In contrast to gloomy stories of dotcom failures, consumer e-business in Asia is booming, the Boston Consulting Group (BCG) reveals in its latest report, "Digital Dragons". Business-to-consumer markets in the Asia-Pacific are still growing by more than 100% per year, driven mainly by the online activities of large established consumer companies, the report shows.
It goes beyond the dotcom shakeout to reveal what is actually happening with B2C (business-to-consumer) in Asia, identifying the drivers of growth and the success factors of Asia's "Digital Dragons" - BCG's term for large consumer companies with active offline and online channels.
BCG's key market findings include online B2C revenues have more than doubled in 2000, accounting for US$6.8 billion across the region, and they were set to double again in 2001, reaching US$14 billion. The authors also forecast a yearly increase of 36% in the number of people online in the Asia-Pacific, leading to an internet population of 245 million users in 2004 - up from the current 98 million users.
"The focus on dotcoms has diverted attention away from the fact that business-to-consumer markets in Asia are actually booming. Our research found 81% of online B2C revenues in Asia are generated by large established companies," says David Michael, vice president at BCG's Hong Kong practice and one of the report's three co-authors.
"Digital Dragons" identifies three "killer categories" in Asia's online B2C market: financial brokerage; computer hardware and software; and travel. In 2000, financial brokerage was the biggest "killer" category with commission revenues of US$1.57 billion (up 121% from 1999). Sales of computer hardware and software reached US$1.38 billion (up 75%), while online travel sales accounted for US$980 million (up 188%).
BCG's authors interviewed the e-business managers of more than 100 leading Asia-Pacific companies and discovered that most remain optimistic about the future growth of their online consumer channel.
"Our findings clearly show that there has been no turning back on the internet revolution and many leading Asia-based consumer companies believe their online channels are vital to reaching out to their customers" says Nikolaus Lang, project leader at BCG's Kuala Lumpur practice and co-author of the report. "But their biggest challenge remains: How to use these channels more effectively to cut costs and create new revenue streams?"
BCG's report shows that financial services providers across the whole Asia-Pacific region expect 20% of their customers will mainly transact online in three years' time (for example, funds transfer and stock trading). Telecoms expect that more than 10% of their current customer base will transact online in 2004 (for example, electronic bill payment). Airlines and tour operators believe that about 10% of their customers will mainly buy tickets and book hotel rooms online in three years' time. Utilities have lower expectations, but are still confident that a significant proportion of their customer base will transact online.
For consumer markets, the most significant long-term impact of the internet will be how it changes the way large companies interact with their customers. Their customer relationships can no longer be just about buying and selling. This is particularly relevant for industries characterised by information-intensive relationships with large customer bases, such as financial services, airlines, telecoms and utilities.
BCG believes that to maintain consumer loyalty and build brand awareness, Asia's large companies must make more effective use of their online channels. Doing so will help these Digital Dragons build new revenue streams, such as through the creation of specialised online offers, and cut costs, for example, through the full automation of all online-related processes.
The report stresses that seven distinct challenges must be overcome if large Asian companies are to develop an effective online channel management:
The report says B2C in Asia-Pacific will probably be influenced by three major developments, all of which will have a strong impact on the strategic positioning of Asia-Pacific's large companies online.
Firstly, as online penetration reaches more than 50% in the region's developed countries by 2004, more and more large companies will face a customer base where at least one out of two of their customers will be online.
Secondly, the online adoption of non-sales-oriented transactions (such as bill payments) and information-related interactions (such as checking flight schedules) will increase significantly over the coming years. This suggests that large companies - even in industry sectors without typical retail sales processes - can migrate most of their customer interface online.
Thirdly, after the demise of many web-based retailers, the online strategies of multi-channel players will focus on developing long-term strategies that create new revenue opportunities.
These developments suggest that the region's large companies now need to re-align their online activities with their traditional business objectives. Value creation through winning incremental revenues and/or cutting costs should be paramount in every online strategy.
BCG believes that, in the long term, successful companies must:
- Aggressively cull and update their online initiatives, recognising that they must strongly find ways to cut costs and find new revenue streams if incremental value is to be realised.
- Determine clearly which customer segments and interaction types would be most profitable when migrated online in order to gear their online activities towards them.
- Build long-term relationships with value-creating customer segments to increase penetration of those segments.
- Address current technical problems to ensure that customers enjoy the real advantages of the online channel.
- Improve the end-to-end customer experience to build loyalty to the online and offline channels.
- Manage all channels in an integrated way to turn the risk of conflict and cannibalisation into sustainable co-operation.
- Align closely their e-business operations with the rest of the organisation to ensure that synergies with offline assets are effectively realised.