E-commerce companies hoping to peddle their goods to the European market should set their sights on Germany, a new report said.
According to a study by research firm Jupiter Communications, Germany is slated to become Europe's cash cow for online sales into the next millennium. Factors that contribute to this conclusion include Germany's economy and a population that is inclined to spend its disposable income on leisure goods and services.
But the study also noted that companies making their mark in e-commerce such as Amazon.com and CDnow could be better positioned to reap the benefits than European firms trying to establish themselves on the Internet.
The study showed that Germany will maintain its e-commerce revenue lead over France and the United Kingdom by 2002 in retail areas including air travel, books, music, and software. The study estimated that revenues for the aforementioned categories will reach $782 million, $674 million, $216 million, and $174 million, respectively.
"The obvious message is if you're looking to trade in Europe, Germany should be one of your prime targets," said Phil Dwyer, managing director for Jupiter's European Internet Strategies group. "In terms of sheer market volume, Germany is the key European market."
European companies hold an advantage over their American competitors because of they face fewer language barriers and they have a better understanding of their native markets. European companies are also in a position to leverage their brand awareness when shifting their retail outfits online.
Dwyer pointed out, however, that many European companies have not completely grasped the Internet's dynamics. Instead of making distribution deals with high-profile portals to boost traffic to their commerce sites, many European companies have relied primarily on their brands to spearhead their Web efforts.
"They think it's enough that they have the brand and put it online," he said. "They have put their stores online, and as far as they're concerned, that's the response required to the threat from Amazon.com and CDnow."
Dwyer sees the portal as being the key for European companies to maintain a foothold on the Web. But because of their reliance on their brand instead of distribution, most of these portal deals have been inked by U.S. companies instead of local ones.
Of the four industries, books are expected to show the greatest revenue in online sales beyond 2002, Dwyer said.
An additional factor for the optimistic outlook on Germany's potential as an e-commerce pot of gold may be the deregulation of Germany's telecommunications industry. Since Deutsche Telekom has traditionally held an iron grip on the country's Internet access, the opening up of Germany's telecommunications industry will likely introduce more competition to the market, and could subsequently drive down access fees. That could allow more consumers to go online to purchase goods and services.
Many U.S. companies have already risen to the occasion. Online services such as America Online and CompuServe as well as Internet service providers such as PSINet have made concerted efforts to lure users. As an illustration of the market's potential, AOL's largest European venture is AOL Germany, a joint venture between the Dulles, Virginia-based online giant and Germany's Bertelsmann.
Besides Amazon.com and CDnow, travel sites such as Travelocity and Microsoft's Expedia are among a spate of services expected to push into the German market by partnering with local portals or making acquisitions of local companies.
Dwyer's advice to European companies waiting in the wings: Act now.
"They haven't understood how much the e-commerce business is driven by portal tendency deals," Dwyer added. "Portal tendency deals are snapping up positions by U.S. e-commerce sites. Once [music retailers] HMV and Virgin realize they're losing out, they'll be too late."