Many e-tailers will go broke early next year. They have been using venture capital money or the proceeds from recent share issues to pay for their marketing campaigns. Many Internet investors, therefore will do their dough. Many will become wary of Internet start-ups but others will be stronger because their customer base will have expanded. In a perfect world, therefore, the quality of investments should improve as the winners go from strength to strength. Alan Deans, New York View, NZ Herald, 26 November 1999.

When bar code readers and Eftpos machines became commonplace in supermarkets, ATM machines popped up on street corners, and shoppers had to shuffle through a wallet full of plastic to make regular transactions it was clear the world was changing.

From the early days of electronic transactions, New Zealanders were leaders in the use of barcode scanning in the grocery industry and had one of the most comprehensive seamless Eftpos payment networks in the world. We werent part of the prophesied cashless society yet, but we were certainly carrying less cash. We had been in the top ten countries for Internet access on a per capita base since 1993, our cellphone use was among the highest in the world, and we took to Internet banking and shopping with vigour.

There were two electronic funds transfer at point-of-sale (Eftpos) networks in New Zealand, both owned and operated by the major trading banks. Eftpos New Zealand was operated by the ANZ bank.[1] Electronic Transaction Services (ETSL) was run by a consortium of BNZ, ASB, Westpac Trust Bank, Countrywide, and the National Bank. During the late 1990s, the number of Eftpos terminals doubled. By 2000 there were 60,000 terminals in operation, one for every 60 people the highest penetration in the world. Both networks underwent major technology upgrades between 1999 and 2001 to cope with burgeoning transaction numbers.

Our high penetration of PCs and the explosive growth in Internet access meant many users were now comfortable with doing a lot more than Web browsing. By the turn of the century on-line tools were focusing on small to medium enterprises. Given the demographics; more than 85 percent of our businesses had up to ten employees, there was a good opportunity to compliment bricks-and-mortar storefronts with an electronic shop front on the Web.

Initially there were business and consumer jitters about transacting on-line but once everyone was confident email and credit card payments were actually getting through, and the goods were arriving by snail mail, the focus began to shift. As security issues were overcome and the marketing machine of both the government and the commercial sector ramped up, e-commerce went beyond books, CDs and software to serious on-line buying and selling. New Zealand followed the global trend with the Web becoming the shoppers new playground.

The groundwork for e-commerce had been established through the earliest e-commerce networks which had settled on electronic data interchange (EDI) as a set of standardised message formats, for businesses to exchange purchase orders, invoices and other essential data. A number of large businesses and their suppliers and customers were heavily involved in EDI from the mid-1980s, but it was a highly proprietary approach. It required messages to be exchanged through dedicated value-added networks (VANs) limiting its use to large organisations with sufficient clout to impose EDI standards on their supply chain partners. In fact the high level of investment and commitment to EDI became something of an impediment when the more open Internet-based approach to on-line transactions first raised its head. There was still some resistance even when the World Wide Web was clearly maturing as a commercial platform in the early 1990s.

On-line grocery experiment

Woolworths had pioneered on-line sales in New Zealand in a costly but valuable learning exercise. Its on-line shopping site was established in 1997 and cost tens of millions of dollars to get right. In perspective that was still significantly less than setting up a single bricks-and-mortar store. The company sent out a CD that enabled on-line customers to navigate virtual grocery aisles and tick off selected items that would then be delivered to their door by a courier van. Parent company Hong Kongbased Dairy Farm International had interests in Australia, Singapore, and Hong Kong and was certainly using New Zealand as a test case to help it understand how to introduce electronic shopping across its other chains.

While the Internet brought standards to communications, back-end business systems were typically islands of automation. The challenge was in translating an order placed over the Web into instructions to the warehouse to pick those items for delivery, bill the client, and then restock inventory accordingly. Without an auditable data trail the result was often confusion. New network connections and processes were needed to cope with the disciplines of e-commerce, and the right relationships between partners in the supply and distribution chain also needed to be literally secured.

Initially the big database and enterprise resource planning (ERP) companies and systems integrators tried to play in the Internet game by cobbling everything together for the larger firms. As the technology got smarter, smaller, and more affordable, ISPs began to partner with software developers and banks to make their own mark on the next phase of development.

ASB customers could deposit and withdraw their money anywhere in the country from 1983 after it linked the computer systems of its 12 banks. It also installed the first Eftpos terminals and ATM machines and in 1998 set the pace for on-line banking, with the introduction of its FastNet and BankDirect services. With help from Microsoft its Fastnet service was further developed in 1999 allowing customers to download bank statements to their own accounting software.[2]

In its report Internet Commerce in New Zealand, released at the end of 1998, research group IDC estimated Internet commerce activity here would reach US$108.2 million and by 2002 rocket to US$546.8 million. Medium to large local businesses were expected to account for US$36.5 million of e-commerce transactions in 1999. The percentage of on-line shoppers continued to grow rapidly from 17.8 percent in December 1997 to an estimated 31.1 percent by December 2002. IDC researcher Patrick Pilcher said B2B e-commerce was more manageable, with a closed universe of trading partners and regular, manageable transactions with benefits showing up immediately on the bottom line. It is going to become a key commercial differentiator resulting in a fundamental shift in the way people do business. He believed new packages from Telecom and Telstra offered a potent enabling option for small, medium, and large businesses. The new e-commerce offerings were essentially providing a cyber store into which customers could plug their product catalogue and HTML code for their Web pages.

Obstacles to e-commerce included not having the right banking clearance systems in place so overseas Internet shoppers could use credit cards to buy goods here and pay with their own local currency. This was seen as a deterrent to international shoppers who might want to buy in New Zealand. The ASB and BNZ were looking into solutions, but it was perceived as high cost and high risk, at a time when e-commerce was still finding its feet and issues like Y2K compliance were taking precedence. Many businesses were taking orders electronically but still requiring the traditional cheque in the mail or a 24-hour or seven-day hold while credit cards were processed and cleared manually. There was also the cost of transaction fees for businesses with high-volume, low-margin goods, and the proprietary nature of solutions geared to work with one bank and not others.

Woolworths was keen to move to electronic clearance but had difficulty with the business case. We wont take credit cards yet simply because of the two percent fee loading by the banks for on-line credit card transactions. We dont believe thats appropriate for this environment we operate at a 2 percent or less margin and dont want to have to put our prices up, said e-commerce manager Richard Harrison.

