The Impact Of Online Solutions To Businesses in the United Kingdom

Introduction

The world wide web, first conceptualised by Tim Berners-Lee in 1989 (W3C 2009) has opened the door to new ventures, produced new career paths, fashioned existing industries and delivers information to anyone with an online connection.

The World Wide Web has been critical to the development of the information age and has allowed anyone with an internet connection the opportunity to interact with others internationally with little to no barriers.

One of the major changes the web has brought to everyday consumers is the ability to browse, reserve and purchase items online.

This new experience has been defined as E-Commerce.

How has E-Commerce, as well as other online solutions affected both online and offline industries?

Exploring the current state of Online Solutions, looking specifically at UK industries will give an insight into if online business solutions have been a gift or a burden to UK businesses.

Online Solutions, E-Commerce and UK Trade

Since the introduction of E-Commerce, there has been a major shift in how businesses, and industries as a whole, execute B2C and B2B operations; Especially in the United Kingdom.

E-Commerce holds a major share of total business turnover in the United Kingdom, dominating how businesses sell products with a 17.8% share (Prescott 2017) in the United Kingdom’s Economy. E-Commerce revenue is forecast to grow to 98.3 billion pounds (130 billion dollars).

Figure 1: E-Commerce revenue in the United Kingdom (UK) from 2016 to 2022 (in million U.S. dollars)

The United Kingdom is one of the most embracing countries of E-Commerce and utilises the tool in global trade, ranking third place internationally in B2C markets (ecommerce-Europe 2016), as reported in the Global B2C E-Commerce report 2016; leading behind China and the United States.

The Scope of Trade

E-Commerce UK Trade at a large scope can be broken down into two distinct channels. Business to Business (B2B) and Business to Customer (B2C).

Secondary business models can also include, although not the primary focus of this paper -

  • Consumer-to-Consumer (C2C)
  • Consumer-to-Business (C2B)
  • Business-to-Administration (B2A)
  • Consumer-to-Administration (C2A)

Business-to-Business E-Commerce transactions tend to include wholesale, office equipment, and tools. These transactions are often in large quantities with reduced profit margins.

Business-to-Customer transactions online tend to include retail, entertainment, gift purchasing, and grocery shopping. With the increasing use of mobile technology, businesses are now able to interact with their customers anywhere in the world where their customers have an internet connection. The increase in broadband speeds has enabled high-definition video subscription services to grow at a rapid pace, with customers now opting to stream video content, music content and purchasing of video games digitally.

B2B and B2C E-Commerce sales over a website in the United Kingdom (UK) from 2012 to 2016 (in billion GBP)

Business to Customers

The United Kingdom business to customers relationship has been amplified with the introduction of E-Commerce. Customers are now able to interact and purchase directly with businesses from the comfort of their home or on the go without the need to visit a physical storefront.

Groceries

The United Kingdom leads the European Union (KANTAR WORLDPANEL 2017) in E-Commerce use through grocery sales channels.

Tesco had the largest edible grocery sales value at 3.2 billion GBP pounds in a report released in 2016 (Agriculture and Agri-Food Canada 2016).

Figure 2: Share of global online grocery sales based on the value in leading European Union (EU) countries in 2017

Retail

As of April 2018, internet sales accounted for 16.9% of all retail sales in the United Kingdom, a 1.5% increase from April 2017.

To put how often consumers are now purchasing in perspective, sales recorded in June 2017 were larger than sales recorded in December of 2015. It took less than two years for the average everyday consumer spending on internet retail to outgrow Christmas spending on internet retail.

Figure 3: Internet retail sales as a percentage of total retail sales in the United Kingdom (UK) from May 2014 to April 2018*

Subscription Based Online Solutions

Other than E-Commerce, there has been a large gap in the UK market for consumer-focused subscription-based models. Music, Video and Television were once purchased and are now available on demand through online solutions.

Business to Business

B2B sales are often processed using EDI sales technology that removes the need for manual data entry and invoicing. With an automated system, not only are businesses saving money and time, but they are creating a seamless experience which is increasing their quantity of sales.

Wholesale business accounts for the majority of E-Commerce sales, allowing businesses of any size to source large quantities of low-cost goods.

Amazon, arguably the largest E-Commerce website online has converted private B2C relationships that influence decision making for businesses when ordering office supplies and equipment. When surveyed, customers of Amazon shared that their top reasons (Big Commerce 2018) for using Amazon Business account, these included -

  • Was looking for lower prices
  • Amazon is a trusted brand
  • Had a good experience buying from Amazon as a private customer
  • Wanted a fast delivery service

SaaS (Software as a Subscription) Models

Often businesses require tools to help produce solutions or to increase productivity. These tools often come in the form of software installed on machines, but evermore the scope of software subscriptions is growing.

Now solutions are available in the form of websites or updates to existing software made available in large software updates downloaded from the internet.

