IDC Predictions '99: The “Real” Internet Emerges-(Pay attention people)
musea:
Very interesting predictions from IDC,quite an exciting opportunity for DELL.
PS:About the Chuck Berry song, you are right but it wasn't modesty I just didn't recall it at the time.<vbg>
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IDC Executive Insights
Analyst: Frank Gens, Sr. VP, Internet Research
IDC Opinion
What will be the key events in the IT marketplace in 1999?
The Internet is at the center of growth and change for the IT industry and for many others. In 1999, IDC predicts a fundamental shift in the Internet - from a skewed and strange environment to one that begins to look much more like the real world in key ways:
One-third of U.S. homes will be online; half will buy online.
Women will become the online majority in the United States.
The United States will become an online minority.
Key IT markets will be shaped by the masses.
Small businesses will flock to the Internet.
Live phone support will become available in many Web stores.
Web access will become available in many retail stores.
Financial realities will drive Internet stock corrections.
Competitive realities will drive many Internet mergers.
Succeeding in the exploding near-trillion-dollar Internet economy of the next four years requires adapting to this “new” Internet.
The year in which we say goodbye to this millennium, we will also say goodbye to the Internet.
The Internet will not actually disappear, of course. But it will be a decidedly different place by the end of 1999. The virtual world will cease to be a strange and skewed environment, distinct from the real world. In 1999, the Internet will enter a wholly new stage, one in which the virtual world looks a lot like the real world. In 1999, the real world will also continue to be reshaped by the virtual world.
This convergence of virtual and real worlds will challenge conventional strategies for success in the exploding Internet Economy. In IDC Predictions '99, we forecast the key trends, strategies, and events that will take place in and around the Internet, the shifts that will create new opportunities and risks, and the new winners and losers.
Internet User and Commerce Growth
Setting the stage for 1999's key shifts and trends will be rapid - and now routine - hypergrowth of Internet users and Internet commerce. IDC predicts the following for the coming year:
The number of Internet users will surge 28%, to 147 million. This puts the Internet on the same population scale as major countries, surpassing Japan and nearing Russia in number. As we predict below, however, the demographic profile of this virtual nation is about to change markedly.
Internet commerce will more than double, to $68 billion. How big is that? For the first time ever, Internet commerce volume will exceed Bill Gates's personal wealth. Using another real-world yardstick, Internet commerce in 1999 will be on the same scale as the GDP of Ireland and Poland - but this virtual nation's economy is growing about 30 times faster than the global economy overall.
Looking ahead, IDC predicts that from 1999 through 2002, buyers will spend nearly $900 billion online. There's a lot of opportunity at stake in the Internet economy, and as we predict below, in 1999, the strategies for capturing that opportunity will shift in important ways. Businesses are advised to position themselves accordingly.
The New Internet User
The Internet's explosive growth means that two-thirds of those who will be online in 2002 aren't there yet. Understanding how the Internet user (and buyer) profile is shifting is a key for success in the Internet economy.
Who will the new Internet user be? IDC predicts that in 1999, we'll see some fundamental shifts:
John and Jane Doe will buy online. IDC predicts that by yearend 1999, one in three U.S. households will be online, and 50% of those households will buy online. The simple message to businesses that sell in the United States is that not having an Internet presence and an Internet commerce strategy is a recipe for share loss. In the U.S. market, starting in 1999, virtual is reality.
Women will be the majority on the Net. In 1998, women jumped from 43% to 48% of the U.S. online population. IDC predicts that in 1999, women will break through the 50% mark. This is a very important shift in the Internet economy because the Internet until now has been skewed toward males. Success in the new Internet will require understanding how women are different from men:
They seek out different Web destinations.
They spend less time surfing online.
And - oh, yeah - they are the primary decision makers in the majority of households' purchases.
Most Internet users will live outside the United States. IDC predicts that in 1999, for the first time, the majority (51%) of Internet users will live in countries other than the United States. This prediction has major implications for the requirements for successful commerce sites (see next section).
Key Technologies for the New Internet User
Lower-cost PCs, again. IDC made the first predictions of the $500-1,000 PC in 1996. What happens now that Intel's on board the low-cost movement and companies like Compaq and Hewlett-Packard are determined to open up that end of the market? In 1999, look for a showdown around the low end of that range ($400-600) among the industry heavyweights. A dividend for the suppliers: IDC predicts that in 1999 suppliers have an excellent chance to finally penetrate 50% of U.S. homes.
NetTVs will “arrive.” IDC predicts that in the United States, NetTV deployments will heat up to proportions never before seen. We expect over 3 million devices to be installed/activated in 1999, up from only 780,000 in 1998. This will be the year that everyone realizes how powerful cable companies really are and the year when satellite providers prove that interactivity is not limited to landline-based systems. Retail WebTV was nothing compared with what is about to happen. However, if these companies blow it, this will probably be their last chance, and competitors will seize the opportunity.
Home networking will roll out. More than 15 million U.S. homes have two or more PCs, presenting a big market for products that can use existing wiring (phone, cable, power) or wireless technology to connect them to peripherals, public networks and each other.
The New Internet Business
As the Internet crosses key demographic thresholds, it will also change as a business environment. IDC predicts that in 1999, the world of business on the Internet will see the following changes:
Small businesses will take off as a key online business community. IDC predicts that one in eight U.S. small businesses will have a Web site by yearend, reaching 20-25% by 2002.
