CAMPAIGN REPORT ON GERMANY: Net winners - Major companies are refusing to be deterred by consumer reluctance to embrace e-commerce Now even the government is taking radical steps to bolster Germany’s presence on the internet. Tracey Taylor reports

Germany’s online market presents a contradictory picture. It boasts Europe’s biggest internet service provider, one of the world’s most net-savvy media companies and its online advertising revenues rival those of well-established media such as newspaper supplements. Yet the Chancellor, Gerhard Schroder, called Germany an ’internet latecomer’ and warned that his country could ’throw away the revolutionary mood of the moment’ if it didn’t act quickly. A report by Jupiter Communications described German consumers’ understanding of the net as ’abysmally poor’.

Germany’s online market presents a contradictory picture. It boasts

Europe’s biggest internet service provider, one of the world’s most

net-savvy media companies and its online advertising revenues rival

those of well-established media such as newspaper supplements. Yet the

Chancellor, Gerhard Schroder, called Germany an ’internet latecomer’ and

warned that his country could ’throw away the revolutionary mood of the

moment’ if it didn’t act quickly. A report by Jupiter Communications

described German consumers’ understanding of the net as ’abysmally

poor’.



Online penetration of the German population is only 16 per cent,

compared with 26 per cent in the UK and 41 per cent in Sweden, Europe’s

most web-wise nation. High prices have been one of the biggest obstacles

to the market’s development.



The Deutsche Telekom-owned T-Online, valued as Europe’s largest ISP and

the most popular route to the web among Germans has only recently

introduced a US-style flat rate for internet users. But at DM100 (pounds

34) a month, this is still relatively expensive, particularly when the

likes of Freeserve and BT among others offer free access.



Germans have also been slow to take up online shopping. According to a

recent survey by Ipsos Deutschland, just 29 per cent of Germans with a

net connection at home have shopped online. However, an additional 26

per cent - 1.6 million users - say they plan to buy on the net soon. The

most popular goods sold over the net are books, computer hardware and

software and CDs.



Many are reluctant to buy online because they are worried about security

and privacy. Research last year by Gruner & Jahr Electronic Media

Service revealed that 60 per cent of Germans were worried about credit

card security on the net. This is a country where plastic money is

treated with some suspicion even in the real world. Germans may buy a

plane ticket online but they prefer to pay for it with cash at the

airport. Concerns about being tracked on the net have hindered the

development of online banking in particular.



But times are changing. Online auctions are proving popular. The German

auctioneer, Ricardo.de, which competes with, among others, the German

version of the US brand leader e-Bay, has had a six-fold increase in its

registered users since last spring. A recent survey of internet users

showed that 33 per cent had bid online.



If the public have been relatively slow to trade online, much of the

corporate world has proved equally cautious. A recent report by the

research and publishing company Netprofit talked of an ’internet

ambivalence’ at the heart of German industry. Large blue-chip companies

such as DaimlerChrysler and Volkswagen may be exploiting the net across

its disciplines, and small independent companies are transforming

themselves from local to national and even global players on the web.

But the Mittelstand - the medium-sized companies that form the backbone

of German manufacturing - are proving less adventurous, according to

Netprofit. It cites a survey which found that only 12 per cent of

medium-sized companies believed e-commerce could benefit them.



Traditional retailers are not jumping on the internet bandwagon fast

enough, according to Thomas Heilmann, co-founder of the venture capital

group Econa and the original co-founder of the ad agency Scholz &

Friends.



’Most companies are underestimating completely how the internet is

changing the way manufacturers and consumers relate to each other,’ he

told Reuters. Heilmann puts the sluggish atttitude down to ’the German

resistance to innovation’.



But there are signs of progress. Metro, Germany’s largest retailer,

acquired a majority stake in Primus Online, one of Germany’s main

e-commerce companies. Metro said it was making e-commerce the focus of

its expansion strategy.



For those operating in the advertising sector, the relatively slow

awakening of the online market has meant fewer chances to work at the

cutting edge of internet marketing. Katrin Werling, the director of the

online department at Initiative Media Hamburg, says many companies have

only just started to include the internet in their strategic planning

rounds. ’Until recently most German companies considered using the net

as experimental. There may have been one individual who supported the

idea but top management had not bought into it,’ she says.



So far most of Initiative’s online budgets have come from e-brands such

as the music site Boxman and dotcom start-ups. Many of these start-ups

are Scandinavian and are expanding fast into the rest of Europe.



Yet some German brands are proving to be veritable web pioneers. BMW has

integrated its online and offline advertising. VW’s strategy includes

adding promotional satellite sites to its website - its Beetlemania

promotion was particularly successful. VW says it spends around 1.5 per

cent of its total adspend for a brand online.



The beer maker Beck’s is delivering a strong brand message on the net as

well as encouraging consumer interaction with the use of promotional

advertising, teaser campaigns and event websites. And Comdirekt’s

rapidly established success in direct banking is largely seen to be a

result of its willingness to invest in online advertising. It has formed

partnerships with major portals such as T-Online, other websites and

offline media .



A four-week promotion on one of the major portals such as Yahoo! costs

around DM240,000. Apart from the ISPs and internet portals, the sites

that attract the most advertising are in the computer and technology

sector, business and finance, sports, regional information, travel,

automotive and health. Significantly, particularly given the activity in

this area in markets such as the UK, the only untapped segment for

advertisers is the growing online female population.



Banner advertising is still the norm in German online media although

push services by e-mail - typically sending out teaser e-mails with web

links - are gaining high acceptance, according to Jupiter Communications

research.



In the media sector, the multimedia conglomerate Bertelsmann has made

significant inroads into the e-economy, thanks to its chief executive

officer, Thomas Middelhoff. Although he is the first to admit that the

group was late in entering the sector, it is making up for lost

time.



