I am spending this week at the terrific Online Retailer Conference in Sydney. It has been a real delight seeing this wonderful city, and learning about the truly unique challenges in this market.

I am truly struck by the three major issues that I see:

  1. Australia is a BIG country, with a small population. With roughly the same area as the continental United States, but less than 1/10th the population, the paucity of population density is an amazing hindrance to rapid e-commerce growth. This is a little counter-intuitive. Normally, rural areas that have access to broadband have greater participation rates in e-commerce, but in Australia, the uptake rates are lower than one might expect. The real issue seems to be the fragmented delivery market. There a 10-12 shipping options for many products. There is no equivalent to UPS or FedEx in Australia. The lack of fulfillment opportunities really hinder the growth. There are too many choices and the shipping costs are very high. This has a dampening effect on the growth of online commerce. It is just too hard to insure that your products will get to the customer’s door.
  2. Australia isn’t a tech country – With a small population, there is a smaller talent pool from which to draw. This is not to say that there aren’t talented tech folks in Australia, because there are…Sydney has a great, emerging tech scene. The over-arching issue is where the country’s best and brightest are focused. Largely, Australia’s focus is on large scale industrial and mining. In the US, the business pages and the tech pages of the newspaper (does anyone still read those things?) carry the same stories. The focus of the Australian business scene is mining (Rio Tinto, etc) and ore extraction. The Australian economy moves to the real world beat of feeding natural resources to China, not to online technology innovation. This means that the unique challenges that face Australian retailers (product acquisition and logistics) aren’t getting the depth of attention that they get in the US. It is harder (not impossible) for Australia to focus tech on the emergent problems of a nascent industry when the big economic forces in Australia draw the attention and the dollars. Innovation is driven by the challenge of unsolvable problems, but that innovation happens at the behest of invested dollars hoping to capitalize on the solutions. Australia’s economy is currently investing in solving the problems around export of natural resources and foodstuffs to the booming Asian markets. The upside to winning the Australian e-commerce markets have yet to be sufficiently interesting to drive a comprehensive VC community. This will change over time as the Asian market servicing becomes more mature and less attractive to the problem solvers and those that fund them, but at the moment, the online scene in Sydney is underserved by the investment community.
  3. The third issue is one of choices. Because Australia is removed from the rest of the world geographically, it must create its own successes. There are limitations that happen because Australia is sparsely populated and is physically separated from the rest of the world. The exchange of ideas and innovations is stunted. Not because there aren’t magnificent things happening here, but rather because those amazing things are happening in relative isolation. There is less iteration, less serendipitous invention…read Jonah Lehrer’s terrific book Imagine: How Creativity Works and read the part about “the ballet of Hudson Street” (page 190) to understand the necessity creative collisions in making breakthroughs.  This isolation diminishes the chance of the breakthrough idea. But in e-commerce, this isolation diminishes the simple fact of product choice. Because it is a smaller market, geographically isolated, it is simply hard for Australia to support the same kind of product selection that larger markets can. There is simply less stuff to sell. This creates problems with incumbent consumer demand or a lack of excess demand that allows for the creation of a healthy alternative distribution channel like e-commerce. As global and Australian supply chains get more efficient, the issue of sku choices and ability of the market to support real sku depth will change. But for today, Australia can’t support a truly diverse e-commerce eco-system because of the simple fact of lots of land and lots of water. Those things aren’t changing, but the world is becoming more efficient at capitalizing on underserved markets and Australia will have it’s turn soon, I suspect.

Later I will focus on the inherent opportunities that these same issues present, but these issues act as a dampening effect on the coming Australia e-commerce explosion.