InformationWeek: The Business Value of Technology

October 23, 2000

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First Stop On The Road To E-urope

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More on global E-business:

sidebar: UK Auction Site Takes On Europe And eBay sidebar: Utilyx Sets Sights On B-to-B Market SAP Apps Join Database Server On IBM S/390s (8/21/00) TechWeb: AOL Braves Britain's Free Internet Market (9/20/00)

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Like the business-to-business phenomenon in the United States, U.K. companies are scrambling to create online marketplaces in hopes of stripping out procurement costs and driving down prices. Hence, online marketplaces dealing in everything from quotas for milk production to IT products and services are growing in number. Band-X Ltd., for example, trades in telecommunications capacity, while Utilyx Ltd. aims to facilitate business purchases of energy, gas, water, and telecommunications.

For some E-marketplaces in the United Kingdom, savings have been considerable. When energy company National Power plc installed a Compaq E-procurement system built on Infobank International Holdings plc's InTrade software, it estimated that the cost of processing an order dropped from about $80 to $14.50. Once back-office systems are integrated with the E-procurement system, National Power calculates the cost will drop to about $2.90.

But experts say the United Kingdom trails the United States. "The U.K. subsidiaries of many international companies have been tasked with looking at online markets, but there really isn't the impetus yet," says Paul Bessant, operations director at the European E-commerce Association. "The most advanced tend to be companies with U.S. links, where the market is 18 months further down the line than here."

Still, big savings are making it tough not to try E-marketplaces--propelling their growth in the United Kingdom. "When CEOs are faced with that kind of reference data, it's very difficult for them to face their board of directors and say no,'' says Graham Sadd, CEO of Infobank.

British Prime Minister Tony Blair has pegged E-commerce as a major policy area. Blair says E-commerce is good for the economy, and it fits well with his goal of modernizing British society. Early in his administration, he appointed an E-minister, Patricia Hewitt, who was specifically assigned to take charge of online matters.

Hewitt's job is to oversee E-commerce development in the United Kingdom and to ensure that the government gets its own online act together. She has a background in social issues--she worked for a lobbying group called the National Council of Civil Liberties--and also gained practical business experience working for Andersen Consulting.

"We're working hard to make the United Kingdom one of the most exciting knowledge-driven economies in the world, and one of the best places to do E-commerce," Hewitt said to a business audience during a recent trip to Taiwan.

The British government is also eager to promote E-business outside London. In Wales, there are already 600 software companies and 120 Web-design companies, according to the Welsh Development Agency. BT, the United Kingdom's biggest telecom carrier, has located its main development center in Cardiff, Wales, employing more than 500 engineers focusing on Internet and Web development.

Scotland, once an area of heavy industry, has created a Silicon Valley counterpart, known as Silicon Glen, between Glasgow and Edinburgh. IBM, Intel, Motorola, and Sun Microsystems have set up plants north of England's border in an area that has the U.K.'s biggest concentration of semiconductor manufacturing. The Scots have been quick to adopt E-commerce: A greater proportion of businesses in Scotland--29%--trade online than those in the rest of the United Kingdom.

There are other initiatives designed to boost E-commerce. At the top of the United Kingdom's technology agenda is telecommunications. The government is opening up the telephone network's local loop to competition. By next year, rivals to BT are expected to offer high-bandwidth DSL services over local networks.

Also, telephone charges for accessing the Internet are coming down. Internet service providers are starting to pick up the tab for calls to local access points, either charging customers a flat monthly fee for telephone time or waiving the cost of connection altogether.

Nonetheless, Britain's new economy has growing pains. Delays in completing the liberalization of the telephone network, shortages of skilled workers, and the financial downturns of several dot-coms all threaten to inhibit growth.

Despite increased competition between telcos and ISPs, progress is slow. Suppliers such as Microsoft and Energis plc accuse BT of deliberately dragging its heels to give its own high-bandwidth asymmetric digital subscriber line service a head start.

With a shortfall of about 1.7 million workers in the IT industry in Western Europe this year, the United Kingdom is struggling to find enough tech-savvy people, according to research firm International Data Corp. In addition to stepping up efforts to train workers, the country is turning to offshore programming centers such as India and has relaxed immigration rules for those with needed expertise.

"We have a lot of people with a lot of enthusiasm, but not enough with leading-edge experience," says David Rippon, IT director of property company Land Securities plc. Rippon is developing E-commerce applications for his company and says that while Visual Basic and Microsoft skills are relatively easy to come by, Java know-how is much scarcer.

Julie Meyer, co-founder of Internet-entrepreneur networking group First Tuesday, agrees. "We don't have that deep bench of talent because the business is so new," she says. First Tuesday is a networking channel for Internet entrepreneurs and venture capitalists. Venture capitalists have funded hundreds of new Internet businesses in retailing, travel, online marketplaces, software, and services. But a downturn in stock prices in the early part of the year undermined confidence and frightened investors.

Several high-profile U.K. dot-coms also ran into difficulties. One of the most highly publicized failures was the closure of fashion retailer Boo.com, which is making a comeback next week under new ownership. The company had spent heavily on complex technology so it could display its hip line of clothing. Industry experts also pointed to inexperienced management. But others say the simple truth is Boo.com and other online ventures have found it difficult to generate profits. A gloomy report from PricewaterhouseCoopers points out that one in four U.K. Internet companies will use up their cash reserves in the next six months, while the majority will run out of money within 15 months.

The difficulties may have taken the gloss off the sector, but many say a more realistic approach was long overdue. "I'm cautiously optimistic," says Meyer. Smaller startups have learned from their predecessors' mistakes and are forcing the larger E-commerce ventures to sit up and take notice. U.S. companies should take notice, too. Despite its slow start, Europe is starting to erode the United States' lead in E-commerce. To get in on the ground floor, the time is right to consider launching European business operations--and the British Isles have many advantages in geography, culture, and business climate, as well as governments who are eager to encourage E-commerce adoption.

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Photo of Meyer by Philip Ryan
Illustration by Noah Woods

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