McKinsey&Company
Copyright 2000
CONFIDENTIAL
Overview E-commerce Brasil
Presentation to ACSP
São Paulo, June 29, 2000
This report is solely for the use of client personnel. No part of it may be circulated, quoted, or
reproduced for distribution outside the client organization without prior written approval from
McKinsey & Company
This material was used by McKinsey & Company, during an oral presentation; it is not a complete
record of the discussion
• Overwiew: Internet and e-commerce growth in Brazil
• B2C: trends and challenges
• B2B: trends and challenges
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1
INTERNET PENETRATION IN BRAZIL KEEPS GROWING
million users
Morgan
Jupiter
29,10
24,74
20,10
19,93
17,11
15,00
12,00
6,00
3,99
1999
8,00
6,13
2000
RO
10,89
8,45
2001
Source: Morgan Stanley Dean Witter - 2000, Jupiter Communications - 2000
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13,90
2002
2003
2004
2005
2
HOWEVER, INTERNET PENETRATION IN BRASIL IS STILL RELATIVELY LOW COMPARED
TO OTHER COUNTRIES
% active users* per adult population**
Finland
52,3
Singapore
39,9
US
28,7
Canada
28,7
UK
26,3
Germany
15,3
Japan
10,0
8,8
France
Brazil
2,0
Argentina
1,4
Mexico
1,3
* Users who are on-line at least an hour a week
** Population over 18 years
Source: US Census Bureau - 1999, eMarketer - 2000
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Estimates
for 2005
20-30
3
HOME AND WORK ARE THE PRIMARY PLACES OF WEB ACCESS IN BRAZIL
% users, 2000
School
Other
3 2
Work
Source: IDC, Project Atlas - 2000
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44
51
Home
4
THE INSTALLED BASE OF PCs, STILL THE PRIMARY ACCESS DEVICE, IS GROWING
thousand
15,783
9,025
6,434
Home
CAGR
25%
13,590
11,341
27%
25%
28%
30%
64%
33%
67%
61%
57%
Business
50%
Other
17%
13%
11%
9%
8%
1999
2000
2001
2002
2003
Source: Morgan Stanley Dean Witter, 2000
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5
PCs INSTALLED IN PRIVATE HOMES SHOW A HIGHER PERCENTAGE OF INTERNET
Business
ACCESS
Home
% PCs with internet service
79
75
69
62
56
55
47
39
31
23
1999
Source: Morgan Stanley Dean Witter, 2000
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2000
2001
2002
2003
6
Bandwidth (Kbps)
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Device
Access
Downstream
Upstream
Example
PC
Dial-up
xDSL
56
1,500 - 9,000
56
16 - 640
UOL
Speedy
Mobile telephone MMDS
9,600
N/A
Telesp Celular
Web-enabled TV Cable
3,000 - 10,000
3,000
Virtua
Set-top box for
normal TV
56
56.
My Web
Dial-up
7
THE USE OF ALTERNATIVE ACCESS TECHNOLOGIES IN BRAZIL WILL BE
GROWING, HOWEVER, DIAL UP WILL REMAIN THE MOST IMPORTANT ONE
% of users
100%
Dedicated
Dial up
1
10
1
8
1 2
90
1999
RO
2
2
5
6
3
6
8
3
Wireless
Dedicated
DSL
Cable Modem
Dial up
87
86
84
80
2000
2001
2002
2003
Source: Morgan Stanley Dean Witter, 2000
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7
3
Not considering
Internet access via
mobile phones
8
MOBILE PHONE PENETRATION WILL DRIVE GROWTH OF MOBILE INTERNET
AND M-COMMERCE
million
35,9
32,6
Mobile
29,3
25,3
22,3
18,1
PCs
15,0
18,0
19,7
15,8
13,6
7,0
11,3
9,0
4,9
1998
6,4
1999
2000
2001
WAP
Source: Morgan Stanley Deen Witter, Bear Sterns&Co
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2002
2003
2004
2005
Units
9
FREE INTERNET ACCESS WAS INTRODUCED IN BRAZIL EARLY 2000 ASND HAS
REALIZED SIGNIFICANT SIZE
Million users
Major players
3,00
BOL
• Bradesco
iG
1,80
• Unibanco
• Terra Livre
Tema livre
• BRFree
0,42
• Super 11
BR Free
Source: Press clipping
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1,12
10
SUBSCRIBER FEES (UNLIMITED ACCESS) HAVE BEEN REDUCED SIGNIFICANTLY
R$
UOL
Terra/ZAZ
