Study Plays Down Internet's Economic Impact
From the Wall Street Journal 9/28/98, it even mentions AMZN in it.
A few major points stand out...
1. Internet revenue projection (1 Tril.) is high but still
lower than direct marketing.
2. The demographic of net user is narrow. Few use it and even fewer
buy goods/services on it.
3. Companies have largely concluded that the Internet is best used for business-to-business transactions.
4. The majority of net users and 80% of internet sales
come from the U.S.
5. Growth here and abroad will be stagnant because of security, a lack of bandwidth, expensive phone calls, language barriers, multiple currencies and tax.
(Copyright (c) 1998, Dow Jones & Company, Inc.)
LONDON -- The Internet is a globe-girdling technological giant. It is also an economic pipsqueak. That, at least, is the conclusion of a group of economists struggling to quantify the Internet's place in the global economy. In a report by the Organization for Economic Cooperation and Development (OECD) due out today, the authors compare the much-ballyhooed world of electronic commerce and the traditional world of buying and selling. The comparison isn't flattering.
Judging from the eye-popping revenue projections bandied about by
market researchers, one might assume that the whole world is rushing to buy dish-washing detergent and software online. The OECD itself
estimates that total revenue from electronic commerce hit $26 billion
last year and will soar to $1 trillion by 2005.
But those numbers need to be seen in context: The $26 billion, for
example, represented only 0.5% of total retail sales last year for the
OECD's seven-largest economies, according to the report, "The Economic
and Social Impacts of Electronic Commerce." Even at $1 trillion,
e-commerce would amount to less than the current annual sales that flow from direct marketing in the U.S. using mail, telephone and newspapers.
"There is no other area of technological change with such a
discrepancy between the actual, current phenomenon and what people,
policy makers and businessmen believe and expect from the future," says Luc Soete, an economics professor at Maastricht University who has read the report. "If you consider the things that are still necessary to really make e-commerce work, it is amazing that people are expecting growth anything near what they are."
Relative to the time the Internet has been a credible force, by most counts about three years, its growth has been phenomenal, of course. Without question, the Net has already revolutionized certain niche markets: Online bookstore Amazon.com, for example, has become America's fifth-largest bookseller in just four years.
But most economists say it will be a long time, if ever, before the
Internet transforms the way people buy the vast majority of goods and
services. Most consumers, after all, remain skittish about putting their credit-card numbers online. And nothing will ever replace the pleasure of shopping till you drop.
Perhaps nowhere is that more certain than in Europe. An estimated 80% of global e-commerce sales currently come from the U.S., and there is little to suggest that this figure will change much in the future.
Blocking the growth of e-commerce in Europe are all the usual
suspects: a lack of bandwidth, expensive phone calls, language barriers, multiple currencies and heavy tax regimes. Some of those factors already inhibit the growth in Europe of the traditional selling method that most closely resembles e-commerce, mail-order sales; per-capita sales for mail order tally less than half those of the U.S.
European politicians also threaten to slow things down in their
eagerness to regulate the new medium and skim it for needed tax revenue. "There is a greater capacity for growth in Europe, provided politicians don't mess it up," says Danny Quah, a professor of economics at the London School of Economics. "They can't look at this as a great danger to their fiscal tax base; this has to be seen as a great new place for economic exchange."
Even if the politicians resist the urge to interfere, don't expect a big boom in online buying by consumers. Companies have largely concluded that the Internet is best used for business-to-business transactions. When businesses hook up to their suppliers and partners, they save in transaction costs, improve service and reduce inventory. The business-to-business segment currently accounts for 80% of all
e-commerce, and is likely to fuel most Internet sales growth in the next five to 10 years.
Consumer buying, meanwhile, could stand still. The business-to- consumer field is still plagued by questions of security, privacy of personal data, and the difficulty and expense of accessing
e-commerce merchants. The OECD report estimates that consumer buying
won't top 20% of all e-commerce sales in the near term.
And what about the long term? Just ask Andy Wyckoff, an economist at the Information, Computer and Communications Policy Division of the
OECD. He wonders whether the Internet may have already reached its prime for consumer sales.
In the retail trade, he argues, 70% of all sales are generated by 30% of all customers. The challenge for retailers is to find their optimum 30%. In the case of the Internet, the current makeup of surfers tends to be wealthy, upwardly mobile professionals, short on time and likely to buy via the Internet for convenience.
"You have to ask, just how much more are you going to gain by
extending the Internet to the mass market?" says Mr. Wyckoff. "We've
already got the fat cats online." |
