Mc. Kinsey&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 Mc. Kinsey & Company This material was used by Mc. Kinsey & Company, during an oral presentation; it is not a complete record of the discussion
• Overwiew: Internet and e-commerce growth in Brazil • B 2 C: trends and challenges • B 2 B: trends and challenges SA-P-ZXC-413 -000628 LM 1
INTERNET PENETRATION IN BRAZIL KEEPS GROWING million users Morgan Jupiter 1999 2000 2001 Source: Morgan Stanley Dean Witter - 2000, Jupiter Communications - 2000 SA-P-ZXC-413 -000628 RO 2002 2003 2004 2005 2
HOWEVER, INTERNET PENETRATION IN BRASIL IS STILL RELATIVELY LOW COMPARED TO OTHER COUNTRIES % active users* per adult population** Finland Singapore US Canada UK Germany Japan France Brazil Argentina Estimates for 2005 20 -30 Mexico *Users who are on-line at least an hour a week **Population over 18 years Source: US Census Bureau - 1999, e. Marketer - 2000 SA-P-ZXC-413 -000628 RO 3
HOME AND WORK ARE THE PRIMARY PLACES OF WEB ACCESS IN BRAZIL % users, 2000 School Work Source: IDC, Project Atlas - 2000 SA-P-ZXC-413 -000628 RO Other Home 4
THE INSTALLED BASE OF PCs, STILL THE PRIMARY ACCESS DEVICE, IS GROWING thousand 15, 783 CAGR 25% 11, 341 9, 025 6, 434 Home 13, 590 27% 28% 30% 64% 33% 57% 25% 67% 61% Business 50% Other 17% 13% 11% 9% 8% 1999 2000 2001 2002 2003 Source: Morgan Stanley Dean Witter, 2000 SA-P-ZXC-413 -000628 RO 5
PCs INSTALLED IN PRIVATE HOMES SHOW A HIGHER PERCENTAGE OF INTERNET Business ACCESS Home % PCs with internet service 1999 Source: Morgan Stanley Dean Witter, 2000 SA-P-ZXC-413 -000628 RO 2000 2001 2002 2003 6
Bandwidth (Kbps) Device Upstream Example Dial-up x. DSL 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 LM Downstream PC SA-P-ZXC-413 -000628 Access 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 10 1 8 1 2 7 3 2 2 5 6 3 6 8 3 Wireless Dedicated DSL Cable Modem Not considering Internet access via mobile phones Dial up 1999 2000 Source: Morgan Stanley Dean Witter, 2000 SA-P-ZXC-413 -000628 RO 2001 2002 2003 8
MOBILE PHONE PENETRATION WILL DRIVE GROWTH OF MOBILE INTERNET AND M-COMMERCE million Mobile PCs WAP Source: Morgan Stanley Deen Witter, Bear Sterns&Co SA-P-ZXC-413 -000628 MO Units 9
FREE INTERNET ACCESS WAS INTRODUCED IN BRAZIL EARLY 2000 ASND HAS REALIZED SIGNIFICANT SIZE Million users Major players BOL • Bradesco i. G • Unibanco • Terra Livre Tema livre • BRFree • Super 11 BR Free Source: Press clipping SA-P-ZXC-413 -000628 SK 10
SUBSCRIBER FEES (UNLIMITED ACCESS) HAVE BEEN REDUCED SIGNIFICANTLY R$ UOL Jan/99 Sep/99 Nov/99 ** Terra/ZAZ Jan/99 Nov/99 Jan/00 AOL *Access to call center costs R$ 1, 50/call **100 hours per month Source: SA-P-ZXC-413 -000628 MO Nov/99 Mai/00 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 Zip. Net 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: SA-P-ZXC-413 -000628 RO % of Stake 12
E-COMMERCE SPENDITURE IN BRAZIL WILL GROW EVEN FASTER THAN INTERNET PENETRATION US$ million 3, 153 1, 899 B 2 B 988 490 116 70 1999 Source: Morgan Stanley Dean Witter, 2000 SA-P-ZXC-413 -000628 RO B 2 C 186 2000 2001 2002 2003 13
HOWEVER, COMPARED TO OTHER COUNTRIES, E-COMMERCE SPENDITURE IN BRAZIL IS STILL LOW US$ billion, 2000 US Canada 1, 7 % of GDP Japan Germany UK France Australia Netherlands Sweden Finland Brazil Source: e. Marketer, 2000; Morgan Stanley Dean Witter, 2000 SA-P-ZXC-413 -000628 RO 0, 08% of GDP 14
PROJECTIONS OF WORLDWIDE E-COMMERCE HAVE BEEN REVISED CONTINUOUSLY US$ billion 2002 +10% +72% +58% Original (Late'97) Source: e. Stats SA-P-ZXC-413 -000628 RO Revised (Mid'98) Revised (1 Q'99) Revised (1 Q'00) 15
PERCENTAGE OF WEB BUYERS VS. WEB USERS IS GROWING % active users* 1999 *Users who are on-line at least an hour a week Source: Jupiter Communications, 2000 SA-P-ZXC-413 -000628 RO 2000 2001 2002 2003 16
