Is Internet sales growth just a matter of convenience?

Implications: 1. It isn’t surprising that the company would forecast internet usage up to about the same degree over all holiday sales are expected to increase during the 2006 holiday season.

2. But, the real question is whether anything has materially changed to propel this relatively new channel of distribution to a new plateau?

3. It isn’t a large stretch to suggest that absent the consumer's interest in convenience, most of the large e-commerce retail sites would have already been turned off without the collateral support of traditional store inventory and marketing programs which raises a number of questions about the future of e-commerce retailing.

Analysis: Has JupiterResearch ever predicted a decline in Internet growth? So it isn’t surprising that the company would forecast internet usage up to about the same degree over all holiday sales are expected to increase during the 2006 holiday season. Also, it isn’t that surprising they are predicting average transaction values will be up since more users have experience with e-commerce shopping and the consumers confidence in the channel has increased. Whether average transaction values will increase by 12% which is what their numbers suggest is problematic though.

The real question is whether anything has materially changed to propel this relatively new channel of distribution to a new plateau?

This year there are no new ‘e-commerce Goliath’s’ upsetting the retail landscape as e-Bay, Amazon, or Blue Nile did years ago. In contrast, most of today’s Internet growth comes from established retailers which already have large, relatively efficient, e-commerce sites that replicate their bricks and mortar product offers to Internet shoppers.

So it isn’t a far reach to anticipate that the majority of the future products sold over the Internet will be priced the same as that carried in their store carried counterparts. While low value purchases are low risk, they have high transaction costs both to the consumer and the retailer. Experienced and savvy Internet shoppers will increase both their unit purchase price and the overall transaction value to maximize the total value of their Internet purchases. But that doesn’t necessarily translate into either market growth or incrementally larger total seasonal expenditures which is what the JupiterResearch forecast seems to suggest.

It also isn’t a large stretch to suggest that absent the consumer's interest in convenience, most of the large e-commerce retail sites would have already been turned off without the collateral support of traditional store inventory and marketing programs which raises a number of questions about the future of e-commerce retailing. For instance: Can technology reduce the cost of reaching e-commerce customers? Will excess inventory in product pipelines continue to be available to support e-commerce sales? Can distribution costs be reduced to make small order handling more economical?

So I’ll take a big leap and forecast that on line user for Christmas Sales for 2007 will be $119.5 million, sales will increase to 5% over 2006 levels and that users will spend about $34.5 billion. That may not turn out to be in line with JupiterResearch's numbers a year from now.  No matter though my forecast will be close enough.  But right or wrong, the Internets future is still forecast to be uncertain.