Incompatible systems internally and between businesses also presented a challenge to larger companies. Early in 1999, IT coordinator for the Fletcher Challenge building division, John Bunn, was examining the opportunities and threats. Fletchers saw great possibilities for combining buying power across the group and was examining the information systems needed to support that. We need to make the process efficient but we have so many ERP packages we have to think how we achieve a consistent approach across such a mixture of platforms.

E-commerce catalogue broadens

The Warehouse had also been involved in on-line trials from 1997. Clothing retailer EziBuy had 20 percent of its catalogue on-line, and Christchurch-based Estar On-line set up music site in 1999. The New Zealand Wool Groups Woolnet trading system provided a secure system for on-line deals, transferring funds from the buyers account until an agreed settlement date once goods had been delivered. Foodstuffs was taking the challenge seriously, having committed to swap from paper purchasing and hard copy invoicing systems to a full electronic system that could eventually encompass thousands of retailers and suppliers. Its Pak n Save and Four Square co-operatives planned to link into an e-commerce system over several years.

Rather than the expensive option of going with EDI, the standardised IP approach had removed huge costs from e-commerce. SAP, PeopleSoft, Baan, Oracle, and other competing business packages, which sought to dominate everything from manufacturing to warehouse, distribution and accounting functions, were rapidly reworking their high-end systems to handle Internet e-commerce for SMEs. Microsoft had the SME firmly in mind with its new BizTalk framework for e-commerce, promising recommended psychics all the tools to build and manage web sites for buying and selling, advertising, promoting, and accessing large database and catalogues on-line. Locally Advantage Group co-developed the Ezibuy secure e-commerce product with the BNZ. Glazier Systems had its Epas package and the ASB was using Microsoft technology. A stream of developers were building add-ons while Unisys, Cardinal, Terabyte, Zivo, and a dozen others were tightly focused on customising business web sites.

Ernst & Young was beginning to offer a worldwide service promising to get businesses on the Web within 30 days, and other accounting and consultancy firms were right behind them. Telecom had a new division engaged in building on-line commerce sites using its Business Builder and Commerce Builder products. Telstra had jumped in with secure buying and selling through Surelink, a secure financial settlement package it borrowed from its parent in Australia. Having provided Telstra with their payment details once, customers could trade at Surelink accredited sites. It was the first in a family of products including bill payment and B2B purchase ordering.

Despite the flurry of activity, Price Waterhouse Coopers Information Systems Risk Management division found Internet use was yet to enter the realms of revenue. In 19981999 New Zealands many businesses were still deciding how and where e-commerce would fit into their organisations. Only 13 percent were using the Internet for business transactions, which compared favourably with the United States and Canada. In all about 60 percent of New Zealand organisations were connected, with MIS departments leading the way (60 percent) followed by operational management (26 percent), sales and marketing (19 percent), clerical staff (13 percent), and executive management (13 percent).

Spending trends in 1999, however, suggested the inertia wouldnt last 55 percent of New Zealands organisations said they would be spending $500,000 on e-commerce by 2001 and 10 percent would top that. There were no great expectations that this investment would pay off in a hurry though, with 86 percent of the groups expecting to gather less than one percent of their revenue from on-line business initially and the remainder, mainly in the telecommunications and technology arena, were expecting 30 percent of sales to be made electronically. A lack of standards, a shortage of skills, and scepticism about security were perceived as the major obstacles.[3]

Empowering on-line tools

It was clear the Internet could help improve customer service, increase competitive advantage and lower costs, but it took several years before the business case for major investment was compelling enough. Even when it did begin to make sense it took time for e-commerce to move beyond IT departments into the mainstream. The greater focus was on internal efficiency, through technology such as imaging and document management, data warehousing, workflow, and multimedia applications. Getting the communications infrastructure right with Ethernet, ISDN, and ATM technology were considered more important in the meantime.

As the large telcos migrated entirely to the Internet protocol and always-on IP dial tone, the pressure was on traditional ISPs to lift their game. Even the key differentiator of speed was losing its appeal unless this was coupled with quality of service and high security. The home pages of most ISPs were no longer glorified pamphlets for services offered but commercial portals, hosting news and weather, sports and community information, and acting as jump-off points to their own cybermalls. In the first wave of diversification a number of ISPs were acquired or had partnered with Web or database developers to take businesses on-line with interactive catalogues. Unless they could deliver specialist technical skills and services or become aligned with robust, cash-rich partners they were facing a further market shake-out.

Xtra, ClearNet, Ihug, and, who had been in serious consolidation mode since 1999, were now offering a wide range of tools and bundled offerings for SMEs and large corporates. They and a growing number of IT outsourcing and development firms were moving deeper into the business infrastructure, building intranets and extranets[4], providing local area network support, or becoming application service providers (ASPs). Voyager was using Microsofts Commerce Site Server with a back end into the ASB using 128-bit encryption and was able to accept major credit cards. Iconz was offering credit card authentication and processing based on Glazier Systems Epas and ETSLs Eftpos network.[5]

Only weeks before they were voted out of office, in October 1999, the National Government launched its e-commerce initiative, several years after governments in Australia, the United States, and Europe had begun to formulate their own policies. The new Labour government indicated it would take a leading role as its own activities would comprise a third of the electronic economy and could have an enormous impact on national e-commerce activities. The objective was to have all New Zealanders able to register forms, make payments, and communicate with government on-line by 2005.

In drawing up the partys e-commerce policy Labour MP for Rimutaka, Paul Swain said key planks were an e-commerce summit, a single Internet window for all transactions with the government and a review of Telecom. What is needed is smart ideas like strategic interventions where the government works in partnership with industry to maximise opportunity in what is now obviously the global economy. Within its first term Labour had prepared education programmes to help SMEs become involved in e-commerce. We want a unified e-commerce purchasing regime across central and local government. That means you will be able to go into a window, see purchasing, click on that and see the chairs, tables, teacups, and saucers available across the whole range of departments. Labour said it would promote harmonisation of the rules on intellectual property rights, consumer protection, and tax. It would encourage foreign investment in technology, and promote debate on digital signatures. Swain said Telecoms dominance was creating roadblocks on the information superhighway and no government could sit by and watch that happen.[6]

Dotcom crash fallout

Elsewhere the new economy had taken on a life of its own. The hi-tech companies of Silicon Valley in California and their equivalents in the United States and other parts of the world were going gangbusters. Stock-market values were skyrocketing. The hype machine had been in overdrive, talking up company intentions, planned product releases, new ideas, and innovations as if ideas themselves could be traded. Dotcom madness had businesses buying up domain names for millions and poorly performing listed companies, adding an e and an Internet developer overnight in the hope stock prices would magically soar. Many of the new entrants were simply marketing exercises looking to join the race to profit without manufacturing anything but an illusion.

