The internet retail boom waiting to happen

When a senior figure at Google turns up to speak to an audience of MBA graduates, you expect a big turnout. And sure enough, the event organised by the INSEAD alumni association in London and consultancy Eden McCallum on 5 Feb, was sold out.

by Morice Mendoza, World Business editor
Last Updated: 23 Jul 2013

The speaker was Nikesh Arora, VP of European operations for Google. His message was that there was huge untapped potential on the internet for retail business. His key statistic was that 63% of consumers who purchase products are influenced by what they see on the internet.

Think about your latest purchase over £1,000, he asked the audience. Not many hands went up, but the point was well made. The likelihood is that the last big purchase people made such as a computer or a car was done so after searching the net. In other words, the influence of the net is far greater than the actual retail sales figures suggest.

Arora does not think the offline world will be taken over by online. Rather, he suggests the two will be increasingly interconnected. In such an environment, it will become important for retailers to make sure they stock and display items that can also be bought online when the shoppers go home.

Customers may just use the high-street experience to test out their preferences but will want to make their purchase online. The idea that people will drag shopping bags through a crowded Oxford Street may in the future seem a quaint memory, commented one senior retailer who agreed with this point.

Off the cuff, Arora reckoned that only 30% of retailers currently exploit the opportunities offered by the net, and they are largely in the travel and finance sectors. Arora demonstrated the point with a story based on his own experience of needing to replace a dishwasher. The machine had packed up and Arora wanted to find exactly the same model again which would slot in to the same spot in his kitchen. Naturally, he went online.

Twenty minutes of clicking later, he had seen pictures of the company's CEOs (global and UK) and learnt about the company's 'values' but his query had not been dealt with. The painful search - 20 minutes is a lifetime on the net - gave Arora only one option: phone the retailer in the UK. There was no facility to do the whole thing online. Then he went to a different appliances website, found his dishwasher and bought it: all in three clicks.

He told another cautionary tale, this time about Bose, the music systems brand. One Saturday night, Arora's music system went on the blink and he needed urgently to fix it (friends were arriving). Given the time of day, it was impossible to talk to a service agent in the UK. Using the website, he found a US customer service representative to talk to who told him that unfortunately he could not help because the product was registered in the UK. Perfectly logical, you might say. But this is a maddening way to deal with customers and completely unnecessary when - as all businesses know - they can offer a 24/7/365 service by operating a follow-the-sun call centre system. In this instance, Arora found a site that served other frustrated music system users and his query was dealt with.

The internet, said Arora, should be seen as the 'world's largest information and distribution network' - something Google itself hopes to exploit by building its own consultancy advice service on web strategies for online businesses. Arora showed some YouTube videos to demonstrate the power of the web and the new ways in which it is being used to reach markets.

"Where the hell is Matt?" was a video clip that showed an enterprising young traveller dancing in different locations across the world; the interesting commercial point is that Stride, an irreverent chewing gum brand (owned by a US subsidiary of Cadbury Schweppes) signed him up to a six-month contract to continue to do what he was doing to show that 'Strides Last as Long as Matt' (http://www.stridegum.com/minisite/whereismatt.asp).

In another example, Arora showed a YouTube video made specifically for this website by a new rock band called OK, set in a gym where the band used running machines as part of their dance sequence. Whilst it was entertaining to watch, the real killer point made by Arora was that a million people had watched the video within six days of its appearance and that it has now been watched by some nine million. In other words, the band used YouTube as a deliberate means to get famous. The age of music scouts travelling to the bars and dives of the country are seemingly over.

Arora mentioned two other key points worth recording. First, that the long-tail effect - whereby retailers can sell large quantities of items to niche markets using the reach and scale of the net - is one of the profound advantages of the internet. Arora said the "torso of the tail" was the most lucrative part. To illustrate the point, he said that whereas the mighty Wal-Mart could only stock a small proportion of the world's CDs (about 1,000 out of 35,000) every year selected by their buyers, Amazon could list all of them and distribute them at no great cost. The second point was that great value can be found from the clever use of the net to market, sell and distribute goods and services. For instance, Amazon had found a better logistics delivery model than Barnes & Noble. The result is that Amazon has a significantly higher profit margin, he said.

Arora was later asked what he feared. He replied, "the two guys in the garage". Now that Google is a big machine with 10,000-plus staff, and a large share price to justify, it has to work hard to keep its freshness and radicalism alive. The unknowns in the garage, unencumbered by fretful lawyers and societal and shareholder pressure, can invent what they want. And that is the great unknown. Someone, somewhere may find a way to 'monetise' retail services and products on mobiles, for instance, that no one has come up with yet.

Meanwhile, an insider said that Google's founders Sergey Brin and Larry Page had recently decided to stop having their meetings planned and their days filled by their assistants. Now, it is said, they pore over the daily list of meetings taking place each day and visit the ones they are interested in. This is one way, they hope, they can keep Google ahead of the two guys in the garage.  

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