SIGNIFICANT INVESTMENT GOES INTO E-COMMERCE IN BRAZIL Segment Investor Stake US$ million E-business Amount invested % Date Portal/ free access Feb/00 TH Lec. Putman Internet Partners UBS Capital Americas 75. 0 15. 0 Jun/00 Chase Capital Partners Goldman Sachs and others 71. 3 N/A Feb/00 On-line bank SK 34. 2 Books/CD's e-retail SA-P-ZXC-413 -000628 8. 5 Portal/ free access Source: Press clippings Telemar/ Tele Centro Sul 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 SA-P-ZXC-413 -000628 RO 18
B 2 B 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 SA-P-ZXC-413 -000628 JC 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: Mc. Kinsey SA-P-ZXC-413 -000628 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
B 2 B – USA EXAMPLES B 2 B Private company It joins 47 industry communities focusing on content $ 3. 1 billion Chemdex Catalog aggregator for the scientific products market. Founded in 1997 it joins 150 suppliers $ 1. 1 billion Plastics. Net LM Join venture among several steel manufacturers and processors aggregating metal products Vertical. Net SA-P-ZXC-413 -000628 Market cap Metal. Site *As of July 27 th 2000 Source: Web sites, lit search Description Marketplace to the fragmented plastic industry launched in 1999. It joins 28, 000 members and more than 200 suppliers Private company 21
B 2 B – 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), Price. Waterhouse Coopers (security) – Initial investment: US$ 7 million Source: Web sites, press clippings SA-P-ZXC-413 -000628 LM – 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 Make markets more efficient Buyer Improve internal purchasing processes 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 • Improve compliance to purchasing rules and procedures • Obtain volume discounts • Reduce transaction costs • 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: Mc. Kinsey analysis SA-P-ZXC-413 -000628 WA • 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 B 2 B E-COMMERCE MARKETPLACE FACILITATION MODELS US$ billions ESTIMATES 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 Our focus server or hosted on a 3 rdparty server to aggregate buyer’s purchasing needs and present them to multiple sellers for fulfillment (e. g. , Ariba, Purchase-Pro. com) Buyer Seller 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, Vertical. Net) Buyer Many Seller sales sites targeting multiple buyers (e. g. , Cisco) One Number of sellers Source: Mc. Kinsey analysis SA-P-ZXC-413 -000628 RO 24
THE ARIBA MODEL IS AN EXAMPLE FOR A SUCCESSFUL BUY SIDE APPLICATION Key buy-side application functions 4 A Ship goods End user 1 Option 1 – Check/Other Ariba purchasing application Ariba electronic supplier catalog 2 End user accesses Ariba system through desktop computer to purchase MRO goods • End user selects • Buyer A/P 6 goods from electronic catalog containing pre-approved suppliers that offer products at pre-negotiated prices End user generates electronic request Ariba approval routing system 3 Approved: transmits PO Supplier Internet or fax Operations • Ariba system • BACKUP A/R 5 Process payment Option 2 – Card Option 3 – EDI either approves or rejects based on buyer defined rules Ariba system automatically generates PO and transmits to supplier 4 B Send ship-slip 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: Mc. Kinsey analysis SA-P-ZXC-413 -000628 RO 25
DELL IS ONE OF THE MOST SUCCESSFUL ON LINE SELLERS 3 A 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 3 B Send ship-slip 5 • Reconciliation– 3 -way match (PO, ship-slip, invoice) SA-P-ZXC-413 -000628 ED Send payment to card issuer or seller A/R 4 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 3 B 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: Mc. Kinsey analysis SA-P-ZXC-413 -000628 MO Process payment • Buyer and seller go offline to determine how to facilitate payment 3 A • Receive purchase order On-line • Chemdex facilitates • 5 Pay for goods • 3 -way match (PO, invoice, ship-slip) A/R 4 payment by allowing the buyer to pay by – Credit card – Marketplace credit Chemdex sends payment to seller 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 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 B 2 B 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: Mc. Kinsey