E-Commerce Not the Whole Story

US e-commerce revenues will grow to between $580 and $970 billion by the year 2002, according to Giga Information Group, but other types of Internet interaction such as Web-based marketing, customer service, and procurement will be even greater sources of profitability for companies.

Giga defines e-commerce revenue as income that results from sales transactions that occur directly online or directly and immediately because information from the Internet influenced a customer, regardless of how a product or service was ordered or delivered.

“While e-commerce sales are undoubtedly important, for most companies, they just scratch the surface in terms of what Giga calls TEI, or total economic impact,” said Andrew Bartels, a Giga Information Group vice president. “Sales figures are the easiest to track and do provide a good indication of growth, but we believe that Internet-influenced revenue will comprise a significant segment of the US economy. For example, customer research on the Internet is a factor in 25-30 percent of all new car sales in US, but this revenue is not included in e-commerce forecasts.”

According to Giga’s forecast, the broad range of predicted revenues reflects two scenarios, one in which medium-sized companies match the Internet commerce adoption rate of large and small businesses and one in which they don’t.

According to Bartels, medium-sized companies (100-999 employees) face the greatest challenge in adapting to an Internet economy. To date, large companies (more than 1,000 employees) have dominated the business-to-business e-commerce market, while large businesses and small companies (companies with less than 100 employees) have divided the business-to-consumer market, according to Giga.

Giga predicts that large businesses will continue to dominate the business-to-business space, where scale and the trend toward reducing the number of suppliers will remain an influence. Large businesses will also be major players in the business-to-consumer space, due to strong brand awareness. Smaller businesses will continue to provide niche and local services and will command significant market share.

In one of Giga’s growth scenarios, medium-sized businesses face the risk of feeling competitive pressure from larger companies or being beaten by more nimble small companies. The e-commerce revenue of medium-sized companies will grow at 75 percent compound annual growth rate, compared to small companies (117 percent) and large businesses (87 percent), resulting in Giga’s $580 billion revenue prediction for 2002.

According to Giga, the brightest e-commerce future for medium-sized companies lies in their ability to become key players in larger niche markets. In this scenario, medium-sized firms will grow much faster, 111 percent versus 124 percent for small businesses and 113 percent for large companies, resulting in the $970 billion revenue projection for 2002.

“While our market figures show continued rapid growth in e-commerce sales overall, and our research shows the Internet will have significant total economic impact, the numbers also should sound the alarm for medium-sized businesses,” said Bartels. “These companies must plan now for rapid e-commerce adoption by finding their niche markets and building their infrastructure and brand recognition accordingly.”

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