Global E-Commerce: Europe

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The development of e-commerce across the globe varies widely depending on factors such as an area's technological infrastructure; the technological expertise of residents, which is related to both the ability of e-commerce companies to find qualified workers and the ability of citizens to engage in Internet-related transactions; funding available for e-commerce ventures; and national, regional, and local commerce regulations. In the late 1990s, e-commerce grew most quickly in North America, particularly in the U.S., due to the increasing number of Internet savvy shoppers there, as well as the world's largest base of technical experts, who not only were available to work for e-commerce ventures, but also launched their own firms in many cases. Also fueling the U.S. e-commerce boom was the unprecedented level of venture capital available from a variety of sources.

E-commerce grew more slowly in Europe for a variety of reasons. In general, Europeans proved more skeptical regarding the potential of e-commerce ventures, which meant funding was more difficult for up-starts to obtain. E-commerce players also faced many more regulatory hurdles than in the U.S. as online commerce laws varied widely across the different countries within Europe, a fact that not only dissuaded some traditional European firms from engaging in e-commerce, but also slowed the European expansion of some worldwide e-commerce giants. In addition, interactive information services, such as teletext television, also enjoyed more prominence in Europe, which undermined the novelty of the Internet for many Europeans. Perhaps one of the largest obstacles to Internet use in Europe was the cost of local phone access, which was billed by most major telecommunications firms there on a per-minute basis. Since local telephone lines provided the most common form of access to the Internet, users were forced to pay not only monthly fees to their Internet services provider (ISP), but also per-minute fees for the call as well.

However, Internet access across the continent did begin to increase in 1999, due in large part to the free Internet access offered by firms such as United Kingdom-based Freeserve, launched by European electronic retailing giant Dixons Group in September of 1998. While Internet users were still required to pay the local telephone call charges incurred while using the Internet, Freeserve did not charge any sort of premium or monthly subscription fee. The roughly $20 per month these free ISPs saved most European Internet surfers was enough to entice hordes of new users to sign up for service. In fact, roughly 16 million Europeans began using the Internet for the first time in 1999. As a result, the percentage of Europeans with Internet access grew to 13 percent. Venture capital became increasingly available that year as well. For example, French venture capitalist Bernard Amault established Europ@web, an online startup fund worth 500 million euros. French conglomerate Vivendi partnered with the Internet investment unit of Softbank, a Japanese publishing group, to form @Viso; the new venture received $100 million to expand CarPoint, Onsale, and the other U.S.-based online operations owned by Softbank into Europe. In addition, established funding firms such as 3i, Atlas Ventures, and Net Partners also began investing in European

In 1999, the number of European businesses using the Internet for sales, marketing, and other business-to-consumer (B2C) efforts grew from 53 percent to 72 percent, while the number of European firms using the Internet to conduct business-to-business (B2B) transactions, such as procurement, reached 47 percent. Despite this growth, however, e-commerce sales in Europe, which totaled $18 billion, lagged far behind the $507 billion in e-commerce sales transacted in the U.S. Europe held only a 14 percent stake of the worldwide B2B e-commerce market, compared to the 67 percent stake held by the U.S., and a only 14 percent stake of the worldwide B2C market, compared to 76 percent in the U.S.

Internet usage rates among Europeans continued climbing in 2000, as the number of European homes with Internet access jumped by 55 percent between March and October. In fact, the number of Internet users in Europe exceeded the number of U.S. Internet users for the first time. Fueling this growth was the deregulation of the European telecommunications industry, which finally forced some local phone monopolies to give local phone line access to ISPs wanting to offer unlimited Internet access for a set monthly fee, as was the norm in the U.S. For example, Freeserve was able to offer unmetered Internet access for the first time in April of 2000.

In early 2001, despite their increased Internet usage, less than five percent of European Web surfers were making regular online purchases. Regardless of these disappointing numbers, however, some industry analysts believed Europe faced a better e-commerce future than the U.S. According to E-Commerce Times writer Michael Mahoney, "It may be taking Europeans longer than Americans to gravitate toward online shopping, but the numbers also mean that European dot-coms have not had so far to tumble. With European e-commerce averaging some 18 months or so behind that in the States, the U.S. dot-com shakeout has served as a highly visible business lesson for European e-tailershelping to prevent them from making the same mistakes." In fact, a Pricewaterhouse-Coopers study released in September of 2001 revealed that 90 percent of the 400 European Internet companies it surveyed in July of 2000 were still afloat one year later, despite many predictions otherwise. Many of the firms even achieved profitability due, in part, to cost cutting efforts and the ability to alter business models based on market conditions.