Everyone, it seemed, was expecting to make a killing. The problem was the dead and dying left after what happened just before Easter 2000 were gullible investors, who lost fortunes after speculating on vapourware and over-valued companies, and the hopes and dreams of thousands of geeks, hi-tech experts, and marketing people who suddenly found themselves without a job.

Paul Allen, co-founder of Microsoft, sold 24 million shares worth NZ$4.6 billion just before the Easter crash. Either he knew something or the imminent court decision of the US Department of Justice planning to break up the software giant helped him on his way. On 14 April 2000 Wall Street experienced its biggest one-day fall in history, concluding a week in which US markets lost $2 trillion in value, the equivalent of Germanys entire economy. Worst hit was Nasdaq, the stock exchange favoured by hi-tech companies such as Microsoft. Bill Gates saw his personal fortune drop $30 billion in a few hours, almost toppling him off his perch as richest man in the world. Immediately and other pioneering e-commerce companies began laying off staff.

Like Y2K before it, the e-crash was a wake-up call to investors and board members about the volatile nature of the Internet, and a market that could be brought to its knees virtually overnight by the speed at which rumours could now travel the world. Despite the heavy losses, most stock traders accepted the fact that new technology shares were grossly overvalued. Many who had committed to e-business hit the pause button while the dust settled. The ongoing global dervish dance of lay-offs, cutbacks, takeovers and shrinking profits quickly forced Kiwi businesses to step back and review what constituted stable business reality. One of the reasons many pioneers in the field had failed was a lack of a sound business strategy and an inability to handle the pressure behind the front lines.

In an ideal world you key in on-line information once, and set in motion an electronic chain of events that generates the correct instructions for suppliers, distributors, and customers, so goods are delivered and the shelves and warehouses are replenished accordingly. While many suppliers had fancy web sites, orders were still being processed by printing out email orders, sending faxes, or rekeying data. With so much proprietary technology around, many companies ran the risk of being stranded in e-commerce babel if they couldnt share the same document types. A growing number of larger organisations required suppliers to adhere to their standards and way of completing transactions. If a business was to be involved in the wider trading community, the bottlenecks, islands of information, incompatible code, and missing links had to be sorted out or they would became a weak link in the supply chain.

Even if things had moved beyond people placing paper in pigeon holes, and the plumbing and document translation were right, there was still no guarantee of success. The right products, marketing, management, and customer response systems were all necessary. An increasingly e-literate breed of executives realised they needed to take the reins of technology, rather than being held to ransom by it. IT strategies and purchasing decisions began moving from the backroom to the boardroom as fragmented organisational structures were reviewed and integrated to present a united face for the next wave of e-commerce. The incentive to get it right was a confident expectation, that once the right internal systems and external relationships were in place, e-business was the gold at the end of the rainbow.

The challenge for all organisations was to sift through the lessons of the dotbomb debacle, be aware of what both partners and competitors were doing, and ensure internal systems, departments, and processes were in order and talking seamlessly. Properly integrated into a business strategy, the e-word would cut out the paper chain, reduce queues and bureaucracy, and lead to instant access to information and increased profitability. After all business was still business, and clicks and mortar were complementary. The principles of success at street level reputation, quality, pricing, and service were the same in cyberspace. There were no shortcuts to building trust and loyalty. In fact there was less tolerance on the Web for experimentation, srcew ups [sic], bad design, or slow service.[7]

In 2000 various surveys produced conflicting images of where New Zealand was at in terms of e-commerce, although there were clear indications the new approach was starting to catch on. With more seasoned Internet users than many comparable nations, New Zealanders may not have been spending as much time on-line as their peers, but they were clearer about why and where they went. A quarter of million New Zealanders had made on-line purchases, with an expectation this would grow to a million on-line shoppers before 2005. Research indicated they would spend more than a billion dollars shopping on the Internet in 2001, up from $16 million in 1997. The growth of e-commerce would at first be driven by B2B, according to researcher Paul Budde.[8]

IDC business development and consulting manager Mike Cranna believed the real year of e-commerce was yet to come but there was every reason for businesses and consumers to feel confident with an increasing number of security solutions and affordable applications arriving. A lot of the basics were fairly unromantic. Its just routers, cables and software. Once youve got those in place, if you manage your project carefully and ensure your suppliers are able to deliver what they say they can, there are significant savings to be made. Given that the previous government did virtually nothing, the actions of the present Labour Government were being positively perceived.[9]

Public vision pushed

In its Budget 2000 announcement Labour had dedicated more than $11 million over four years to promote e-commerce in New Zealand. Minister of Commerce Paul Swain said this would show how serious the government was about helping New Zealanders benefit from the new economy. Our vision is for New Zealand to become a world leader in the smart use of electronic commerce. We have a lot of work to do in making sure that all people are able to use the new technologies, but if we do things right the whole country stands to benefit.

The budget provisions included cash for developing a national e-commerce strategy in consultation with industry and citizens to harmonise New Zealands law on e-commerce-related consumer protection issues, and $9.5 million over two years for Trade New Zealand to implement an e-commerce for exporters strategy. The TradeNZ funding was to help small and medium exporters gain access to the new global economy and increase overall export earnings through trading on-line.[10]

A MED survey commissioned in August 2000 had BRC Marketing and Social Research look into business use of the Internet to provide background information for the governments e-commerce strategy. It indicated small to medium businesses were ahead of their Australian counterparts in their ability to exploit the potential of the Internet. Over two-thirds (68 percent) were using email, and one third had their own domain name and/or web site. Only 7 percent did not use computers at all. Almost all businesses with 20 or more staff (94 percent) were connected to the Internet, and 68% had their own domain name or web site. After email, the leading use of the Internet was information gathering and research followed by ordering goods and services, and on-line banking. Just over one in four businesses was using the Internet to sell goods and services.

