One Year Ago: Advertising Boom May Head Off E-Commerce Shakeout

Originally published on December 22, 1999 and brought to you today as a time capsule.

Despite the fact that many analysts are predicting a shakeout of the weaker e-commerce sisters in the post-Holiday season, a body of evidence is showing that we may see an advertising boom and a resulting new wave of traffic instead.

Advertising dollars are exploding on the Web. According to a special report by Advertising Age, spending by dot-com companies on all forms of advertising is running at a rate of $7.4 billion (US$) for 2000, including television, radio, print, online and outdoors. Considering the fact that online sales revenues for 1999 are estimated in the range of $10 to $15 billion, this number is staggering.

If the advertising trend is accurate, we are going to be inundated with e-commerce-related advertising, particularly on television and radio. Since advertising generates traffic, it is very possible that the impact of a shakeout will be completely dwarfed by a continuing wave of new online shopping that is sparked by this advertising.

It is also possible that many of the weaker entities that are expected to be shaken out will be purchased for their personnel and other assets, rather than be allowed to disappear into the dot-dustbin of history. Who will do the buying? It will either be competitors or brick-and-mortar companies who want instant entry into the online world.

In short, while shakeouts are great fun to talk about, there is a lot of evidence that this one may not happen.

Big Move

The holiday shopping season has been a big success for e-tailers. A new study from Media Metrix indicates that e-commerce shopping sites grew 17 percent overall in the number of seasonal visitors from the same period last year, while content sites were either flat or in a slight decline during the same period.

Toy-related e-commerce sites, such as Toys ‘R’ Us and, posted spectacular gains of 277 percent and 140 percent from the previous year, respectively, while eToys jumped about 93 percent.

The number of visitors to the eToys site grew from the previous year to an estimated 4.9 million visits by potential shoppers, while Toys ‘R’ Us soared to 4.8 million visits and shot up to 2.8 million visits.

Limited Time

Before reading too much into these gains, we must keep in mind that toy and gift-related stores are supposed to experience 20 to 30 percent of their yearly volume during the holiday season.

If these gains came because people were spending limited time shopping instead of surfing content sites, we will likely see a quick reversal of fortunes in January and February when attention turns back to content and away from shopping.

Holiday Momentum

So, the big issue for many e-tailers is not having a strong holiday season in itself. International Data Corporation (IDC) predicted some time ago that consumers would spend $7.1 billion online in the fourth quarter of this year, and that prophecy appears to be correct.

The bigger issue for e-tailers is sustaining the momentum. While many analysts are predicting that the momentum will slow down and a shakeout will occur, there is another body of evidence that indicates that the growth in online sales will continue developing because of a continuing explosion in advertising.

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