Reaching international customers becomes a critical success factor for Internet businesses. We predicted the demographic shift earlier. Two-thirds of leading U.S. Web sellers have already made some steps to reach out to non-U.S. customers; almost 30% support more than one language.
Calculating “lifetime value (LTV) of customers” will be a key trend for valuing commerce sites, companies. One of the ways in which the virtual world will converge with reality in 1999 will be in a growing demand for rational ways to measure the value of online sites (including pure-play Internet companies). Today, just over 40% of even the leading Web sites surveyed by IDC attempt to measure LTVs, and many do so quite informally.
Technology Trends for the New Internet Business
Personalization/customization will be the “ante” for successful commerce sites. Why? Because it works. IDC research indicates that users who've personalized a site visit with frequency two to four times that of users who have not. Not surprisingly, IDC research also shows that over 60% of leading Web commerce sites already have some form of personalization in place. In 1999, the mainstream will join the trend.
“Personal merchandising” redefines commerce sites. In 1999, IDC predicts a trend toward “personal merchandising” - the ability for a site to create a unique view of an online store, featuring offerings targeted by customer profile. This trend represents a big step beyond targeted banner advertising. The payback? Targeted offerings can increase yields by an order of magnitude.
Integration of virtual and real sales and support. Leaders will voice-enable their Web sites, and brick-and-mortar retailers will introduce Internet kiosks into their stores. Why? Customers want the best of both worlds. Internet shoppers want live sales assistance and customer support. And in-store shoppers want the information resources of the Internet.
Key Internet Market Developments in 1999
Internet stock correction. As in the early 1980s when the PC market was born, there are some great long-term winners out there. And then there are the rest. The trouble is they're all getting very high valuations. Don't expect it to last for long.
Internet consolidation. Deflated valuations, growing cash needs, intensifying competition, the need for critical mass, and a possible recession will drive two trends: acquisitions of Internet pure-plays by Internet-challenged “real-world” media, financial services and retail giants; and mergers among Internet pure-plays. Some deals we could see in 1999 are the following:
E*Trade acquires and is acquired. A good bet is that E*Trade will gobble up a smaller online broker like Ameritrade or Datek. But we think E*Trade itself will be a takeover target, to bolster the Net presence for a global financial services giant. Wells Fargo and Citicorp are candidates. If so, scratch the Ameritrade or Datek deal.
CDnow/N2K is acquired. They've merged. They're still not big enough or financially strong enough but would be a good Internet expertise buy for real-world retailers such as Barnes & Noble, Borders, or Wal-Mart.
Microsoft buys a real portal. AOL has raised the stakes. And MSN's management shakeup isn't enough. Microsoft must see - and raise -
AOL's bet by grabbing Excite, or if it gets more ambitious, Yahoo!. With Microsoft's NBC partnership, CNET/Snap makes some sense, but Microsoft needs more than Snap to crackle in this space.
Yahoo! merges with media giant. Barring a Microsoft purchase, Yahoo! needs to position itself for the next great media war. Partnering with a real-world media company is the next step - if it can find one that won't screw it up. Time Warner, CBS, and News Corp. are candidates. Other possible suitors from the network services world, moving upstream, are TCI and AT&T.
Ditto Lycos and Excite. After the AOL/Netscape merger, Lycos and Excite find themselves even more threatened by Goliaths. They also face a year of high expectations from Wall Street. Two likely directions: Merge with one another to gain eyeballs and cut costs or partner with a major media partner with deep pockets. A merger of either with Infoseek (and the Disney connection) could accomplish both.
NBC buys more of CNET and Snap. That's an easy pick. A longer shot, but quite possible, is that NBC may shop around for more, taking part in some of the deals predicted above.
Compaq sells off AltaVista. It's a key “eyeballs” site, and it's nonstrategic to Compaq (although Compaq may not know it yet). Yahoo! would make a good buyer; if not, then AOL or NBC/Snap/CNET.
Ziff Davis spins off ZDnet in an IPO. An Internet company roughly the size of CNET is trapped inside a magazine company. Think of all those Internet IPO dollars. But Ziff Davis had better hurry.
AOL and Microsoft versus DOJ. The two owners (Microsoft and AOL) of three of the top four Internet traffic sites now each own one of the top two browsers. That's a lot of market power. As ugly as the idea seems, DOJ may be tempted to intervene.
Microsoft versus DOJ. Which will come first: DOJ breaks up Microsoft or Microsoft rearchitects itself in response to stumbles in a changing market? As predicted in Directions ‘98 last March, we'll go with the latter. Chance of neither happening? Zero.
The availability of adult sites to minors rekindles the Internet censorship issue. Almost 20% of visitors to adult entertainment sites are aged 12-17. That's a high enough number to kick off another round of Net censorship wars in Washington.
U.S. presidential race threatens the Internet. As candidates gear up for the presidential run in 2000, many of them will attempt to claim credit for the growth of the Internet and Internet commerce. To support their claims, many will file bills related to Internet privacy, censorship, taxation, and so on that threaten the growth of the online marketplace.
And Finally: At Long Last, Y2K
Our Predictions ‘99 just wouldn't be complete without this last chance to predict how the Y2K crisis will actually play out.
With the climax of the “year 2000 show” a little over 12 months away, IDC Y2K analysts predict that the disruptions from Y2K will be fairly modest. IDC estimates that only 0.2% of Y2K bugs will cause business-critical problems and that the majority of crashed systems will take hours to days to fix. And fortunately, January 1, 2000, falls on a Saturday. We also predict that Y2K pundits will rapidly discover numerous other computer-programming-related crises.
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