E-Commerce: Back and Bigger Than Ever?

The past several months of e-commerce news has been enough to make any e-commerce prognosticator dizzy. An industry dominated over the last six months by doom-and-gloom messages is suddenly awash with profitable earnings reports and growth numbers.

And the profitability news does not stop with large e-tailers like Amazon. Healthy earnings reports have also been released by smaller niche companies, such as EBags and jewelry e-tailer Ice.com, according to Jupiter Media Metrix analyst Ken Cassar.

So, what is the true state of e-commerce health? Where does the hype end and reality begin?

"The e-commerce sector is in a good place relative to six months ago, but that's not saying much -- the sector was as popular as O.J. Simpson six months ago," Cassar told the E-Commerce Times.

Still Breathing

According to GartnerG2's Van Baker, it is not really correct to say e-commerce is "back" because in truth it never went anywhere.

"E-commerce never died. We just had a problem for a while where there were a lot of bad business models securing funding and seeing the light of day, which under closer scrutiny should never have seen the light of day in the first place," Baker said.

In Baker's view, e-commerce has continued to grow for companies that have a good business model, infrastructure and value proposition, and he said he expects that trend to continue.

"E-commerce behavior is predominantly tied to the amount of time someone has been online, so as we get a population who has more years of Internet maturity, that lends itself very nicely to continued strong growth," Baker noted.

Cloudy Forecast?

But while more consumers may be getting comfortable online, many e-tailers are scaling back their online efforts.

"I don't think it's all completely sunny," Cassar warned. "We're seeing a lot of brick-and-mortars still being very conservative about their Web investments and dramatically scaling back."

Cassar pointed to recent staff cuts at Bloomingdales.com as well as to a growing trend toward outsourcing e-commerce operations to third parties. Marketing expenses for online ventures also are being cut, Cassar said. But such cutbacks do not necessarily mean that multichannel retailers have lost faith in their e-business arms.

"A lot of the bricks are getting to the point where their sites are pretty good and they don't need a lot of the development staff they might have had in 1999 or 2000," he said.

Signs To Watch

To get a true read on the health of the e-commerce sector, observers should keep close tabs on several financial indicators, according to analysts.

"Retailers' investment in the sector and online sales are probably the best indicators, but investment is difficult to track," Cassar said. "A company's marketing budget is also an indicator of its level of confidence in the channel."

Baker pointed to the moves of traditional retailers -- and to a certain extent the fulfillment and reverse logistics capabilities of online retailers -- as key indicators for the sector.

"One of the things you definitely watch for is the traditional retailers and their activity within the [e-commerce] space," Baker said. "There's some evidence from multichannel companies that if they can get a customer active across all channels, the amount of money per consumer on an annual basis increases dramatically, like two times the revenue, and we're seeing a fair amount of evidence of that already."

Baby Steps

According to Cassar, one of the best things that could happen to the e-commerce sector is stabilization.

"We may have hit a point where investment in staffing has stabilized, and we might see where the channel becomes boring, which could be the best thing that happens to it in terms of its stability," Cassar said. "Six months into the future, there's no reason to believe we'll see anything but a continuation of what we see today: cautious baby steps forward."

But the size of those steps will depend largely on the health of the overall economy, Baker noted.

"As goes disposable income, so goes purchasing," he said. "Some [economists] are saying the recession ended in January or February, but the primary governing factor will be: Is consumer sentiment improving?"