E-commerce in Singapore is booming. Emall.sg is testimony to the popularity of e-businesses in Singapore. It lists over 4,000 active local businesses including blog shops, coupon deal sites, grocery stores and education portals.
Livejournal alone reports it has 1.2 million Singaporean users and over 50,000 blogshops, generating more than US$72 million worth of transactions in Singapore in 2011. Livejournal blogshops transacted 6% of Singapore’s forecasted e-commerce volume of US$1.2 billion in 2011.
Despite the advantages of e-businesses above bricks-and-mortar retail, running an e-business is no cheap affair.
A survey conducted in Singapore in 2010 highlighted some significant challenges facing e-business owners in Singapore. Issues included under-capitalisation, high running costs and skills gaps.
To ensure an e-business survives past year one, there are three kinds of expenses e-business owners should consider when preparing a business plan.
60% of e-businesses spend less than $5,000 per annum in online advertising. Only 10% spend between 10,000 and 50,000 per annum. A spend of $5,000 per annum works out to $415 per month, making it difficult to measure if this level of ad spend has any effect on sales.
|Marketing spend per annum (S$)||Percentage of e-business owners|
Source: 2009-10 e-commerce survey initiated
by the E-Commerce Alliance of Singapore.
Given the depth of products e-businesses sell, and the dilution of online spend between customer acquisition and retention, $415 per month is a drop in the ocean.
An aggressive market entry would see marketing spend S$4,000 per month in online marketing, slowly reducing over time as the firm optimises online spend, and drops marketing channels which yield poor return on investment.
A typical spend pattern would see marketing dollars allocated to several online marketing channels, including mobile advertising (admob), social media ads (facebook ads), search engine marketing (adwords) and email marketing (mail chimp).
E-business owners under-estimate future capital expenditure. Building the initial website and brand is a one part of the investment. After receiving customer feedback, more dollars are needed to be spent if the website is to build a critical mass of users.
If entrepreneurs have not planned for this cash spend, they will be hemmed in. Unable to evolve their product, their competition will gain an advantage. They won’t have enough cash to introduce new types of technology not planned for at initial build.
The technology bill alone to keep up with user feedback could be as high as S$30,000 per annum in year one. This spend is enough to cover the front-end of the site. Additional spend may also be necessary to develop the back-end business functions, including inventory control, billing, sales analytics and hosting.
The report highlighted e-business owners have technical and marketing knowledge gaps that hindered the growth of their business. An online business will need up to three fulltime professionals. These specialists include a technician to continue improving the website, an online / social media marketer to get reach and a finance person to monitor spend and revenue.
This kind of talent can provide strategic direction. A technician can advise an owner whether to build on Ruby, or use an off-the-shelf solution like Magento. Or help the firm save money by outsourcing the webserver to cloud providers like Amazon.
A proficient online marketer could advise the owner on making the most of Facebook commerce.
The message from the research is clear. New market entrants into the e-commerce space will need more capital to steal market share from existing players, and offer new types of products and services to differentiate the brand.
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About the author
Anthony is the founder of Futurebooks Pte Ltd. Anthony is obsessed with helping start-up companies incorporate, conduct industry analysis and develop brand positioning. He has ten years experience in media and marketing, and was founder of Firestarter, a digital marketing agency.
Firestarter was acquired by Novus Media in 2010.