After the revolution online marketers adapt to reality

By WARREN GAMBLE

The daily despair about the dot.com revolution has its own website: f*****company.com offers visitors a black-rumour mill of American internet firms pulling the plug or laying off staff.

Many of the tips, which are awarded points for accuracy, come from doomed employees giving a few hours' or days' notice of cutbacks and taking a parting shot at management.

For example, this week the site was awash with sarcasm over 500 layoffs at a flashy dot.com firm with the mission: "We dream. We do."

One of the milder reactions: "Yeah, we dream of having a real company earning real profits instead of bilking investors while we sun in Mexico."

In the past year, the dot.com disease has killed hundreds of small firms and infected the biggest online players. Last week, amazon.com, the world's leading internet retailer, cut 1300 staff and posted a $1 billion loss. It has yet to turn a profit after six years.

Overseas commentators say the crash was inevitable and will be viewed historically as a blip - similar to the car industry collapse in the early 1900s when too many players jumped in too quickly.

But even beyond the shaky dot.com world the leaders of the technology revolution, software manufacturer Microsoft and hardware king Intel, maker of the revolutionary computer chip, are suffering.

Both have announced slowing profits as the United States economy cools - at a time when their inventions were being credited as productivity boosts to the long growth surge.

So are things really that gloomy for an industry on which New Zealand has pinned its hopes for a new-world competitiveness?

Not on your mouse, say local players, who insist that the web and the wider technology revolution are far from a spent force and New Zealand cannot afford to miss out.

There is even a sense of relief that the dot.com crash has brought back an overdue dose of business reality.

A snapshot of the New Zealand information technology industry finds that good products and business discipline can return profits, albeit at a slower rate than many expected.

The country's technology sector was relatively unscathed by the bursting dot.com bubble because local "pure plays" - relying solely on the web for business - were few and fledgling.

Online retailers FlyingPig and Beauty Direct took hits but are still in business. After laying off half its staff in June and being sold in December, FlyingPig is nearing the break-even point.

The company says it has gone back to basics and is looking at the profitability of each individual customer order.

The potential customers are out there. In September, an ACNielsen survey showed that 45 per cent of the population aged over 10 used the internet in four weeks, compared with 6 per cent in 1996.

New Zealand companies also have one of the highest rates of internet use in the world, although studies differ on whether that is confined largely to e-mail and gathering information rather than e-commerce.

For those targeting household and company clients the first trick is to turn internet access into commerce. The second is to get enough commerce to make a return on substantial technology investment.

An example of this new economy dilemma is supermarket shopping on the web.

Woolworths' online shopping site is the country's biggest. The company will not say whether it is making any profits on the $6 to $7 million spent on development, but says it is a viable business with encouraging growth.

One of its big competitors, Progressive Enterprises - which runs the Foodtown, Countdown and 3 Guys chains - has no plans to follow suit.

"There is no direct evidence of value to the company," says John Donaldson, Progressive's general manager of information technology.

"At this point the benefits gained are low against those to be gained by doing lots of other things."

These include refurbishing stores and improving product availability.

But Richard Harrison, Woolworths e-commerce manager, is almost crying out for his competitors to jump into cyberspace, for the good of the market and e-retailing.

"We are at a turning point and this year is going to be a critical one for us," he says.

The country is slipping behind Australia, where 12 per cent of the population shop online, compared with 25 per cent in Canada and 40 per cent in the United States.

Should we care? "If we are to position ourselves as a centre of innovation we have to get our act together in this space," Harrison says.

He hoped investors and business leaders were wise enough to understand that failures such as those in the US can be avoided through sensible practices, "rather than just write them off because they've been tried and have failed."

Though Harrison is convinced that online shopping has a bright future, he also sees it as an extra tool for customer service: "I don't see this kind of technology replacing bricks-and-mortar stores, but complementing them. You will get customers sometimes shopping online and sometimes visiting our store."

Criticism of e-commerce consumer sites has generally been aimed at cost and reliability of delivery, particularly in peak periods such as Christmas.

Harrison says the supermarket site was stretched to the limit in Christmas 1999, but had coped comfortably with big demands this season. The $15 subsidised delivery fee had been reduced to $9.50 in Christchurch and Wellington.

The biggest advantage to buying online was the time-saving for busy people, including professionals and parents of young children.

The other dimension of electronic commerce, touted as the surefire winner, is business-to-business transactions.

In its short life, Auckland-based e://volution has demonstrated the adapt-or-die Darwinian spirit of its name.

It began four years ago when brothers Henry and Phillip Norcross wanted to put the family's West Auckland printing and stationery business online. Clients wanted a one-stop web shop. After two years of software development the brothers delivered one of the country's first electronic market sites.

