See the complete list of trends that we analyze.
1. Introduction to the E-Commerce & Internet Industry
The Great Recession that the world faced in 2008-2009 had mixed effects on the E-Commerce and Internet Business. Online ad sales were soft, and in many cases ad prices were down considerably. Since consumers are more focused than ever on finding the best prices, firms like Amazon that are known for their high value at low prices strategy are well positioned to prosper. The global Internet audience continued to grow rapidly, with the worldwide base of Internet users now in the 1.7 billion range, including a large base of mobile broadband users. Growth in 2010-2011 will be centered on worldwide use of the Internet in general, access to the Internet via mobile devices and consumer access to entertainment online (such as television programs viewed online). Consumer purchases overall will remain relatively weak, due to tough economic times, particularly in the U.S. and other nations with high rates of unemployment. Sales on eBay were up by only 2.1% in 2009, but profits soared by 34.2% thanks to cost control and effective new strategies. The standout winner in e-commerce of late is Amazon, where sales have soared thanks to aggressive discount pricing and an ever-growing variety of merchandise categories. Amazon’s revenues rose by 27.8% in 2009, to $24.5 billion, and profits grew substantially as well. Clearly, there is growing adoption of online consumer purchases throughout the world’s major economies.
Online advertising leader Google saw revenues increase 8.5% in fiscal 2009, to $23.65 billion, while profits soared 54.2% to $6.5 billion.
Worldwide, about 1.7 billion people are using the Internet. Growth in broadband subscriptions worldwide is very strong. Analysts at In-Stat estimate that there were 578 million broadband subscribers worldwide by the end of 2009 (both fixed and wireless), and that the number will surpass 1 billion by 2013.
China now holds the world’s highest number of Internet users, at an estimated 384 million as of early 2010, according to the China Internet Network Information Center, representing growth of 86 million during 2009. Meanwhile, Google and the Chinese government are battling over alleged hacking of certain networks that Google believes originated in China, in addition to Chinese government requirements that Google prohibit access to many types of Internet sites for Chinese users of Google’s services. Sites that must be blocked, according to Chinese regulations, include the ever popular Facebook and YouTube. However, savvy Chinese residents can bypass this problem by subscribing to virtual private networks, known as VPNs, located in other nations. In such cases, the user first accesses a foreign network server, and then browses the Internet outside of government interference.
The number of American homes and businesses with broadband access capabilities reached nearly 100 million by the beginning of 2010, thanks in part to modest monthly fees at Internet service providers. This number does not include mobile broadband users, estimated at another 120 million. As a result of this mass market, a plethora of new services, entertainment options and timesaving solutions have become widely available online. The U.S. population is becoming more tech-savvy, with at least 72% of American adults surfing the net on a regular basis. Confidence in security for online transactions is on the rise, as is the ease of use of most retail web sites.
Online advertising continues to grow as a percent of total advertising. Online advertising in 2009 accounted for about 10% of all ad expenditures in the U.S. Plunkett Research estimates that total online advertising in the U.S. for 2009 reached $25 billion. Using the same ratio of 10% on a global basis would lead to an estimate that worldwide online advertising spending was about $50 billion in 2009.
Total online sales reached were essentially flat in the U.S. during 2009, at $131.4 billion, down from $132.3 billion in 2008 (not including sales of travel), according to analysts at eMarketer, and will grow to $141.3 billion in 2010.
U.S. travel sales online for 2009 were projected to reach $92.6 billion, according to eMarketer. Plunkett Research estimates global travel expenditures online at about $300 billion for 2009.
A significant evolution is taking place in the world of business, as more and more telecommunications move to the Internet. VOIP continues to grow in popularity, both at home and at the office. Meanwhile, the concept of “unified communications” threatens to completely revolutionize business communications by combining all communications into one screen on the desktop, including phone, fax, email, IM, voice mail and teleconferencing. Voice communications will be digitized and archived, just as email is today. A user’s communications tools will move seamlessly from the desktop to the mobile device.
Convergence Arrives: The Internet is about saving time (and therefore saving money), and the potential of the Internet has barely been tapped. New methods of taking advantage of efficiencies are becoming widely accepted, as access to high-speed broadband Internet connections becomes commonplace. Users of the Internet (both business and consumer) are multiplying around the globe, and many companies are earning terrific profits in the process of serving those users. The long awaited phenomenon of “convergence” of entertainment, computing and communications has arrived. One of the most exciting examples of such convergence is the phenomenal success of Apple’s iTunes online music service. Thanks to the iPod, its newer cousin the iPhone and other popular electronic devices, viewers are turning to the Internet for television shows and movie downloads to a growing extent.
Now, the latest televisions come equipped with built-in Internet connections. This is going to create radical changes in the way TV viewers obtain their movies and TV programming over the near term.
Investments by Microsoft, HP, Sony and others in digital entertainment are also great examples of the arrival of convergence. Microsoft’s 2007 release of the Vista operating system will eventually boost both Internet usage and e-commerce, since a major focus of Vista and the more recent Windows 7 is enhanced security. Stay tuned—the next five to ten years are going to be extremely exciting, both for consumers and for firms that provide Internet-based services.
Top selling product and services categories online include travel, clothing and accessories, books, music, videos, electronics and specialty foods including wines. In these markets, online shopping amounts to a significant share of sales. (For a complete picture of leading consumer purchases on the Internet, add gambling, games, pornography and information leading to automobile purchases to this list. In addition, health information and general news are among the most commonly sought online data.)
Meanwhile, many of the world’s largest storefront retailers now operate some of the most-visited Internet sites. For example, online traffic is extremely strong at the sites of Wal-Mart, Target, Best Buy, J.C. Penney, Sears, Home Depot, Lowes, Macy’s, Kohl’s, Cabela’s and Barnes & Noble.