The telephone survey of 504 respondents indicated that although New Zealand businesses were well prepared, they had yet to come to grips with the implications of e-commerce. While two-thirds claimed to be engaged in some type of e-commerce with other organisations, only about one in ten had integrated this activity with their internal business systems. E-commerce was seen as important for information gathering, developing the customer base and maintaining competitiveness, but despite its international reach, only a minority of businesses saw its ability to grow exports as being a major benefit. There were no single inhibiting factors although cost, lack of proven benefits, lack of skilled staff, concern about loss of contact with customers, and security issues were cited as obstacles.[11]

Beyond the test case

The report didnt mention that getting the trust of the customer was equally important. The fact was some attempts at e-commerce had resulted in retailers being unprepared or unable to fill orders or make timely delivery which had been a big turn-off, particularly for New Zealanders who had been shopping offshore. A growing number of local shopping sites had populated the Web during 2000. Some were simply billboards, attracting foot traffic to the real-world counters. This was rapidly changing as more companies deployed smart new tools, affordable transaction processing and e-commerce software.

On-line outlets were also discovering how important it was to be sticky or devise ways to keep the customer coming back through providing interesting content, attractive offers, and services. The most successful sites seemed to be those leveraging existing bricks-and-mortar operations, rather than unknown, Web-only newcomers. Everything from liquor to lingerie, fashion, food, books, music, and beauty products could now be bought on-line locally and delivered direct to your home. ISP Ihug opened its own Ihug Superstore with over 10,000 products. It abandoned its physical PC store where it sold Ihug-branded PCs in 2000 and took everything on-line, allowing customers to configure PCs on the net and drive in to pick them up. On-line grocery shopping was also taking hold. After testing the market for several years, Woolworths was taking thousands of on-line orders each week and turning over millions of dollars.

In September 2000, 15 e-tailers, including Dick Smith, Flying Pig, Sounds, Modern Bags, and Stirling Sports, signed up for New Zealands first Internet shopping scheme. The scheme used prepaid cards of different denominations, which when scratched revealed a security number that could be used to register and pay for goods on-line. On-line banking services were operated by BNZ, ASB, Countrywide, and BankDirect, with a number of real-time payment approaches set to encourage more customers on-line.

IDC Research suggested the number of New Zealand-Internet users was reaching critical mass, making it more viable for retailers to have an on-line presence. It predicted Kiwis would spend $540.1 million over the Internet in 2000 rising to about $5.4 billion by the end of 2004. A September 2000 AC Nielsen survey showed 23 percent of Kiwis used the Web to browse for products, ranking second in the survey with Australia and Norway. The keenest on-line shoppers were the Danes, with 31 percent of users browsing for product information. On-line purchasing was more likely to happen in Australia and New Zealand than in Singapore. New Zealanders were also likely to have more than one access point for the Internet, with many homes now on their second or third PC.

Web-research company Red Sheriff found that by late 2000, 27 percent of New Zealand Internet users had shopped on-line, and predicted that this would reach 53 percent by 2002. It also predicted on-line banking would double from 24 percent to 55 percent, on-line airline reservations would more than triple from 13 percent to 40 percent, personal investing on-line would grow from 9 percent to 20 percent, and there would be a 13 percent increase in on-line job seekers.

Despite economic indicators showing business confidence declining almost as fast as the New Zealand dollar, those involved in e-business appeared to be bucking the trend.

An Electronic Business Association (eBanz) survey showed barriers to e-commerce were being removed, and new products to help businesses operate on-line were finally becoming available. The survey found 68 percent of Kiwi businesses believed e-commerce was critical to their future and most were planning to make major on-line investment over the next five years. However the majority surveyed believed their current investment in e-commerce was significantly behind overseas competitors and feared losing greater ground unless speedy efforts was made to catch up.

Half the firms spoken to expected increased revenues through their investment in e-commerce while about 18 percent were confident of increased export revenues. They knew they could not ignore e-commerce if they wanted to remain competitive. One estimate suggested around 50,000 small and medium-sized businesses had a dedicated Web presence; however, only around 5 percent of those offered on-line transactions.

Rumours that New Zealand was not up with the play in the e-commerce game were put to rest by another report that insisted we were underestimating ourselves and were in fact among the top five e-ready nations. The State of e-New Zealand report from Victoria Universitys Institute for the Study of Competition and Regulation (ISCR) in 2000 claimed New Zealand was ahead of Australia and right up there with the United Sates and Canada. The main reason we were a shining example, said the report, was that we had a unique centralised banking system, a network handling banking transactions, and a single Eftpos system that all banks could use. This had helped position New Zealand as world-leading users of ATMs and Eftpos and confident adopters of new technology. Our relatively low telecommunications costs and the Kiwi Share, which ensured free local calling for all households, were also seen as critical factors in our readiness to adopt the Internet and e-commerce. Our Internet access was cheaper than Australias, and according to some measurements, cheaper than even the United States. We also had more servers hosting Internet pages per head of population than Australia, and that number was growing faster than anywhere else in the world.[12]

Carriers seize the day

The countrys top Internet service providers were also facing off around their Web-hosting capabilities and e-commerce tools. Xtra had been split in early 1999 with key business initiatives and talent going into a separate organisation. The eSolutions business was a partnership between Telecom, EDS, and Microsoft. Xtras Business Builder Package, with all the tools needed for a business to design, build and manage an on-line store with inventory control, billing, communications, and marketing systems had been transferred to eSolutions.

