E-commerce expansion to slow: Forrester

Customers will spend more but sectors will consolidateThe online e-commerce universe is likely to stop expanding within four years as sites consolidate, fewer companies join the Internet economy and new buyer levels taper off, a recent Forrester Research has claimed.

The report, released by Forrester analyst Joe Butt, argued general e-commerce expansion will come to a halt by 2004. It suggested the number of companies joining the e-commerce fray is likely to slow down, while the number of new buyers will also level off.

But existing purchasers are still expected to spend increasing amounts.

"The first to consolidate will be retail sites, due to the expense of driving traffic to their site," Butt wrote. "Customer acquisition costs are very expensive," he said, with many consumer sites having already spent that money on such things as Super Bowl ads.

Now that customers have been drawn in, Butt said, the challenge for dot-coms is making sure they return. In order to garner return customers, e-commerce sites will have to focus on business intelligence, customer relationship management and near-perfect uptime, so that consumers' "quality of experience" is richer, he said. "The trade-off may be uptime for richness."

The report, "Is Nonstop Enough?", also asserted the general e-commerce market will undergo vast consolidation, with consumer-oriented sites among the hardest hit.

An important survival requirement for Web sites - near 100 per cent uptime - would also be too expensive for most consumer-oriented sites to maintain on their own, according to the report, thus precipitating a wave of mergers.

Forrester analyst Joe Sawyer, who wrote a separate brief on the topic, described what he sees as the forthcoming consolidation of the e-retail sector as "ground zero". Online retailers suffer "from the worst product differentiation and the most problematic access to funding".

Sawyer cited the multiple pet-product sites that have sprung up over the past year (such as pets.com) and predicted that most pet sites "won't see 2001".

Butt said the report shouldn't be interpreted as a death knell for e-retailing. While the number of new retail sites is expected to decline, business-to-business e-commerce is poised to expand. Butt said that because e-commerce business-to-business organisations rely less on expensive marketing gimmicks, "the cost of customer acquisition is more efficiently spent". As a result, vertical e-marketplaces will continue to grow.

The pattern of consolidation outlined in the report makes sense to IDC senior analyst Anna Kerr.

Kerr agreed that the number of business-to-consumer e-commerce sites and portals is likely to begin contracting. Meanwhile, she said, business-to-business sites will have more staying power, because they typically endure a longer "embryonic stage" and thus experience more gradual growth.

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