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B2C or B2B?

Last year was generally bad for dotcom businesses. It seemed that a month did not go by without reports of a dotcom business struggling to secure ongoing funding, calling in administrators or ceasing to trade.

Typical dotcom business models rely on a business-to-consumer (B2C) proposition where the costs of middlemen – wholesalers, premises, people, etc – are stripped from the business, leaving the dotcom to compete with traditional retailers on price basis.

However, a major flaw in the model lies in the cost of creating traffic to the site – burn rate in dotcom speak. Additionally, price should only be considered as one element of the marketing mix. Someone will always offer the product cheaper. I bought some CDs over the internet at Christmas which were several pounds cheaper then those in UK shops. They arrived by airmail the next day from Hong Kong.

The internet B2C model has a place but it has only one distribution route. In terms of sales via the internet, it is businesses that have already established with strong brand value and which are using the internet as an additional means of distribution that seem to be making money from new markets.

The mortgage marketplace has not escaped dotcom think and during 2000 a number of new entrants offered a B2C mortgage proposition. The dotcom mortgage sector ended in a similar fashion to other dotcom sectors. As an example, Exchange FS Group launched a consumer portal,, in 1999. In the summer of last year, the group undertook a strategic review of its activities which concluded it sho uld concentrate on developing its business-to-business (B2B) activities. As a result, was sold to a subsidiary of Bristol & West.

Rumours abound about the future of a number of B2C-only mortgage sites as they balance the competing objectives of reducing the burn rate, creating site traffic and converting that traffic into completed sales.

The challenge for dotcom businesses is how to add value other than by price. This challenge is even greater within the mortgage sector. Dotcom B2C mortgage suppliers are often in a Catch 22 position.

One way they could add value is to offer exclusive mortgage products but lenders will normally only discuss exclusive products with introducers which have a volume-based track record. Lenders have been reluctant to form business relationships with too many new entrants in the mortgage dotcom arena but are maintaining a watching brief as new markets emerge.

Coventry Building Society e-commerce manager John King agrees. He says: “The online market is immature and we are likely to see more failures and consolidation over the coming months. However, we do believe that sustainable business models using e-commerce will undoubtedly emerge. The society&#39s app roach is to maintain a high level of support for our existing intermediary panel and to develop partnerships with those businesses that we believe have a long-term future in e-commerce.” Catch 22.

Another way is the use of advance technology to select products that match client needs. I have seen some very sophisticated systems that eliminate products so the final product selection is extremely customer-focused.

But a search on the UK-based internet search engine, using the key words “mortgage” and “advice”, found 4,156 sites. Again, we are back to site traffic and burn rate. Catch 22.

It is likely that the customer-focused product selection is from a lender which is not a household name. Only the other day I was discussing with a friend a mortgage product provided by a strong mutual regional society. His response was: I have never heard of them, are they financially sound?” It took a while and the radical statement: “Who cares? They are inv esting in you, not you in them” before he would even consider them.

If my friend had received the same information from a dotcom but without the benefit of my explanation, would he have stayed on the site to find out more? Catch 22. But it cannot be all bad. The internet is here to stay, more people have access to it, and are using it.

As consumer confidence is gained from buying low-value, high-volume products online (CDs and books, etc.) they will start to purchase high-value, low-volume products (mortgages).

But, if the B2C dotcom model is flawed, who are going to be the winners in the struggle for mortgage business via the internet?

The household-named lenders will always generate significant traf fic to their sites as a result of their marketing activity. These lenders are also able to form strategic alliances with many third parties, such as the relationship bet ween Intelligent Finance and e-loan where there is an interactive mortgage application engine on the e-loan site which has a direct link to Int elligent Finance, maximising many distribution channels.

Regionally based lenders which are less well known to consumers outside their geographical base are being very inventive in their attempt to close sales via the internet.

I recently visited a site called www. It turned out to be a B2C site for Coventry Building Society aimed at attracting direct remortgages.

Market Harborough Build ing Society has been able to increase its geographical reach by offering a mortgage product which is only available through the internet. It achieved 22 per cent of its mortgage lending through the internet in 2000.

Local intermediaries already add value in their relationship with consumers – they would not continue to exist if they did not.

As a result of recent product developments at both Network Data and Mortgage Brain, intermediaries of any size can dev elop their websites to contain a mortgage-sourcing engine. This means even the smallest intermediary can compete with the biggest mortgage dotcom by embracing all possible channels.

Of course, the local intermediary can add value to local customers by offering its normal face-to-face service for those consumers who need assistance.

They could use such a facility to add value to their existing relationships by providing online mortgage health checks, where existing customers can check the competitiveness of their existing mortgage arrangements.

This year will be an interesting year in mortgage e-business terms. I am sure there will be more highprofile dotcom failures but there will be as many exciting new developments as business of all sizes apply traditional marketing skills and business models to new distribution channels.


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