See the complete list of trends that we analyze.

1. Introduction to the E-Commerce & Internet Industry

Significant, continuing growth was seen in the global Internet and E-Commerce sector in 2007. Barring a deep global recession, reasonable growth will continue into 2008 and 2009, particularly in worldwide use of the Internet in general, access to the Internet via mobile devices, consumer access to entertainment online and consumer purchases via web sites.

Worldwide, more than 1.3 billion people are using the Internet by some estimates. China will soon hold the world's highest number of Internet users. China's Internet population is estimated currently at 210 million, about equal to that of the U.S., but rapid continued growth is expected.

The number of American homes and businesses with broadband access capabilities is now an estimated 90 million, and 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 expenditures in the U.S. totaled $25.5 billion during 2007, according to analysts at IDC, up 27% over 2006. Major advertisers are expanding their online advertising budgets rapidly. Online advertising in 2008 will account for about 10% of all ad expenditures in the U.S.

Retailing online continues to be a booming business. Total online sales reached approximately $131 billion in the U.S. during 2007 (not including sales of travel), according to eMarketer. Travel sales online for 2007 were about $91.3 billion. Successful online marketers continue to post excellent growth. For example, Amazon.com's net sales for 2007 grew 39% to nearly $15 billion.

A significant evolution is taking place in the world of business, as more and more of telecommunications moves to the Internet. VOIP continues to grow in popularity, both at home and at the office. Meanwhile, the concept of "unified communication" 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. During 2007, iTunes captured about 70% of worldwide online digital music sales, and strengthened its hold on the music download industry thanks to Apple's incredibly popular personal digital music player-the iPod. In late 2007, the iTunes Store topped 3 billion total songs sold throughout its brief history, as well as 100 million TV shows and over 2 million feature-length films sold since its launch.

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 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 data online).

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.

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 mid term, as cheaper devices continue to proliferate.