From E-Commerce to E-Commerce

By Cornet, Paul; Milcent, Paul et al. | The McKinsey Quarterly, Spring 2000 | Go to article overview

From E-Commerce to E-Commerce


Cornet, Paul, Milcent, Paul, Roussel, Pierre-Yves, The McKinsey Quarterly


Europe is now playing catch-up to the United States in electronic business, but the European game may well have a different outcome.

As electronic commerce burgeoned in the United States, what was happening across the Atlantic didn't seem very important. No more. Thanks to the emergence of a single market and to the introduction of the euro--as well as the US demonstration of the power of e-commerce--the European sector of the Internet can now come of age.

Over the past 12 months, European companies have been running fast to exploit the possibilities of the World Wide Web. As a result, any thought that Europe will remain several steps behind the United States may well prove wrong. The very idea of following in the footsteps of the United States was probably inaccurate anyway: for a variety of reasons, e-commerce in Europe was always likely to follow a different course. For one thing, the technological and cultural infrastructures are much more heterogeneous in Europe than they are in the United States. Moreover, European players have had the benefit of hindsight from seeing what has succeeded and failed in the United States. The later entry of European companies into e-commerce also gives them the advantage of applying technology that has advanced considerably over the past two years.

From the broadest business perspective, there is one overriding difference between the US and the European situations. In the United States, the first round of the e-commerce game went resoundingly to the pure Internet companies. In Europe, if incumbent businesses can move fast enough they have a good chance of beating out the competition--both the local Internet pure plays and their big US brethren, which are now planning to expand across the Atlantic.

Europe will catch up--in its own way

E-commerce in Europe--measured by the share of its population that is currently on-line, Web purchasers as a percentage of Web users, and average spending per buyer--lags behind e-commerce in the United States by one to two years (Exhibit 1). Nonetheless, technological barriers impeding growth are fast coming down. Personal-computer prices are dropping. Much cheaper access devices, such as Web televisions and digital set-top boxes, are coming to market. Access fees charged by European Internet service providers (ISPs) used to be much higher than those in the United States but are now generally lower (Exhibit 2). And the evidence suggests that as telecommunications charges drop across Europe, Internet usage will increase (Exhibit 3).

Broadband technologies are on the rise as well. ISDN (integrated services digital network) is already established. Gable modem technology should rapidly reach reasonable penetration levels in heavily cabled European markets such as the Benelux countries, France, and Germany. [1] ADSL (asymmetric digital subscriber line) technology, though expensive, is emerging on a fairly broad front as telecom incumbents push it in response to the cable modem offerings of the cable attackers. Wireless too is on the way.

Along with the growing quality of content, these forces are likely to raise the number of quarterly Web purchasers (those who buy something on the Internet at least once every quarter) to 35 million people in Western Europe by 2002. At an average quarterly Web purchase of $700, that will represent a $25 billion market--something worth fighting over (Exhibit 4).

But the variety of cultures and languages in Europe is to some extent matched by the fragmentation of its e-commerce infrastructure. Although broadband is on the way, the distribution of access technologies varies greatly. Areas of very high and very low cable penetration exist side by side. The same can be said of satellite. Great variation also exists in the use of credit cards, the reliability and cost of package delivery, and the extent of catalog sales. Two things, however, are Europe-wide: there is no tax moratorium on e-commerce, as there is in the United States, and cross-border shipping charges remain high and complex. …

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