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Online sales: Optimism grows where hype failed

By:     Peter Wilson
From: Vancouver Sun, Business Section

Date: Thursday, April 3, 2003

Reality isn't as bleak as one report paints it

On the surface, commercial online sales in Canada would appear to be booming, with a 28.4-per-cent jump in annual revenue in 2002 to $13.3 billion, with $3.7 billion of that coming from consumers.

But, according to a Statistics Canada report released Wednesday, these figures represent only a fraction -- 0.6 per cent in 2002, up from 0.5 per cent in 2001 -- of total operating revenues.

Not quite the e-commerce avalanche Canadians were led to expect back in the dot.com glory days.

The report adds that there's also high volatility in the e-sales game. Forty-three per cent of businesses that reported they were selling goods or services online in 2001 dropped out of e-commerce entirely in 2002.

In fact, last year seven firms stopped selling over the Net for every 10 that started.

As well, online commerce still remains the domain of larger firms, despite efforts to move small and medium sized businesses on to the Net.

In fact, enterprises with more than 500 employees were responsible for 41 per cent of sales over the Internet, up slightly from 40 per cent in 2002.

On the surface, this may appear to be a rather gloomy picture for e-commerce in Canada -- especially for smaller companies -- but analysts and e-commerce experts are not as pessimistic.

They say:

- We're still reacting to initial overhype of the Net as a sales tool, and are just at the beginning when it comes to online sales;

- The Internet is often used by people researching purchases and therefore has a larger influence than just online sales.

- In some cases actual revenues from e-commerce are indirect and hidden.

- That eventually businesses will have to be online or be left behind and this means that smaller businesses will have to adapt.

"Everybody went to the dot-com party and drank the Kool-Aid and now they've woken up the next morning and they're thinking 'what did I do?'" said Jim Carroll, Ontario-based Net guru and author of Selling Online: How to be a Successful E-Commerce Merchant.

But, said Carroll, business people shouldn't read too much into the StatsCan report.

"They can read something like this and conclude, well, gee, those are such small numbers, I don't need to think about this at all. And I think that would be a mistake."

Carroll said that people need time to adapt to the new technology.

"A lot of this is behavioural. People take time to change."

PricewaterhouseCoopers senior partner and tech expert, Vancouver-based Michael Calyniuk, said that while what he calls "marginal and experimental e-commerce" has dropped off, people are becoming more and more used to buying on the Net, especially in specific areas.

He pointed to travel, electronics and entertainment and to purchases like digital cameras and power tools, where its not necessary to touch and feel or try on the goods to know that they're going to be suitable.

Calyniuk also said that in some cases it's hard to track dollar values when it comes to things like the purchase of goods that have been researched online, or hotel rooms, which are booked online but then paid for later by credit card at the hotel.

Susan MacKeown, director of e-Visa in Canada, said that two per cent, or $2.5 billion, of Visa Canada's 2002 sales was the result of online purchases.

"While you can say, well, that's only two per cent, it's growing rapidly and becoming increasingly important. It was only half a per cent a couple of years ago."

MacKeown said that despite the shakeout of the past couple of years, e-businesses are still growing. Online Christmas sales for Visa Canada, for example, were up 100 per cent over last year.

"People are attracted to the convenience of shopping online. As our behaviour changes, we'll continue to see strong sales growth."

Coincidental with the release of the report, Cisco Systems Canada vice-president of enterprise operations Brent Rebus was in Vancouver to speak to the Board of Trade about corporate Internet adoption in Vancouver, basing much of his talk on the Canadian Net Impact Study released in November 2001.

In an interview, Rebus said that the StatsCan report concentrated on selling on the Internet did not go into the hidden significant benefits of Internet adoption to companies in such areas as customer development, service and support, administrative, accounting, supply chain and human resources.

"Selling on the Internet is only a small part of the equation. In the scenario where you have all the benefits of the Net, an organization's revenue can go up 150 per cent, even though your sales haven't gone up."

Ottawa-based IDC Canada analyst Joe Green said that e-commerce is really just getting started in Canada and will grow from here.

"I think a lot of people got fooled that it was just going to take off and never stop. It was too much hype."

Added Green: "Our data tends to agree with Statistics Canada on the uptake of e-commerce. Small businesses and too a degree medium sized businesses are not getting their heads around it and adopting as they should.

"And that, if you look at what's going on around the world, particularly with our largest trading partner, the United States, will not be good for us in the future."

Green said that the situation has improved somewhat since the Canadian Net Impact Study was released.

He said a second generation of the report would be issued in May, with the hopes that it would prompt more quick adoption of e-commerce by small to medium-sized firms.

Green said that some firms may have already dropped out of e-commerce because either they weren't getting the payback they thought they would, or they were having technical problems.

"A lot of the feedback we get from small to medium businesses is they just don't have the technical knowhow to do this properly."

networks@png.canwest.com

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QUICK E-COMMERCE FACTS:

- Twenty-seven per cent of online sales were to consumers or households.

- Thirty-two per cent of Canadian companies buy foods on the Internet.

- Seventy-six per cent of Canadian firms use the Internet, up from 71 per cent in 2001.

- Ninety-three per cent of companies with 20 employees or more use the Internet in the workplace.

- Thirty-one per cent of businesses have a Web site.

- Educational services firms were most likely to have a Web site, at 74 per cent, followed by the information and cultural industries at 68 per cent.

- Least likely to have a Web site were forestry, logging and support companies, at nine per cent.

Source: Statistics Canada

SWEDES IN THE LEAD

Canada is lagging behind in embracing the Internet, says a European study. Other nations were ahead in "e-readiness", with Scandinavia out in front. The standard of measure is "the extent to which a market is conducive to Internet-based opportunities":

1. Sweden

2. Denmark

3. Netherlands

4. United States

5. U.K.

6. Finland

7. Norway

8. Switzerland

9. Australia

10. Canada

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BY THE NUMBERS

According to the Statistics Canada report, nearly the same number of companies that use e-commerce tools are enjoying huge online revenue growth ... ... but e-commerce remains only a tiny part of all business being done.

(dollar figures are total sales, while percentage is increase in number of companies)

Ran with fact boxes "Quick e-commerce facts", "Swedes in the lead", and, "By the numbers", which have been appended to the end of the story.

© Copyright 2003 Vancouver Sun
Copyright © 2003 CanWest Interactive, a division of CanWest Global Communications Corp. All rights reserved.

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