By mid-1999 Xtra had 200,000 customers, with an average of 1000 signing up weekly. By the end of 2000 it had well over 300,000 subscribers and captured about 42 percent of the overall market. Its web site expanded to become a portal with community interest areas, a shopping mall, news, sports, weather, childrens and teen content with a jump off to Telecoms 18 telephone books on-line. Xtras Shopping Central had around 100 shops selling everything from jewellery to flowers, music, toys, electronics, and marine products. It was investigating overseas trends in mobile access including (WAP), short messaging service (SMS) and broadband enhancements to see how these might apply to New Zealand.[13]

By the end of 2000 Xtra had relaunched its XtraHost Web-hosting service, offering 20Mb of disk space and a range of Web-development tools and templates including low-end Web-hosting options for small to medium businesses. The packages were bundled with domain name registration, hosting, adverts in the Yellow Pages, an 0800 free calling number, virus protection, and security. Fees ranged from $80 to $250 a month and beyond. Telecom partner eSolutions[14] had low-end transaction processing that could be added to a web site. Xtra general manager Graham Mitchell said there was strong growth in the number of retail businesses getting on-line. These are busy people, who want to stay up to date with technology but dont have hours to research whats out there. Xtra had also begun to power up its content delivery capabilities in partnership with Akamai Technologies. Akamai servers were deployed within Xtras network, ensuring faster download and delivery of rich content including graphics, banner ads, applets, and streaming media.[15]

Clear Communications was undergoing a major consolidation, shifting focus from a residential and tolls-based company to an e-commerce provider. Restructuring began in August 1999 with the loss of more than 150 jobs and an injection of $170 million from new owner British Telecom to retire the companys growing debt. It reported a $30 million loss for the year ended March 2000 but claimed its e-business services had brought strong growth. Revenues from Clears Internet services grew by 60 percent year-on-year, while local service line numbers had increased by 120 percent. By the end of 2000 its business markets accounted for 76 percent of revenues; 60 percent of that from on- line and Internet activities.[16]

As the market evolved Clear delivered increasingly competitive offerings to entice more small businesses onto the Web including new personal and professional Web-hosting packages. The Clear PaySafe service turned web sites into credit card terminals. There were no charges unless the site processed more than 50 transactions a month. Clears bundles included marketing for customer sites which promised to keep them in the top 20 search engine results of the main search engines. Building a web site is one thing; getting anyone to see it is quite another, said Altatude partner Phillip Head. Research showed that more than 85 percent of all Web user sessions started with a search engine and users rarely went past the first 30 search results. In fact the top 30 results received more than 90 percent of search traffic.[17]

Still in damage control

A good 18 months after the dotcom crash, companies were still in damage control, lowering their expectations, and cutting back on investment and costs. The optimists had insisted the worst was over and recovery was in sight, but they were wrong. The winds of change were still blowing hard. ISPs, content providers, telcos, consultants, and e-commerce providers in the business-to-customer and B2B sectors were still cowering. Telecommunications companies were shedding; between them Alcatel, Lucent, Siemens AG, Marconi, Nokia, and Nortel dumped 48,000 staff. Cisco dropped 8000. And the wider computer industry was still reeling from the shock waves as hardware, software, systems providers, and desktop PC companies pulled back on projections and production and dumped staff. Spending had slowed, the advertising market was at a ten-year low, investors and banks had the jitters and the pruning sheers were still out. In the United States more than 100,000 people lost their jobs by mid-year 2001 80 percent up on 2000. In June, 53 dotcom firms folded up compared to 17 the year before, bringing total failures over 18 months to 555.

The only good news seemed reserved for cautious clicks-and-mortar operators who resisted the hype, and the vulture capitalists who were in a fire sale feeding frenzy. According to San Franciscobased, in the first half of 2001, US$29 billion was spent on mergers and acquisition involving 726 US companies.

The dotcom domino effect was not happening because consumers or businesses had given up on the Web more people were logging on than ever. The root of the problem according to Federal Reserve chairman Alan Greenspan was irrational exuberance a get-rich-quick mentality that suggested the old rules didnt apply to the new Internet economy. Changes over the next five years would force companies to make more consistent use of resources, including staff, through outsourcing and sharing with partners and suppliers. Web-centric business models using a new wave of Internet applications would help put the focus back on creating revenue, he said.[18]

The entire information economy was in still spasm. Those tired shell companies that boosted the Nasdaq only to bomb when shareholders demanded substance, and the endless round of upgrades, add-ons, and constant coding required to enter e-topia had taken their toll. The information economy was in shake-down mode and anything that could be shaken would be. It was time to consolidate, revisit business strategies, get tight within organisations, decide who your friends were, and watch your enemies. The optimists were now scheduling economic recovery for mid-2002.

Generally the survivors would be those who were doing good business before the Internet came along, who had the right product, the right marketing and promotional approach, and distribution systems that delivered goods or information on time.

Obviously the Internet was now a pivotal medium for business but there were clear indications we could make better use of it. According to Domainz, the organisation that administered Internet name registrations in New Zealand, we were the fifth-heaviest users, by head of population. There had been tremendous growth in by private companies. In 1993 the domains accounted for around 9 percent of the total. At the end of 2001 they made up 86 percent of New Zealands Internet presence, said Domainz boss Derek Locke. In the last quarter, however, there had been a levelling out of new domain registrations. We were getting around 5000 new registrations a month, but with a drop-off of around 2500 a month things were slowing to a trickle. Locke said New Zealand had 101,240 live domains, but around two-thirds were used primarily as email addresses to reflect the users location. In other words New Zealand had fewer than 40,000 active web sites competing in the new world of global e-commerce.[19] dropouts

The dot and dotcom dropouts had forced New Zealand electronic marketplaces and portal operators to review their own web sites, on-line business models, in-house technology, and what customers really wanted. While e-commerce collectivism multiple suppliers buying and selling from neutral web sites appeared the next big thing, there was mounting evidence of the need to get back to business basics.

