The Internet is Broken

1

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Target Open Day Sep 19, 2014 | The Village Hotel, Leeds, UK

Broken?Is The Internet

Web of Intrigue – 1: The Internet Is Broken

2Target Open Day Sep 19, 2014 | The Village Hotel, Leeds, UK

Everything You

Believe

Is Wrong



Growth isNOT

Happening



Growth is

SLOWING EARLY and

ABRUPTY



The Bubble Has

NOT YETBurst



INTERNET GROWTH IS NOT MATERIALISING

Web of Intrigue – 1: Internet Growth Is Not Materialising


UK Online 2006 - 2013

% Population Purchasing on InternetWeb of Intrigue – 1: Internet Growth Is Not Materialising


36m Brits Use the Internet Daily…

2006 2007 2008 2009 2010 2011 2012 20130

1020304050607080

Daily At least weeklyLess than weekly Not used in the last 3 months

35.7million

7.4million4.2m

1.6m

UK Online 2006 - 2013

% UK Population



…What Are They All Doing?Em

ailing

Products

/servi

ces

News

Socia

lTra

vel

Bankin

gHea

lthW

ikis

Course in

foSo

ftwareSe

lling s

tuff

Calls

Job se

arch

Networki

ngPo

litica

l

Online c

ourse

Surve

ys/vo

ting

020406080

100

16-2425-3435-4445-5455-6465+

UK Online 2006 - 2013

% AgeGroup



Surely Everyone is Buying Stuff?

2008 2009 2010 2011 2012 20130

102030405060708090

100

16-2425-3435-4445-5455-6465+

UK Online 2006 - 2013

% AgeGroup





Surely Everyone’s Buying Computers?

Clothes, sports

goods

Household goods

Films, m

usic

Books, m

ags, n

ews

Holiday

lodgin

gsTrav

el

Tickets

for eve

nts

Food or g

rocerie

s

Electronic g

oods

Games s

oftware

Share

s, insu

rance

Other software

Teleco se

rvice

s

Computer h/w

are

Medicine

E-learn

ing mate

rial

0

20

40

60

80

16-2425-3435-4445-5455-6465+All

UK Online 2006 - 2013Significant mail-order persists

% AgeGroup



% Category Total Captured 2012Web of Intrigue – 1: Internet Growth Is Not Materialising


Drivers of Internet GrowthDriver1. Non-store sales (66%)

– Mail order, TV shopping, Insurance

2. Branded commodities– Branded electricals (not

bespoke systems)3. Grocery4. Digital goods

– Music, video, software, ebooks

Reason• Channel displacement

– aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa

• Price comparison• aaaaaaaaaaaaaaaaaaaaaaaaaaaaaa

aaaaaaaaaaaaaaaaaa• Competitive response• Electronically transferrable• aaaaaaaaaaaaaaaaaaaaaaaaaaaaaa



Death of the High-Street?

Chain branch trendsNet shedding mainly in services such • Banks• Building societies• Post offices• Travel agencies etc.• Also easy-capture retailing

such as music, video, software etc.



Sales Forecasts Grossly Over-Stated

• Growth reporting flawed: fails to differentiate– Canabalisation v non-store – Home delivery v click-and-collect

• Diversion from shops far lower than predicted– Shopping hinges on ‘see, touch, feel, experience’

• On current trajectory UK 2020 internet sales– 14-15% total retail sales



GROWTH UNDER 50% PREDICTEDClear Evidence of Hype, Hysteria, Puff, Denial



GROWTH IS SLOWINGEARLY AND ABRUPTY

Web of Intrigue – 1: Internet Growth Is Slowing Early & Abruptly


% Category Total Captured 2012

• Failing to penetrate markets 15 times the size• Significant bricks-and-mortar fulfilment remains



Dramatic Unexpected Asymmetry

66% 8%No logistical barriersElectronically transferrable goodsOnline suits buyers

Logistical barriersComplex salesExperiential sales



Home Delivery Trails Sales Growth

Electronically transferrable displacement

‘Click-and-collect’

Online grocery shopping ‘irregular’



Behind the Headlines

• Growth overwhelmingly from electronically transferrable goods

• The bulk of trade is from services not retailing

• Reports include misclassified sales – especially travel

• Home delivery growth shows its just a selling channel



The Glory Days Are Past

• Downloadable market captured–Music, Film, Software…

• Non-store trade captured years ago



Internet Growth is CrashingSales Growth Online vs All-Retail (%)



THE DOT.COM BUBBLE HAS NOT YET BURST

Web of Intrigue – 1: The Dot.Com Bubble Has Not Yet Burst


Once Upon a Time…It’s peanuts to set up a business seen by billions of eyeballs everyday…



Is Being Online Easy Money?

• Legions of entrants make price competition fierce– Many inexperienced even naïve

• Business seem profitable but are transient– Few plan adequate margin for sustainable profits

• Increased logistics costs– Prohibitive as item value decreases– Incremental picking and logistics (supermarkets)

• Very few successful pureplays– Those that are, are increasing margins (eBuyer, Scan)



Anyone Can Be a Millionaire?Firm Size Average Value of

Sales via InternetOnline Revenue as % of

Total Turnover

Micro (<10 employees) £1,000 0.6%

Small (11 to 49 employees) £175,000 4.6%

Medium (50 to 249 employees) £2,500,000 13.1%

Large enterprises (250+ employees) £69,000,000 18.7%

2010 Average Annual Online SalesSource: Cebr analytics; Office for National Statistics



• Founded ’95• $10.5Bn invested by

2012• IPO ’97• P/E ratio of 400• Jeff Bezos worth $29.7Bn

• No dividend since IPO ‘97• Quarterly results July 2014

– 23% rise in sales to $19.3Bn– Net loss of $126M

• Since ‘97 cumulative– Sales $315 billion– Profits $2 billion or 0.6%

(Wal-Mart is 3.4%)

Even the Biggest Find it Tough



A strategy of ‘buying’ market share then raising prices is NOT working

Stock Decline 201417%



The Internet Is Funded By Advertising Web of Intrigue – 1: The Dot.Com Bubble Has Not Yet Burst


Traditional Advertising is Failing

• 95% Don’t trust advertising• 8% Trust what companies say about themselves• 58% Believe "companies are only interested in selling

products and services to me, not necessarily the product or service that is right for me“

• 17% Believe companies take what they say seriously

Source: “Your Brand: At Risk or Ready for Growth”, Alterian plc by Lancaster University 2010



Killing The Golden Goose?

• ‘Interruption’ being used to shore up ROI– Pop-ups– Lead generation (data gathering)

• Yet when the internet delivers so much choice, how can it be a good thing to annoy customers?



Social Endorsement

Social Media presents an opportunity BUT ‘old-school’ marketing is prevailing



Is the Internet Morally Bankrupt?

• Those with the biggest servers will win– Wealth will be concentrated with the few

• Relentless falling prices means– Increased unemployment– Impoverished consumers



A Crisis Is Emerging• Inequalities drive public opinion• Governments will respond

– Taxes will follow (are?)– Tax avoidance will be addressed

• Price advantages will cease• The internet could go into

reverse



• Google paid just £935,000 on £239m for 2011 and £8m between 2004 and 2010

• Amazon made £3.3bn sales in 2011, but paid no corporation tax in the UK

• Starbucks paid just £8.6m in its 14 years of trading in the UK



SummaryWeb of Intrigue – 1: The Dot.Com Bubble Has Not Yet Burst


The Chickens Are Coming

• Realities confound forecasts• Investments will never be recouped• Huge vested interests are at play• Moralities are being confronted• A correction is inevitable



BrokenThe Internet Is





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