IDC Channel Directions 2002: The future reality of e-business
- 01 May, 2002 17:22
The endless stream of hype generated by the Internet boom, followed by a healthy dose of pessimism since, has left the industry dazed, confused and tired of hearing about the Web. However, while dwelling on what has already happened cannot help, the industry does need to learn from the experience so that it can move forward.
Of the countless lessons that can be learnt from the Internet craze and crash, perhaps none is more valuable than the dangers of following the herd. While the herd usually identifies broad changes in direction, its understanding of market dynamics is extremely primitive and its responsiveness to market changes is even worse. Unfortunately, too many businesses let the conventional wisdom of the herd dictate their future directions; most of them did it on the way up, and even more unfortunately, most of them are still doing it now on the way down.
As has always been the case, the companies with the best prospects for tomorrow are seeing things differently. Indeed, the most successful companies of tomorrow are not running away from the Web with the herd; in contrast, they are embracing it. These companies realise that although the Internet doesn't look the way they thought it would a few years ago, it still offers them with the best opportunities to transform their businesses and position for the rebound.
While you were sleeping
Despite the chorus of pessimism swirling around the Web for the past two years, Internet fundamentals have continued to improve considerably throughout the crash. By the end of 2001, there were more than 500 million people accessing the Internet at least once per month globally, which was up more than 25 per cent from the previous year. In fact, by the end of 2002, IDC estimates that roughly 10 per cent of the world's population will use the Internet. In advanced economies such as the US, Europe and Australia, Internet penetration rates are reaching mainstream status.
From an Internet commerce standpoint, the progress is even more impressive. In 2001, global Internet commerce revenues exceeded $US600 billion, which represented an increase of more than 70 per cent from the previous year. Online commerce is growing at a faster rate than Internet users because the proportion of Internet users that buy online is increasing and the average amount online buyers spend per annum is also on the rise. Moreover, as organisations transition distribution and procurement to the Web, billions of dollars are being shifted to the online channel.
Since the genesis of the Internet boom, the market's barometer of success has been faulty. Venture capital (VC) funding, the Nasdaq Index and the fortunes of dotcoms has been the market's indicator for how the Internet was changing our world. However, as the mercury in this barometer was crashing, the Internet Economy was in fact becoming more robust. Furthermore, the Internet foundation will continue to strengthen in the years to come. For example, global Internet users are expected to double by 2006 to more than 1 billion as worldwide Internet commerce revenues increase by a factor of 10 to more than $US6.5 trillion.
In the aftermath of the Internet bust, suggesting the Internet Economy is stronger than ever qualifies in many circles as heresy. Consequently, these forecasts and pictures of the future need to be put into perspective.
First of all, it is important to point out that the conventional Internet wisdom before the bust was just plain wrong. Unless you want to remember how not to leverage the Web, then forget most of what you believed a few years back. Throw strategies built on eyeballs, stickiness and the free model onto the trash heap where they belong and get realistic. A return to 1999 is not going to happen.
Secondly, we need to realise that Internet commerce figures do not necessarily reflect new commerce, but rather a reshuffling of existing commerce. When Intel and Cisco shifted their distribution to the Web they did not necessarily create new revenues, but rather transfer existing sales to a more efficient and intimate channel. Likewise, Amazon did not necessarily create a new market, it simply attacked an old market in a new way.
In spite of these caveats, however, businesses need to recognise that Internet fundamentals continue to improve and an Internet society is emerging. This society does not look the way we expected it to before the bust, but it will create a lucrative spring of new opportunities nonetheless.
It is widely expected that a global economic rebound will commence in the second half of 2002. In conjunction with economic improvement, IDC expects the global IT market to begin a recovery in the second half of this year that will launch a prolonged period of market expansion. Contrary to conventional wisdom, e-business and the Internet will represent the eye of the recovery hurricane.
In the Asia-Pacific (excluding Japan), Internet-related IT spending represented 17 per cent of total spending in 2000, but this share is expected to rise to 27 per cent by 2006. During this period, the spending on Internet-related IT products and services is expected to grow at a rate that is three times greater than the rest of the market (27 per cent versus 9 per cent). As this growth unfolds, there will be three fundamental trends for which channel partners and vendors should position themselves.
Firstly, while the market has been preoccupied with the powers of the Web for commerce since its inception, most businesses will find that harnessing the Web for collaboration will have a far more immediate and significant impact on their businesses. Secondly, the greater availability of bandwidth will open new opportunities for organisations to reach customers, employees and partners in the years ahead, Finally, the market can expect to hear a lot more about Web services for many years to come. The potential for Web services to revolutionise information technology is enormous, but the hype will outweigh the reality for several years to come. IDC forecasts Web services will start to have a significant impact on the industry by the 2005-2006 timeframe.
History shows that the greatest accomplishments in any field are achieved when one breaks from the pack. Although the Internet took us for a wild ride, all world-changing technologies do before the real impact is felt. With the Web, this impact is on the way, and the sooner organisations break from the herd to realise it, the better.
Dane Anderson is vice president, Internet and computing systems, IDC Asia-Pacific.