By ALECKS P. PABICO

www.pcij.org

AN ONLINE business may have been more apt for Senate star witness Rodolfo "Jun" Lozada, an engineer and self-described IT expert who somehow wound up heading a state-owned forestry firm. Then again, with the country’s electronic commerce (e-commerce) economy still lingering at the bottom, it’s not surprising that Lozada chose to worry about propagating tuba-tuba and jatropha instead of, say, selling roses online.

Which in turn may have turned out to be good for Island Rose, now among the few lucrative Pinoy businesses online, in part because of the lack of competition in its sector. For the last seven years, Island Rose, which pioneered in the commercial production of flowers under greenhouses in the 1980s, has been shipping flowers ¯ more than half a million stems annually ¯ straight to its customers. Late last year, the company opened Flower Circle (flowercircle.com) to expand its delivery market to Hong Kong. Thirty-seven-year-old Dustin Andaya, founder of the online service, says Island Rose is also looking to widen its operations to include the whole of Asia sometime soon.

Today, 80 percent of online flower delivery services in the Philippines are connected to Island Rose. And as the country’s first online retailer to offer delivery services on a national scale, Island Rose has also paved the way for many thriving local e-commerce retail businesses.

Since going online in 2000, Island Rose has been able to realize revenues that have allowed the company’s profits to grow by 150 percent. But that figure may shoot up some more, now that industry insiders and observers are betting on 2008 as a turnaround year for e-commerce. This is because of an expected dramatic rise in the use of the Internet, as well as the alternative modes of online payments that have been developed over the years – not to mention the long-delayed entry of PayPal, the global leader in online payment solutions.

"Players now are fortunate that all components to put up an online store are available locally ¯ from hosting to shopping carts, payment systems to online marketing," remarks Monching Romano, founder of Divisoria.com, the Filipino equivalent of Amazon.com.

Romano launched his popular online shopping site offering all sorts of Philippine-made products at the turn of the new millennium. He recalls, "Back in 1999, in the days of the dial-up, all of these services were only available abroad. To put up (a commercial site), one has to set it up in the United States. A trip there was essential to establish linkages."

No wonder then that the scale of e-commerce remains very much a big business affair, the bulk of which are business-to-business (B2B) transactions involving major retailers and multinational corporations. And while there are the likes of successful dotcom upstarts as Divisoria.com and Pinoydelikasi.com, business-to-consumer (B2C) transactions, most of which is online shopping, are lorded over by the likes of myAyala.com, an Ayala Group of Companies venture that claims to be the largest online shopping mall in the country. Now called myRegalo.com, myAyala started out with two other components: a virtual flower shop (myflowershop.com.ph), the first of its kind in the country, and a ticket reservation and information center for Ayala cinemas (Sureseats.com).

Small and medium enterprises (SMEs) continue to lag behind big business and multinationals in e-commerce adoption. "In other countries, e-commerce is the way of business," says Russelle Trinidad, sales and marketing head of SME.com.ph, an electronic community for SMEs. "In the Philippines, it’s only during the last quarter of last year to early this year that SMEs have become aware of e-commerce."

Since 2000, in fact, only three out of SME.com.ph’s 300 members have been conducting business online: Godiva Skin Care, VMV Hypoallergenics, and recently Regalo Service.

As late as 2006, too, a Philippine Institute for Development Studies (PIDS) paper pointed out that the country’s e-commerce economy would continue to be in the doldrums mainly because of four reasons: One, local SMEs still lack the capacity and knowledge to adopt and effectively use e-commerce. Two, our e-commerce law is silent as far as domain names, intellectual property rights, and a host of other security issues. Three, there is low telephone density and Internet and PC penetration compared to other countries despite existing infrastructure. Fourth, there’s an absence of a more comprehensive set of indicators for measuring usage, readiness, and the impact of e-commerce.

The PIDS study also noted that the Philippines had been left behind by its Asian neighbors, with Thailand and Indonesia ranking higher in terms of e-commerce usage by businesses, particularly in the areas of online banking and e-buying. This is even though all three countries began using the Net at about the same time in the mid-1990s (and actually much later in the case of Indonesia).