SA-P-ZXC-413 -000628 JC 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 Some Internet EDI Think twice The wrong assessment of the situation in an industry might lead to (very costly) wrong decisions! Vendor lock-in, primarily on-tomany sell side models One or two SIMPLIFIED Some Many Number of buyers Source: Mc. Kinsey SA-P-ZXC-413 -000628 JC 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: Mc. Kinsey SA-P-ZXC-413 -000628 JC • Incumbent off-line companies play an active role. Less space/chance for pure start up • Consolidation, convergence of B 2 B marketplaces might happen faster • Some sectors can't be organized by "formal" B 2 B products 30
THREE KEY FACTORS OF SUCCESS HAVE TO BE CAREFULLY THOUGHT THROUGH _____ BUILDING A B 2 B EXCHANGE Key factors for success Agility Neutrality Source: Team analysis SA-P-ZXC-413 -000628 LM 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 Liquidity Problem 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 Market place creation Product B End customers 1 2 Product C The demand of few large buyers, and the benefits of using the system, push suppliers to go on-line Source: Team analysis SA-P-ZXC-413 -000628 OD • Possibility to offer price discounts/ 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 B 2 B MARKETS IN SELECTED INDUSTRIES (US) BACKUP Agriculture/Farming Office products/small business services Medical/health dental Industrial equipment/auto Telecom services Construction Financial services Printing Food/beverage Chemicals MRO Transportation Excess inventory Source: Goldman Sachs SA-P-ZXC-413 -000628 CY 33
CONSTRUCTION: AN INDUSTRY WITH MANY PORTALS Major player Investment EXAMPLE Other players US$ million Semco. Bidcom 71 e. Obra Guia Construir Tecto 37 Construmat Comércio Já O Mercado Eletrônico 27 Construnet AC Virtual Construplace Mercantil. com Rede de contrução Construbid SA-P-ZXC-413 -000628 JC 5 2, 5 34
SUNNING IT UP: SOME THINGS TO KEEP IN MIND • B 2 B 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 SA-P-ZXC-413 -000628 JC 35
KEY MESSAGES • Brazilian B 2 C 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 B 2 C 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 SA-P-ZXC-413 -000628 CY 36
B 2 C COMMERCE EVOLUTION Morgan Stanley ESTIMATES e. Marketer B 2 C revenue projections for Brazil Category share of on-line market - Latin America US$ million CAGR 99 -03 % Personal computers Travel 89% Groceries Books Software 77% e. Marketer Morgan Stanley % of Latin American B 2 C market Consumer electronics Apparel 1999 2000 2001 2002 2003 58 51 46 43 42 62 60 58 55 54 Peripherals Music Video Other Source: e. Marketer, Morgan Stanley, Mc. Kinsey analysis SA-P-ZXC-413 -000628 CC 37
EVOLUTION OF BRAZILIAN ANNUAL B 2 C REVENUE GROWTH RATE % growth The pace of annual growth is expected to decrease in the next few years due to Brazilian B 2 C market "catch up" with worldwide reality Increasing size of e-commerce market 01/02 Note: US B 2 C growth rates: 90%, 56%, 49% and 22% Source: E-Marketer, Morgan Stanley, Mc. Kinsey analysis SA-P-ZXC-413 -000628 SK 02/03 US – e. Marketer Improving quality and breadth of content E-commerce reinforcement loop Improving number of Internet users 8 00/01 Brazil – Morgan Stanley Continued growth hence on will be largely dependent on whether the "reinforcement e-commerce loop" is set in motion Increasing attractiveness for retailers to go on-line 99/00 Brazil – e. Marketer Increasing purchasing habit 38
BRAZILIAN B 2 C REVENUE CONCENTRATION – 1999 100% ~1, 500 websites US$ 70 -106 million 13 -21 ESTIMATES Revenue profile % 98 -99 79 -87 1 -2 Share of B 2 C sites Share of B 2 C revenues Source: Info Exame; Cadê? website; Mc. Kinsey analysis SA-P-ZXC-413 -000628 RE <1 1 -2 2 -5 5 -10 >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 B 2 C 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 No website E-commerce Incumbents Top Brazilian e -tailers Revenues Brochureware *Selected categories: apparel, books, department stores, drugstores, groceries and travel Source: Info Exame, press clippings, Mc. Kinsey analysis SA-P-ZXC-413 -000628 SL 41
