Market consolidation threatens weaker dotcoms

The Demise Of Dotcom Retailers, a report written by senior analyst Joe Sawyer, has revealed that to survive in the online battleground, enterprises will need to redirect their investments into hard assets such as infrastructure to improve service levels and speed.

"The tide is turning against dotcom enterprises and consolidation will soon steamroll across the weak ones," said Sawyer.

He predicts that consolidation will occur in three waves. Firstly, ebusinesses dealing in commodity products that have dominated the internet since the early days of ebusiness, such as books, software, and flowers, will consolidate by the end of this year under increasingly slow growth rates.

Secondly, ebusinesses selling products at razor-thin margins will collapse before next year, and finally, ebusiness companies selling heavily branded products such as clothes and furniture will remain stable until 2002. Once the market has smoothed out again after 2002, its growth rate will pick up again.

"The only way to survive consolidation is for ebusiness companies to anchor themselves by building sustainable assets. Enterprises need to focus on hard assets that support high sales volumes and lower costs per transaction. They need to keep a large, loyal customer base using rock-solid internal infrastructure," said Sawyer.

"Speed and high bandwidth will help to keep ebusinesses ahead of rivals, but a flexible ebusiness infrastructure is also needed. Companies should adopt technologies which are capable of adjusting to unforeseen customer demand," he added.

Rewards for the few
The researcher surveyed 50 ebusinesses for Forrester's report, representing a mix of backgrounds. The results showed that 86 per cent of respondents identified growth through more flexible infrastructure as their main priority.

Forrester concluded that the main industry leaders, which would emerge from the market consolidation after first regaining their footing, would typically be traditional retail companies.

The report also shows striking similarities between European and North American ebusiness consolidation. Forrester estimates that a consolidated Europe would contribute almost 22 per cent of the $6.9 trillion global ebusiness economy by 2003.

It said that this paints a fairly reassuring picture for the ebusiness market, which in total is estimated to account for as much as 8.5 per cent of global sales by 2004 - although Forrester said the biggest rewards would only be reaped by an exclusive small number of companies, which provide as much as 89 per cent of overall worldwide sales.

Information economy
A parallel report by analyst Gartner Dataquest claims that the next generation ebusiness economy, after consolidation, will be mainly driven by global wireless connectivity.

Commenting on research predictions for the next decade of ebusiness, Gartner Dataquest vice president Martin Reynolds, said: "The next 10 years will consist of a sustained growth in ebusiness, and global computing access with wireless data will be the major influences of the expected 15 per cent growth in IT markets."

According to Reynolds, this will lead to an "information economy" where data and information will become the common business-to-business (B2B) currencies.

Gartner Dataquest research shows that although telecoms services currently represent the largest IT industry growth sector, it will give way to a consolidated ebusiness sector by 2004, which will account for nearly $8 trillion worth of transactions alone.

The research shows that at a growth rate of 12 per cent, the value of the telecoms market will be closing in on $2 trillion by 2003, with most of the revenue generated from services. Wireless services will impact that growth significantly, but the bigger influence will be made by voice over IP, where packeted data, such as faxes and unified messaging, takes over from voice on phone lines, forcing telcos to offer more data-oriented B2B services.

The future is wireless
Gartner Dataquest disagreed with Forrester's findings that most of the ebusiness marketplace will be driven by B2B transactions in the high-end technology and automotive industries, causing "a significant power shift from suppliers to buyers". But the research does note that the retail space of ebusiness will also show significant growth.

"Online banking and wireless internet and data services are good examples of the transaction fees that will fuel the e-markets," said Reynolds, adding that wireless technologies such as Bluetooth will play a vital role in increasing and speeding up connectivity.

He said that on a global level the effect of wireless connectivity on the ebusiness market will be felt mostly in areas where installing phone lines is more expensive than installing wireless networks, and that the advent of 'smart' phones will help to push early market evolution.