The Challenge of eCommerce In Bermuda

Originally published in eBermuda magazine
© 2006 Bermedia

The man looked like he could use a hug. And maybe an umbrella and warm fire. On one of the coldest days in Bermudian history, this man was standing on North Shore dutifully holding up his banner for SinkyBay.bm to the morning traffic – emblematic of Bermuda’s hardy entrepreneurial spirit. Being an online auction website, its functionality, branding and revenue model are all ‘borrowed’ from eBay. I hope it does well , however, their revenue model faces special challenges in Bermuda.

Commerce in Bermuda – with or without the “e” – faces challenges due to our size. Being small and remote, the cost of doing business on the island is naturally higher than most places and our potential local customer base is very small, especially for niche items. Many Bermudian entrepreneurs are surprised when they apply online revenue models to the local market which have been successful elsewhere only to see them emerge stillborn.

Online Auctions would fall under the rather broad category of Fee for Service Revenue Models where a company will provide you with a service for a fee. This has had many success stories locally – most notably with the proliferation of online banking, online ticket purchases and travel reservations.

In the case of online banking, a bank can provide this service as part of your general banking fees because it will enable them to capitalize on disintermediation and shed some tellers, making their business more efficient in the process. Local travel agencies face the global problem of declining offline commissions and channel conflict where their online channel cannibalizes sales from the offline channel, making offline sales less efficient.

And then there’s SinkyBay. Despite the failure of kitchensink.bm, SinkyBay has a good value proposition: Websites like eMoo and theRoyalGazette will only allow you to publish a static advertisement with a fixed price. For items like second hand cars, the demand is torrential and often cars are sold the morning they are posted. An armchair economist will quickly figure out that an auction would yield better results for the seller.

However, what makes an auction website appealing to both buyers and sellers is the critical mass of items on display. Sellers won’t post items unless there are buyers and buyers won’t visit if there is nothing to sell. The original eBay started by creating a marketplace for very niche collectibles such as Pez dispensers. In America, with one postage rate for the entire Continental USA and hundreds of millions of potential users, they were able to generate enough interest for the site to survive and then grow.

SinkyBay is pretty much restricting itself to the local audience for general goods which means it will face a sheer numbers challenge when trying to keep the shelves stocked with goods and therefore make it worthwhile for buyers and sellers to use their service (for a fee but potentially selling their item for more) rather than eMoo (where they can post for free but potentially lose some on total revenue).

When people think of eCommerce, they generally think of websites like Amazon.com or similar Web Catalog Revenue Models where consumers visit a website with a catalogue of products which they can then purchase using a credit card. This form of retail has been around since the early 1900’s when paper catalogues were used to reach customers who were distant from the big stores, most notably the Sear’s Catalog. This revenue model has certainly had its share of successes and failures internationally and at home.

The “404 Page Not Found” error for Trimingams.com is a conspicuous milestone in Bermudian retail and in Bermudian eCommerce. Many of my clients are very keen to sell things online – everything from books to donations – but most are put off when they realize what is involved in terms of effort and cost. Unlike eCommerce in the USA or the UK where eCommerce is offered as an ‘add on’ for many hosting companies for a small percentage, Bermudian eCommerce companies are charged a percentage (usually 2-3% of the purchase), a fixed transaction fee and a monthly cost. This is exclusive of set up fees and, more importantly, all the charges attendant with a merchant account and accepting credit card payments in the first place.

Beyond the costs involved, local companies face a problem of size again. The main advantages online retailers provide to consumers over offline counterparts are variety, lower general prices and convenience. No matter where a company is located on the island, storage is expensive which means retail will be expensive. So it is difficult to compete on price. Similarly, greater variety is difficult to achieve for the same reason. Convenience is not as alluring in Bermuda when you probably work five minutes from most shops as it is in, say, Vermont where the nearest shoe store might be 45 minutes drive. There are successful eTailers, most notably bookmart.bm which allows online purchases to be charged to the user’s store account (avoiding a variety of “middle man” fees) and Goslings which is already sells products worldwide online (the advantage of niche brand) and is set to launch a B2C and B2B eCommerce site.

And then, there’s the Advertising Supported Revenue Model, one of the most successful revenue models for local websites. Here the product is eyeballs. Bermuda.com, BlackAndCoke, eMoo, Where2.bm and BermyNet sells eyeballs. It’s a good revenue model. Lots of advertisers want to buy eyeballs and websites like BermyNet have lots and lots of young eyeballs with disposable income. Unfortunately, again, it is difficult to achieve the critical mass of advertising dollars needed to retire on the revenue these sites generate (with the exception of Bermuda.com which targets an international audience), however, if you get a sticky audience, you can certainly fatten your wallet enough to make it worthwhile.

Despite all of our challenges, Bermuda has achieved more eCommerce successes than outsiders would suspect from such a small island. Looking at that man, shivering holding his banner on North Shore, I think it is clear why.

Required Reading