WEB PRESENCE OF THE TOP RETAILERS FOR SELECTED CATEGORIES Number of companies 100% 10 10 7 6 7 10 6 BACKUP 56 e-Commerce Brochureware No website Department Groceries stores Source: Info Exame, press clippings, Mc. Kinsey analysis SA-P-ZXC-413 -000628 ED Books Computers Apparel Travel Drugstores Total 42
PRESENCE OF ADVERTISEMENT FOR SAMPLE OF TOP BRAZILIAN B 2 C WEBSITES % 100% = 15 e-tailers Without advertisement The low advertisement penetration indicates that Brazilian e-tailers are focusing mainly on transaction revenues, not exploring alternative traffic -related revenues With advertisement Source: World wide web, Mc. Kinsey analysis SA-P-ZXC-413 -000628 AS 43
FUNCTIONALITIES OF SAMPLE TOP BRAZILIAN B 2 C WEBSITES % of visited sites Commerce Information/ content/ community Internal search engine On-line help guide Personalized recommendation Value added information Call center Site map User account Press reviews On-line chatting User product reviews Freight mode options Bulletin boards/ forums Source: World wide web, Mc. Kinsey analysis SA-P-ZXC-413 -000628 LM 44
PROBLEMS WITH FULFILLMENT % "Have you had any fulfillment problem when buying on-line? " % of respondents 100% = 154 respondents Late delivery Wrong payment value Wrong products delivered No Yes Undelivered products Defective products delivered After sales support problem Note: Multiple responses possible Source: Julio Lobos, Mc. Kinsey analysis SA-P-ZXC-413 -000628 LO 45
INTERNET ACCESS QUALITY Regional average response time and packet loss Response time Packet loss ms % North America Speed of Internet connections % of connections ISDN o x. DSL 56 Kbps Other 33. 6 Kbps or slower Europe Australia 56 Kbps Asia Latin America Source: Salomon Smith Barney, Mc. Kinsey analysis SA-P-ZXC-413 -000628 LO 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 Brazilian adult Internet users is small, in 2003 it is projected to be more than half of potential market CAGR = 47% • Brazilian potential percentage of adult internet users is estimated at 15% of total adult population due to intrinsic social-economic conditions 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 • For example: while the N/A *Brazilian potential market: 15% of adult population Source: e-Marketer, Morgan Stanley, Mc. Kinsey analysis SA-P-ZXC-413 -000628 CC 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 PCs were cheaper Monthly cost of access less Per-minute phone charges less Easier to learn how to use Internet Had more time 99 03 US-03 Telephone lines penetration % of population Could access through TV set Other Nothing 99 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 AC US-03 48
NEW TECHNOLOGIES WAP x. DSL SA-P-ZXC-413 -000628 CY Set-top box for normal TV Web-enabled TV 49
ON-LINE PURCHASING PENETRATION IN BRAZIL adult on-line buyers as % of Internet adult users • 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 • Almost 60% of the non-buyer Internet users are concerned about online transactions 99 Adult on-line buyers (million) 00 01 02 03 US-03 0. 7 1. 3 1. 7 2. 3 90. 9 Source: E-Marketer, Mc. Kinsey analysis SA-P-ZXC-413 -000628 SK 50
ON-LINE BUYING IN BRAZIL Interests of Brazilian Internet users* Years of Internet use – 1999 average response (1 = not interested, 10 = very interested) % One year or less Internetrelated topics 54 Between 1 and 2 years 24 More than 2 years 22 News 100 Computers Reasons for not buying on-line Music % Sexuality Concerned about security 44 Sports Concerned about product evaluation 10 Tourism Concerned about delivery failure On-line shopping Other 43 100 *n= 25, 000 Source: Nazca Scatchi & Scatch, Julio Lobos, Cadê? /IBOPE, Mc. Kinsey analysis SA-P-ZXC-413 -000628 3 JC 51
AVERAGE ANNUAL SPENDING PER ON-LINE BUYER IN BRAZIL US$ • 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 CAGR 4% 99 03 Source: E-Marketer, World Bank, Mc. Kinsey analysis SA-P-ZXC-413 -000628 CC US-03 52
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