Storming The Web In Europe

It's finally catching up to the U.S.

It's 8:58 p.m., and from Berlin to Munich to tiny Black Forest hamlets, German Internauts are booting up their PCs. Their chat rooms have been practically deserted until now. But after the two minutes it takes to make modem connections, they will be as lively as Bavarian beer halls. "There's a tremendous surge of online activity at nine o'clock in Germany," says Jack Davies, president of AOL International. Why so? It's at 9 p.m. that German phone rates drop by half.

Europeans, long cyberspace holdouts, are rushing onto the Net. It started with companies, from German auto giants to banks in the City of London, that are wiring together customers and suppliers in networks. With appetites whetted, employees are subscribing in increasing numbers to online services, which are rushing to come up with offerings in European languages. Net subscriptions in Europe are growing at 30% annually, even though high rates push up the average outlay to $75 a month--triple a U.S. rate that allows unlimited Internet access on free local lines.

Europe, in short, looks like the next growth market for cyberspace. If deregulation cuts prices, as expected, cheaper phones--or cable or satellite connections that circumvent phones--should draw consumers online. The most dramatic growth is likely to be in company-to-company electronic commerce. Forrester Research, a U.S. technology researcher with a unit in Amsterdam, predicts that online business of $1.2 billion this year will be worth $64.4 billion by 2001. "There's incredible pent-up demand," says James Richardson, president of Cisco Systems Inc.'s European operations.

Internet companies are rushing into the fray. Partnered with German media giant Bertelsmann since 1995, AOL is taking on giants Deutsche Telekom and France Telecom. When AOL purchased CompuServe Inc. in February, it nearly doubled its European base, to 2 million. In the race to wire the Continent for the Net, outfits such as Cisco and Lucent Technologies are battling France's Alcatel and Germany's Siemens. What's more, as Europe's businesses invest some $125 billion to prepare computers for the euro, they're also putting the businesses online. For Casa Gancia, a 150-year-old Italian winemaker, the Internet replaces annual communications traffic of 35,000 faxes and letters between its offices, warehouses, and agents. It is now extending the network to 60 countries.

In both home and business applications, analysts estimate, Europe is about four years behind the U.S. in cyberspace. In Germany, France, and Britain, barely a fifth of homes have PCs, while in the U.S., the figure is nearer to half. Internet usage is still just 7% in Germany, 6% in Britain, and 2% in France, compared with 25% in the U.S.

LEAPFROG. But Europe could catch up fast. It may not have to follow the U.S. through a step-by-step evolution of chips and modems, for instance. Instead, Europeans can buy their way into the state of the art. "To some extent, Europeans will move faster because they don't have to go through the pioneer stage," says William A. Etherington, general manager of IBM's Europe division.

In fact, many Europeans may skip the PC stage and jump to the Web through alternative devices. Alcatel wowed the crowd at Germany's Cebit computer show last March with a telephone equipped with a screen and built for Web surfing. L.M. Ericsson and Nokia Corp. are promoting cell phones as Web machines. "It's going to be global multimedia, and Europe's going to be in front," says Pekka Sivonen, managing director of Digital Information Architects, a Helsinki consultancy.

For many Europeans, though, the most likely path to the Net is the old telly. British Telecommunications PLC, which has teamed up with Microsoft Corp.'s WebTV, predicts that TV access to the Internet in Britain will grow from zero now to 3.5 million subscribers in four years. That's twice the number of current Net surfers using PCs. Cable & Wireless Communications PLC has hooked up with U.S.-based Network Computer Inc., an Oracle and Netscape Communications affiliate, for its autumn, 1998, digital-TV launch. As part of the new service, C&W intends to offer TV-based Internet access within the next 12 months. Says Noel E. Leslie, director of digital television for C&W: "This will be leading edge in the world."

Even as consumers sort through these choices, businesses are pressing ahead. Multinationals have been moving online for the past five years. In April,, the online bookseller, announced that it would purchase three European companies--two in Britain, one in Germany--to build European book and video sales. And to compete in a united Europe, the small fry have to catch up. Further, many of them are adopting software systems--including products by Oracle, Baan, and SAP--that virtually thrust them into networks.

EASY TO WIRE. One added benefit for businesses: They're the first beneficiaries of telecom reform. Throughout the Continent, new competitors are targeting business customers with discount services. Businesses are easier to wire and provide far greater traffic than the unwieldy consumer market. "You get to business customers with a much smaller investment," says Aldo Peterson, chief executive at Telepartner, a Danish company that discounts phone services for businesses.

The trouble for consumers is that while many former monopolies, including Spain's Telefonica, are lowering long-distance fares, they're compensating by jacking up local rates. "There has to be a balance," says Luis Lopez von Damm, CEO of Telefonica Internacional, the company's European joint venture with WorldCom Inc. In the meantime, prices continue to limit the number of Net surfers in some countries.

As long as Internet access remains pricey, online companies have to come up with applications that justify the consumers' investment. In Germany, the big draw is online banking. For decades, Germans have had to fit their lives to a cash economy and banks that are open six hours on weekdays. Online banking promises relief. Already, 3.5 million Germans do their banking electronically. Until recently, Deutsche Telekom's T-online had a lock on the market. But in March, AOL-Bertelsmann signed an agreement with 250 local savings banks and a network of regional banks that will give half those customers a choice for the first time. AOL-Bertelsmann wants 60% to 80% of the home-banking market in the next couple of years.

Europeans have long resisted the Internet as an American phenomenon of limited value. Now, as they warm to the Net, they are likely to imprint their own culture--as well as their languages--on cyberspace. And with time, maybe they won't have to wait until 9 p.m. to switch on.

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