2008 And The Death Of E-Commerce: The Internet Is Getting Old

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The great promise of the online commerce industry has been that it would grow at a rate faster than bricks-and-mortar retailers, and that this advantage might go on for years. E-commerce makes it easier to compare prices, easier to find items, easier to buy them, and allows purchases to be shipped and not carried home–often for free.

As gas prices rose earlier this year, e-commerce gained what should have been another advantage over physical stores.

It looks like almost none of that worked out. A rough economy has sunk all retail boats. Whatever edge online shopping had has been destroyed.

According to Comscore, online shopping revenue dropped 3% this holiday season compared to the same period in 2007. The total income from e-commerce hit $25.5 billion. Most analysts believed that because this number is relatively small compared with physical shopping revenue, online numbers could continue to post large percentage increases due to their modest base. E-commerce would, in essence, use its advantages to take market share from stores.

The measurement service said, “This marks the first time we’ve seen negative growth rates for the holiday season since we began tracking e-commerce in 2001."

ShopperTrack, which follows retail store activity,reported that holiday sales were down 2.3%. The difference between that and the online revenue drop is a rounding error.

The figures may say as much about the Internet as they do about consumer purchasing habits. One of the hallmarks of this sharp downturn is that online advertising growth has slowed remarkably, and now no longer has a significant advantage in terms of its rate of expansion compared with many traditional media.

The disappearance of an e-commerce advantage over traditional retail in a microcosm of a much broader change in the growth cycle of the internet. Put simply, the internet is getting old.

Revenue growth figures for large portals like Yahoo! (YHOO) and AOL now only show improvements in the singles digits year-over-year, which is not much different from network television growth. In the third quarter of last year, Ebay’s revenue from its auction and marketplace businesses were only up 1%. A Citigroup research analyst recently committed heresy by saying that Google might have a drop in revenue from the fourth quarter of 2008 to the first quarter of 2009. According to Alley Insider, it would be "the first time ever the search industry has shrunk quarter over quarter."  If Google does indeed falter, the one bright ray of hope for internet revenue will have grown dim.

This year may be the first year that it is broadly acknowledge that the internet is no longer an emerging media. It has become part of the traditional media and faces the same fundamental economic challenges that go along with that.

Douglas A. McIntyre