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Ecommerce - A brighter 2004?

I was recently reading over an article I wrote in October of 2001, "Dot Bomb - Trend or Lesson" and comparing where things were at then to where they are now.

Back in 2001, people were still very much licking their wounds after the dotcom bubble burst. Gone were the days of huge incomes for the average webmaster from banner ads and the term "potential" became an evil word in investor's dictionaries when it came to them parting with cash for start-ups. 

The value of domain names had also collapsed. A colleague was telling me about a rather average domain name he sold prior to the bust - he got US$10,000 for it. In today's market he'd be lucky to get $100. In the good old days, you could sell a full web site with half decent traffic for 20-50 times what you could now.

Since 2001, I've noticed an increasing trend of acquisitions - Internet.com (Jupiter Media) is an excellent example. It's truly mind boggling how many sites that company owns. There's other players in the market too who have quietly gone about acquiring popular sites and then remaining very much in the background. 

Given what we've just come through it wouldn't be unreasonable to assume that these companies have more money than sense. Actually, they are playing the game very smart. Most of the sites they are acquiring are going for a pittance.  They are just biding their time for the next boom - perhaps in 2004? More on this later in the article.

Europe, Ecommerce and general IT.

According to Forrester Research; things are looking pretty rosy for the European market in the years ahead. They are predicting Europe's IT services spending will grow by 57 percent From 2003 To 2008. After a cautious start in 2004, late 2004 and early 2005 may witness a marked increase in spending as firms relax the tight controls imposed during 2002 and 2003.

Forrester also suggests that European Christmas 2003 ecommerce will total over 9 billion Euros - a figure that indicates a rapid catch up with US shoppers. 40 percent of Europeans currently shop online, with the UK and Germany  accounting for 63 percent of all European sales.

Computer chips - double digit growth in 2004

The Semiconductor Industry Association (SIA) says the industry will see sales growth of 16.8 percent in 2004. 

Semiconductor Industry Association President George Scalise stated: "In 2004, the growth is led by a strong increase in memory, including a 43 percent jump in DRAM and a 25 percent increase in Flash, and supported by double digit growth in other product sectors. The recovery is broad based across computer, consumer and communications applications as they all continue to be drivers for the industry. The forecast contemplates a return to higher IT spending levels and the emergence of multi-function products such as smart phones."

The market expected to experience the strongest growth in computer chips is the Asia Pacific region with figures expected to be over 20% on 2003.

Paying bills - the future

A report from Jupiter Research states that 18.9 million US households paid bills online during 2003 an increase of over 6 million on 2002. That figure is expected to climb to 60.6 million by 2008. Given the increase in the relation to financial services and online activity, this will provide excellent opportunities for companies and individuals who focus on this area of ecommerce.

Online senior citizens growth

According to Nielsen Netratings, the fastest growing age demographic over the past year has been in the 54+ group, with the biggest percentage spike being those people being aged 65+ (+25%). Nielsen believes these figures to indicate a "catchup" trend where the Internet is now becoming more generally accepted right across the entire community. This broad acceptance will increasingly provide good opportunities for ecommerce sectors that are not youth or corporate driven.

Broadband - slowly, slowly

By 2008, it's expected that broadband penetration in the US will reach 50 percent, according to Jupiter Research. The switch to broadband is still being heavily impeded by price, awareness and connectivity availability.

While rich media is becoming more of a reality thanks to the uptake of broadband, it's important to note that surfers still want to access content more quickly than ever. 

Many developers are making the mistake in thinking that if their demographic is comprised of significant numbers of broadband users, they can make extremely heavy sites. They are failing to recognize that people want to access information *faster* and not have to wait for the equivalent time to a dialup connection for the same content. 

While technologies such as Flash are definitely maturing, the Flash animation intro pages littering the web are the still the bane of many surfers; and that's not going to change. The advice remains the same; if an element is heavy on bandwidth and has no real function - lose it.

Overseas outsourcing in 2004

Recent years have seen a trend towards Western companies outsourcing projects to India and Eastern Europe. Programmers from those countries charge a small fraction in comparison to their counterparts in the West. 

