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The Numbers Game

The Numbers Game

IDC Asia Pacific research vice president Dane Anderson admits the excesses of the Internet bubble were reflected in the "exuberance of some boutique [market research] firms". But he defends IDC's electronic commerce forecasting record, describing it as "conservative".

The basic tool IDC depends on for broad perspective forecasts of e-commerce hasn't changed, Anderson says. It is the Internet Commerce Market Model (ICCM) developed in the US in late 1995 and rolled out in the rest of the world the following year. The model's strength, he says, rests on the assumption that conducting Internet commerce requires connected devices; and tracking populations of installed devices is IDC's traditional forte.

Marrying user surveys and vendor interviews to the results cranked out by ICCM yields what Anderson calls "a powerful view grounded in reality". Inputs from regional analysts round off the forecasts and given them localised credence. "As time progresses, our forecasts have become more confident because the environment becomes more stable and more predictable," Anderson says.

Signs are appearing of a change in the forecasting landscape as the terra nullius of electronic commerce fills up with population centres. Gartner for one is moving away from general e-commerce predictions to focus on more tightly defined segments. "We found those sorts of broadly based forecasts have been unhelpful to our clients over the past year or so," says Richard Harris, vice president Asia Pacific for Gartner G2, the group's new strategic business planning research service.

At the start of any new era or technology, broad-brush estimates are necessary evils, he says; but generalist figures induce a false sense of security because "they give people the idea they know what is happening when they really don't". As the new era fragments into differentiated zones of activity, "unless you drill down to look at specific areas, the [generalised] figures become quite meaningless", Harris says.

Unfortunately, even in more specialised areas, the pundits' predictions haven't proved particularly precise. The e-marketplace segment, for example, was tipped to spawn anywhere from 900 to 5000 electronic exchanges, says Accenture's Gattorna. "We never got anywhere near that. In Australia, there are probably no more public markets than you can count on one hand. And the people who talked the numbers up have been very slow to track the failures," he says.

E-tail forecasts went wildly wrong because pundits were wowed by the front-end systems that made it possible for customers to visit Web sites and place orders.

What the experts missed was the slower rate and higher cost of developing the back-end systems needed to deliver the goods being ordered.

As to whether the quality of e-commerce forecasts is improving with experience, "I haven't seen any credible figures lately in the supply chain area," says Gattorna. "I think we are in an interim period. People are licking their wounds and reconsidering the feasibility."

Businesses engaged in the supply chain sector will be relying less on input from the e-commerce research companies and more on their own experience, he suggests. "Frankly, macro hype is useful to talk things up in the beginning. But it doesn't mean a thing to a company which is at the stage of fine-tuning online relationships between buyers and suppliers."

A bellwether player in the e-procurement space, Cyberlynx, whose stakeholders include the Commonwealth Bank, retail colossus Woolworths and brewer Lion Nathan, pays very little attention to e-commerce forecasts. It depends far more on input from its customers to shape forward strategy, says business development manager Steve Harmer.

In the early days of e-business, numbers that gave a pointer to market sizes were valuable but they have been transcended in importance, he says. "What we want now are things that can't be set up in numbers such as implementation issues within customer environments.

"The market forecast groups tend to take a sample and project it up. We get back down to our customers, " says Harmer. "We have a tight target market and we talk to a lot of customers on a day-to-day basis. That gives us a good understanding of what they want and their speed of acceptance of new technologies."

Some companies never felt compelled to touch base with e-commerce projections before taking the Internet plunge. When Amway Australia launched itself into Web commerce in 1998, "to be honest, we didn't look out into the marketplace and say this is going to be worth it to spend this kind of money", says Greg Bowman, the company's sales and marketing director.

The mechanics of the Web seemed to fit naturally with Amway's business, which in Australia embraces 100,000 self-employed distributors of its health, home and beauty products. "It wasn't a question of show us the numbers to prove whether we should make the decision or not," says Bowman. "We recognised right away this was a channel we wanted to be involved in. We felt if there was one company in the world well suited for e-commerce activity, it was us."

And so it has proved. Some 47 per cent of Amway's revenues now flow through e-commerce and it has spent next to no money advertising its Web site, www.a2k.com.au. By contrast, early online rivals such as dstore splashed out millions of dollars to attract customers.

The difference is that dstore, like many of the pundits' reports which made it a poster boy of the dotcom industry, is now mulch.

The Intelligent Users Guide to Online Business ForecastsFive tips from the pros on avoiding e-forecast poisoning:

1. Clarify and understand all definitions.

2. Ignore forecasts which look out more than six to 12 months.

3. Don't grab forecasts based on global figures that have been scaled down to regional dimensions. Localised political, social and pricing issues make the numbers a poor bet.

4. Forget macro and focus on the niche where your company is positioned.

5. Numbers, even if accurate, are only a starting point. They give the "what" but custom-tailored answers on "how" and "why" and "when" should precede any large investment.

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More about Accenture AustraliaAllen Consulting GroupAmwayAPTAustralian Bureau of StatisticsCommonwealth Bank of AustraliaCyberlynxForrester ResearchGartnerIDC AustraliaInfotechJupiterJupiter CommunicationsLion NathanMedia MetrixNational Office for the Information EconomyNOIEWoolworths

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