100
80 59,00
60
19,95
40
19,95
35,00
20
0
Jan/99
Sep/99
Nov/99
12/1/98
2/1/99 4/1/99 6/1/99 8/1/99
10/1/9912/1/99
2/1/00 4/1/00
90,00 **
100
80
60
19,95
35,00
40
20
0
Jan/99
Nov/99 Jan/00
12/1/98
2/1/99 4/1/99 6/1/99 8/1/99 10/1/9912/1/99
2/1/00 4/1/00
100
80
60
34,00
24.95*
AOL
40
20
0
Nov/99
Mai/00
12/1/98 2/1/99 4/1/99 6/1/99 8/1/99 10/1/9912/1/99
2/1/00 4/1/00
* Access to call center costs R$ 1,50/call
** 100 hours per month
Source:
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11
BIG PLAYERS ARE INVESTING HEAVILY IN ISPs AND PORTALS
ISP/Portals
Investor
Amount
Date
Globo.com
Telecom Italia
US$ 810 million
May/00
30
ZipNet
Portugal Telecom
US$ 365 million
Feb/00
100
AOL
Itaú
Not disclosed
Jun/00
12
UOL
Morgan Stanley
Dean Witter, et al
US$ 100 million
Oct/99
12.5
Source:
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% of Stake
12
E-COMMERCE SPENDITURE IN BRAZIL WILL GROW EVEN FASTER THAN
INTERNET PENETRATION
US$ million
3,153
1,899
988
490
116
70
186
1999
Source: Morgan Stanley Dean Witter, 2000
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2000
B2B
893
B2C
1.273
627
304
186
2.261
362
2001
626
2002
2003
13
HOWEVER, COMPARED TO OTHER COUNTRIES, E-COMMERCE SPENDITURE IN
BRAZIL IS STILL LOW
US$ billion, 2000
161,00
US
17,98
Canada
Germany
9,16
UK
7,76
France
3,50
Australia
2,69
Netherlands
2,45
Sweden
2,31
Finland
1,99
Brazil
0,49
Source: eMarketer, 2000; Morgan Stanley Dean Witter, 2000
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1,7 % of
GDP
15,40
Japan
0,08%
of GDP
14
PROJECTIONS OF WORLDWIDE E-COMMERCE HAVE BEEN REVISED
CONTINUOUSLY
US$ billion
2002
805
734
+10%
+72%
426
+58%
269
Original
(Late'97)
Source: eStats
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Revised
(Mid'98)
Revised
(1Q'99)
Revised
(1Q'00)
15
PERCENTAGE OF WEB BUYERS VS. WEB USERS IS GROWING
% active users*
29,5
26,4
23,1
19,4
15,2
1999
* Users who are on-line at least an hour a week
Source: Jupiter Communications, 2000
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2000
2001
2002
2003
16
SIGNIFICANT INVESTMENT GOES INTO E-COMMERCE IN BRAZIL
E-business
Source: Press clippings
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Segment
Investor
Amount
invested
Stake
US$ million
%
Date
Portal/
free access
Telemar/
Tele Centro Sul
8.5
34.2
Feb/00
Portal/
free access
TH Lec. Putman
Internet Partners
UBS Capital
Americas
75.0
15.0
Jun/00
Books/CD's
e-retail
Chase Capital
Partners
Goldman Sachs
and others
71.3
N/A
Feb/00
On-line bank
Portugal Telecom
58.0
31.5
Jun/00
17
AFTER THE NASDAQ CRASH INVESTORS ARE ACTING MUCH MORE
CAUTIOUSLY
thousand
• E-commerce investors are
becoming more selective
• In addition to growth rates,
profit becomes an important
criteria for investments
• Less money available in the
market for IPOs
Source: Nasdaq
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18
B2B E-COMMERCE OPPORTUNITIES – VALUE ADDED ALONG THE CHAIN OF A
COMPANY
Product
development
• Better R&D due
to more client
information
• Possible R&D
cooperation
between
companies and
geographies
Supply
• Cost reduction
from more
competition and
price
transparency
• Less inventory
cost due to
better
supply/sales
coordination
Manufacturing &
assembly
• Smaller costs
without double
processing
• Smaller volume
of semimanufactured
goods
Marketing
• Stronger
relationship with
clients
• Focus in
marketing
expenditure with
better
segmentation
• Research of
Sales &
distribution
• Reduction in
sales costs with
automatization
• Use of more
Customer
services
• Better customer
services
• Smaller costs of
interaction
direct channels
• More efficiency
in new products
promotion (e.g.
