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Internet commerce – Weathering the storm

E-commerce still growing, comScore says

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Editor’s note: “The Angel Connection” is a regular feature in WRAL Local Tech Wire. LTW asked consultant Bill Warner to share advice for entrepreneurs seeking angel investors and/or venture capital investment. He is chairman of the Triangle Accredited Capital Forum, an angel investor network with over 100 members throughout the Southeast.

RESEARCH TRIANGLE PARK, N.C. — At The recent Internet Summit, the kick-off presentation was a sobering look at the business status of Internet commerce given by comScore, a global Internet information provider to which leading companies turn for consumer behavior insight that drives their marketing, sales and trading strategies.

ComScore maintains massive proprietary databases that provide a continuous, real-time measurement of the myriad ways in which the Internet is used and the wide variety of activities that are occurring online, giving them a comprehensive view of consumer behavior.

In other words, this is the company that is watching your every mouse click and key stroke.

Intuition would tell you that Internet commerce is suffering just as much as the rest of the industry in this market downturn. However, your intuition might not tell you the deeper insights that you need to know.

Through the third quarter 2008, e-commerce was up 10 percent over 2007. That is less than half the annual growth that has occurred since 2002, but it is growth nevertheless.

It's also worth nothing that over the Thanksgiving holiday shopping weekend, triangle-based ChannelAdvisor reported record sales by its various online partners, such as Amazon and eBay.

This can be broken down by consumer income segment, observing that spending by people whose income is less than $100,000 per year is actually declining, while spending by those above $100,000 is up 14 percent over 2007. Clearly, the economic downturn is affecting the lower income group the most.

This can mostly be attributed to higher prices, led by the over 30 percent increase in motor fuel, all of which has significantly squeezed discretionary spending. But, fuel prices over the last several weeks have fallen to less than $2 per gallon, and food prices are starting to drop as well. One might think that e-commerce is going resume its 20-plus percentage growth again, but that is not what is going to happen.

When asked what their major issue is now, the concern about rising prices among consumers whose income is greater than $100,000 is being replaced by a significant concern about the financial markets.

For consumers whose income is less than $100,000, their concern is about inflation; including prices, jobs and financial markets.

When asked what they thought their spending for the holiday season would be, about 60 percent of consumers whose income is less than $100,000 said they would be spending less than last year, while 43 percent of those greater than $100,000 said the same.

ComScore can only tell us what has occurred, not what will occur. So they have no crystal ball. They did ask about the effect of the presidential election showing that over one-third of consumers are either not sure or have less confidence in making near-term expenditures. The Obama effect is a big unknown, and the markets are hanging on every word he says or doesn’t say as well as what the administration says about the various bail-outs that are being proposed.

We certainly have not seen the end of the trendsetting for consumer spending, as the situation is still very volatile with more shoes to fall with the change in administration.

About the author: Bill Warner is the managing partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the chairman of the Triangle Accredited Capital Forum, an angel investor network with over 100 members throughout the Southeast.

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