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The truth about online business

April 2012

Online businesses have been growing rapidly in Australia over the past few years, aided and abetted by a high dollar and the ability to look around for the best deal in tougher times. While some businesses have been quick to recognise the potential and value of providing their goods and services online, many well established retailers and traditional 'bricks 'n mortar' businesses have been slow or reluctant to respond.

Australians are going online for more than just their shopping: A recent report by Access Economics compared the impact of the internet to the roll out of electricity because both are enabling technologies that change all industries in their wake, not just a few.

So let's separate a few myths from the truth.

Economic conditions - online doesn't necessarily mean overseas

The high Australian dollar is giving Australian consumers 'more bang for their retail buck' globally. Not only do Australian consumers benefit from a currency driven discount but they can also take advantage of heavy discounts offered by retailers domiciled in underperforming economies.

The Communications Report (No. 1) released last year by the Australian Media and Communications Authority (ACMA) showed that overseas websites have attracted an increasing proportion of online shoppers.  In the six months to April 2011 the number of shoppers mostly purchasing from overseas sites increased by 171%, however, the number of shoppers purchasing equally from Australian and overseas sites increased by 190%.  Arguably, this statistical data suggests that internet shopping in Australia is gaining traction

Fear of online shopping is diminishing

The ACMA Communications Report (No. 3) states that the proportion of people reporting 'lack of trust' in the internet declined from 25% of non-internet shoppers dropped by approximately 24% over 17 months to April 2011

Technology is a part of life

The Access Economics report The Connected Continent predicts that over the next 5 years, the contribution of online activity to GDP will increase by 7% to $70 billion - twice as fast as that forecasted for the rest of the economy. 

Internet use, and in particular smartphones are already an integral part of our lives and this integration into the way we live and act will only become more pronounced. 

The ACMA Communications Report shows that at April 2011, approximately 58% of adult mobile phone users in Australia had a 3G mobile handset.  During June 2011:

  • 1.55 million people in Australia aged 14 years and over used social networking services via their mobile phone
  • 751,000 people went online via their mobile phone to use banking and bill payment services
  • Just over 100,000 purchased a good or service

That's in one month a year ago. To keep that in context, 10% of smart phone users have purchased via their smart phone. It's not a given that developing an app or specifically delivering services via mobile devices will reap significant sales or revenue. It's a trend that's worth watching. Before you dip a cautious toe in the water, consider the impact on your existing business or if you're just starting up, make sure you have your business planning ducks lined up.

The Internet and online shopping is just for the young

The ACMA Communications Report (No. 3) states that "in the six months to April 2011, approximately 62% of adult internet users purchased a good or service online" with the 35 to 44 year olds most likely to have made a purchase.  This age group also reported 'convenience' as the primary reason for shopping online whereas the 25-to-34 age group reported 'price' as their motivation. 

But don't make the mistake of only targeting the younger audiences. While their activity may be primarily online, it's about matching your product to the market, knowing what the purchase motivation points are and knowing what the most appropriate mediums are to target that market. After all, older age groups are increasingly turning online to find better deals and increasingly engaging via social media. Don't dismiss the broader opportunity on account of one factor in your target market's behaviour.

Online vs in-store – is it fair?

In Australia much of the debate has been around the Low Value Import Threshold (LVIT) that exempts goods under $1000 from GST and duty.  The Productivity Commission recommended that the Government lower the LVIT to promote tax neutrality but not until it is cost effective to do so. 

In reality, there are many businesses trading online as part of their overall strategy – not as their complete model.  Think Apple - they have a strong online presence and invest heavily in their shop fronts.   And, according to PayPal, over Christmas 2011 Toys 'R' Us and Dan Murphy's experienced their largest ever online sales during the Christmas trading period.  

Competing with a global online business whose customers do not need to pay GST is not fair.  But neither is the bargaining power and price differential exercised by big retailers playing on the same field as small retailers.  It's just a fact of business life.

In Australia, according to the Access Economics all SMEs they surveyed had Internet access but only half have a website and only 30% use the Internet for marketing, sales and procurement. There is a lot of room to attract on line business and the market acceptance is strengthening quickly.

Setting up online?

If you're planning to set up or take your business online, basic business principles still apply. Having an effective business plan, an integrated marketing and sales strategy and a tax-effective strategy are all-important aspects to factor into your planning.  

To find out more about what you should be taking into consideration, check out our starting a business factsheet or contact our team on 02 9957 4033.

 

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Last updated April 2012. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

 

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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