"cross selling")
new segments
and
geographies
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19
THE PLANT ENGINEERING BUSINESS SHOWS THAT E-BUSINESS CAN BE MUCH
MORE THAN JUST TRANSACTIONS WITH PHYSICAL GOODS
Project
development/
sales
Key
issues
• Communications
•
E-business
solution
•
of customer value
Configuration and
mock-up tools
Online tool for bid
preparation
• Schindler
• Johnson
Source: McKinsey
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Engineering
• Various
•
•
interfaces with
– Customer
– Development
partners
– Suppliers
Different
databases
Lacking
geographical
proximity of
partners
• Online calculation • Project hubs
•
Examples
based on
technics rather
than customer
value
Time consuming
processes for
configuration and
bid preparation
Project management
Controls
and extranets
Project
execution
Purchasing
• Insufficient
•
price pressure
on sourced
parts and
materials
Unreliable
delivery
schedule of
suppliers
• Reverse
•
auctions
Catalogue
ordering
• Various
•
interfaces with
– Subcontractors/general
contractor
– Construction companies
– Suppliers
Change orders
and delays
After sales/
lifecycle
business
Start-up
• Intense
supervision
required
during start-up
• Lifecycle
•
•
• Online project
• Remote
management
(project hubs
and extranets)
start-up
• GE
• Babcock
Borsig
• Bechtel
• Rohm and
business lost to
other providers
Scarcity of
maintenance
experts
High opportunity
cost in case of
unpredicted
downtimes
• Lifecycle sites/portals
• Maintenance
management systems
• Wireless communication
•
• Boeing
• Bechtel
Pure
transaction
• Siemens
devices
Automized preventive
maintenance
• Valtra
• Schindler
Haas
20
B2B – USA
* As of July 27th 2000
Source: Web sites, lit search
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EXAMPLES
B2B
Description
Market cap
MetalSite
Join venture among several steel
manufacturers and processors
aggregating metal products
Private company
VerticalNet
It joins 47 industry communities
focusing on content
$ 3.1 billion
Chemdex
Catalog aggregator for the scientific
products market. Founded in1997 it
joins 150 suppliers
$ 1.1 billion
PlasticsNet
Marketplace to the fragmented plastic
industry launched in 1999. It joins
28,000 members and more than 200
suppliers
Private company
21
B2B – RECENT BRAZILIAN LAUNCHINGS
• Webb
• Agrosite
– Launched: April/2000
– Aggregation of several vertical
portals, join buyers and
suppliers of different industries
(automotive, insurance, health,
chemical, and more to come)
– Ownership: Macal Investments
– Partners: IBM (technology),
PriceWaterhouse Coopers
(security)
– Initial investment: US$ 7 million
Source: Web sites, press clippings
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– Vertical portal to the
agribusiness, offers catalogs of
suppliers and information for
agri-community
– Investor:
Morgan Stanley
Dean Witter PE
– Investment: US$ 8 million
EXAMPLES
• Excess channel
– Launched: June 2000
– Portal for business buying and
selling excess inventory though
on-line auction
– Ownership: Boucinhas &
Campos Consultores
22
IN FACT, THERE ARE E-COMMERCE OPPORTUNITIES FOR BOTH BUYERS AND
SELLERS
Buyer
Make markets more
efficient
•
•
•
•
Improve internal
purchasing processes
• Improve compliance to purchasing rules and procedures
• Obtain volume discounts
• Reduce transaction costs
Establish intimate
supplier networks
E-commerce
opportunity
Reach new customers/
engender loyalty in
existing customers
Obtain better market information
Identify and qualify new suppliers
Gain access to more variety of goods and services
Reduce prices through greater transparency and increased competition
• Share important operational and performance information with
suppliers