The first step in achieving value for investment was to get beyond all the corporate portal-B2B exchange-e-procurement-marketplace-trading post hype, which was full of overlap. The fact was the technology wasnt as simple or open as promised, and practical incentives for companies to shift to bulk buying from aggregated web sites had been lacking. The trend in this direction had taken hold in the United States three years previously and been overtaken by the growth of specialist software providers. New Zealand had been in copycat mode and now faced the consequences.[20]

E-tailer Flying Pig had made its debut with a loud fanfare. Now it provoked all manner of humour: Whats pink and smells like breakfast if it flies too close to the sun? Frying pig. The electronic retail portal selling on-line books, stationary, and music was launched in late 1999 and touted as New Zealands answer to, but ended up gobbling the funding before it could turn a profit. The unfortunately named company was backed by retailers that high-flying entrepreneur Eric Watson owned or had shares in, including Whitcoulls and Pacific Retail, which owned or had shareholdings in Noel Leeming, Bond & Bond, and Computer City chains. New owner Blue Star Group pumped a further $2.5 million into the company. In November 2000 Advantage Group, which owned 24.55 percent of Orion Ventures, owner of Flying Pig, sold its shares to the on-line division of IT Media, a company that published magazines and Internet content. Company founder Stefan Preston admitted Pacific Retail, which owned 39 percent of Flying Pig, had lost more than $1 million in the e-venture.[21]

The closure of Flying Pig and e-marketplace site Onezone put the jitters into the local market, forcing many suppliers, and those aggregating sites into virtual trading posts to rethink their direction. Flying Pig failed to consolidate after several ownership changes and problems with its original technology. Despite cutting staff and reducing overheads, profitability proved elusive, and after reneging on debt it was shut down. Auckland company Biolab Scientific also learned the hard way after it launched its Onezone e-marketplace in early 2001. Eight months later it was dead in the water after bleeding several million dollars. The site had 22 suppliers selling scientific equipment, office equipment, computers, and liquor but only eight large customers, who didnt put through enough transactions at a 2.5 percent fee to pay the bills. Onezone, which used Aribas marketplace software, blamed client companies for failing to champion the transition.

Locally a number of marketplace survivors and technology providers were pushing for new business. SupplyNet client SME Connections had 500 customers using Commerce Ones MarketSite software, supplying a catalogue of services promising savings on fuel, telecommunications, recruitment, printing, couriers, stationery, and beverages. Another early developer was e://volution, which had invested more than a million dollars pulling its site together using IBMs Websphere package, servicing more than 70 buyers and sellers. A handful of industry-specific portals had also found their niche in the forestry, agriculture, hospitality, fisheries, and garden supplies industries. There was a desperate need for more success stories to instil confidence about how exchanges, e-procurement, corporate portals, and e-marketplaces fitted into the supply chain. Once you got past the terminology and the sales talk, it was after all about extending the borders of your business and removing obstacles to transparent e-commerce.[22]

There were now a multitude of middleware and other solutions to get systems talking to each other, which helped shift the focus to smaller companies. SAP, PeopleSoft, Baan, Oracle, JD Edwards, Great Plains, and others had not only embraced e-commerce, they had scaled down their systems to desktop level and even had options for the 86 percent of New Zealand businesses that employed around five people. At last banks were providing multi-currency transaction capabilities, and the legal framework to ensure retail and consumer protection was on its way. The Electronic Transactions Bill was expected to expand the existing legal framework to embrace electronic documents and signatures and concepts familiar to the on-line world. No longer would you have to print out everything and keep it in hard copy in a filing cabinet for it to be considered legal.

While it had taken four years of industry pleading, the BNZ had finally reworked its internal systems and added the ability to accept credit card transactions in 12 foreign currencies to its stable of on-line offerings. The bank was now leading the charge with its Currency Select package and the other major trading banks followed suit. The trend begun by WorldPay was a boon to exporters as it finally allowed offshore customers to pay in their own currency and have it converted directly into New Zealand dollars.[23]

E-strategy shows progress

In November 2001 Information Technology Minister Paul Swain delivered his progress report one year on from the governments e-Commerce Strategy announcement. The Strategy had identified 60 actions and commitments for attention by government in partnership with the private sector. He said e-commerce, which was about business doing business in a networked electronic environment, was critical for the development of the New Zealand economy, in that it put New Zealand business on the front doorstep of the world. It was an important part of the push for the knowledge economy. Research now showed 61 percent of local businesses had a web site, up from 33 percent in 2000.

Swain said eCommerce Action Team (eCAT) and the regional events being staged around the country to raise awareness of the governments vision had resulted in each sector developing quarterly action plans. The team was involved in identifying ways of meeting specific sector needs. A number of regions have shown admirable leadership in promoting e-commerce initiatives and in formulating plans to enable high-speed Internet access.

eCATs web site was being used to help the wider community build e-commerce capability and develop support networks. It contained an e-commerce guide, case studies, research, and statistics, links to members pages, news, and a calendar of related events. It had a mailing list of more than 750 subscribers. Industry New Zealand through the BIZ programme had developed an eight-module e-commerce training programme aimed at SMEs. There was a close liaison with the e-government strategy outlined in April 2001, and an alignment with the mission that by 2004 the Internet would be the dominant means of enabling ready access to government information, services, and processes.[24]

According to a NZ Herald report in May 2002, New Zealand businesses were flocking to the Internet.

In June 2003 Paul Swain released the final eCAT report, claiming it had been a successful example of government and business working together to improve conditions for the economy as a whole. The team of industry and business leaders and experienced e-commerce individuals, set up in March 2001, had greatly assisted the government in achieving its vision for New Zealand to be world class in embracing e-commerce for competitive advantage.

Swain said highlights included ten regional e-commerce events, the development of the web site, a freephone service to help businesses increase their e-commerce involvement; the development of sector-specific action plans, specialised research projects, and the e-commerce guide for small business. The team had worked with the MED as it commissioned work on e-commerce uptake and co-operated with the Inland Revenue Department and Waikato University on surveys and research projects. It had brought together government departments to develop the business case for a comprehensive statistics regime for the ICT sector of the economy, rather than just the e-commerce element.

The team had supported the development of the Regional Broadband Forum as an effective way of supporting improved high-speed networks throughout the country, bringing people together to work on broadband initiatives, and discuss areas for co-operation. Much of its work was taken over by the regional consultation process for Project PROBE, an initiative developed jointly by the Ministries of Education and Economic Development to roll out broadband to all schools and provincial communities. It was also involved with efforts to establish a next generation high-speed Internet network, connecting universities, and research institutions.