The United Kingdom proved to be a leading European e-commerce arena. By November of 1999, 25 percent of adult citizens there accessed the Internet regularly. A key component in the country's online development was Freeserve, the Internet access service launched by Dixons Group in late 1998, which offered U.K. residents Internet access for free. To sign up, customers simply had to stop by a Dixons, Curry's, PC World, or Link store to pick up the necessary software. Within five months of its inception, Freeserve had signed on more than 1 million customers.

When the upstart conducted its initial public offering (IPO) in August of 1999, listing its shares on both the London Stock Exchange and NASDAQ, it had secured roughly 30 percent of the Internet market in the U.K. In early 2000, Freeserve reorganized its online content into the following channels: business, careers, entertainment, learning, life, money, motoring, news and weather, shopping, sport, travel, and women. Eventually, property and health channels were added to the site's offerings. Like free ISPs in North America, Freeserve soon realized that although the free ISP model was highly effective for securing a large base of subscribers quickly, monthly service fees were necessary for the sake of profitability. As a result, the firm introduced several fee-based subscription options in April. The least expensive service, Freeserve HomeTime, allowed subscribers to access the Internet between 6 p.m. and 8 a.m. during the week and all day and night during the weekend. For a slightly increased rate, clients could opt for Freeserve AnyTime to gain unrestricted access to the Internet. Those who used the Internet less frequently could opt for Freeserve No-Ties, which billed clients based on the amount of time they used the Interet.

Freeserve began offering a high-speed broadband Internet servicethe first of its kind in the September of 2000. Three months later, the leading online services provider in France, Wanadoo Group, offered to purchase Freeserve from Dixons. The deal was completed in the first quarter of 2001. By then, Freeserve had seen its subscriber base grow to 2.1 million, one-quarter of which had signed on for a fee-based subscription.

Late in 2000, the U.K. government took an active role in promoting e-commerce by publishing the U.K. Online Strategy. Among other things, the new plan called for increased assistance for small businesses going online; the creation of learn-direct centers, which offered various online courses and telephone help lines; and the creation of 6,000 online centers to allow for Internet access and training in various communities. In addition, the government launched its own Web site and began delivering a variety of government services online.

In addition to the e-commerce efforts coming from within the U.K., many leading U.S. e-commerce players had also began to move into the country. For example, America Online (AOL) Europe, a direct competitor to Freeserve that arrived in the U.K. in 1996, secured a base of 1 million customers there by 2001. In March of that year, AOL was able to offer unlimited online access to U.K. residents for $20 per month. Leading women's Internet portal created in conjunction with leading U.K. retailer Tesco in December of 2000. Internet auction leader eBay moved into the U.K. even earlier, launching a site there in 1999.


According to an April 2001 article in Campaign, "Germany is one of the biggest Internet markets in Europe. With 11.99 million home Internet visitors in January 2001 and a total online ad spend of 204 million euros last year (source: Jupiter MMXI), it vies with the UK as the region's largest online economy. Currently, the UK has 12.84 million home users and a market value of about 224 million euros. Between them, these two territories account for 45 percent of Europe's 943 million euro online ad market." The country's leading ISP is T-Online, a subsidiary of Deutsche Telekom, which also happens to be the largest ISP in Europe, with operations in Austria, France, Portugal, Spain, and Switzerland. T-Online boasted 6.53 million German subscribers and 7.94 million total subscribers at the end of 2000. Although sales that year grew 86 percent to 797.2 million euros, the firm posted a loss of 125 million euros. A flat-rate unlimited use package, which T-Online first implemented that year, had contributed the loss, a fact which prompted the firm to eliminate flat-rate pricing in 2001.

