Europe Hits The E-Mall
Sabine Krüger is no Internet newbie. The Frankfurt-based financial-communications consultant uses e-mail and search engines constantly and scours online travel sites for bargain vacations. But it wasn't until a few months ago that she got sucked into the addictive pleasure of online marketplace eBay. Shown the site by a colleague, she started bidding on antiques and found herself checking constantly on her progress. "I got completely hooked," Krüger laughs. Eventually, she scored three pieces of furniture and decided to take a break. But she still browses eBay to look for deals and compare prices.
Krüger, 46, has lots of company. Ebay's giant German Web site attracts 17.4 million visitors every month -- up 20% in the past year -- who spend an average of more than two hours a month there browsing and bidding, according to researcher Nielsen//NetRatings. Growth is even faster in countries later to get on the Net: Since May, 2003, eBay's traffic has soared 51% in France and nearly doubled in Italy. The company's international Net sales in the first quarter of 2004 jumped 91% from a year earlier, to more than $300 million. "Europe is a particularly fertile area for us," says William C. Cobb, senior vice-president for international at eBay, who predicts that the company's European business ultimately will equal that in the U.S.
Welcome to the Euro Web, 2004 edition. With Internet connections and broadband penetration growing across the continent, Europeans are finally starting to get serious about buying online. Researcher IDC figures there were 67 million Internet shoppers in Western Europe by the end of 2003, and they spent $20 billion in the fourth quarter. Amazon.com alone sold more than $2 billion of merchandise outside the U.S. last year -- an estimated three-quarters of it in Europe -- and will open a new Scottish distribution center later this year. By the end of 2004, IDC predicts, nearly a quarter of all Europeans will shop the Net.
Other types of Web sites are flourishing, too. In the past year, European visitors to search engine Google, which now supports 97 languages, surged 65%, to 62 million a month. Microsoft's MSN portal, available in 14 languages across 19 European countries, saw 72% growth, to 61 million visitors, says Nielsen. Travel giant Expedia just fired up new Web sites in France and Italy. And European online advertising is expected to top $3.2 billion this year. "Despite the boom and bust of the dot-coms, Internet usage has continued to grow the whole time here," says Geoff Sutton, European general manager at Microsoft MSN Europe.
For European policymakers eager to promote an Information Society, there's just one let-down in this new Internet love affair. Most of the top online brands in Europe are American companies that have parlayed easier access to capital and success in their home market into dominance of the European Web. "There's no European equivalent to Yahoo," says Olivier Beauvillain, an analyst in the Paris office of New York-based Jupiter Research. True, in the heady days of the boom, Europeans dreamed big and launched ambitious local ventures such as e-tailer Boo.com. But those outfits are long since defunct.
ECONOMIES OF SCALE
Now the Americans are picking up the pace. German Web portal Web.de has 11% more monthly visitors than it did a year ago -- but over the same period, MSN's German-language site has piled on 56% more traffic and moved far ahead of its local rival. Top Italian portal Virgilio's traffic is up 10%, but second-place MSN Italy has grown 70%. Credit that in part to lots of local content and features. In Germany, MSN gets news and online features from publisher Tomorrow Focus, while in Italy, the shopping section is provided by Milan-based Costameno.it. MSN's British site lets subscribers order groceries online through Sainsbury's supermarkets.
At the same time, the big American players enjoy huge economies of scale. Microsoft's deep pockets help it fund more aggressive marketing than national rivals can afford. But MSN, Yahoo, and Amazon also are able to develop core technologies such as personalization, Web e-mail, and instant messaging and then spread them across dozens of markets. "We think it will be increasingly difficult for local competitors to develop new services," says MSN's Sutton.
To be sure, there are a handful of European Web giants. Wanadoo, owned by France Telecom, pulls in 22.4 million visitors a month, while Deutsche Telekom's T-Online draws 15.8 million, says Nielsen. But these and other top European portals get most of their traffic from one or two big markets. Besides, the bulk of their revenues come from online access fees that aren't growing as fast as Web advertising and services. Wanadoo's first-quarter revenues, for instance, hit $775 million, up 12.2% from a year earlier. But Yahoo! Inc.'s international revenues, mostly from advertising in Europe, surged 257%, to $159 million.
That's setting off a scramble by American companies to lock in their lead. Ebay has just opened a new operations center in Ireland for its PayPal Inc. online-payment subsidiary that could eventually employ 800 people. Google also is adding workers at its Irish hub and other European offices. And investment bankers are combing the continent for acquisition candidates. Yahoo plunked down $577 million in March to buy Kelkoo, Europe's largest shopping-comparison site. Expedia recently acquired French travel site Anyway.com. On June 22, Seattle digital-media company Loudeye Corp. paid $20.7 million for Europe's largest digital-music provider, Bristol (Engand)-based OD2.
Of course, Europe can sometimes dish out unexpected difficulties to American companies. Amazon.com's overall European sales are still growing, but it is facing fierce competition in France from local champions FNAC.com, Cdiscount.com, and Wanadoo-owned bookseller Alapage. In the past year, FNAC's monthly traffic has grown 35%, while Amazon's has plunged the same amount. Analysts say FNAC and other French-owned companies benefit from familiar brand names and, in some cases, better selection or lower prices. On June 29, word leaked out that Amazon will cut up to three-quarters of its 70 French headquarters employees and move their work to Britain or the U.S. The company says it is "still committed to creating a viable and competitive business in France" and is maintaining its distribution center near Orleans.
That's a rare stumble. For the most part, the Americans have succeeded by hiring local management, customizing their sites, and signing up local media partners. "You can't pilot everything from California," says John E. Marcom Jr., senior vice-president for international operations at Yahoo Europe. At the same time, he and other managers at Europe's big American Web sites remain convinced that they enjoy an unbeatable advantage thanks to their global scale. For European entrepreneurs, that probably signals the demise of any dreams of building their own Web giants. But the millions of consumers flocking to American-owned Web sites don't seem to care. They're just happy to be getting great deals.
By Andy Reinhardt in Paris, with Robert D. Hof in New Orleans