• Improve distribution and logistics
• Increase demand for goods from access to new customers by
expanding geographic reach
• Develop community around products allowing capture of real-time
market insights and linking customers directly to manufacturers
• Tighten linkages with customers through tailored intranets
Seller
Reduce selling costs
disintermediation of other less efficient channels
Manage excess and
obsolete products
Source: McKinsey analysis
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• Reduce distribution costs from greater transaction efficiency and
• Increase options to manage excess, and end-of-life inventory issues
(e.g., perishables)
23
CONCEPTUALLY, THERE ARE SEVERAL B2B E-COMMERCE MARKETPLACE
FACILITATION MODELS
US$ billions
Buy-side application
Description
Internet EDI
Description
Estimated 2003 flows: $200
• Software built on a buyer’s
Estimated 2003 flows: $500
• Direct connection
Buyer
Seller
One
Number of buyers
ESTIMATES
server or hosted on a 3rdparty server to aggregate
buyer’s purchasing needs
and present them to
multiple sellers for
fulfillment (e.g., Ariba,
Purchase-Pro.com)
Buyer
Seller
Our focus
between a single buyer
and seller interacting
through an Internet EDI
Marketplace
Description
Seller site
Description
Estimated 2003 flows: $330
• Sites in which multiple
Estimated 2003 flows: $300
• Internet-based direct
Buyer
Seller
Many
buyers and sellers come
together to negotiate
prices and exchange
goods (e.g., Chemdex,
VerticalNet)
Buyer
Many
Seller
sales sites targeting
multiple buyers (e.g.,
Cisco)
One
Number of sellers
Source: McKinsey analysis
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24
THE ARIBA MODEL IS AN EXAMPLE FOR A SUCCESSFUL BUY SIDE
APPLICATION
Key buy-side
application functions
4A Ship goods
End user
1
Option 1 –
Check/Other
Ariba purchasing application
Ariba
electronic
supplier
catalog
Ariba
approval
routing
system
Approved:
transmits
PO
2 • End user selects 3 • Ariba system
goods from
either approves
electronic catalog
or rejects based
containing
on buyer defined
pre-approved
rules
suppliers that
• Ariba system
offer products at
automatically
pre-negotiated
generates PO
prices
and transmits to
• End user
supplier
generates
electronic request
End user
accesses
Ariba system
through desktop computer to
purchase MRO
goods
Buyer A/P
BACKUP
Supplier
Internet
or fax
Operations
5
A/R
Process
payment
Option 2 –
Card
Option 3 –
EDI
4B Send ship-slip
6
Send payment to card issuer or seller
Buy-side value proposition:
• Time and cost savings across multiple
business units by coordinating and
aggregating purchasing
• Streamlined purchasing and back-end
reconciliation
• Improved data collection and management
to allow enhanced record-keeping and
analysis
• Reduced rogue purchasing
• Some transactions at certain suppliers are enabled for automated document matching (mostly
large market) either through Ariba, purchasing card issuer, or EDI
• Many others still perform 3-way manual match (PO, invoice, ship-slip)
Source: McKinsey analysis
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25
DELL IS ONE OF THE MOST SUCCESSFUL ON LINE SELLERS
3A Ship goods
Option 1 –
EDI
Dell back-office
Operations
Buyer
1
• Go to seller site and
browses on-line catalog
• Set up profile if
necessary
• Select goods
2 • Verify that items are
in stock
• Generate electronic
PO with total cost
Buyer A/P and
accounting
3B Send ship-slip
5
• Reconciliation– 3-way
match (PO, ship-slip,
invoice)
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Send payment to card
issuer or seller
4
A/R
Process
payment
Option 2 –
Card
Option 3 –
Check/Other
Seller site value proposition:
• To buyer:
– Ensures proper pricing for the buyer
through user profiles
