The Future Is Now

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Boxman may be the wave of the e-tailing future in Europe. The online retailer began life in 1997 peddling CDs, videos and dvds in Sweden only, but today it has branched out to become one of Europe's first Continent-wide dotcoms. Boxman, which had sales of about $9 million in the first half of last year, has operations in eight European countries, selling to some 550,000 customers via mobile phones, interactive TV and PC modem connections. ceo Tony Salter says the firm was first to market in most countries and in the few places it wasn't--such as the U.K.--merged with the competition. Not content to rely on Internet service provider portals, Boxman now pushes its products through hundreds of partnerships, like its e-mail marketing campaign with mtv Europe.

This year will mark a sea change in pan-European e-tailing, according to two reports released last week, and firms like Boxman are ready to ride that wave. Boxman and a host of other European Internet companies are expected to go public this year, raising cash to expand even further and snatch cross-border rivals. And traditional retailers will ramp up their Internet efforts by buying online beachheads into new markets.

Internet research firm Jupiter Communications' latest report predicts that online commerce revenues in Europe will increase eight-fold to $61 billion in 2005, with the number of online buyers more than quadrupling to 85 million. U.S. online retailers, the biggest potential competitors for this market, are still preoccupied with their domestic businesses but will start seriously focusing on Europe next year. That gives European e-tailers who want to grab online share a 12- to 18-month window to expand across borders, establish their brands and figure out a sustainable business model, says Barrie Berg, a partner in the London office of consultancy Booz Allen & Hamilton. If they can get their act together quickly European e-tailers "may steal the lawn before the Americans have time to park their tanks here," says Nick Jones, an analyst in Jupiter's London office.

Tech consultancy Forrester Research's latest report on European e-commerce forecasts that online retail winners will emerge from four areas: the Nordic countries, where firms like Boxman have pioneered cross-border expansion; the U.K., where venture capital is feeding expansion strategies; Germany, Europe's largest e-commerce market; and Spain, with e-tailers like and SportArea using Spanish-language offerings in Central and South America to build volume, go public and use the cash raised to acquire competitors across southern Europe.

But these companies will soon start facing a greater challenge from traditional retailers. Europe's dotcom companies currently hold 51% market share of online retail spending. But traditional retailers are poised to steal online market share and will claim as much as 75% of Europe's online sales by 2003, according to Jupiter's report.

For example, U.K. supermarket Tesco will triple the number of its stores that accept Internet orders, according to Forrester's report. And all other major retailers --including holdouts like Benetton, De Bijenkorf and LeClerc--are expected to launch full-featured Internet sites over the next few years as a response to competition from Internet companies. Forrester predicts that the average annual expenditure per Internet shopper in Europe will jump from $493 in 2000 to $1,604 in 2005.

By then, 51% of European households will have interactive digital TV and 56% of consumers will be using wireless application protocol (WAP) phones, opening e-commerce to millions of Europeans without PCs. A glimpse of what's to come: users of phones equipped with wap technology, which permits Web access, can already purchase CDs from Boxman, hotel accommodations from Scandic and dinner from Peppe's Pizza.

But today few merchants aggressively use the Internet to capture a greater share of the European market. Over the next few years dotcoms and traditional retailers will either adopt cross-border strategies or see their businesses eroded by competitors who do. Venture capital firms such as Atlas Ventures and Net Partners only have eyes for pan-European business plans with massive volumes that can meet return on investment targets by anything from 10 to 100 times in the average two year run-up to an initial public offering.

Boxman is one of the few European Internet companies to succeed in mounting a pan-European launch aimed at a specific market segment. Founded by three Swedes who ran a chain of video and music shops in Sweden, the company rapidly expanded and the three Swedes have gradually exited. Today it is run by Tony Salter, 40, a Briton who learned about the music business and breaking into new markets while working for U.K. music company EMI in Eastern Europe. Says Salter, "If you want to build a pan-European strategy the only chance of it being a success long term is to move into every market at the right time. You have to be early but not too early and realize that there is a huge difference between European markets."

Marketing and distribution are two other key factors. Boxman has an impressive list of partners, including Yahoo, AOL, Virgin Net, Sony, Pepsi and Open TV, and it boasts some 500 deals in the U.K. alone. Its chief rivals in Europe are BOL, Bertelsmann's online venture, and U.S. giant Amazon. Salter says his company has a key advantage because his firm does not sell books, which are a mainstay for both Amazon and BOL. Books must be in the local language and require a substantial infrastructure and staff in each country. Music requires less support since between 60% and 70% of what people buy is international in nature, says Salter. Boxman has been able to centralize its information technology, finance and distribution operations in Amsterdam, allowing the company to enter smaller markets earlier.

Salter says Boxman plans to remain focused on music and videos and doesn't worry about being driven out of business once most people begin downloading rather than buying music, movies and games. "By the time downloading becomes a real part of the market we are going to have 5 million, 10 million customers across Europe," he says. If Boxman and other European e-tailers succeed in building up that kind of cross-border customer base it will be that much harder for U.S. dotcoms to call the tune in Europe.

For more on the Internet in Europe, watch for TIME's e-Europe special report in June.