Critical Masses

The latest reports suggest that more people are going online—which is good for ISPs—but that they are exploring fewer sites. Some analysts see this as a harbinger of consolidation on an apocalyptic scale.

"God give me strength to face a fact though it slay me." —Thomas Huxley

by Jayson Matthews
Associate Editor, siliconvalley.internet.com
[August 18, 2000]

A recent Internet ratings report from Nielsen//NetRatings reports a considerable rise in the number of people online. Good news for Internet service providers perhaps, but not so good for businesses struggling to survive in an all too crowded online market.

According to Nielsen, which collects real-time data from more than 65,000 panel members in the United States, 52% of the home population in the U.S. was surfing the Web in July, and nearly 144 million people in the U.S. had access to the Internet from home, up 35% from a year ago.

"Internet access is growing dramatically each day due to cheaper access, making it possible for the mainstream consumer to log on," says Sean Kaldor, VP of eCommerce at NetRatings.

Yet despite the fact that U.S. Internet users spent nearly ten hours a month online (an increase of 26% over the past year), Nielsen reports that unique sites visitations were down, with surfers only checking out about 10 new sites per month, compared to 12 during the same period last year.

"While Web usage has increased, the number of sites people visit has dropped," says Kaldor. "This means that the barrier to entry is higher for new Internet ventures as companies vie for surfers' attention. This underscores the power of branding online, as companies like Amazon.com have effectively leveraged their brand to amass a captive and loyal audience."

56K apocalypse
In a similar but even more damning conclusion, research giant Forrester Research also reported this week that the enthusiasm for online markets has created an unsustainable profusion of business-to-business (B2B) sites. According to the report, both dotcoms and industry consortia will go through a massive shakeout that will eventually leave fewer than 200 significant companies by 2003.

"The explosion of eMarketplaces has created a crowded landscape within most industries,'' says Steven J. Kafka, senior analyst at Forrester Research. "Large firms are faced with a confusing set of options for participating in these venues: different ownership models, equity structures, and product offerings. And, in this flurry of activity, firms must navigate through a free-for-all deal making environment.''

In a prediction that reads more like a Biblical apocalypse than a market forecast, Forrester says the impending shakeout will roll across the industry in three phases: The Purge (2000-2001), Fortification (2001-2002), and Reconciliation (2002-2003). The phases begin with the impending death of "cash-guzzling" startups, turns to the continued education and increased demands of online buyers, and ends with the eventual reign of "The Big 200."

"We've seen an enormous amount of hustle and bustle with eMarketplaces over the past 12 months," says Bruce D. Temkin, research director at Forrester. "But the changes coming over the next three years will dwarf even that level of commotion."

—End