– Provides ability to verify inventory and
adjust PO and ship-slip accordingly,
reducing confusion on the back-end for
the buyer
• To seller:
– Manages multiple buyer pricing schemes
seamlessly
– Reduces back-office personnel
26
PLASTICS NET IS A MARKETPLACE WHERE BUYERS CAN SELECT AMONGST A
NUMBER OF VENDORS
3B Ships goods
Off-line
Supplier back-office
Operations
Buyer
1
• Enter marketplace
• Search/select
products from on-line
electronic catalog
featuring multiple
suppliers*
• Set up profile if
necessary
Buyer A/P and
accounting
2
• Provide buyer
with electronic
purchase order
with total cost
• Send purchase
order to the
selected supplier
* Key difference from seller site
Source: McKinsey analysis
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Process
payment
• Buyer and seller go offline to determine how to
facilitate payment
3A • Receive
purchase order
On-line
• Chemdex facilitates
•
payment by allowing the
buyer to pay by
– Credit card
– Marketplace credit
Chemdex sends
payment to seller
5
Pay for goods
• 3-way match (PO,
invoice, ship-slip)
A/R
4
Marketplace value proposition:
• Increases purchasing efficiency by
automating and streamlining the
procurement process
• Lowers search costs by aggregating
product catalogs from multiple sellers
• Lowers prices by aggregating demand and
providing transparent pricing
27
COMPANIES NEED TO DEVELOP A CLEAR VIEW ON HOW THE WANT TO ALT ON
BOTH THEIR SELL SIDE AND THEIR BUY SIDE
1 What is the best solution for company XYZ
• On the buy side
– Build own e-procurement platform?
– Use B2B market places?
– Go directly to a seller's site?
?
• On the sell side
– By to build a "vendor lock-in"?
– Participate in market places?
• Chance to disintermediate or threat of intermediation?
• To which extent does this differ by products?
2 Should company XYZ proactively drive the building of
market places (sell-side of buy side) in cases where
this model seems to be appropriate?
Which are the challenges
Source: McKinsey
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28
THE "END GAME" FOR A GIVEN SECTOR DEPENDS HEAVILY ON THE LEVEL
OF FRAGMENTATION
Many
Number of
sellers
Perfect markets
• Multi vendor
catalogs
• Auctions
• Pure exchanges
Buyer centric
models
• Reverse auctions
• Multi vendor
catalogs
Think twice
The wrong
assessment of the
situation in an
industry might lead
to (very costly)
wrong decisions!
Some
Internet EDI
Vendor lock-in,
primarily on-tomany sell side
models
One or
two
One or two
SIMPLIFIED
Some
Many
Number of buyers
Source: McKinsey
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29
IS BRAZIL DIFFERENT?
Effect
• Many markets are much more concentrated
• Less neutral e-market places, more seller centric
or-one-to many models
• Having observed the US market, the
incumbents are not taken by surprise
• Time: (as opposed to US) powerful entry of
platform providers (like Ariba), banks and telcos
• Many sectors, especially fragmented ones, have
the problem of informality
Source: McKinsey
SA-P-ZXC-413-000628
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• Incumbent off-line companies play an active role.
Less space/chance for pure start up
• Consolidation, convergence of B2B marketplaces
might happen faster
• Some sectors can't be organized by "formal" B2B
products
30
THREE KEY FACTORS OF SUCCESS HAVE TO BE CAREFULLY THOUGHT
THROUGH _____ BUILDING A B2B EXCHANGE
Key factors for success
Liquidity
Agility
Neutrality
Source: Team analysis
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Problem
Possible solution
Pure dot.coms are facing
severe difficulties in US to
capture transaction volume
Alliance of large volume
with a consortium of
buyers
In US buyers are getting
together in consortia.