It now has 74 buyers and sellers of printing, stationery, health and safety products, electrical goods and hardware.

The company charges a 3 per cent transaction fee. But along the way, and despite the goldrush hype surrounding e-commerce, director Henry Norcross says that the firm realised it could not live by "clipping the ticket" of transactions alone.

Instead, it began selling its software to firms in New Zealand and Australia wanting to set up their own exchanges, and has turned more to management consultancy.

Norcross says the change of tack enabled the company to make profits within six months. It now employs 19 staff, up from five at its launch in November 1999.

"There is realistic money to be made," Norcross says. "I think it's like a normal business. I don't think it's going to be silly, funny money."

These survival tactics were also tested by direct fallout from the dot.com crash. Norcross was flying to meet venture capital backers in Britain at the time of the Nasdaq sharemarket meltdown in April. By the time he landed the lenders had cold feet and the opportunity was lost.

The company hunkered down until September, when Contact Energy stepped in to buy a third of the business.

Norcross says New Zealand companies are guilty of dabbling in electronic commerce, a too cautious approach which delays returns on a large investment.

"In New Zealand the culture is slow for the top to say you must put all your procurement over the internet and that you must have an electronic feed from your suppliers. To me it's obvious - it has to be embraced to get the benefits."

As an example he cites his own family printing business, which has increased turnover by a third after 18 months of online selling.

Electronic commerce is not the only area where New Zealand firms are pushing technology boundaries. Auckland-based Walker Wireless is carving its niche by delivering the internet to companies through high-speed wireless technology rather than traditional cables.

Chief executive Paul Ryan is emphatic about why dot.com firms had the plug pulled: they did not deliver on their business plans.

"I think we should get back to the good, old-fashioned rules," he says. "I hate to say that in this brave new world, but if you have a business plan it needs to be executed as close as possible to that plan."

For Walker Wireless that meant sticking to technology improvements rather than getting diverted into other areas like e-commerce.

The wireless network using rooftop antennae was born from Walker Datavision, which provides industries such as timber and kiwifruit mobile computers to track stock.

As the company searched for a way into the internet boom it discovered that many customers were unhappy with slow access and downloading.

In February 1999, from the roof of its Newmarket offices, Ryan witnessed its first data connection with a technician's van on One Tree Hill.

The company had a staff of three - now it has 80. And from its official launch a year ago it now has about 1000 customers in Auckland, Wellington and Christchurch.

It will not say what its revenue is, only that it is very satisfied with growth.

In July heavyweight investors Stephen Tindall, Craig Heatley and the Todd Corporation provided a backing of $20 million, allowing the company to expand nationwide.

The ultimate aim is a wireless, digital network taking advantage of the converging telecommunication and information technology sectors.

It will provide companies and eventually householders with a combined package of fast internet, phone calls and interactive television.

Ryan says that with a common-sense platform and private and government encouragement, the New Zealand technology industry possesses the natural ingenuity to thrive.

"I think New Zealand is at one of the few times in its history where it can take a place on the world stage again," he says.

"The global barriers for software development, product development and intellectual property have gone - you can ship it anywhere in the world in seconds."

Across the city, in the basement of his Epsom home, John Ryan has put his brother's words into practice by exporting his own software package for hospitals.

The former surgeon is now pushing into Britain with his clinical information software package called Plato. Frustrated by unfriendly technology to store operating notes and patient records, he took a year off orthopaedic surgery to design his own.

He has not returned. Instead, his clinical audit systems are now in about half of New Zealand's 23 hospitals, he has £1 million ($3.3 million) of contracts in Britain and is setting up an office there.

He spent a year living off savings and small loans while designing the package. He broke even in three years and the past two years have been extremely profitable.

Ryan had looked at government start-up funds but found the amount of paperwork was "just not worth it."

He said that by funding himself he had developed the financial discipline missing in many dot.com firms with access to "easy credit."

What he could have done with, though, was a management mentor to provide advice in areas like tax.

Ryan says the dot.com collapse ended the "hope over substance" approach. "I think the market now looks past the glossy brochures and highrise offices and asks: 'Where is the product, where is the credibility, where is the competitive advantage?"'

The Information Technology Association - which represents 100 firms, including most of the major players - is buoyant about the future.

Executive director Jim O'Neill says that slow growth in the first half of last year was caused more by a Y2K investment hangover and dropping business confidence and wariness at the change of Government rather than shaky dot.coms.

But he says that the Government's enthusiasm for e-commerce, topped by last November's summit, had helped to end the year on a high note. Legislation before Parliament to improve the security and business environment of online commerce would also spur growth.

"All of this is encouraging businesses to put both feet, instead of just a toe, in the global market based on the internet."