Germany's leading e-commerce player is Bertelsmann AG. Although Bertelsmann dabbled in various online ventures in the mid-1990s, it wasn't until a few years later that the publishing powerhouse devised a concrete e-commerce plan. In 1998, the firm acquired a 50 percent stake in for roughly $200 million to strengthen its position in the U.S. online book industry. More importantly, Bertelsmann also launched its own retail book site,, to compete with in Europe. By 2000, Bertelsmann had funneled more than $13 billion into its Internet operations. In May of that year, the firm played a role in the creation of Terra Lycos, formed when Spain's Terra Networks paid $12.5 billion for Lycos, one of the largest U.S.-based World Wide Web gateways. Bertelsmann agreed to spend roughly $1 billion on advertising and other Internet services from Terra Lycos over the next five years in exchange for access to the 50 million customers already using either Terra Networks or Lycos. The next month, Bertelsmann merged its increasingly diverse e-commerce operations into a single entity known as Bertelsmann eCommerce Group. Adding to its growing e-commerce holdings, Bertelsmann also bought online music retailer CDNOW. In a move that demonstrated its determination to emerge as a worldwide leader in e-commerce, the firm joined forces with music indexing site Napster in October of 2000, despite widespread controversy over alleged copyright infringement regarding the technology that allows Napster users to exchange songs for free.


When Socialist party candidate Francois Mitte-rand took control of France in the early 1980s, the country embarked on its first real online effort. The government-owned France Telecom distributed a settop appliance, known as the Minitel, which first operated as an electronic directory connected to a government network, to every household. According to a December 2000 article in DSN Retailing Today, "As France's networking needs evolved, the Minitel soon became Europe's first e-commerce channel, offering travel packages, concert tickets, hotel reservations and messageries, the precursor to the present-day chat room." Although France made early use of online technology, its widespread adoption of the Minitel was seen by many as a long-term liability that prevented the nation from embracing newer e-commerce technology. "By distributing the Minitel to virtually all of France, France Telecom had created a market standard within the countryand a limited one at thatwhich for better or worse was in large part responsible for the late arrival of the World Wide Web in that country."

France Telecom launched Wanadoo, an ISP, in 1996, the same year that AOL first began offering online services to residents of France. Five years later, in an effort to become one of the top three ISPs in Europe, Wanadoo acquired the leading U.K.-based ISP, Freeserve; the purchase boosted Wanadoo's subscriber base to nearly five million. Other leading e-commerce ventures in France included, the online version of the 50-store bricks and mortar chain selling book, music, and electronics throughout France. eBay moved into France in 2001 when it paid $112 million for iBazar S.A., a French auction site with 2.4 million users and operations in Belgium, Brazil, France, Italy, the Netherlands, Portugal, Spain, and Sweden. Online efforts by major French companies such as Louis Vuitton S.A. also continued to bolster e-commerce throughout the nation.


Ireland has also emerged as an e-commerce leader in Europe. In 1999, wanting to foster competition and growth in the emerging Internet-based markets, the Irish government deregulated its telecommunications industry and privatized its state-owned telecommunication monopoly, Eircom. The government also forged an alliance with Global Crossing to construct an underwater fiberoptic cable that would enhance the speed and capacity of the country's existing telecommunications infrastructure. These efforts attracted the attention of several high-tech firms, including Hewlett-Packard Co., which opened a European Outsourcing Center in Dublin in December of 1999. At roughly the same time, Novell Inc. transformed Novell Software Ireland Ltd., based in Dublin, into the home base for its European, Middle Eastern, and African e-commerce activities. In addition, Dublin also gained a new Oracle Corp. e-business center; an AOL development center, the only such center outside of the U.S.; and the Massachusetts Institute of Technology MediaLab Europe, the first international arm of the world renowned technology-based research lab.

The Irish government passed an e-commerce bill, covering such issues as electronic signatures and online contracting, in July of 2000. A few months later, Sun Microsystems, Oracle, Cisco, and Wolfe Group joined forced to create, a small business service designed to help Internet-based startups in Ireland for significantly reduced consulting fees. eBay made its way into Ireland in March of 2001. That year, the Irish government earmarked 75 million euros for broadband network developments throughout the country.


A major concern for businesses engaged in European e-commerce is pending legislation, called Rome II, that would grant legal authority for resolving cross-border e-commerce disputes to the country in which a consumer lives. According to a July 2001 E-Commerce Times article, "Rome II, if enacted as is, has the potential to stunt the growth of international e-commerce. We are talking about stunting the growth in a way unlike any other issue from tax debates to security glitches." Critics of the legislation believe it would dissuade many companies from expanding into Europe, due to the costs and complexity associated with understanding and complying with such a diverse group of regulations. The outcome of this proposal, expected to be subject to a vote by the European Commission by the beginning of 2002, along with the continued rate of telecommunications deregulation within European countries, will factor significantly in the future of European e-commerce.


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SEE ALSO: General Usage for International Digitally Ensured Commerce (GUIDEC); Global E-commerce Regulation; Global Trading Web Association; Safe Harbor Privacy Framework

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