There is even a low level of adoption of computers in business – particularly by SMEs – that is reflected in the country’s PC penetration rate. According to an April 2006 paper by the British-based Economist Intelligence Unit (EIU), that rate was just over two percent in 2005, or 1.75 million PCs for 87 million Filipinos. Of this number, only half were in business establishments, says Janette Toral, owner of the e-commerce research site DigitalFilipino.com.

Toral argues, however, that e-commerce in the Philippines is underrated. She says that B2B and B2C transactions are only half the picture, and points to business to government (B2G) transactions, primarily tax collections of the Bureau of Internal Revenue from about 15,000 companies through its electronic filing and payment system, that generated nearly P275 billion in 2005 alone.

Yet it seems more accurate to look at e-commerce performance from the private sector’s view. According to the International Data Corporation, the value of e-commerce in the country in 2005 was at $3.5 billion, and that was on the strength of less than 5,000 companies that were actively using e-commerce in their business.

Dominating the e-procurement scene was BayanTrade.com, a joint venture involving six leading local conglomerates: Philippine Long Distance Telephone Company, Aboitiz, Ayala Corporation, United Laboratories, JG Summit, and BenPres Corporation. There was also SourcePilipinas.com, a multi-industry B2B e-marketplace joint venture, while procurements of the pharmaceutical and medical supply industries are handled by a regional online medical marketplace called Asiarx.com.

Meanwhile, B2bpricenow.com has emerged as a trading portal of over 4,000 member-cooperatives that provide them with price updates and other market information in the areas of agriculture, consumer products, and industrial manufacturing.

As for B2C transactions, myAyala.com has been joined by other retail big boys like SM Supermarket and Rustan’s, both of which sell groceries online. (At present, though, both have temporarily discontinued their services to address issues with their online payment systems.) B2C exchanges also involve online banking (of which the Ayalas’ Bank of the Philippine Islands is a pioneer and industry leader), travel bookings (for Philippine Airlines, Cebu Pacific, and Air Philippines domestic and international flights), bills payments, auctions in the mold of Ebay, and book retailing a la Amazon.com (Powerbooks, Goodwill, and PhilbookClub).

YET INDUSTRY insiders are not the only ones who are suddenly gung-ho over e-commerce in this country. Even the EIU has predicted e-commerce to grow dramatically in the next three to five years, the rapid increase in Internet use being its main driver.

In 2006, there were already 14 million Internet users, or 16 percent of the country’s total population, according to Yahoo! This was expected to grow to 20 million by last year. (International Data Corporation already put the number of Internet users at 19.2 million by mid-2005. It is expected to grow to 24 million this year, says AC Nielsen.)

Internet users include all those who access the Net regularly, whether at work, home, in school, and in Internet cafés. Contributing to the growth of Netizens is the rise in the number of mobile-phone subscribers, numbering 47 million at the end of 2006, already more than half of the country’s total population.

Broadband Internet use by businesses is also increasing as gleaned from the 22,500 connections in 2005, as reported by the Commission on Information and Communications Technology (CICT), up from 10,500 connections in 2004. By 2009, Siemens estimates broadband subscribers to reach one million.

Another important factor fueling the renewed optimism in Pinoy e-commerce is PayPal’s entry into the country, along with the improved alternative modes of online payments that creative Filipinos came up with while waiting for the global leader to come in.One of the reasons why e-commerce has not been able to take off is due to the lack of a reliable system to process online payments. When it started, for instance, Island Rose had to use a U.S.-based merchant account to accept credit-card payments.

Owing to the prevalence of fraudulent transactions traced to the Philippines, PayPal became available to Pinoy Net users only in October 2006, and even then obliged them to sign up for an account using U.S.-accredited credit cards. Then last September, PayPal finally opened its Philippine office. Today local users are allowed not just to load up their accounts through their credit cards, but also to receive funds and withdraw these into their local bank accounts.

Fortunately, in PayPal’s absence, payment schemes that ranged from the use of banks’ ATM (asynchronous teller machine) facilities to remittance services, to mobile-phone payment platforms thrived. These alternatives also took into account the small credit-card market in the country. Thus, in lieu of credit cards, overseas buyers pay for products via remittance services offered by YesPinoy, Xoom, MoneyGram, and Western Union. Or if the amounts involved are small, they issue payments through their mobile-phone credits like PayFree, Globe Telecom’s G-Cash, and Smart Padala.