Outlined by data sourced from the Office for National Statistics (Prescott 2017), E-Commerce B2B sales in the UK via a website has doubled from 2009 to 2016. More than a trend in consumer behaviour, a shift in purchasing processes that businesses small and large are adopting to source the best deals.

Figure 3: UK E-Commerce sales over a website, by the size of business, 2009 to 2016 (excluding micro-enterprises)

Distribution of Markets utilising E-Commerce platforms

  • Wholesale - £58.8 Billion
  • Transport & Storage - £38 Billion
  • Retail - £36 Billion
  • Other - £31.6 Billion
  • Information & Communication - £27.8 Billion
  • Manufacturing - £15.5 Billion
  • Utilities - £15.2 Billion
  • Accommodation & Food - £11.7 Billion
  • Construction - £1.9 Billion

Figure 4: UK E-Commerce sales over a website, by industry sector, 2016 (including micro-enterprises)

Small and Micro Businesses

There were 5.7 million SMEs in the UK in 2017 (Rhodes 2017), which accounted for over 99% of all businesses. These businesses have had threats and opportunities at similar scales to large enterprises, with the introduction of the world wide web.

Not only this, but new startup and ‘Fused’ businesses are emerging as a result of the opportunities presented by the web. Creative businesses and freelancers can combine their art and design solutions, with technology to create complete businesses.

Brighton Fuse defines fused businesses in their self-titled report - “Fused businesses are those that combine creative art and design skills with technology expertise.” - (Sapsed 2016)

Not only are tools provided to small business owners, but with the introduction to online job boards and business-focused social network sites such as LinkedIn, freelancers and contractors with skills required of small businesses are now available to connect.

Allowing for large networks of small independent businesses of freelancers working in a collaborative environment to solve business problems.

Large Enterprise and Retailers

Amazon

It is impossible not to discuss Amazon when on the topic of E-Commerce. Amazon leads and dominates B2C E-Commerce in the UK with sales of 4.6 billion pounds recorded in 2017 (ECOMMERCEDB, 2018.).

Not only does Amazon lead the E-Commerce market in the UK, but with the rise in popularity of E-Commerce, Amazon now dominates markets that exist predominantly as physical stores. For example, Amazon is predicted to overtake Argos to become the largest toy retailer in the UK (REPORTBUYER, 2017) by 2020; it is no surprise small to large businesses are finding themselves in competition with the tech giant.

Amazon is no stranger to adapting their online services based on their available resources. As the company grew their internal hardware operations, they realised they had unused servers and identified a new channel of service they could provide, with cloud hosting solutions to software development companies and developers.

Amazon Prime Music

Amazon Prime Music opened for public beta in September 2007 and currently ranks second place in the owned share of subscribers to music streaming services (OFCOM, 2018.) in the UK.

Many could argue the popularity of the streaming service is due to many subscribers gaining immediate free access to the service when subscribing to Amazon’s Prime membership which has a primary focus on their free next day delivery service.

Toys R Us

Toys R Us is one of many toy retailers that have been affected by some negative sale factors such as Brexit, a rise in counterfeit toys and under-performing licenses which have led to a 2.8% decrease in value in 2017 (TOY FAIR, 2018) for the UK toy industry as a whole.

Toys R Us set to close all UK stores in late 2018 (BBC NEWS, 2018). Many economic experts assumed the closure was primarily due to the rise of E-Commerce.

The closure was foreseen in September of 2017 when Toys R Us filed for chapter 11 bankruptcy protection (GREEN. D, 2017). The filing would allow payment of the outstanding 3.725 billion pounds of debt left outstanding in segmented payments.

They are not alone, Lance Wills, Toys R Us global chief technology officer (CTO) said in May of 2017 - “In a year to two years, we have to catch up on ten years of innovation” (C. JONES, 2017).

Unfortunately for Toys R Us, the damage was already done, and they were not able to continue development of their technological endeavours for a full two years.

Interestingly, competitor Amazon agreed on a contract with Toys R Us in creating a partnership (HANSELL. S, 2004) between the two retailers in August 2000, where Amazon would have exclusive rights to sell Toys R Us products online.

The agreement later turned sour in February 2006 where Toys R Us won a lawsuit (WOLK. M, 2006) against Amazon, Toys R Us claiming they found 4,000 items of their products on Amazon's site from other sellers. The sourcing of products to others is a clear violation of its exclusivity rights, as a result Amazon contended to the lawsuit.

Did Ecommerce kill Toys R Us? - Toys R Us did not fail because of E-Commerce. Instead, they failed because their focus was not on E-Commerce. By outsourcing the opportunity of selling products online to a second company, they lost out on the chance to grow their online presence and focus on an internal web store.

Amazon benefited significantly from the deal, not primarily in the profits, but rather in the data they accessed, giving them insights on how to best sell toys online.

