Is it just me, or is anyone else concerned with the fact that the growth rate of new Internet users in the United States has turned into a trickle? According to data from both Nielsen//NetRatings and comScore, the growth rate for new Internet users in this country has stalled at around 5%. This doesn't look like a hiccup, either. The U.S. Internet universe has been more or less flat for more than a year. I've been sitting on this observation for a few months, partly procrastinating and partly because I wanted to be sure that this wasn't something obvious that lots of other folks have been pointing out already. In August, I saw an article on Internet.com's Advertising Report that made me think I might be mistaken. Quoting comScore data, they reported:
The company's July traffic figures showed the [total U.S. Internet] audience grew 29 percent compared to the same period in 2001, and 2.2 percent compared to the previous month. The news should be heartening for online publishers and marketers, who are staking their businesses on the idea that the audience is growing, and advertising dollars must eventually follow.I called comScore to check on this, and it appears Internet.com was mistaken, apparently mixing up incomparable data sources owing to comScore's recent merger with Media Metrix. Nope, it's official: the Internet's penetration of the U.S. population seems to have crapped out at around 60-65%, for the time being anyway. The days of double-digit growth are over. As recently as December, 2000, Nielsen//NetRatings showed that the total number of U.S. residents with access to the Internet was still growing at more 30% year over year. By September 2001, that year-on-year growth had slowed to below 15%. March and June of this year were actually in negative territory compared to the same periods the year before. And the 63% of the U.S. population online as of September 2002 is still less than the 65% last December. (These numbers are Nielsen//NetRating's published estimates (ages 2 and up) as a percentage of an estimated 280 million Americans.) What does this mean for e-businesses? Well, if you built a model that presupposes lots more Americans are coming online soon, as the Internet Ad Report story above suggests, you could be in trouble. Let me temper this alarm with a bit more statistics, if I may. Thanks to the magic of cumulative annual growth rates, the medium's penetration among new users does not, in fact, have to keep growing at double-digit rates to continue a steady penetration of the entire population. Assuming 65% of Americans are online in 2002 and a 5% annual growth rate, that penetration would reach 75% of the population by 2005 and 87% by 2008. On the other hand, the U.S. Internet population may not continue growing much at all. What you see may be what you get, for the time being anyway. That may not be the most likely scenario, but it is a real possibility that e-businesses must consider. The Internet may not break 70% of U.S. households for a long, long time, if ever. Consider that cable television, more than 30 years after its market introduction (it was actually invented back in the '40s), has to date penetrated only 70% of U.S. households. Back when I first published my Executive Summary newsletter in 1998, when less than 30% of the population was yet online, I rashly predicted that it would take at least five years for the Net to reach 50% of households, and that it would likely never reach more than 70%. Okay, according the U.S. Census Bureau, it reached 50.5% three years later (by Sept. 2001). Bear in mind, however, that the 63% of Americans that NetRatings projects are now online includes both infrequent users and those who connect outside of the home (mainly at work). My reasoning back then for being more pessimistic than most other analysts about the Net's future popularity in the midst of the boom came down to one fact: computers still pretty much suck. I wrote my article back then in a fit of pique after hours of troubleshooting trying to connect to the Net. I still know the feeling. Earlier this year, I went months without my printer working or my Palm Pilot syncing due to confounding software glitches. Only after 45 hours on the phone with various companies' tech support and finally re-installing Windows and buying a new printer did I get everything working properly again, more or less. Compared to what we think of as traditional media and communication technology -- the television, the telephone, radio, newspapers -- computers are still damn difficult to use. And the idea that they are going to get any easier to use anytime soon is a fantasy. They are infinitely more complicated for users than televisions and telephones, and they are likely to remain so for many more years to come. Plus they cost about $1,500, in addition to another $250-750 per year for ISP services. The "under $1,000 PC" is more bunk, particularly when you include a monitor, a printer, extra memory, etc. Computers are expensive (compared to $200 TVs at Good Guys), and it's simply not a proposition every American family can still easily afford. Don't get me wrong, I'm all for the Internet. Obviously. I hitched my wagon to it professionally six years ago. But I continue to be disappointed by how frustrating computers still are to work with. My dear friend Mike, the best man at my wedding, is a cabinet maker who drinks Budweiser. He has a college degree, but he can't type. He has been saying for years he'll get online as soon as you can talk to computers like on Star Trek. He now thinks he'll break down sooner, although he's in no hurry, maybe next spring or summer. He's dreading it, and I don't blame him. Another friend, a section editor at a major NY newspaper in her late 30s, started using the Web only in the last couple of years and still just from work. She and her lawyer husband just don't see the point of Internet at home still. I doubt she's ever made an online purchase yet. Yes, Generation Y, yadda yadda, but most of those consumers are not going to be laying out the $60 a month for broadband access or e-commerce purchases themselves for several more years. They're still kids. Also, according to NetRatings, the "active" Internet users who actually surfed in August from either home or work was 122 million Americans, or only 44% of the population. Bottom line: this is not yet a mainstream medium in nearly the way newspapers, magazines, radio or television are. Seventy to 80% of the U.S. population reads magazines and newspapers monthly, and upwards of 90% regularly watches TV and listens to the radio. The Internet may not reach those kind of levels for 10 years or more. Face with that grim possibility, can e-businesses -- online merchants, e-publishers, and other Internet marketing and media ventures -- survive if the local domestic market stops growing? Already, we've witness massive die-off and industry consolidation among e-businesses, and many are still struggling to hold on to what they have built. If they can no longer rely on a rising tide continuing to lift all ships, what should they do to secure their viability given the status quo? Here are some ideas: