International Business: E-Commerce
American E-Tailers Take Europe by Storm
Companies such as Amazon.com and Yahoo! are pulling ahead of the locals
Discarded computer boxes are stacked outside the sparkling glass office complex in the Paris suburb of Guyancourt. Inside, dozens of fresh-faced workers toil in secret, preparing to launch an e-invasion. This is the French headquarters for Amazon.com Inc., the U.S. e-tailer of books, compact disks, and more. The American pioneer still hasn't announced when it will open for business in France, but Amazon could well turn the country into its latest European conquest.
After a slow start, U.S. e-commerce giants are taking Europe by storm. Yahoo! is the Continent's leading portal, with about twice as many visitors as Deutsche Telekom's T-Online, the leading European Internet service provider and portal. Auctioneer eBay Inc. has $87 million in sales--eight times more than London-based QXL, it's closest rival. In a recent report, industry analyst International Data Corp. says Amazon's European sales are more than five times those of Bertelsmann's BOL Ltd., its closest European competitor. "The conventional wisdom that Americans couldn't localize their product in Europe has been proved wrong," says Christian Asmussen, the report's author.
It's a stunning reversal of fortune. Only a year ago, European Net entrepreneurs were giddy with confidence. They planned to beat back U.S. competitors by moving faster into markets they understood better. Initial public offerings were the talk of London, Amsterdam, and Paris. Startups such as Britain's Boo.com, Freeserve, and lastminute.com seemed destined to be tomorrow's cyberstars.
But today Boo has gone broke, Freeserve is on the block, and lastminute's stock is sagging--all while American dot-coms soar. Even America Online Inc., which had stumbled in a venture with Bertelsmann, has more visitors throughout Europe than T-Online and is ranked No. 2 in both Britain and Germany. The result is a new hierarchy in Europe. At the top are the phone giants, Deutsche Telekom and France Telecom, which are able to leverage phone systems to build the leading ISPs. But it's the Americans alongside these titans who are the first continental players--a crucial advantage as Europe's industry consolidates.SMALLER POCKETS. Why the realignment? Europeans are financially weaker than the Americans. Their brands are works in progress, and some have stumbled across borders, investing too much in tiny markets. The correction in tech stocks earlier this year froze some out of the capital markets. "When the correction hit, a lot of companies became vulnerable and had to put themselves up for sale," says Fabiola Arredondo, managing director of Yahoo! Europe.
There's more to come. European e-tailers now face a nasty shakeout. Many are rushing to partner, merge, or sell out. Some, such as QXL, which recently spent nearly $1 billion to acquire German auction site ricardo.de, are bulking up to fend off the invasion. T-Online has expanded outside its home base by taking over France's Club Internet and is flirting with Britain's Freeserve. But the Americans are buying, too: Amazon, for example, has bought online booksellers in Britain and Germany.
When the dust settles, Europe's cyberstars will consist of a handful of names. T-Online and France Telecom's Wanadoo probably will remain top players in their home markets. Mobile operators such as Vodafone and Airtouch PLC could grab a big share of the emerging wireless Net business. Even some local mail order houses or conventional retailers with strong networks, such as FNAC, which is also France's No. 1 online bookseller, have a fighting chance. "We have a very deep knowledge of our customer base," says CEO Jean-Paul Giraud.
But that's not stopping the Americans, which see the Old World as a new opportunity. Although Europe's e-commerce revenues, at $5.4 billion last year, are one-sixth of U.S. levels, growth is likely to prove explosive. Forrester Research Inc., the Boston consultancy, predicts that triple-digit expansion will push total e-business in Europe to $1.6 trillion by 2004. Americans know how to exploit such booming markets, thanks to their experience at home. "The Americans have a two-year head start," says Terese Torris, Forrester's research director in Amsterdam.
It's a big lead, indeed. U.S. e-tailers have been able to transfer cutting-edge technologies across the Atlantic, all in a piece. SmallWorld.com Inc., a New York maker of online games, launched a British football site in July. "Once we built the engine for American baseball, it wasn't hard to build a similar one for English soccer," says CEO Mark Jacobstein. SmallWorld didn't even open a London office: It found lots of soccer-crazy programmers in Manhattan.
While U.S. companies have their critics, retailing expertise honed at home is translating well. Amazon's British site features CDs by local singers, but the back office, distribution, and marketing are imported. "We can adopt about 80% of our American business model," says Steve Frazier, managing director in Britain. Amazon added 400,000 British customers in the first quarter of 2000, increasing revenues 210% from the year before, to $45 million. American e-biz stars also benefit from strong brands built up in the U.S. In the nine months since eBay opened in Europe, it has already surpassed QXL in audience--in Germany and Britain--and will take on France next.TIGHT FOCUS. Focus is another theme among the Americans. More than 80% of European e-commerce is in Britain, Germany, and France. While QXL is active in 11 countries, eBay is only in Germany and Britain. "You're not going to get scale by being No. 1 in Norway," says Michael van Swaiij, eBay's European managing director. At the same time, Americans don't dominate in any one country. Yahoo! ranks No. 2 or 3 in the eight European countries where it operates, which makes it No. 1 overall.
The battle isn't over. Some U.S. players will not make the grade. For others, a crazy quilt of consumer laws could hurt. But some hurdles may hamper European entrepreneurs more than Americans. Many countries prohibit discounting books, for instance. The practice leaves online booksellers to compete on service, says IDC analyst Asmussen. That gives Amazon, with its reputation for quick delivery, another competitive advantage.
From now on, Americans are likely to eschew the joint venture strategy some first tried. Online broker E*Trade Group Inc. sold four franchises when it crossed the Atlantic in 1997. Now, with a European headquarters in Stockholm, it is buying out most franchisees. "We have the money to control our destiny," says Johan Brunner, E*Trade Europe's president. And to conquer the continent.By William Echikson in Brussels, with Carol Matlack in Paris and David Vannier in GuyancourtReturn to top