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Meet the Street: Still Some Hope for E-Tailers Yet

Pie-in-the-sky Internet projections are long pass¿. But one new study released earlier this week indicates that the number of people who bought something online increased by 45% in the past year. And that is cause for some renewed optimism, says John Horrigan, senior research specialist with the Pew Internet and American Life Project, which conducted the survey.


John Horrigan
Senior Research Specialist,
Pew Internet and American Life Project
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Based on a poll of 1,500 people, the Pew Project, a nonprofit think tank based in Washington, D.C., estimates that the number of online purchasers grew from 40 million people in March 2000 to 58 million in March 2001. Pew is funded by the Pew Charitable Trust of Philadelphia, which funds studies into social issues.

Horrigan says that one of the reasons that Jupiter Media Metrix, Gartner Research and so many analysts on Wall Street may have overestimated the reach and commercial value of the Internet early on is because it "just takes time" for consumers to get used to making purchases online. People are only now becoming used to shopping online, he says. Read on to find out what else the study uncovered about people's online habits.

TSC: While your organization focuses mostly on the social consequences of the Internet, what commercial conclusions can you draw from your latest report that would be important for investors?

Horrigan: When we got up and running in 1999, about 45% to 48% of Americans had Internet access. That number has risen since then, to about a 61% penetration of U.S. adults as of January 2002. But even more important than that penetration is the expanding demand for doing transactions online. We saw a 45% growth in the number of people who had said they had bought a product online between March 2000 to March 2001, from 40 million to 58 million. As Internet users gain more experience, they are more likely to do transactions online.

Even though the investment and commercial market for the Internet has changed so considerably in the past two years, I am not entirely surprised by this growth. It takes time for people to do things on the Internet [that require trust]. New users love the Internet initially to send emails to people they know. They love it to play games, but it just takes time for them to pull the trigger and send credit card information over an Internet connection. But once they do that, they really become very different kinds of users. They realize Internet transactions are, way more often than not, safe and secure.

It just takes time. It just may be that e-commerce supply in the marketplace outstripped demand, and Internet shoppers are only beginning to catch up now.

TSC: While your report doesn't directly go into this issue, can you comment at all on whether people are becoming more willing to pay for content on the Net?

Horrigan: That's unclear. We have done research in the past asking people about the dot-com shakeout, whether they have missed sites that have shut down and whether they would be willing to pay for content. Only a meager number of Internet users said they began to pay for Internet content once they were asked to do so. It seems that people do without or look for ways to get the information for free.

So the paid Internet information or subscription model may be a little ways off.

TSC: One surprising finding of your report was that 18% of all Internet users said that because of the ability to shop for and compare merchandise online, they are now spending less time in stores. Does this mean that the Internet is now gaining ground on some stores?

Horrigan: Yes, online shopping is gaining in some ways on retail. Again, it's a phenomenon of people becoming more competent online as well as trusting the Internet more. People see it as a great way to save time.

While e-tailing may currently be somewhat of a defunct term, it's possible it might be revived. It could just be that the supply of e-tailing and Internet commerce in 1998, 1999, outstripped market demand. We see, at least in this report, demand rising quite smartly.

TSC: Does your organization have any numbers comparable to Jupiter's recent projection that the number of online shoppers will more than double in four years, from 67 million today to 132 million in 2006?

Horrigan: We found 58 million online shoppers as of March 2001, so the numbers, at least for today, look broadly consistent. Predicting is always a risky business, but given that we have found a sharp increase in the number of people doing online shopping over the course of the past year, I don't think it's unreasonable to think it might rise as high as what Jupiter is predicting over the course of the next few years.

TSC: Your figures for the number of people who primarily use the Internet at work -- 55 million -- are very low when compared to the number of people who primarily use the Internet at home, 103 million. Is there potential for the at-work numbers to grow, and if so, who stands to gain if that happens?

Horrigan: The fact is, not all occupations lend themselves to Internet use. But one thing we found is that the number [of people using the Internet at work] is increasing sharply, quickly. There definitely is room for growth, and there are potential commercial upsides.

We found last year, for instance, that a number of people buy holiday gifts online, and most of those purchases are made during working hours. You can expect that phenomenon to carry over to all kinds of online purchases throughout the year, which will probably be a good thing for e-commerce as the Internet disseminates more widely throughout the workplace.

TSC: Were there any other key findings that struck you in the report?

Horrigan: The one other finding was the huge upsurge in the number of people sending emails to family and friends about things worrying them, or things they wanted advice on.

On a related matter, the Internet has been able to create commercial communities that have enabled business owners and managers to communicate directly with their customers, which leads to better customer service and greater customer loyalty. In fact, we have found that about 84% of all Internet users have gone to an online community.

Here in the D.C. area, for instance, Ted Leonsis of AOL Time Warner (AOL), owner of the Washington Capitals hockey team and the Washington Wizards basketball team. He has answered 22,000 emails from fans of his teams. He puts his email [address] out there because he wants to hear from the fans, and, in fact, he's said this really helps him connect to the fan and keep his finger on the pulse of the people coming to the games.

That's coming from a man with a few dollars in the bank.

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