Keep Pace With Trends Driving E-Commerce

As we begin the fourth quarter of the year, allow me to share my near-term perspective on the march of technology. As users, students and marketers of technology, it is important to understand, anticipate and apply developments.

Some of these things you probably know. Others are less publicized. I anticipate that these trends will drive the marketplace during the next 12 to 18 months, barring a major economic realignment.

The first big development will be emergence of “free” computers. Internet service providers have adopted the “razor-and-blade” model and will soon give away basic computers to millions of Americans. Significant players such as the Microsoft Network, Prodigy, Earthlink and AOL’s CompuServe are leading the charge.

And although “free” may require several caveats in some cases, this development will dramatically alter the PC marketplace. Over the next 18 months, PC owners will split into two key segments: professional/high-end users and mass-market freebie users.

The household penetration of PCs will jump from 54 percent to as high as 70 percent, but the market for lower-end configurations will shrink considerably. By 2001, PCs will be like cell phones. Only those who want the latest bells and whistles will pay for the hardware. Most users concentrating on Internet access, word processing and games will be satisfied with the so-called free machines and will not upgrade components.

Instead, churn cycles (based on the length of ISP contracts) will emerge and ISPs will compete for share of switchers during the window of expiration and choice (much like managed-care plans do today). In the interim period, the challenge will be to attach additional peripherals to each box or upgrade the software inside.

Look for savvy marketers to target under-penetrated niche markets such as senior citizens, households with $50,000 or less in annual income, African-Americans and Hispanics. Some will target the over-penetrated Asian-American segment and stake out a position as the preferred source for a household’s second or third computer or as the prime source for a home-based network.

Another development to prepare for is the arrival of broadband. Faster, fatter pipelines for voice and data are being deployed. One million people currently use them to get online. ISDN technology will be surpassed by DSL service from phone companies and by cable access to the Internet from cable and satellite TV firms. Prices will be as low as $50 per month. BellSouth, Bell Atlantic, RCN and ATT/TCI are actively promoting these services now.

We expect serious home surfers, gadget guys and early technology adopters to generate significant demand – so much so that providers will be challenged to deploy fast enough to meet demand, especially in major metropolitan areas where installations currently exceed 2,500 per day.

The implication is that Internet content will look and feel like TV sooner than we thought. Programming that uses streaming audio and video will be accessible, and the likelihood of media competition or convergence between TV and online programmers is strong.

Expect scalability and customer service to drive e-commerce. Every pundit has his or her holiday e-commerce prediction. Regardless of the actual figure, it’s evident that a lot more shopping will be done online this year.

As the amount of e-commerce purchases increases, the satisfaction of customers will be a direct function of ability of sites to handle traffic spikes and merchants’ agility in trafficking goods, answering inquiries and handling returns.

One study estimates that two-thirds of items put in online shopping carts are never purchased. Rubic Inc. estimates that the average e-commerce site turns over 60 percent of its customers every six weeks. Hype and seasonal retail cycles will drive demand, but back-end mechanisms will determine who wins and who loses.

Internet service providers will adapt cable TV pricing structures to break the current $19.95 “all-you-can-eat” revenue barrier. With the deployment of faster lines and telephony over the Internet, expect tiered services based on function and/or minutes of use and multifunctional bundles (e.g., local phone, personal 800 numbers, regional calls, ISP, cable TV, long distance, caller ID plus voicemail, all for a single monthly fee) to be tested in the fourth quarter.

Look for the holiday season to make or break WebTV and other so-called Internet appliances. Several manufacturers will introduce less-than-fully functional PCs or similar devices designed to offer quick and easy access to the Internet.

Targets will be families in need of a PC, older Americans who are techno-phobic and the 50 million-plus households not yet wired. Matching or beating the buzz of Apple’s iMac is the brass ring marketers are chasing.

Some of these new appliances (one is called e-toaster) will cannibalize lower-end PC lines. Gaming devices from Sony, Sega and Nintendo will match, and in some cases exceed, PC connectivity, speed and graphics capabilities, which will provoke intense battles for market share among a sophisticated, high-use, discerning and hard-to-reach segment.

Mobility, already important, will matter even more for sophisticated, wired professionals. The next step for these users will be to take their PC functionality on the road by getting thinner, lighter laptops or by moving e-mail and other critical applications to Palm Pilots, enhanced cellular phones and other handheld devices.

APL is building custom applications to run on the wireless Palm VII and locking in exclusive deals for our clients. Expect other marketers to follow suit.

This trend will converge with single-source, message-management applications as the most wired road warriors seek to consolidate information tools like e-mail, fax, cell phones, 800 numbers, calling cards and/or pagers into a manageable system, preferably one that follows you around and can be easily accessed anywhere.

Surfing patterns will be significant. Huge numbers of Americans surf the Web at work during traditional 9-5 business hours. As many as 40 percent of school kids surf it from 4 p.m. to midnight. Look for content providers to promote sites differently to different audiences, take a stab at “appointment” programming and seek promotional partners on this basis.

Ironically, content providers will have to overcome a significant drop in home usage – as much as 90 percent, according to Arbitron. In spite of strong increases in Internet access, one-third of Americans over the age of 16 with access do not use the Internet. This signals a shift from a focus on adaption to a need to understand the apps and content that will stimulate continued or expanded use.

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