The National Broadband Applications Project, organised by TUANZ and supported by eCAT, brought together more than 200 people to come up with ways to turn broadband to economic and social advantage. The event was held in Nelson in November 2002. It is clear that the importance of e-commerce is now well understood, and eCAT can take much of the credit for this. The government is still doing a lot of work in the e-commerce and ICT area, and the momentum is being continued through the Small Business Advisory Group and government agencies, Swain concluded.[25]

The announcement that the Electronic Transactions Act 2002 had passed into law on 10 October 2002 was a major step the business community had been waiting for, since it became apparent that existing law didnt technically recognise on-line transactions or the movement of currency between bank accounts. The legislation had arisen from a lengthy consultation and development process that began in 1998 with the issue of a Law Commission report on e-commerce. Further reports followed in 1999 and 2000 plus a discussion paper published by the MED in 2000. This Act, which puts electronic transactions on the same legal footing as paper-based transactions, will allow the thousands of statutory legal requirements for writing, signature and retention and production of documents to be met using electronic methods, said Paul Swain.

The Act will help reduce business compliance costs by allowing the use of electronic transactions and the electronic storage of information instead of paper-based processes. It will also make possible a whole new level of e-government, enabling electronic methods to eventually become the dominant means of interacting with government. As such the Act is a key part of the governments e-commerce and e-government strategies. It also contributes to the Growth and Innovation Framework by allowing for increased local demand for information and communications technologies.

The legislation was based on the Model Law on Electronic Commerce issued by the United Nations Commission on International Trade Law (UNCITRAL), and closely followed the Australian Electronic Transactions Act, thereby minimising transactions costs for exporters.

The world-class piece of legislation would substantially enhance New Zealands international reputation as a leading country in electronic commerce and e-government, said Swain. But there was a catch. The Electronic Transactions Act 2002 was delayed by the need to pass regulations to clarify grey areas on how the act should affect other legislation. Outstanding issues included the effect on tax record requirements, credit contract notice requirements, and notices about the destruction of dogs.[26] A discussion paper was released on 11 April 2003 and submissions on the proposed regulations closed on 1 May 2003. The Act finally came into force on 21 November 2003.[27]

Surfing matures

In 2003 it was clear New Zealanders were rapidly waking up to the fact that haphazard browsing was a major waste of time. They were becoming more discerning about the sites they visited and bookmarking those that found useful and reliable. They wanted functional services that made life easier including on-line bill payment and airline reservations. Government pages, including local authorities, banking, and the top search engines Google and Yahoo! rated consistently in the top ten visited in any month during 2003.

Hitwise said New Zealanders were becoming more confident with on-line transactions, resulting in 40 percent growth in visits to sites in the on-line shopping and classifieds category. The most popular items purchased on-line in 2003 were electronics, music, hardware and software, and books. However banking dominated, overtaking on-line shopping as the most frequently used service. According to an independent survey, more than half of regular Internet users were banking on-line at least once a week, and more than 100,000 were daily users. Most were viewing account balances, recent transactions, transferring funds between accounts or paying bills.[28]

More than 70 percent of us regularly connected either at home, work, on PDAs, or from public locations such as Internet cafes. This meant family and friends could keep in touch with very little effort regardless of where they were around the country or the globe. Local Internet use was finally giving credence to the concept of a global village, and in the workplace had enabled a new generation of remote users and teleworkers.

InternetNZ estimated there were about 150 ISPs in New Zealand by the end of 2003, but the 50 or so medium to large providers had about 70 percent of the customers, with Telecom making up just under 50 percent of the total business. The remaining 100 or so ISPs were mainly regional or served special-interest groups. In the process of discovering the Internet our habits had changed for young people email and Web access was increasingly seen as essential for social communications finding out what was on and buying things like CDs.

According to Tessa Court, senior vice president of global sales and marketing for Hitwise, traffic to local web sites was up 6 percent on 2002, with 29 percent of all visits now directed at local sites. The average time spent on-line was about eight minutes. Based on two years of data, Kiwi surfers were strongly influenced by world events and mainstream media. There was a growing interest in central and local government and city council web sites, which were using the Internet to increase community awareness, to tap into initiatives, and market themselves much like private businesses. During September 2003 the most popular web sites were Hotmail, Xtra MSN, Google NZ, ICQ, and Yahoo! suggesting the main reason for surfing was to communicate, use portals, and navigate the Web. News-related web sites such as the NZ Herald, INLs Stuff, and TVNZs nzoom also ranked highly.[29]

The TradeMe breakthrough

One of New Zealands great e-commerce start-up success stories, TradeMe launched in March 1999 as a classified auction site like e-Bay, but initially specialising in computer parts and systems. It experienced month-on-month growth and quickly branched out to cater to a thriving antiques market. Soon cellphones and clothing had become popular items.

The site felt alive, as though something was happening all the time. It could tell you how many items were listed in each category and it was clear the clock was ticking on items for sale as each new bidder upped the ante. The red flag went up when the reserve price was reached and soon there was a critical mass of users, making life interesting for buyers and sellers alike. If buyers cant find what they need this month the chances are itll be there next month so they keep coming back. There are also more sellers each month and they come back with more items, said TradeMe general manager Nigel Stanford. In July 2002 there were an average of 176,000 visitors and about 90,000 of those were regulars. On any day were averaging about 1200 people selling up to 7000 new items with probably 23000 people bidding. More than $15 million worth of goods had been sold to date.

TradeMe was a veritable portal, using its technology to host the SafeTrader escrow service, a trusted third party releasing money from larger sales to the seller of goods once the auction process was complete. It also hosted its own Flathunt flatmates site, putting those seeking accommodation in touch with suitable places. And there was the Old Friends school reunion site and the Find Someone dating site, in which the company had a major shareholding. The TradeMe network allowed the company to cross-sell through its various sites. That also worked with TradeMe stores. The auction technology, originally designed by company founder Sam Morgan and run from his lounge, was now continually being upgraded by a team of developers, with new uses being discovered every month. The homegrown technology was also finding a niche as portal partners and niche users repurposed it for their own use.

Originally the company didnt charge users for goods sold at auction, but in September 2000 it decided to opt for a percentage of each sale, and it didnt look back. Typically it charged less than 5 percent of the sale price.[30] TradeMe had cruised into profit after two and a half years, and by October 2004 was rated as New Zealands most visited shopping site. In July that year it had 952,244 unique visitors with 250 million page views or around 3040 percent of all traffic on the domain. Mark Ottaway, managing director of Nielsen//NetRatings, described TradeMe as phenomenal in terms of the traffic it attracted. It is far and away New Zealands most successful on-line site. Its a good Kiwi success story.