While the real cost of outsourcing is very much higher than the base rates paid to foreign programmers through issues relating to communications and work culture differences, it's still more economical to outsource overseas than to use local contractors.

I'm still firmly of the belief that while outsourcing overseas impacts negatively on local jobs, it provides great opportunities for local programmers to act as co-ordinators for projects and of overseas workers.

While consumers demand bigger, better, faster and cheaper; local companies will continue to scour the planet for cheap labor and tolerate the associated headaches. I feel that the headaches involved with outsourcing overseas will also lessen in the next year as foreign programmers and companies become more savvy with Western business practices.

Privacy vs. Convenience

Even though fraud is rampant on the Internet; this has done little to discourage the "new generation" of surfers from clicking indiscriminately and providing details they perhaps shouldn't to parties they don't know - all in the name of convenience. 

The upside to this is that they are also more accepting, and in many cases *demanding* applications that were shunned not so long ago now be available. The best example of this is live chat/support software and services.

According to a survey by Andersen Consulting, nearly 62 percent of Internet consumers surveyed said that if live online customer service were present, they purchase more products.

Online advertising in 2004

Since the second half of this year, I've noticed a general increase in the amount advertisers are willing to pay for good quality ad space. I believe that much of this increase has been fueled by the burgeoning Pay Per Click search engine industry and also the introduction of Google's AdSense. AdSense has also allowed thousands of web masters with low - mid range traffic sites to finally receive decent revenue from their ad space. Other ad networks are now following suit and CPM rates are generally on the rise.

While this is great news for affiliates and publishers, online advertising is going to be an even more expensive recurring cost for merchants in 2004. This is where some of the larger players with a few bucks to burn are playing it smart. 

As mentioned earlier in the article, many popular, industry specific web sites are currently being scooped up very cheaply. These sites, in many cases, will be used by the new owners to promote a single range of products belonging to the parent company or products that don't compete with theirs in any way. The costs associated with running these sites will be far less than maintaining multiple Pay Per Click campaigns and other forms of external advertising. 

With the increasing revolt against spam, email marketing is becoming more challenging. The companies buying up membership based sites such as forums are also gaining very nice mailing lists to further promote their products and services.

By promoting only their own products from these sites, they also decrease the amount of global coverage available for their competitors. If the amount of available ad space shrinks across the web, this may be of benefit to businesses that hold on to their sites - their available space will then gain value. We may also see sites as a whole gaining in value as others scramble to jump on the current acquisition bandwagon.

All we're seeing is what has been happening in the bricks and mortar world of commerce for many years - the acquisition of ma & pa by multinationals. 

Fraud, taxes and law suits

All in all, things are looking good for 2004. But, depending on your viewpoint, there will be a major downside. The legal costs associated with online business will rise dramatically as will government regulation. 

I believe that 2004 will see somewhat a reining in of the Wild West mentality as consumers become more savvy and governments become more greedy. 

It will be the legitimate businesses who will suffer as ripped off consumers exact pent up vengeance on soft targets. After all, our governments seem totally incapable of prosecuting the real fraudsters. Many governments will also want a greater slice of the money that is being made via the web through changes in taxation laws and new forms of business licensing. 

While real fraud rates in ecommerce are dropping, the more strict strategies that merchants now have in place to protect against fraud is also costing a great deal. Many legitimate orders are being rejected because they *appear* suspicious. Nobody likes being told their money's no good...

Spam related law suits will definitely be on the rise. As I write this I've been made aware that a "do not contact" list similar to the telemarketing "do not call" list is on the cards for 2004. The spammers won't care about such a list and again it will be the legitimate businesses that are hurt the most.

So, more dollars floating around the web perhaps in 2004 and definitely more challenges. One thing's for sure, like every year on the Internet, it will be anything but dull!

Related learning resources

Email marketing - current challenges/future strategies

Guide to live chat/support software and services

Michael Bloch
Taming the Beast
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