A Brief History of the Online Sector: The e-commerce and Internet sector has evolved rapidly, going through several distinct stages since its beginnings in the 1970s. Before we delve into an analysis of the trends that are shaping the Internet sector today, a quick look at history is in order.
The Internet is Born: First, there were the early days, when the Internet was seen by many as a realm for techies only, one that would produce few, if any, commercial enterprises. Initially designed in 1973, the Internet was a series of communication protocols written by Vinton Cerf as part of a project sponsored by the U.S. Department of Defense’s “Defense Advanced Research Projects Agency” (DARPA). The first demonstration of a three-network Internet protocol-based connection occurred in November 1977. Eventually, a well-enabled Internet was rolled out in 1983, primarily as a failsafe method of defense communications and as a means for researchers at various universities to communicate.
The Web is Created: Next, the World Wide Web and the coding language of HTML were conceived in 1989 and implemented between 1990 and 1993 by Tim Berners-Lee, enabling a never ending hyperlinked cyberworld where sharing unlimited data became user-friendly thanks to the magic of linked pages.
The Boom Ensues: Starting in 1993 to 1994, entrepreneurs and financiers realized that hyperlinked, electronically posted data could be commercialized with vast, global potential. A dramatic revolution in retailing, publishing and entertainment was visualized, one in which consumers and business people alike would eagerly pay for the convenience of online shopping, trading and viewing of published data. An economic boom ensued, the likes of which hadn’t been seen since the beginnings of earlier technological breakthroughs: electricity, the railroad, the telephone, the automobile and the passenger-carrying airliner.
Thousands of hopeful new businesses were launched. Capitalization for these new Internet-enabled companies ranged from cash-strapped ventures launched with Visa card credit lines, to companies like WebVan that received vast sums from professionally managed venture capital firms only to fail miserably. Roughly 6,000 new firms of significant size raised a cumulative total of more than $100 billion in venture capital in the boom period (1994-2000). About 450 of these companies sold their stock to the public via IPOs (initial public offerings). Stock markets soared and instant billionaires were made. Individuals and families from all walks of life bet their savings on technology stocks and watched their wealth rise quickly. Venture funds that cashed out early reaped phenomenal gains, and financiers easily found additional investors for new venture capital pools. Companies with little or no sales and profits, led by the success of Netscape’s IPO, found eager buyers for their newly-issued stocks. The NASDAQ index of stocks rose to 5,000 by early in the year 2000, and the Chairman of the Federal Reserve Bank warned of “exuberant optimism.” Some said this boom couldn’t last—others said it was the beginning of a “new economy” that would last forever.
The Bust: In mid-2000 the Internet industry entered a bleak and dreary phase after the NASDAQ collapsed in March, bringing the entire sector to its knees. Hundreds of thousands of people lost their jobs. Stock portfolio values plummeted. Thousands of firms closed their doors, filed bankruptcy, downsized or were scooped up at bargain prices by competitors. Sellers of hardware, software, consulting and telecommunications services suffered mightily. Entrepreneurs found it nearly impossible to raise funds to launch or sustain their businesses. The dream of a “new economy” became a nightmare for some—profits still matter; business cycles still happen.
The Reality Phase: By early 2003, this sector’s dark clouds were abating, and a “reality phase” was taking shape. Well-conceived, Internet-based businesses were proving their value. Consumers had become devoted fans of buying over the Internet. Businesses of all types were finding that the Internet creates true operating efficiencies and drives profitability. For example, while most of the airline industry suffered terribly in recent years, value-based discount airlines Southwest and JetBlue enjoyed superior financial performance, in no small part because of their use of e-commerce to efficiently book reservations and sell tickets online. “Efficiency” is the most important factor in the e-commerce and Internet sector’s new-found success. Consumers find the Internet to be a terrific way to efficiently expend their shopping and banking efforts. Travelers find the Internet to be an efficient way to book hotels rooms and airplane seats. Corporate procurement managers find the Internet to be the most efficient way to purchase needed goods and inventory. Hundreds of millions of people worldwide find email, instant messaging and VOIP telephony to be the most efficient ways to communicate.
Low Costs Fuel the Steady Global Growth Phase: Today, access to fast Internet, both wired and wireless, is available at bargain prices in a growing footprint across the globe. Even in relatively undeveloped nations, both consumers and businesses have grown to rely on the Internet for everyday needs. The “second billion” set of users worldwide is clearly in sight over the mid term, as cheaper devices continue to proliferate. Mobile computing is accelerating at blazing speed thanks to inexpensive cell phone plans offering enhanced Internet access.
Meanwhile, the costs of developing and maintaining web sites has plummeted, opening the door to millions of self-funded entrepreneurs, and making it easier for venture capital firms to fund startups using low amounts of cash. Trends such as open software and cloud computing, along with modular development tools (including dotnetnuke and .NET) have made it easier, faster and cheaper to start sophisticated web sites.
- Common Online Consumer Activities
- Research Automobile Purchase Information
- Banking/Manage Accounts
- Instant Message
- Dating
- Shopping
- Read/Post to Facebook, MySpace and LinkedIn
- Check/Trade Stock and Investment Accounts
Email/Instant Message- Job Search
- Mortgage Information and Application
Participate in Auctions- Play Games
Read News Items- Product or Entertainment Reviews
Download Entertainment/Watch Videos- Research Consumer Health Issues
Shop/Check Product Prices and Features- Travel Reservations
Visit Pornographic Sites- Gamble
Source: Plunkett Research, Ltd.,
www.plunkettresearch.com