Marketers Look To Online Sales For Future Growth

When economic weakness finally ravages online retail and the balance sheets of Amazon and eBay, then we'll have hit bottom. Although we're not there yet, an assault on advertiser psyches and consumer pocketbooks is clearly underway.

It's as much about the gradual interactive transformation of advertising into an e-commerce model as the troubled economy. As advertising migrates from the static traditional and print environment to the digital marketplace, it culminates in the final "sale" that advertisers seek. If the growth of e-commerce is thrown off by a pullback in consumer spending, it could slow the evolution of advertising into an interactive dynamic and primary revenue source. And that stall will not show up in normal tracking metrics.

General Motors, one of the nation's largest advertisers, confirms that it now spends one-quarter of its annual $3 billion marketing budget on online advertising, search and other digital platforms. A decimated GM is one of many blue-chip advertisers going straight to consumers and sidestepping media middlemen. While it continues to spend the bulk of its dollars on costly TV brand-building and stimulating showroom traffic, it has joined other automakers in reaching new and used car shoppers on the Internet.



If the Internet is the fastest connection to targeted consumers, and consumers are pulling back on their spending, the impetus to reach out is diluted. It's counterintuitive to the long-held notion that providers of goods and services need to aggressively market in hard times. Even as overall ad spending flatlines into 2009, companies will likely gravitate to Web supports and social networking tools, such as peer recommendations and insights.

Companies will attempt to reach their target consumers online in the hopes of nailing a transaction or establishing an ongoing rapport for future sales. Once again, available metrics don't tell the whole story; companies increasingly are orchestrating their online efforts through branded sites where connections and transactions are not reflected in display and search measurements. The coming months may bring some interesting correlations between advertiser and consumer online spending.

eMarketer reports that online sales are up either despite or because of the economic slowdown, providing consumers witb convenient shopping without spending a drop of gas. Eleven percent of the consumers surveyed by Nielsen Media in June said they were shopping more on the Web in response to rising gas prices.

Although the development of more efficient payment methods, social computing tools and personal data security are prevailing concerns, eMarketer expects e-commerce sales to grow 14% to $146 billion in 2008. While overall sales should top $218 billion by 2012, the rate of growth will continue to slow to the single digits.

Tracking and capitalizing on digital consumers is being impeded by a recession that curbs all spending. There are also dramatic demographic shifts to consider, such as the aging of America (three-quarters of the growth in the number of U.S. households over the next five years will be headed by someone 55-plus). The increasing ethnic and racial diversification of younger consumers and the boom in mobile interactivity will have a huge impact on advertising, marketing and commerce. In tumultuous times, making the sale is best realized online.

Amazon and eBay are in a good position to weather the economic storm, since they rely heavily on more affluent consumers and have half their sales coming from overseas. Also, only a slight percentage of offline dollars moving online are needed to drive highly leveraged growth in the online retail sector, according to Bernstein Research analyst Jeffrey Lindsay.

Amazon's second-quarter earnings doubled from a year earlier to $158 million on a 41% rise in revenues to just over $4 billion, spurred by its free shipping, speedy fulfillment and exceptional attention to customer service. Although its third-party selling remains flat, Amazon is soon expected to add more new product categories. Its growth plans reach beyond online retailing to cloud computing and potentially a transformational merger with another large player, analysts say.

By comparison, eBay's pace of growth continues to slow, and the total value of goods sold on its site increased only 4% in the second quarter. Although eBay exceeded analyst expectations with $460 million in profits on $2.2 billion in revenues, its growth lags the overall e-commerce market that will be off last year's 20% increase. eBay faces more intense auction competition, especially from Yahoo and Google.

With interactive commerce holding the most promise for major gains, many new enterprises are surfacing. Leave it to AOL creator Steve Case to think of the Net as a giant ATM machine. His Revolution Money has developed an AIM plug for sending and receiving funds electronically. Joe Barter, an online trading site, has mostly college-age consumers bartering everything from textbooks to gym shoes in an age-old business practice that is gaining traction in tough times.

Last year, $127 billion in goods and services were bought from online retailers. But there is an effort to move that profitable haul to virtual worlds such as Gaia, which inspires more than 5 million monthly visitors to have their avatars trade $1 million in virtual goods. At such sites, marketers can develop new levels of customer relations and premium services. Failing that, there are always electronic coupons for Wal-Mart.

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