However, consortia of
several buyers are
experiencing difficulties to
make decisions at Internet
speed
Keep number of initial
partners limited to minimal
critical mass
Consortium of buyers
needs to guarantee
neutrality to attract
suppliers and additional
buyers
Set up advisory board with
industry leaders from
different user groups
(buyers and suppliers)
31
HOW TO CREATE LIQUIDITY
DISGUISED CLIENT EXAMPLE
• Possibility to offer stock options,
The presence of a variety
of suppliers creates a
valuable market place that
attract additional buyers
Suppliers
linked to target of purchasing volume,
to selected additional buyers
• All other buyers treated as clients,
with no incentives
Buyers
3
Product A
Intermediaries
End
customers
Market place
creation
Product B
1
2
Product C
The demand of few large
buyers, and the benefits
of using the system, push
suppliers to go on-line
• Possibility to offer price discounts/
Source: Team analysis
SA-P-ZXC-413-000628
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incentives to selected key suppliers
Bring critical mass of
purchasing volume to the
system aggregating few
large buyers
• Participation in first round investment
Equity bonus linked to targets of
purchasing volume
32
NUMBER OF MAJOR VERTICAL B2B MARKETS IN SELECTED INDUSTRIES (US)
Agriculture/Farming
17
Office products/small business services
16
Medical/health dental
13
Industrial equipment/auto
11
Telecom services
10
Construction
8
Financial services
8
Printing
8
Food/beverage
6
MRO
6
Transportation
6
Source: Goldman Sachs
SA-P-ZXC-413-000628
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7
Chemicals
Excess inventory
BACKUP
5
33
CONSTRUCTION: AN INDUSTRY WITH MANY PORTALS
Major player
Investment
EXAMPLE
Other players
US$ million
SemcoBidcom
71
eObra
Guia Construir
Tecto
37
Construmat
Comércio Já
O Mercado Eletrônico
27
Construnet
AC Virtual
Construplace
Mercantil.com
Rede de contrução
Construbid
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5
2,5
34
SUNNING IT UP: SOME THINGS TO KEEP IN MIND
• B2B is much more than only transactions between companies, the whole value
delivery system of a company has to be analyzed to identify e-opportunities
• Regarding transactional sites: a sound understanding of the industry structure
(esp. fragmentation) and the "possible end game" should guide a companies
decision on how to act on both the buy and the sell side (market places versus
one-to-many models)
• Brazil might be different, so careful when "copying" US-models
• When proactively building e-market-places, team-up, even with your
competitors to gain liquidity
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35
KEY MESSAGES
• Brazilian B2C market is expected to grow in the next years, but the
projected annual growth rate is expected to decrease over time due to the
"catch up" with worldwide reality. Hence on, growth will depend on whether
the "reinforcement e-commerce loop" is set up in motion
• Brazilian B2C revenues are still low, and the market is highly concentrated
in few players – most of them incumbents – with the economic model
focused mainly on transactions. Besides, the basic functionalities of
commerce, community and content are not largely implemented nowadays,
and almost one third of on-line buyers have already had fulfillment
problems when buying on-line
• Brazilian adult Internet users base is expected to grow in the next years,
reaching 58% of its potential market in 2003. Successful dissemination of
new Internet access technologies may help overcome the main barriers to
Internet proliferation and increase the potential market. Notwithstanding,
there is only a small growth in on-line purchasing penetration and in
average annual spending per on-line buyer in Brazil, explained, at least in
part, due to cultural factors
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36
B2C COMMERCE EVOLUTION
Morgan Stanley
ESTIMATES
eMarketer
B2C revenue projections for Brazil
