Analyst: B2C to Be Big Business in the U.S.

BOSTON (07/18/2000) - Despite the recent dot-com shakeouts, market research firm Giga Information Group Inc. predicts strong B2C (business-to-consumer) sales in the U.S., growing from an estimated US$25 billion in 1999 to reach $152 billion in 2002 -- and $233 billion in 2004, according to a report released Tuesday.

The face of B2C sales will change, Giga said. The analyst company expects multi-channel or "click-and-mortar" stores to dominate B2C Internet sales by 2002, snagging two-thirds of Net spending, or $92 billion in Internet sales.

Travel companies, brokerages and computer companies dominated click-and-mortar sales in 1999, with one-third of the market. However, Giga noted that retail companies like Gap Inc., Borders Group Inc., Wal-Mart Stores Inc., Toys R Us Inc. and Staples Inc. showed that other "real world" retailers could compete effectively on the Net.

"Only a handful of products are 100 percent digital," said Andrew Bartels, vice president and research leader for e-business strategies and applications at Giga. For instance, take travel. "You can book your ticket online, get an e-ticket, (but) most goods remain stubbornly atoms; they can't be digitized, can't be turned into bits and bytes," he said.

Books and music already have a niche in the B2C market, Bartels said. "There's well defined, well developed systems for direct fulfillment of CDs and books," he said, noting that this may change, especially for music, as digital downloads become more popular. "E-books still are clunky and may remain that way for a while," Bartels added.

One barrier to dot-com retail success is the buyer experience, according to Bartels. Buyers "still like to feel the goods, see the goods before they buy them, or they want to get them the same day," he said, adding that the "vast majority (of products) are products that people want to see, touch, feel, taste before they make a final buying decision.

"Take cell phones. You can't get a sense online what it feels like to have a cell phone in your hand or what it feels like next to your face," but online, you can research coverage areas, pricing and specifications for the phone, Bartels said. Once the buyer narrows down the choices, they may want to test the phone in a store before actually making the purchase. Companies that operate in the click-and-mortar channels "will be more likely to capture that customer," he added.

Another example Bartels cited is online grocery shopping. "One thing we think will emerge is the ordering of dry goods, such as paper towels, napkins, ketchup... ordering those items over the Internet and going to the store to get items where your buying experience makes a difference -- meats, vegetables, getting the ice cream home before it melts," he said.

Research from Giga shows that, as a share of total consumer spending, Net sales will grow from 0.4 percent in 1999 to 3 percent in 2004. While Giga predicts that many dot-coms will not survive 2000 due to excessive cash burn rates, B2C dot-coms will capture $39 billion in revenue in 2002 and $49 billion in 2004.

Overall, Bartels said, B2C electronic commerce will grow, and as the current dominating sectors, such as computers, travel, brokerage, auctions and books and music, matures, growth will be evident in other sectors, including auto sales, groceries, insurance and, possibly, government services.

Internationally, Europe lags behind the U.S. by 18 months, while Asia stands about two years behind in terms of e-commerce adoption, Bartels noted. "One key difference in Japan and Europe is that the customers interface more often by cellular phone than by PC, which can change the dynamic of the marketplace," he said.

Giga Information Group, headquartered in Cambridge, Massachusetts, can be reached at +1-617-949-4900 or on the Web at http://www.gigaweb.com/.

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