Is E-Commerce Keeping Up with the Net?

By all accounts, use of the Internet continues to grow steadily, undaunted by an economic slowdown and the 18-month-old dot-com shakeout.

In fact, Nielsen//NetRatings recently estimated that the number of online users grew 16 percent from July 2000 to July 2001, with nearly 60 percent of Americans now online. The Internet, NetRatings said, is "now reaching the latter half of mainstream America," with late adopters helping to push Web use to new heights.

But as Internet use continues to flourish, is e-commerce keeping up? Are online sales keeping pace with Web growth, or are they starting to fall back?

Although statistics can be misleading, some numbers do indicate a sizeable gap between surfers and shoppers. For example, while NetRatings tells us that 60 percent of Americans are online, U.S. Department of Commerce data shows that in any given quarter, online sales account for less than 1 percent of all retail activity in the country.

Another way of looking at it: NetRatings says that 102 million households connected to the Web. But during the last week of August, eBay drew about 7 million visitors and Amazon about 5 million. No other pure e-commerce company was on NetRatings' top 25 list.

However, experts say the numbers only tell part of the story. While e-commerce growth has slowed considerably, it continues to benefit from the expansion of the Internet and to a large extent even fuels the growth of the Web itself.

Beyond the Numbers

"If you took the growth we had and went back to 1993 and mapped out a steady, gradual increase, we'd all be patting ourselves on the back and saying what a success it is," Richard Warner, associate professor of e-business at Chicago-Kent School of Law, told the E-Commerce Times. "But because we got to this point through a meteoric rise and something of a crash, it creates the false perception that e-commerce is in trouble."

Warner, who teaches courses in e-business planning and law, said the best sign pointing toward continued future growth of e-commerce is that traditional companies are now rushing to forge a meaningful Web presence. With trusted brand names online, reluctant consumers will be more likely to trust the medium, he added.

"The early adopters are already on board," Warner said. "If the more reluctant shoppers see the same names online they see at the mall, that's going to help draw them online. I figure e-commerce is in absolutely fine shape."

New Definitions

Others note that if e-commerce is defined as all online economic activity, its growth has been even more remarkable than a first glance would indicate.

More established companies, including banks and consumer brands, now use the Web for marketing and advertising, while supply-chain management and other business-to-business (B2B) activities make all e-commerce worth billions annually.

And while early adopters who jumped into e-commerce helped fuel triple-digit growth rates for several years, even the more modest growth levels now being seen far outstrip what brick-and-mortar retail experiences, according to Forrester Research analyst Carrie Johnson.

Still Growing Fast

"Certainly the days of 100 percent year-over-year growth are over," Johnson told the E-Commerce Times. "What we're starting to see is online behaving more like offline. The economy is being felt online now where it wasn't before."

Johnson, whose firm is in the process of forecasting fourth quarter growth figures, said expected rises of 20 to 25 percent are still "incredible."

While progress has been made, getting late-adopters -- especially those who have only recently begun to venture online -- comfortable with doing their shopping on the Web is something that e-commerce is still working on.

Convincing the Skeptics

"It might be more of a psychological problem than a real one," John Hancock, an attorney with the firm of Fenwick & West LLP in San Francisco, California, told the E-Commerce Times. "But it's still something that has to be dealt with."

Hancock, who specializes in privacy issues and whose clients include Homestore.com, said it will take two things to fix the perception that privacy is at risk online and unlock a potential flood of new buyers: time and marketing .

"The shock of the bubble burst is starting to wear off and the companies still standing are asking how they can address this and make it less of a barrier," Hancock said. "Now the pace has slowed and it's like we can all take a breath and figure out how to crack this sort of tough nut."

In other words, Hancock said, the shakeout may turn out to be the best thing that could happen to e-commerce -- eventually.