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At the online frontline: UK businesses can use the web to speed up in a slowdown

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by Matt Brittin, Director, Google UK
08 December 2008

Article published as part of the Tomorrow's Capitalism programme.

The UK is reeling from the serious effects of a global economic slowdown, but this time the economy and the consumer are digital. The Internet is revolutionising the way businesses operate and go to market. There are now over 1.5 billion people online – all connected, creating, communicating and searching for information. Online business will be a key factor in the rebuilding of the UK economy in the coming months.

The UK is arguably the most advanced online marketplace in the world, with consumers here driving rapid change in the way they look for information and shop for products and services. Nearly two in three UK residents are already connected to the Internet with the numbers expected to rise to 43 million by 2012. We spend more time online – an average of 33 hours a month - than any of our European neighbours. The new generation of mobile phones is enabling more people to access the web when on the move, while teenagers already spend more time watching, listening, reading and talking to friends through the Internet than they do in front of the TV, or reading magazines and newspapers. Early evidence suggests consumers' use of the web to research purchases and explore ways to save money will accelerate during this period of economic difficulty. Google has already seen an uplift in searches for money-saving deals, free delivery, printable vouchers, safe savings and cheap loans.

Online is now mass-market and despite the gloom, the sector is proving remarkably resilient. Online sales in the UK in the first six months of 2008 are up 38 per cent to £26.5 billion. In November, the British Retail Consortium reported a fall in overall shop sales of 2.2 per cent compared to the previous year, but online sales grew over the same period by 17 per cent. Despite the economic climate, brands like Asos and Net-A-Porter are businesses that continue to grow online through good customer service, user-friendly websites and improving the efficiency of online checkout and delivery. Asos recently reported its sales doubled for the seven weeks to 16 November compared with a year ago, while sales increased 107 per cent in the six months to the end of September. Meanwhile companies such as HMV, Mothercare and O2 are examples of businesses making the most of the cost-effective and quantifiable nature of search and digital marketing to boost their online stores.

The Internet has levelled the playing field. Not only has it cut the costs of logistics, distribution and service, but it has also opened up national and international markets to smaller local players. Consumers of every product and service are now searching online in their millions before they buy, and by being ‘found’ online, small businesses can quickly win new customers outside of their traditional markets. Despite the downturn, Dustbag.co.uk, a Derby-based business selling vacuum cleaner bags and accessories, is still showing year on year growth, as is UK Tights, a leading retailer of hosiery products in the UK, which is now doubling the size of its warehouse in 2008 to accommodate its phenomenal year-on-year growth. A high street store selling dust bags or tights would not be viable, but these businesses have found their niche and are exploiting it through savvy marketing strategies online.

The Internet is a unique medium in its ability to deliver highly specific and relevant messages to an an active audience and UK businesses are well placed to tap into this opportunity. Search marketing platforms, like Google AdWords, allow companies to bid for their advertisements to appear against Internet search results. Companies big and small can market themselves to potential customers in a way that is measurable, targeted and cost-effective. With search marketing, businesses can present them with a compelling proposition on something in which they have directly expressed an interest. When advertising online, businesses know precisely how much it costs to acquire a customer, thus removing the guesswork around marketing spend.

Use of the web can help make marketing spend more accountable and efficient, but it also provides a method for reducing your own business costs, an unavoidable necessity in a downturn. IT is one area that can be a major drain on finances and resources and yet it is also crucial for remaining agile, productive and competitive. With this in mind, business’s approach to IT is being redefined by the Internet. Email, documents, calendars and other business communication tools are increasingly being delivered and hosted online via a trend known as ‘cloud computing’. Cloud computing is a simple concept: applications and data are delivered over the Internet via a third party.

Cloud computing has many benefits, cost savings being one of them. Once businesses are hooked up to the web, the cost of buying product licences, purchasing servers and maintaining them is reduced because it is possible to effectively ‘rent’ business applications from a third party. From a budget perspective, it brings predictable costs for IT and dramatically reduces spend on traditional desktop software. The Broadband Stakeholders Group (BBSG) estimates the online model would save companies £350 a year per person in support costs. If 30 per cent of SME staff made the switch to cloud computing, the savings across the UK would total £620m a year.

We are in a period of uncertainty, the first serious downturn of the Internet age. But it is already clear that the businesses which do not respond to changing consumer behaviour and the new opportunities risk falling behind their competitors and those that do invest in their online capabilities will be those who speed up despite the slowdown.