Long-term growth factors will continue to drive development of the Internet marketplace, even though current market conditions will temporarily hinder their near-term effects.
According to a new Jupiter Media Metrix (JMM) report*, the key long-term drivers – which analysts identify as continued consumer demand for Internet services, more fulfilling online user experiences, growth in average consumer online tenure and business cost savings – that initially made the Internet so promising, remain powerful and will become self-reinforcing with the passage of time.
While current market constraints – including reduced financial market liquidity, weakened consumer confidence and reduced capital and marketing expenditures – have slowed growth in some sectors, such as online advertising revenue, business-to-business trade and infrastructure spending, their overall impact is expected to be relatively modest.
"While many Internet ventures today are mired in financial difficulty, it's important for all players not to be overwhelmed by the negative hype that is distorting the long-term picture," said senior JMM analyst, David Card. "There are many hurdles and setbacks to be overcome in the months ahead, but most of these should prove to be short-term setbacks, the magnitude of which will be offset by continued long-term growth factors.
"This doesn't mean that all of the Internet ventures around today will succeed, or that the stock market bubble will revive, or that there's huge potential in niche markets. But, a few serious players across many Internet sectors will have large, thriving markets to capture."
Analysts have found that consumers are seemingly oblivious to the dot-com shakeout. Media Metrix online traffic data show that total unique visitors grew by over 13 percent throughout the first half of 2001, despite the tremendous negative publicity surrounding the Internet. In addition, secured conversions at retail sites (i.e. the portion of online visitors to retail sites who go into secure mode, a proxy for online buying) are increasing steadily as well.
In January 2000, less than one-quarter of visitors to retail sites entered secure mode – a year later, in January 2001, 45 percent of online retail site visitors did so.
The vast majority of Jupiter forecasts have proven to be either on target or conservative. The dot-com shakeout and market downturn have not brought major revisions to Jupiter's market forecasts.
Short-term setbacks, however, have pushed out original 2005 revenue targets to 2006 or 2007 in some cases. For example, Jupiter analysts now forecast that online retail commerce will total $104 billion in 2005 – down just twelve percent from the figure projected last year – largely due to the online grocery meltdown. Furthermore, online managed business travel is another sector that has been hit by the slowdown in corporate spending and Jupiter has consequently lowered its 2005 revenue target to $25 billion from the $33 billion originally forecast last year.
"It's easy to be skeptical about the Internet's future at this point, given what's happened in the stock market," said Evan Cohen, JMM vice president of data research. "But people were skeptical five years ago too, just as the Internet was developing as a consumer medium. At that time, Jupiter predicted there would be five billion dollars in online ad spending in 2000.
"Our forecast turned out to be conservative, in actuality, as the majority of our forecasts from the mid-1990s have. Looking toward 2005 is similar – what might look aggressive from today's vantage point is quite realistic in five years' time."
* In Market Mayhem: What the Current Shakeout Means for Jupiter's Forecasts, the company presents a broad look at how some of the major inhibitors affect a series of high-level its forecasts.
About Jupiter Media Metrix
JMM delivers comprehensive Internet measurement, analysis, intelligence and events to provide businesses with unmatched global resources for understanding and profiting from the Internet. Its brands include Media Metrix, AdRelevance, Jupiter Research and Jupiter Events. The company is headquartered in New York City and operates worldwide, across the Americas, Asia Pacific, Europe (as Jupiter MMXI), and the Middle East.