Most Internet start-ups are unlikely to achieve long-term success because their owners are opportunists who ignore traditional business principles in the hope of short-term profit.
This is one of the main findings of a survey1 of over 400 of Europe`s leading companies, which was published today by the Management Consulting Practice at PricewaterhouseCoopers (PwC). The survey targeted both traditional "bricks and mortar" companies and dot.com companies to identify their key criteria for dot.com success.
Key findings included:
Fulfilment not rated as important by dot.coms
Dot.com opportunists sacrifice long-term success at expense of short-term gain Dot.coms only have two-three years to achieve profits Traditional companies best placed for long-term e-business success
Customers come last
The survey found that dot.coms are ignoring their customers, focusing more on leadership and strategic partnerships, and less on fulfilment and web site design.
Richard Mackinnon-Little, E-Business Consulting leader for PwC Southern Africa, said, "A factor that dot.coms must not underestimate is the value of a brand, and the associated level of trust associated to it by customers. Naturally the converse is also true, where brand value can be eroded through a poor web experience."
Only 15 percent of dot.coms believe fulfilment is important to their short-term success. This contrasts with traditional companies, where one in three (31 percent) rate first-class fulfilment, along with strong advertising, marketing and a well-designed site, as the most important factors for the immediate success of a dot.com company.
Short-term gain
One in two traditional companies accused European dot.com entrepreneurs of being short-term opportunists. They are even more critical of US dot.coms, with two-thirds believing they are run by opportunists motivated by short-term cash gain. Most surprisingly, the dot.com companies themselves (57 percent) are more likely than traditional companies (49 percent) to think that European dot.coms are led by opportunists.
Traditional business measures apply to dot.coms within two - three years The survey highlights that dot.com companies have a relatively short time in which to start returning profits. 61 percent of respondents said that dot.coms have a maximum of three years to make a profit then be judged by traditional P/E measures, and just 15 percent expect dot.coms to have a window of five or more years.
Bill Bound, European E-business Consulting Partner, PwC Management Consulting Services, said, "The survey highlights that the failure of the dot.coms to put the customer as number one is clearly a massive issue. Traditional companies` emphasis on fulfilment is the result of years of experience, whereas the dot.coms believe that strong marketing will persuade customers to log onto a website and order goods that never actually get delivered.
"The lack of focus on traditional business skills is also holding dot.coms back - their biggest challenge is to achieve financial credibility in the marketplace. The survey raises the question whether three years before being judged by traditional P/E measures is too long. Eight percent of companies surveyed said that dot.coms have up to six months before they are valued in the same way."
Incumbents are best placed to succeed in the new economy, despite lacking the characteristics of the dot.coms
Bricks and mortar companies are better positioned to establish successful Internet ventures then pure play dot.coms. Their market place strength, business expertise and financial power outweighing the dot.com advantages of open-mindedness, agility and greater technical skills.
Bound said, "The reason why many B2B (as opposed to B2C) companies can and will survive is because they are able to make a profit. We would not back a company seeking funding from our Incubator Programme if it could not prove it would be a profitable organisation in its first year of business.
"The prize will go to those organisations able to apply a different, faster, more flexible and leaner operating style to their internet activities. The challenges facing pure play dot.coms are how to achieve credibility in the market place and match the financial strength of incumbents."
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1. The survey was carried out by UK research agency Simpson Carpenter. A total of 415 companies were questioned - of these, 350 interviews were with incumbent companies from Dun & Bradstreet`s listing of the top 100 companies in each country (50 companies in each of the following - Belgium, France, UK, Germany, Netherlands, Portugal and Spain) and 65 were with dot.com companies. The respondent in the incumbent companies was the most senior person responsible for e-commerce strategy, whilst at dot.coms, the founding partner or senior manager was interviewed. Full survey results can be obtained from Philippa Hennessy@uk.pwcglobal.com or Anthony Hatter@uk.pwcglobal.com.
2. The Management Consulting Services (MCS) practice of PwC helps companies harness the competitive benefits of E-Business by integrating strategic change, performance improvement and technology solutions. MCS provides a range of industry-specific E-Business services designed to provide total solutions to global companies and Internet start-ups. These services include e-business strategy, web design and development, process redesign and improvement, systems and applications design and implementation, and outsourcing. To augments its services, MCS is making investments in and forming relationships with companies that provide services in three key areas: web design, e-products and e-transactions.
3. MCS is a global leader in e-business, serving 30 percent of the Fortune 50, as well as Internet start-ups. MCS e-business consulting work is currently growing at a rate of 400 percent. MCS is one of the largest consultancies in the world, with close to $6 billion in revenue and 40,000 people globally.
4. To date, 50 percent of all new MCS e-business consulting engagements are for business-to-business e- market initiatives. MCS is currently working on more than 75 e-markets - including over half of the 20 largest exchanges - across a wide range of industries: automotive, high tech, retail, petroleum/chemicals, utilities, forestry, food services, banking, healthcare, and pharmaceuticals.
5. The name PricewaterhouseCoopers is one word, with upper case P, uppercase C, and all other letters in lower case.
6. PricewaterhouseCoopers (www.pwcglobal.com) is the world`s leading professional services organisation. Drawing on the knowledge and skills of more than 150,000 people in 150 countries, we help our clients solve complex business problems and measurably enhance their ability to build value, manage risk and improve performance. PricewaterhouseCoopers refers to the member firms of the worldwide PricewaterhouseCoopers organisation