With the soon to be floated BOL.com, it hopes to take on the might of

Amazon.com - it has a 25 per cent stake in the Lycos Europe portal and

has invested in Fireball and Tripod, both leading homegrown service

providers, as well as the successful online consultancy Pixelpark (see

below). It has also set up BV, a financing arm for internet start-ups

based on the US West Coast, and it has made the first of what are

expected to be many investments in the Chinese language internet

market.



Altogether Bertelsmann’s internet interests are valued at more than DM45

billion. Its most high-profile online business was until recently its

half share in America Online Europe - the result of a successful joint

venture in 1995 brokered by Middelhoff and his counterpart and friend at

AOL Steve Case. AOL is Europe’s second-largest ISP with nearly four

million customers. AOL’s merger with Time Warner earlier this year

spelled the inevitable end of the partnership, however, and Bertelsmann

sold its stake back to AOL in March, leaving it free to explore new

strategic acquisitions.



Deutsche Telekom and AOL Europe are both battling to secure German

internet users of the future with schemes to make the internet

universally available in schools - and growth rates of internet use in

Germany now rival those of the UK and France, growing between 10 per

cent and 12 per cent every six months.



In February Chancellor Schroder invited 30,000 foreign computer

specialists - mainly from Eastern Europe and India - to take up

residency in Germany to boost the country’s internet competitiveness.

The move is an echo of the 50s when Turks and Italians relocated to

Germany to plug chronic manpower shortages that had been caused by the

war. Schroder’s mission is clear. ’We have to seize every opportunity to

grow,’ he said.



TOP TEN MOST VISITED WEBSITES IN GERMANY

Rank Site              Type                   Visitors      Reach

                                                           (000s)

1    T-Online          ISP                       3,604        68%

2    Yahoo!            Internet portal           1,689        32%

3    AOL               ISP                       1,490        28%

4    Microsoft         Software supplier         1,436        27%

5    Lycos             Internet portal           1,219        23%

6    MSN               Internet portal             932        18%

7    Netscape          Software supplier           907        17%

8    Tripod            Online community            803        15%

9    Geocities         Online community            714        14%

10   Amazon            Internet retailer           710        13%

Source: MMXI Europe/Net Profit


GERMANY ONLINE: THE FACTS

PC penetration at home             35% of population

Online penetration                 16% of population

Number of people with

internet access                    11.2 million

Mobile phone penetration

of consumers                       25%

% of internet users who

shop online                        36%

Sources: Various



PIXELPARK: THE GERMAN NEW-MEDIA CONSULTANCY THAT IS NUMBER ONE IN

EUROPE



Few would have expected 39-year-old Paulus Neef to have achieved so much

in nine years for Pixelpark, the multimedia service company he founded

on a shoestring in Berlin in 1991.



Pixelpark is now Europe’s top new-media consultancy and the

sixth-largest in the world with revenues of more than DM42 million. It

has been named as one of Europe’s top e-business leaders by Business

Week.



It offers a full range of web-related services, from site design,

through e-commerce platforms and technology strategies to clients such

as Adidas-Salomon, Deutsche Telekom, Habitat International, Lufthansa

and Procter & Gamble. In February it took over GrizzlyFarm, the

incubator and venture capital company. The renamed Venturepark.com will

back start-ups and dotcom companies in Germany, Eastern Europe and Italy

and plans to open in major European cities over the next four

months.



’Our goal is to be a global player,’ Thomas Morsdorf, a Pixelpark board

member and the executive vice-president of strategic consultancy,

says.



’Multimedia companies that can genuinely handle global assignments

across all the web services are few and far between.’



Pixelpark has offices across Europe, including London, and one in New

York. Its latest coup was a joint venture with the Madrid-based Banco

Bilbao Vizcaya Argentaria, with which it will build business in the

Iberian and Latin-American markets.



Despite its global aspirations Pixelpark prides itself on its strong

focus on the needs of national markets and user groups. ’We don’t take

the US point of view on Europe, for example, which is to use the UK as

an entry point and then develop from there,’ Morsdorf says. ’Every

European country has its own flavour.’ This global/local sensitivity may

be related to Neef’s own background. Neef, who is half German and half

Spanish, is a strong believer in customised solutions for particular

markets.



Much of Pixelpark’s success is put down to Neef’s drive and vision.

’Neef has been a key influence on the German multimedia market. He ran

from the front and worked with the internet pioneers,’ an observer

says.



Some of the company ethos is based on the reasons why it is moving into

the venture capital sector. ’It wasn’t a profit-motivated decision,’

Morsdorf says. ’It was a way to ensure we retained our best people. We

have lost too many talented staff because we didn’t have a fertiliser

for their ideas.’ Now that it is able to back start-ups, Pixelpark can

offer a career path to its people and a comprehensive service to its

clients - from capital through consultancy.



It didn’t take long for Pixelpark to come to the attention of the big

media players in Germany and in 1996 Bertelsmann took a majority stake

in the company which - along with the offering of 20 per cent of its

shares last October - has helped the company to spread its wings. Klaus

Eierhoff, an executive board member at Bertelsmann, is on the record as

saying that his company ’sees Paulus as the best conceptualist in the

world for total e-commerce solutions’.



Asked to cite the work his company is most proud of, Morsdorf mentions

the e-commerce platform that Pixelpark has created for the German

retailer Conrad, which now derives more than 10 per cent of its revenues

online.



Pixelpark has also devised an international treasury management system

for its German banking client West LB and, more recently, launched FT

Deutschland’s website - ’the first simultaneous online/offline launch of

a daily paper’, according to Morsdorf.



Pixelpark never stands still - every month it opens in new territories

or ventures into new technologies. It is clearly a pioneer in an

industry which itself stretches the definition of the word.