European Net companies brace for competition

Rapid growth in the number of Europeans who have Web access is spurring an arms race among U.S. and domestic e-commerce companies.

Kim Girard

Kim Girard has written about business and technology for more than a decade, as an editor at CNET News.com, senior writer at Business 2.0 magazine and online writer at Red Herring. As a freelancer, she's written for publications including Fast Company, CIO and Berkeley's Haas School of Business. She also assisted Business Week's Peter Burrows with his 2003 book Backfire, which covered the travails of controversial Hewlett-Packard CEO Carly Fiorina. An avid cook, she's blogged about the joy of cheap wine and thinks about food most days in ways some find obsessive.

See full bio

Kim Girard

Jan. 2, 2002 4:43 p.m. PT

4 min read

Rapid growth in the number of Europeans who have Web access is spurring an arms race among U.S. and domestic e-commerce companies.

London-based Virgin Group, owned by English entrepreneur Richard Branson, recently announced a $248 million project that will connect the company's many businesses--a diverse list that includes music, airlines, autos and financial services. In March, the $5 billion company will introduce its first new e-business, offering European Union cars for sale online in the United Kingdom.

Virgin is just one of many European and U.S. companies that are seeking to establish a beachhead in a rapidly growing market--nearly 50 million Europeans have access to the Web, a gain of 17 million in the past year.

With 17 countries, Western Europe represents the world's largest potential online trading block, which Forrester Research calls an awakening giant.

Virgin Group, which said yesterday it will pay services company iXL about $50 million this year to expand its portal, is of course not the only company targeting Europe. Amazon.com, eBay, Barnesandnoble.com, eToys, AOL, Excite, MSN, Dell and many others are moving quickly into Europe, where online transactions are expected to reach $1.6 trillion in value over the next five years, up from about $36 billion last year.

Some 14 million European Net users are expected to start shopping online this year, according to Jupiter Communications. Net usage is expected to quadruple to 50 million European households by 2003.

Seattle-based Web retailer Amazon, which has launched local sites in the United Kingdom and Germany where it sells products and hosts auctions, announced yesterday that it plans to sell 600 million euros ($586 million) worth of convertible notes.

In a recent analyst call, Amazon executives said that the company doesn't plan to open another distribution center in the United States anytime soon, but did not rule out European expansion, where the markets in Germany, Sweden and the United Kingdom are growing fastest.

Feeling the heat from U.S.-based companies that are expanding overseas, companies in Germany, England, Sweden and France are moving quickly to protect their turf, though many have already established businesses, including Nordic company Boxman, the largest European CD seller, and Sweden-based software reseller Buyonet.

Watch video

"We're definitely seeing a flurry of initiatives in Europe," said Forrester analyst Therese Torris, who recently completed a study of the European Net economy. "We can see very clearly that companies are moving from talking to acting."

Driving Web growth is a decline in telecommunications costs and ISP fees, in many cases by 50 percent.

Although European companies have been selling online since about 1995, most attention within the European market so far has focused on the battle for dominance among local ISPs and U.S.-based companies America Online, Yahoo and Microsoft's MSN.

Amazon, the top Net retailer in the United States, started auction services and shopping malls on its Web sites in Germany and Britain before last Christmas. Amazon launched music sales in Europe last October and set aside a section on its Web site for British and German users to list auction items that could be sold to any of its 13 million users worldwide.

Amazon also faces auction competition abroad from Yahoo, eBay, and European companies QXL and free Net access provider Freeserve.

Meanwhile, eToys, which sells children's books, toys and video games, launched its U.K. Web site in time for last year's Christmas shopping season, using the site as the first step in its European expansion.

eToys, which competes in the United Kingdom against London-based Toyzone, has targeted what it sells on the U.K. Web site toward British consumers and has built a distribution center just outside the city, spokesman Ken Ross said. eToys plans to launch a site for another European country this year.

Ross said eToys, which reported $107 million in sales for its third quarter, hasn't broken out its U.K. sales, but added results "exceeded expectations."

"A unified (European) market is 320 million people," Ross said. "We see this as a very, very significant opportunity for us."

While many U.S.-based companies are moving quickly to take over European markets, Nick Jones, a London-based analyst with Jupiter Communications, said this could be the year that European retailers, armed with better e-commerce software and more market savvy, catch up.

For example, "eBay has lost its momentum in Europe because of (European auction provider) QXL," Jones said. "QXL has moved in multiple markets and stole the thunder of eBay to a degree."

Jones said Amazon established itself in Europe by buying local bookstores and rebuilding them online as Amazon.co.uk and Amazon.de for Germany. Meanwhile, competitor Barnesandnoble.com, which is owned by German media giant Bertelsmann and Barnes & Noble, has expanded into Spain and France.

Although U.S. companies have more experience online, they will increasingly face the pressure of fulfilling orders abroad as sales escalate, leaving a large opportunity for smaller, local firms, Jones said.

"If you want 500 TVs you'll need to go to the (local) supplier," he said. "It (will be) a real touch-and-go battle" between the locally based and international companies.