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Friday, May 14, 2004

E-commerce is coming of age, but not in the way predicted in the bubble years via Economist

WHEN the technology bubble burst in 2000, the crazy valuations for online companies vanished with it, and many businesses folded. The survivors plugged on as best they could, encouraged by the growing number of internet users. Now valuations are rising again and some of the dotcoms are making real profits, but the business world has become much more cautious about the internet's potential. The funny thing is that the wild predictions made at the height of the boom—namely, that vast chunks of the world economy would move into cyberspace—are, in one way or another, coming true.The raw numbers tell only part of the story. According to America's Department of Commerce, online retail sales in the world's biggest market last year rose by 26%, to $55 billion. That sounds a lot of money, but it amounts to only 1.6% of total retail sales. The vast majority of people still buy most things in the good old “bricks-and-mortar” world.One of the biggest commercial advantages of the internet is a lowering of transaction costs, which usually translates directly into lower prices for the consumer. So, if the lowest prices can be found on the internet and people like the service they get, why would they buy anywhere else?One reason may be convenience; another, concern about fraud, which poses the biggest threat to online trade. But as long as the internet continues to deliver price and product information quickly, cheaply and securely, e-commerce will continue to grow. Increasingly, companies will have to assume that customers will know exactly where to look for the best buy. This market has the potential to become as perfect as it gets.Half of the 60m consumers in Europe who have an internet connection bought products offline after having investigated prices and details online, according to a study by Forrester. The E-Commerce numbers reported is just the tip of the iceberg.E--commerce is already very big, and it is going to get much bigger. But the actual value of transactions currently concluded online is dwarfed by the extraordinary influence the internet is exerting over purchases carried out in the offline world. That influence is becoming an integral part of e-commerce.

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