Category share of on-line market - Latin America
US$ million
%
CAGR
99-03
1.047
24,5
Personal computers
Travel
15,9
971
892
893
13,3
Groceries
89%
Books
626
401
% of
Latin
American
B2C
market
70
Software
5,2
Consumer electronics
4,7
Apparel
4,5
362
77%
186
eMarketer
Morgan
Stanley
106
1999
2000
2001
2002
2003
58
51
46
43
42
62
60
58
55
54
Peripherals
3,4
Music
3,4
Video
Other
Source: eMarketer, Morgan Stanley, McKinsey analysis
SA-P-ZXC-413-000628
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10,0
2,1
13,2
37
EVOLUTION OF BRAZILIAN ANNUAL B2C REVENUE GROWTH RATE
% growth
The pace of annual growth is expected to decrease in the next few years
due to Brazilian B2C market "catch up" with worldwide reality
Brazil – eMarketer
Brazil – Morgan Stanley
US – eMarketer
Continued growth hence on will be largely dependent on
whether the "reinforcement e-commerce loop" is set in motion
278
Increasing
attractiveness
for retailers to
go on-line
165
122
95
73
43
00/01
01/02
Note: US B2C growth rates: 90%, 56%, 49% and 22%
Source: E-Marketer, Morgan Stanley, McKinsey analysis
SA-P-ZXC-413-000628
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E-commerce
reinforcement
loop
Improving
number of
Internet
users
88
8
99/00
Increasing
size of
e-commerce
market
02/03
Improving
quality and
breadth of
content
Increasing
purchasing
habit
38
BRAZILIAN B2C REVENUE CONCENTRATION – 1999
~1,500
websites
US$ 70-106
million
100%
13-21
ESTIMATES
Revenue profile
%
45
98-99
79-87
22
9
1-2
Share of
B2C sites
Share of
B2C
revenues
Source: Info Exame; Cadê? website; McKinsey analysis
SA-P-ZXC-413-000628
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<1
9
1-2
2-5
5-10
14
>10
Revenue level (US$ million)
39
COMPARISON OF US AND BRAZILIAN ON-LINE BOOK MARKET
EXAMPLE
Incumbent
US market timeline
Barnes
and Noble
(May)
1995
1996
Amazon
(July)
Source: Press clippings
SA-P-ZXC-413-000628
PM
"Pure play"
Brazilian market timeline
1997
1998
Livraria
Cultura
(January)
1999
1995
Siciliano
(March)
1996
1997
1998
Booknet
(March)
40
SEGMENTATION OF BRAZILIAN B2C MARKET
%
Segmentation of top Brazilian e-tailing companies
22
Web presence of top retailers for selected
categories*
US$ 61 million
100% = 56 top retailers
100%
Pure plays
18
20
No website
E-commerce
25
Incumbents
82
48
80
27
Top Brazilian
e-tailers
Revenues
Brochureware
* Selected categories: apparel, books, department stores, drugstores, groceries and travel
Source: Info Exame, press clippings, McKinsey analysis
SA-P-ZXC-413-000628
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41
WEB PRESENCE OF THE TOP RETAILERS FOR SELECTED CATEGORIES
Number of companies
100%
10
10
7
6
29%
30%
e-Commerce
50%
20%
No website
40%
42%
50%
29%
0%
10%
Source: Info Exame, press clippings, McKinsey analysis
ED
6
56
17%
40%
48%
20%
64%
27%
Department Groceries
stores
SA-P-ZXC-413-000628
10
86%
100%
Brochureware
7
BACKUP
14%
Books
40%
17%
0%
Computers Apparel
Travel
Drugstores
25%
Total
42
PRESENCE OF ADVERTISEMENT FOR SAMPLE OF TOP BRAZILIAN B2C
WEBSITES
%
100% = 15 e-tailers
Without
advertisement
20
With
advertisement
80
Source: World wide web, McKinsey analysis
SA-P-ZXC-413-000628
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The low advertisement
penetration indicates that
Brazilian e-tailers are
focusing mainly on
transaction revenues, not
exploring alternative
traffic-related revenues
43
FUNCTIONALITIES OF SAMPLE TOP BRAZILIAN B2C WEBSITES
% of visited sites
Commerce
Information/ content/ community
Internal search
engine
80
On-line help
guide
53
Personalized
recommendation
67
Value added
information
Call center
67
Site map
27
Press reviews
27
User account
27
On-line chatting
Freight mode
options
13
7
Source: World wide web, McKinsey analysis
SA-P-ZXC-413-000628
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47
User product
reviews
Bulletin boards/
forums
13
7
44
PROBLEMS WITH FULFILLMENT
%
"Have you had any fulfillment problem when
buying on-line?"
