The blackhole that is … online sales

Online shopping sales during the festive season in the U.S. totalled billions of dollars in 2000, but despite the recent influx of B2C sites in the Middle East, there simply doesn’t seem to be the number of customers willing to purchase online in the region. The question then has to asked: is it worth setting up an online store for Middle East consumers or will the investment required simply suck cash into a neverending blackhole, never to be returned?

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By  Colin Browne Published  February 4, 2001

How the model has changed|~||~||~|Sell. Sell. Sell. That’s what business has always been about; making money by selling goods. The mantra has changed somewhat in recent times with the advent of the New Economy, to buy, buy, buy. There is no difference really between the two you may say, but that is a big mistake.

Whereas you could merely display goods in a shop window and sell products easily, providing there was a market for them, with the Internet and business-to-consumer online shopping, you have to persuade customers to visit the site, browse and buy, with no sales assistant breathing down a rehearsed and persuasive sales pitch, and for that you need a pretty impressive, and probably expensive Web site.

At the same time, you could have the best online B2C site in the region, but if there simply isn’t the mindset from customers to want to buy online, then the project is doomed. This is unfortunately, the situation the Middle East is facing at the moment, at least for B2C. Business-to-business is doing well with sites such as Teraji.com and vendors such as Intel moving almost 100% of its business transactions to the Web.
||**||The odds are against success|~||~||~|According to Gulf Marketing Review, online sales (both B2B and B2C) in the Middle East for 2000 totalled US$1.17 billion, with projections of $7.21 billion in 2003.

According to Ned Jaroudi, regional sales manager, Intel Eastern Europe and Middle East and Africa, although that actual dollar figure may sound fairly impressive, the money was made in the B2B arena. “We feel that the majority of the growth is coming from B2B; from people like us selling to our customers in the Middle East, along with companies such as Cisco.”

The reasons for low B2C sales are not difficult to figure. In countries such as the UAE where home PC penetration is one of the greatest, the figure is still estimated to be lower than 30%, and other countries such as Egypt have the additional problem of being cash-poor. “A lot of the business is not B2C, but B2B in this region, and it comes back to the point that the installed base of PCs in the home is still very low in the region,” says Christoph Schell, hard copy manager for Hewlett-Packard Middle East.

Infrastructure problems across the region also have an effect on B2C sales, although this is a problem that is rapidly being solved in many countries. “There are a number of initiatives going on around the Middle East, more to do with infrastructure than actually setting up a B2C, so things are moving, but slowly,” says Mike Cullianane, business development manager, e-commerce solutions, Enterprise Solutions & Services Group, Compaq MEMA.
||**||Is it worth it or not?|~||~||~|Despite these obvious problems, it is still definitely worth setting up an online store, according to vendors and B2C sites already running, but, and this is a big but, only if businesses are prepared to invest in the infrastructure and design of the Web site and then resign themselves not make any money from the site. “It is worthwhile doing it, but don’t expect to make any money,” warns Cullianane.

“I doubt that there is one B2C that makes any money in this part of the world, but it is worth doing it so your name becomes established,” he added.

Ali Mohamad, owner of California Flowers, a florist based in Abu Dhabi has prepared for this, but at the same time remains entusatic for his online store, uae-flowers.com. “I have hope that my investment will be coming back and that this year I can break even,” Mohamad told CRN.

“I have ambitious plans for the future but I shall do it step-by-step,” he added.
It is this cautious approach that is recommended for B2C sites, although if the site is merely an extension of an already existing bricks and mortar store, the risks are somewhat diminished. “The bricks and mortar will increase confidence of any prospective customer to do business with a company online,” says Ghatfan Hillali, marketing manager, uaemall.com.
||**||What the vendors are doing|~||~||~|Compaq, for example set up its online B2C service, CompaqPlus, not as a means of gathering revenue now, but to begin the process of making end-users aware that online shopping for its products was available. “The reason we’ve driven CompaqPlus is to give customers the choice of dealing with Compaq and it is there more as a resource for customers and associate partners,” explains Karen Bell-Wright, marketing manager, Compaq MEMA.

“Although the market may not be 100% ready or 100% open, it will come and we want to be right there with it. If you put a stake in the ground now, then you create that awareness as long as you have a business plan to sustain it,” she added.

It is the lack of a business plan that causes many businesses to fail, and setting up an online store is no different. Last year, over 300 dot-com businesses failed in Europe and the U.S., and vendors in the Middle East are urging those with notions of B2C glory, to take note and make sustainable business plans.

“People in the Middle East should not fall into the same trap and make the same mistakes as those that failed last year,” says Intel’s Jaroudi.

“They should learn why this company folded, and what they can do better. I think the really important aspect is to find a niche,” he added.
||**||Carving a niche|~||~||~|Companies such as bayt.com and a stylestatement.com have found their own niches, on which they will be banking to carve a success. Finding a niche is maybe one of the most crucial elements to setting up an online store. There is not much point in a reseller setting up an online business if it offers exactly the same as all the other sites. There has to be a concept that sets it apart from other storefronts of a similar nature.

If not, then there are other ways in which resellers can make their mark in the B2C space. “For resellers I would recommend them to have a Web presence but the thing I would encourage the most is to develop the skills to help the end-users in various industries, especially niche markets,” says Jaroudi.

“Of course they can sell the products and services online, but what is their advatange over someone else?” he added.
||**||B2B and a good business plan|~||~||~|It is not only the vendors that are taking note of the opportunity available in the vertical segments, B2B companies such as Intershop are beginning to focus on vertical solutions, and are attempting to raise the levels of e-commerce in the region. “Intershop’s focus is now in building vertical expertise in retail, telco and B2B initiatives. Barriers to e-commerce do exist, but the potential has not been fully tapped yet,” says Basel Tutunji, sales director, Intershop MENA.

One of the most important lessons to be learned from the collapse of the dot-coms is that if large amounts of investment are put into developing and running a B2C site, then if anything does happen, large amounts of money are going to be lost. Judging from the lack of interest in buying online at the moment, it would seem to be a much safer bet to build up an online store slowly rather than going headfirst without studying the market. “There is still a big opportunity here as there aren’t many decent B2C’s out there and although people are not investing a great deal of money in these companies, they don’t have a great deal to lose if things go wrong,” says Cullianane.

“In Europe or the U.S., they literally invest millions, so they have a lot to lose if things go wrong, and things will go wrong because many times there isn’t a decent business case behind it,” he added.

A decent business plan for instance, would take into account and deal with two of the greatest problems plaguing the adoption of online sales—payment issues and logistics. Deal with these two issues and half the battle is won with regards to setting up a successful B2C site.||**||

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