17% of all U.S. Sales Directly Influenced by Internet

[Author's note: this article was first published in October, 2001.]

While the Internet plays an important role in business today, its significance is about to explode. According to a recent survey by International Data Corporation, sales influenced by the Internet, either purchased online or directly influenced by research conducted on the Internet, will account for 17% of all sales in the U.S. in 2001. This is up from 10% in 2000. The total volume of actual online purchases remains on the rise in spite of weak economic conditions, yet the more compelling trend is the role of the Internet as a research tool. According to Jupiter Communication, US online consumers will spend in excess of $632 billion in off-line channels as a direct result of research that they conduct on the Web in 2005, dwarfing the $199 billion that consumers will actually spend on the Internet.

Buyers Becoming Reliant on Internet to Make Decisions

While the Internet plays an important role in business today, its significance is about to explode. According to IDC, nearly one billion people, or about 15% of the world’s population, will be using the Internet by 2005. Their use will fuel more than $5 trillion in Internet commerce, a staggering 70% compound annual growth rate from Internet spending of $354 billion in 2000. “With the dot-com stock crash and U.S. economic doldrums so much in the news, it’s easy to lose sight of the explosive growth in Internet usage and commerce taking place below the surface,” said John Gantz, IDC’s Chief Research Officer.

For business managers of all types and sizes, an effective Internet presence is no longer a nice to have aspect of their business but rather a mandatory tool used intelligently throughout the organization. Both consumer and business buyers have become increasingly dependent on the information they gather from the Internet to make purchasing decisions, especially in competitive bidding situations. A recent finding by Boston Consulting Group concluded, “The Internet will widen the gap between winners and losers among established retailers and manufacturers.” Original, version 1.0 Web sites built by weekend hobbyists, friends and family, or inexperienced internal staff for short money can hurt businesses more than help. Visitors leave a poorly designed Web site lacking confidence about the company and are less likely to do business with the organization.

A company’s Web site is literally its voice to the world, given the reach of the Internet. “On the Internet, the interface and design of a company’s Web site is equivalent to the face it presents in the physical world,” notes Marc Braunstein, author of Deep Branding on the Internet, which takes a highly pragmatic approach to successfully integrating the Internet into a company’s operations.

The Internet is Not a Business Model

Though the role of the Internet in business is undeniably increasing, it is also important to recognize that the Internet is not, with the possible exceptions of Amazon and Yahoo!, a business model in and of itself. This has been borne out by the hundreds of dotcom failures in recent months whose businesses were entirely dependent on the Web. When used appropriately however, the Internet can be a highly effective tool for companies to improve competitiveness. Cisco, IBM and GE are a few companies that claim to generate billions of dollars in sales through online channels each year, not to mention the hundreds of millions of dollars in cost-savings they realize as a result of streamlining operations using the Internet.

Companies Increasing Internet Investments

The lessons of the dotcom failures in recent months have resulted in an interesting about-face for segments of the Internet community. Some organizations have equated the dotcom demise to the fall of the Internet itself, and are largely ignoring the medium. But looking at the behavior of some of the world’s largest companies tells a different story. Proctor & Gamble’s CEO A.G. Lafley recently commented, “We are making the Web part of everything we do.” And he is not alone. According to recent studies, investment in Internet-initiatives by companies big and small is on the rise.

Cahners In-Stat Group reports that mid-market and enterprise U.S. businesses will spend nearly $110 billion, or 26% of their total IT spending, on Internet infrastructure in 2004, whereas this category comprised just 15% of IT budgets in 2000. Jupiter Communications research echoes this forecast. “Every industry is going to be doubling their Web infrastructure investment by 2003,” says Mary Cicalese, an analyst at the company.

Conclusions

All key market indicators point to the increased importance of the Internet in global commerce. Direct and indirect activity on the Web is on the rise, in spite of weak economic conditions. The bottom line is that buyers are using the Internet as both a purchasing and research tool with greater frequency. Most Fortune 500 companies recognized this trend early and have been aggressively investing in their Internet initiatives; most also show signs of continued aggressive investment, even with the economy on the brink of recession. On the other hand, many mid-sized companies continue to pursue Internet projects with great caution. Now they find themselves at a competitive disadvantage against both big organizations with deep pockets and smaller, more nimble companies. Since it is still relatively early in the Internet adoption period for traditional businesses, there is time to catch up, but the window of opportunity is closing quickly.