HMV

With the UK Entertainment sector estimated to be worth 66.6 Billion pounds in 2019 (PWC, 2016), it is no surprise that industries that fall under the market are highly competitive. One competitor, HMV has found itself adapting to the rise of digital streaming services and new ways to consume media and entertainment.

Figure 5: Market share of the leading entertainment retailers in Great Britain (UK) as of July 2016 and 2017

HMV has been battling the aforementioned tech giant Amazon for market share ownership in the retail entertainment market in the UK. The latest statistical data (KEENAN, F. 2017) indicates that Amazon has started to lose ownership, with room for HMV and other entertainment retailers moving their focuses to digital products.

Digital Entertainment - Ownership vs Access

The latest statistics show the UK entertainment market reaching an all-time-high in 2017, with a 22% increase in the use of digital video entertainment (ERA, 2018) and a 40% increase in the use of streaming services for music.

One of the major shifts in the entertainment market has been the introduction of online digital products and purchasing. Companies such as Spotify, Hulu, Netflix and Tidal to name a few have built their whole business models on online entertainment subscriptions over purchasing individual products.

The change in popularity for digital products over physical products (See Appendix A) is one that is influenced by a consumer behaviour to gain access to entertainment, in replacement of ownership of the entertainment.

Blockbuster

Blockbuster, founded in 1985 (HYATT, J., 2003) was once the most popular provider of film, television and video game rental services until their closure in November of 2013. The tale of Blockbuster is a cautionary lesson to those rejecting to adapt to consumer and economic behaviours and data.

Figure 6: Swedish Blockbuster Online Stream Service User Interface

The primary reason Blockbuster failed, was due to the business model Blockbuster was built upon. Blockbuster charged rental prices which covered the costs of purchasing products. However, their source of profits driven by late fees.

40% of Blockbuster’s net profit (LELE, A. and P. GANDHI, 2017.) came from late fees alone. Blockbuster’s business model required conflict of interest with its customers, creating a toxic relationship that failed to create a loyal connection to their customers. Inevitably when a better option came up for consumers, the customers were quick to jump at the opportunity to minimise the risk of late fees.

Blockbuster vs Netflix

The notorious legacy of Blockbuster is shadowed by their failure to adapt to online digital solutions. With rivals such as Hulu, Netflix and Redbox, Blockbuster was reluctant to pivot and change their business model to include online solutions before it was too late.

Figure 7: Netflix Vs. Blockbuster (2004-2010)

Blockbuster’s CEO was famously known for passing on the chance to buy Netflix for 50 million dollars (CHONG, C, 2015). Consumers see Netflix as the initiator of Blockbuster’s downfall, but analysts and business experts can see the bigger picture that includes the toxic business model and a shift in consumer behaviour.

At the time of the deal offering, Netflix had yet to dominate online channels of distribution and was operating through similar channels to Blockbuster. The main differentiator being customers of Netflix were not charged large late fees.

Conclusion - What Impact Has Online Solutions Made to The UK’s Economy?

Large businesses

Large business and enterprises are now operating with automated systems and exceedingly powerful tools that otherwise wouldn’t be available without the world wide web. As a result, the quality of products and services offered at a mass scale have improved.

Small businesses

The Guardian put out an article with a quote from Expedia’s Inbound Marketing Director which sums up how a mindset can make or break a small business when approaching new sales channels and competition online.

“What local retail and successively large multiple retailers have failed to do is concentrate on their unique selling points. As good as any website may be, it is not going to replace bespoke upmarket shopping experiences...” - Martin Macdonald, inbound marketing director, Expedia EAN (THE GUARDIAN, 2013)

UK Economy as a whole

The UK economy has benefited from online solutions.

Where opportunities for growth have arisen to businesses, so has the threat of competition. There has been an increase in import and export of goods and services to improve profit margins, as UK businesses now have the opportunity to compete at a global scale without barriers.

However, with the correct business strategy, these windows of opportunity when approached correctly can result in major benefits for both small and large businesses. Threats of competition and change come when businesses fail to adapt and identify ways they can include themselves in the digital revolution and age of information.

List of Figures

Acronyms

  • B2B - Business to Business
  • B2C - Business to Customer

References

Bibliography

Appendix

Appendix A - Digital vs. Physical / Access vs. Ownership

The choice between digital and physical consumable entertainment is one that has shifted the behavioural patterns that have existed in modern-day culture for decades.

The rise in popularity for digital products creates a direct correlation between the way consumers perceive how they would prefer to access content. Opting for cheaper, larger and accessible subscription models that grant them access to large catalogues of media.

Figure 8: Entertainment retail sales in the United Kingdom (UK) from 2011 to 2017, by digital and physical format (in million GBP)

Figure 9: Revenues from entertainment products access and ownership in the United Kingdom (UK) from 2012 to 2017 (in million GBP)

Some of the more notable successful businesses which have adopted such services include Amazon with Amazon Prime Music, Film and TV, Spotify, Google Play and Apple Music.