for both businesses and consumers. BT has already run a trial in North London, which encouraged it to roll out the service nationwide. The launch of ADSL, which is 10 to 50 times faster than normal modem access, was originally planned to begin this month. BT, however, has decided to delay the rollout, the date currently being mentioned for launch is 29 June, with orders being taken from 20 April.

Probably the most important issue will be the price. It is expected to cost in the region of £50 per month. When the ADSL trial was carried out last year, those who took part in the experiment only paid £30 per month. Many analysts believe that this is too much for the average consumer to afford and were hoping that when the service is rolled out in full it would be around the same as the trial price of £30 per month. Furthermore, access speeds during that period were 2Mbps. BT's full service is only expected to provide access speeds of 512Kbps. Paying more for an inferior service isn't likely to have customers jumping for joy or rushing out to get the service.

BT, however, sees it differently. Sir Iain Vallance recently told the TMA conference that it was holding back ADSL as the Internet was "still in its infancy and not yet fit for the purpose". He then went on to describe BT as a "lollipop man trying to restrain the over-exuberant children."

Companies who would benefit from the consumer uptake of ADSL are furious, with Freeserve heading the list. Freeserve and others claim that BT is stifling the new technology because it would be in direct competition with some of BT's other products such as its Home Highway ISDN offering.

Due to BT's near-monopoly over network access, there are currently very few alternatives available to the customer in the form of third parties being able to provide similar services. Although the government is expected to do something about this, it will be July 2001 at the earliest before BT's local loop is unbundled, allowing third party telecommunication and cable companies access to its network. This in theory should create a much more competitive environment in communications where customers will be offered increased speeds at lower prices. While this move is welcomed, many are still concerned that the timetable is too slow and could leave the UK lagging behind the rest of the world.

The UK in general is still some way off the standards achieved by the US for Internet access and many believe that this will continue to be the case until BT is forced into true competition. Though that time is still some way off. When it does come, it may see the dawn of a new online age in the UK, similar to what we currently see in the US, with great opportunities for businesses wishing to sell to consumers online. Hopefully, the e-commerce bandwagon will not have been reduced to a terminal crawl by then.

Paul Grant

This was last published in March 2000

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