Network: Electronic Commerce - Why the Web isn't delivering the goods

Europe's biggest-ever experiment in Internet shopping flopped disastrously, and the television companies are rubbing their hands. Mark Vernon reports

"The Internet will not be the mass retail channel that people have predicted it will be. It is really a test bed for interactive services, but mass consumer activity will be satisfied by consumer electronics, not PCs." Thus speaks John Moroney, principal consultant at Ovum and author of Digital Television: The Challenge for Broadcasting and Content.

His comments come at the same time as a report from management consultants KPMG, which analyses the dramatically poor results of the e-Christmas initiative, Europe's most prestigious Internet retail pilot to date. Although the site attracted over a quarter of a million visitors, only 225 individuals actually purchased goods, representing a minuscule one-tenth of 1 per cent of the site's users.

Moroney's argument is a perennial one, but it would seem no less powerful for that. "The Internet is driven from the technology perspective, not by broadcasting or retailing professionals. The Internet requires a hugely expensive terminal device, the PC. Broadcasters have a tool that has over 95 per cent penetration, is well accepted and easy to use."

While the Internet might claim some part in building up the demand and expectation for interactive services, it will, quite literally, not deliver the goods, Moroney believes. That mass market prize will go to broadcasters, as distributors of online services to the customer.

Apart from the economics, his conviction also rests on the vital issue of ease of use. Take, for example, a small but illuminating weather service delivered by TPS, the second largest digital satellite broadcaster in France.

A variety of local weather reports are broadcast simultaneously over a fat data stream so that a subscriber can select the one appropriate to him or her and have it appear instantaneously on the TV screen, at the touch of a button that activates the set-top box. This mode of operation is highly convenient, not only for the end-user but also for the broadcaster and all the other parties in the chain.

To drive his point home, Moroney argues that, even with a modem incorporated into the set-top box for use in service management and future developments, it would have little to do with the Internet, even in the minimalist sense of operating over TCP/IP networks. "This requires a complete change of the mind-set to a digital broadcast medium," he explains.

For example, TPS is interested in services that would use the modem, such as pay-per-view movies. The modem could be used to charge up the credits on a smart card or even take orders by credit card online. But the product, the film, is delivered best by the broadcast medium. "The Internet does have some advantages for international communications and the random access of data," Moroney concedes, "but in the service environment it is the local or national context that matters, and these other media will immediately take the advantage."

For all that, the partners of the e-Christmas initiative are resilient in their defence. "You have to learn your lessons in the emerging market," says Jolanta Pilecka, electronic commerce marketing manager at Hewlett Packard, one of the key sponsors. "It will be the same for all media, including digital TV. I believe that the Internet has a lot to offer the consumer."

E-Christmas was never intended to be judged according to return on investment, she maintains, it was an experience of education for the retailers, for the Internet service providers and for the customers.

And much was learned. The biggest stumbling block was the limited bandwidth of the European Internet infrastructure, which led to significant delays and comments such as: "I wanted to purchase something on e-Christmas, registered with a password and, when attempting to purchase it, was denied. Too bad."

This contrasts dramatically with the situation in the US, where connectivity is plentiful, fast and cheap. "Bandwidth must be fixed," Pilecka argues. "It has a serious effect on customer satisfaction."

More positive was the knowledge gained of multinational shopping, where issues such as language, currency, packaging and product returns had to be negotiated. Non-retail companies were sometimes working with merchants for the first time, and again many subtleties were highlighted as a result: merchants understand computers but not the Internet; merchants do not know how much they may sell from the Web; the value of brand against price and service is largely an unknown on the Web; attractive product packaging is hard to reproduce online.

And of course the familiar problems of security appeared again, though partners were pleased that the argument moved forward somewhat: "e-Christmas has succeeded in bringing the real issues, around the commercial transaction rather than security, to the banks' attention," says Scott Thompson, director of payment consultancy QPD. "Individual learnings from retailers were valuable, and they were happy with the soft returns on their investment," adds Pilecka. "It will help business planning for using the Internet in the future.'

However, for all the lessons learned on the way, the question remains as to the effect of such a low number of actual sales - the point of retailing. Certainly e-commerce is far from pervasive. It is a new experience for consumers. And any number of ill-defined business models currently exist in the marketplace. But one does wonder whether the e-Christmas experience might be likened to deciding that the best way to learn about supporting, designing and filling out-of-town supermarkets would be by building a prototype in the desert. I'm not sure that J Sainsbury would have been convinced.