Internet Shopping Heading for the Trillions

Rick Perera, IDG News Service

Business conducted over the Internet is booming, despite the gloom that descended on the sector with the crash in dot-com stock values, according to separate research recently released from IDC and America Online.

Worldwide, users rang up $354 billion in electronic-commerce transactions last year, a number expected to skyrocket to more than $5 trillion by 2005, says IDC analyst David Emberley.

"The big thing to remember about this number is that it's not driven entirely by B-to-C [business-to-consumer]," Emberley says. "The majority of this is actually B-to-B [business-to-business]." He says some 80 percent of online transactions conducted in 2000 were between businesses, a proportion that IDC estimates will rise to about 86 percent in 2005.

"It's tried-and-true, brick-and-mortar companies going out there and creating marketplaces. It's the big dollars from the large corporations that are driving this," Emberley says.

But even retail spending is climbing, at least among AOL members. Subscribers spent an all-time record of $6.7 billion shopping online in the first quarter of 2001, up more than 70 percent over the same period last year, the company says. Nearly three quarters of AOL's 17 million U.S. users now shop online.

International Buyers Will Boost Shopping

In the coming years, a rapid rise in the number of Internet users outside the United States will fuel continued growth in online sales, Emberley says. By 2005, nearly a billion people will be online, with much of the growth in populous countries that have so far had relatively few Net surfers, according to IDC projections.

"There are a lot of areas out there that have always been traditionally slow to get on board--India, China, other parts of the Asia-Pacific region," Emberley says. "A lot of that has to do with infrastructure problems, technical problems, but it is also due to those societies and their fear of credit-card type transactions. But as that fear breaks down, you've got powerhouses that can drive growth."

While the United States today leads the globe in Internet use, accounting for 34 percent of surfers worldwide in 2000, Europe and the Asia-Pacific region will rapidly pull ahead, leaving the United States in third place, he says. The U.S. share of the world's e-commerce, 46 percent in 2000, will drop to 36 percent in 2005, more in line with its position in the offline economy.

In a similar report released in March, Forrester Research estimated world e-commerce trade at $657 billion, projecting a growth to $6.8 trillion in 2004. Emberley says his company's more conservative figure is due to a stricter definition of e-commerce.

E-commerce, according to Emberley, is "the process by which an order is placed or accepted via the Internet... therefore representing a commitment for a transfer of funds in exchange for goods or services." The term does not include orders placed by fax or e-mail, even if the e-mail system uses the Internet, he says--although e-mail transactions sealed with a digital signature would count as e-commerce.