KPMG moves to smash e-myths

Graham Oates, head of solutions at KPMG Consulting, speaking at a conference in Stockholm, commented:’The myths that are currently generated about e-business are based on thedramatic change brought about by companies’ increased use of the internet inthe last five years. This e-revolution has shown how organisations can berun to different rules. But, eventually, the classic rules of business willreassert themselves in this virtual environment and the winners will be theones that did it first, and did it best.’

Graham Oates went on to outline his “top five myths” surrounding e-businessand the truth behind them:

Price dominates customer decision making – as customers online have,in theory, unlimited access to information about sellers, price is assumedto be the dominant factor in purchasing decisions and e-commerce is assumedto become a guarantee of deflation. But this is not so! The brand,performance of the product and the quality of the service will still remaincore to many decisions in purchasing.

The internet is borderless – while the internet itself may not beconstrained by physical borders, the products themselves still need to bedelivered. This can involve exporting and importing goods across differenttrade barriers and must take into account differing government legislation.For instance, a UK company may be able to access a US pharmaceutical website and order goods, but not all drugs/medicines that are legal in the USare legal in the UK, restricting imports.

Barriers to entry are low – starting up on the internet isrelatively easy to do at the moment, but, with so many existing firms andnew market entrants entering this medium, the issue will not be one ofsetting up online, but of finding the niche in the market to make an impact.Space dominance will deter competition; those companies who establish apresence now will be in a far better position than those who join later.

The middleman is dead – where e-commerce results indisintermediation, the middleman – usually the distributor – is assumed todisappear. But where one species disappears, another is formed; in thiscase the ‘infomediary’. Placed between the supplier and the end-consumer,the infomediary’s role will be to find both products for buyers and to findbuyers – or potential buying groups – for sellers.

Internet businesses never make money – The reason why many internetbusinesses are not currently making money is because the people who own themdon’t want them to make money. The current remit of Internet business is toachieve scale and acquire customers. This matters more than profit at theoutset, as the incremental cost of the incremental transaction isnegligible. This does not mean, however, that they will always lose money.Once the scale has been achieved, the profits will appear.

Graham Oates concluded: ‘The growing trend to ‘e’ everything in business issweeping companies along a tidal wave of new technology, ways of marketingand channels to market. But, sooner or later, this wave will break. At thesame time, the myths that have been formed around e-business will diminishas organisations reach their goal of performing in a virtual marketplace butone in which many of the traditional laws on economics will continue to holdsway.’

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