Based on its poll of 3750 New Zealanders surveyed in the first quarter of 2004, 7.9 percent had shopped at local on-line sites and 5.9 percent at overseas on-line sites. While the numbers were modest, 22.6 percent used the Internet to research information on-line, and 19 percent had bought something on-line in the preceding 12 months. The most popular purchases were travel, books and magazines, entertainment, and movie tickets. Small numbers purchased computer software and music.[31]

A Massey University study of Internet buying patterns and attitudes in late 2004 said convenience and saving time were the strongest motivators followed by competitive prices, the wide selection of goods and regularly updated information. Typical on-line buyers were aged between 21 and 39 and well educated. Those who didnt finish secondary school accounted for only 6.9 percent of on-line shoppers. The biggest impediment to buying was web site security and privacy, and the study warned e-tailers to adopt advanced encryption technology and post assurances of security on their web site. web site design, reliability and customer service also influenced consumers.

Growth in e-commerce was now rapid, with the popularity of sites such as eBay in the United States and its local equivalent TradeMe helping boost consumer confidence. Many computer companies now allowed customers to experiment with different configurations and costs on-line before committing. And there was a lot of activity in the on-line consumables market with sales of toner, ink cartridges, CDs, DVDs, removable media, printers, faxes, and phones. The new confidence among Kiwis was confirmed by Visa, which said the number of on-line transactions made by its card holders had jumped 95 percent in 2004. On-line shoppers racked up $400 million in sales on their Visa cards, with anecdotal evidence showing the trend was mirrored by other credit card vendors. And much of the spending was local, with cross-border transactions accounting for 16 percent of all Visas e-commerce transactions, up slightly from 15.2 percent in 2003.

With everyone from Air New Zealand to Woolworths now accepting credit cards through their web sites, on-line payments was becoming an attractive option to pay bills for everyday items.

On-line transactions averaged a hefty $141 each. Groceries, electronics, and larger consumer goods were popular purchases. Visas general manager for Australia and New Zealand, Bruce Mansfield, said on-line authentication of credit card transactions had eliminated virtually all fraud-related charge-backs. A secure foundation coupled with increased demand for specialised products not offered in local markets continues to drive cross-border transaction volume. Businesses as well as consumers were increasing their e-commerce activity. Visas global e-commerce sales volume originating from more than 90 countries was estimated to exceed $210 billion in 2004, 57 percent higher than in 2003.

Richard Shearer, general manager of WebFarm, which enables companies to sell goods internationally in any currency, said some businesses using the service increased sales by 200 percent in the run-up to Christmas 2004 compared with 2003. These trends indicate that businesses who implement e-commerce as a cost-effective sales channel are growing their business and facilitating export sales. On-line travel purchases such as for airline tickets and accommodation had made on-line shopping a realistic everyday alternative, said Shearer. And the dramatic increase in on-line business was customer led rather than business driven.[32]

By the end of 2005 it was estimated 84 percent of New Zealanders who regularly use the Internet were conducting on-line research ahead of making a purchase and at least 30 percent were purchasing on-line, according to Nielsen//NetRatings. Other market research used by Telecom suggested 309,000 people in New Zealand regularly shopped on-line. Local and international research looking at on-line buying habits confirmed books, music, videos, and travel were the most frequently purchased items followed by flowers, gifts, food, drink, electric appliances, computers, toys and games, apparel, and accessories.

Books topped the list mainly because consumers felt no need to inspect them closely before buying. New Zealand led the world for on-line banking (49 percent). Now it was clear our use of the Internet for information on travel, including destinations, accommodation, and planning itineraries was among the fastest growing. About 40 percent of us had made reservations or purchased tickets on the Web. Around 50 percent of Air New Zealand customers traveling within New Zealand or on trans-Tasman and Pacific routes had booked directly.[33]


[1] Later acquired by the National Bank


[3] ‘Telecommunications and Information Highways in New Zealand, Budde Communications 19981999

[4] An intranet is an internal, company-wide Internet-based network that gives common access to important company information from price lists to processes, procedures, employment guidelines, and newsletters. An extranet would be an extension of your internal Intranet to business partners or those in the supply chain offering access to catalogues, price lists, or core information needed to facilitate their working in with your company

[5] Keith Newman, Ecommerce Star about to rise, TUANZ Topics, April 1999

[6] NZ Herald, 21 September 1999

[7] Keith Newman, E-Lessons from the Fallout Shelter, NZBT 3 August 2000

[8] Telecommunications and Information Highways in New Zealand 2001, Paul Budde Communications

[9] Keith Newman, Ecommerce Consolidation, MIS Magazine, August 2000

[10] Budget 2000 government, press release, 15 June 2000

[11] Electronic Commerce in New Zealand: A Survey of Business Use of the Internet, Ministry of Economic Development, 2000

[12] Keith Newman, Kiwis Flying With Best in e-World, Home Technology, 2000

[13] Budde 2001

[14] Telecom shed its 10 percent interest in EDS after dissolving the eSolutions partnership both had formed with Microsoft in 2002

[15] Keith Newman, e-Commerce Entry Made Easier,, November 2000

[16] Budde, 2001

[17] Keith Newman, e-Commerce Entry Made Easier

[18] Keith Newman, Batten Down the Hatches, MIS, September 2001 and related research

[19] Ian Miller, Internet Commerce, Sizzle or Hype, Home Technology, November 2001

[20] Keith Newman, Maturing the e-Market Model, NZBT, 2 December 2001

[21] Makin bacon on the net, Australian Reseller News, November 1999

[22] Keith Newman, Maturing the e-Market Model

[23] Keith Newman, Rewards for eBusiness Risks, TUANZ Topics, February 2002

[24] Media statement, The E-Commerce Strategy: One year on

[25] Paul Swain, press release, eCAT report a stock take of e-commerce initiatives, 16 June 2003



[28] Keith Newman, Surfers wasting less time, Home Technology, November 2003

[29] Keith Newman, Kiwis becoming more cultured, Home Technology, November 2003

[30] Keith Newman, Why TradeMe works Trade Me, iStart, August 2002

[31] Vikki Bland, iStart October 2004

[32] Owen Hembry, Kiwis embrace on-line shopping, NZ Herald, 18 January 2005

[33] Keith Newman, On-line commerce goes mainstream, Home Technology, November 2005