% of respondents
100% = 154 respondents
Late delivery
63
Wrong payment value
No
69
31
Yes
Wrong products
delivered
8
Undelivered products
8
Defective products
delivered
8
After sales support
problem
Note: Multiple responses possible
Source: Julio Lobos, McKinsey analysis
SA-P-ZXC-413-000628
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25
4
45
INTERNET ACCESS QUALITY
Regional average response time and packet loss
Response time
Packet loss
ms
%
151
North America
Europe
Australia
355
% of connections
Other
ISDN o xDSL
5
56 Kbps
2 4
2
201
Speed of Internet connections
33.6 Kbps
44 or slower
2
0
45
56 Kbps
419
Asia
Latin America
659
Source: Salomon Smith Barney, McKinsey analysis
SA-P-ZXC-413-000628
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3
6
44% of Brazilian Internet
users take up to 3 hours to
download a 10 Mb file
46
INTERNET PENETRATION IN BRAZIL
active adult Internet users, millions
118.0
• Although the percentage of
CAGR =
47%
8,3
6,3
4,3
2,2
10,3
Brazilian adult Internet users
is small, in 2003 it is
projected to be more than
half of potential market
10,3
8,3
• Brazilian potential
6,3
percentage of adult internet
users is estimated at 15% of
total adult population due to
intrinsic social-economic
conditions
4,3
2,2
• For example: while the
99
00
01
02
03
US-03
Adult
population
penetration (%)
2.0
3.8
5.5
7.1
8.7
56.3
Penetration of
potential
market* (%)
13.5
25.3
36.6
47.6
58.1
N/A
* Brazilian potential market: 15% of adult population
Source: e-Marketer, Morgan Stanley, McKinsey analysis
SA-P-ZXC-413-000628
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wealthiest 20% of Brazilian
population concentrate 64%
of national income, almost
44% of the population live
with US$ 2.00 or less per day
47
BARRIERS TO INTERNET PROLIFERATION IN BRAZIL
Reasons that would lead to internet "adoption"
PC penetration
% of respondents*
% of population
68
PCs were cheaper
52
Monthly cost of
access less
39
Per-minute phone
charges less
Easier to learn how to
use Internet
Had more time
Could access through
TV set
Other
35
4
4
9
99
9
03
Telephone lines penetration
% of population
15
78
23
35
14
23
14
99
AC
78
12
03
* n = 1,018
Source: Jupiter/IBOPE consumer survey, Morgan Staley, e-Marketer, Merril Lynch, Gazeta Mercantil, CSU Card System
SA-P-ZXC-413-000628
US-03
17
23
Nothing
68
US-03
48
NEW TECHNOLOGIES
SA-P-ZXC-413-000628
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WAP
Set-top box for
normal TV
xDSL
Web-enabled TV
49
ON-LINE PURCHASING PENETRATION IN BRAZIL
adult on-line buyers as % of Internet adult users
77
77
• The projected percentage
of Brazilian on-line
buyers is small in part
due to cultural factors
• More than half of
Brazilian Internet users
have been accessing the
web for 1 year or less
17
12
Adult
on-line buyers
(million)
17
SK
20 21
21 22
22
• Almost 60% of the
non-buyer Internet users
are concerned about online transactions
12
99
00
01
02
03
US-03
0.3
0.7
1.3
1.7
2.3
90.9
Source: E-Marketer, McKinsey analysis
SA-P-ZXC-413-000628
20
50
ON-LINE BUYING IN BRAZIL
Interests of Brazilian Internet users*
Years of Internet use – 1999
average response (1 = not interested,10 = very interested)
%
Internetrelated topics
8,8
News
One year or less
54
Between 1 and 2 years
24
More than 2 years
22
8,2
Computers
100
8,0
Music
7,4
Reasons for not buying on-line
%
Sexuality
6,4
Concerned about security
44
10
Sports
6,1
Concerned about product evaluation
Tourism
6,0
Concerned about delivery failure
Other
On-line
shopping
5,4
* n= 25,000
Source: Nazca Scatchi & Scatch, Julio Lobos, Cadê?/IBOPE, McKinsey analysis
SA-P-ZXC-413-000628
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3
43
100
51
AVERAGE ANNUAL SPENDING PER ON-LINE BUYER IN BRAZIL
US$
1.150
CAGR
4%
460
8
460
03
Source: E-Marketer, World Bank, McKinsey analysis
SA-P-ZXC-413-000628
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• The per capita spending is not
supposed to vary significantly
due to the high percentage of
new users on-line: almost 42%
of the Internet users will have
two years or less of on-line
experience
• The difference between
projected annual spending per
on-line buyer in Brazil and US is
expected due to the difference
in income levels:
– Avg. Brazilian Internet user
annual income: US$ 18,563
– Avg. US annual income:
US$ 33,946
398
99
1.150
US-03
52