Q&A: Why Is the Online Domain Increasingly Displacing More Traditional Mediums?

Euromonitor International 16 November 2012

As consumers spend more time online and businesses devote a greater proportion of their budgets to attain a presence on the Internet, the web is increasingly taking market share away from more established offline business and consumer platforms. This Q&A examines how segments such as online advertising and retailing, VoiP, IPTV and social media are growing in significance and displacing traditional mediums. Why is an online presence gaining greater significance among businesses? Why are retailers increasingly looking to the online consumer market? What is the impact of the web on the advertising sector? How are IPTV and VoIP challenging fixed and mobile telephony as well as traditional pay-TV segments? How is social media changing the way consumers and businesses interact?

WHY IS AN ONLINE PRESENCE GAINING GREATER SIGNIFICANCE AMONG BUSINESSES?

As Internet usage across the globe continues to increase, businesses have to expand into the online domain in order to reach a wider audience, especially on a regional and global basis. In both the emerging and developing economies, an Internet presence is becoming a necessity for different reasons: Access and reach is the dominant factor for the attraction of the web for companies. Geographical and physical barriers are much fewer online, with consumers not having to travel or worry about opening hours in order to order or acquire information on goods and services. In 2011, Internet users made up almost one-third of the global population, with this set to rise to 43.7% by 2020;

Chart 1 million

Global Internet Users and Total Population: 2006-2011

Source: Note:

Euromonitor International from International Telecommunications Union/OECD/UN/national statistics Data for 2012-2020 is forecast; population statistics at mid-year estimates

In a global climate of economic recessions, downturns and debt, cost savings and operational efficiency are playing a greater role for businesses. Apart from the initial IT investment, an online presence, whether for transactions or information, presents significant savings on running costs, rent, labour and time; In emerging economies, the Internet is a growing replacement for the lack of infrastructure, especially for educational, state and financial institutions. For low-income households, which continue to make up a large ratio of the population in economies such as India and South Africa, the Internet offers on-demand access where physical services are inadequate; In developed nations, where infrastructure is sufficient, mobility for increasingly ageing populations is a growing concern. Businesses can therefore meet demand from the elderly for services such as food home

delivery, pension information or even dating services without expecting this demographic to leave the home. The old-age dependency ratio (which measures the percentage of persons older than 65 per persons aged 15-64) in the developed world stood at 24.4% in 2011; However, factors such as low IT literacy, poor accessibility in rural areas, low speeds and high tariffs remain barriers to wider Internet uptake. Businesses also have to contend with cultural differences and security concerns, with many consumers preferring to conduct business activities face to face and with cash. In SubSaharan Africa, for example, the adult literacy rate stood at only 64.2% in 2011.

Why are retailers increasingly looking to the online consumer market?

A sector that has been perhaps more revolutionised than any other by the Internet is that of retail, as businesses are now able to sell goods and services instantly without the running costs of a physical outlet: The ease of online transactions, reviews and product demonstrations, and better deals on the web have formed to make online retail consumption synonymous with web usage. In-store retailing has suffered as a result, with major chains such as Blockbuster, Comet and GAME filing for bankruptcy, unable to compete against their online equivalents; Rising Internet usage, the growing availability of Internet payment gateways such as PayPal, more secure transaction processes, and the availability of greater bargains online have meant that consumers have flocked to e-commerce. Internet retailing has been the fastest expanding retail category by value, expanding by 98.9% in real terms over 2006-2011 globally; In emerging economies, the Internet is a growing replacement for the lack of infrastructure, especially for educational, state and financial institutions. For low-income households, which continue to make up a large ratio of the population in economies such as India and South Africa, the Internet offers on-demand access where physical services are inadequate; In developed nations, where infrastructure is sufficient, mobility for increasingly ageing populations is a growing concern. Businesses can therefore meet demand from the elderly for services such as food home delivery, pension information or even dating services without expecting this demographic to leave the home. The old-age dependency ratio (which measures the percentage of persons older than 65 per persons aged 15-64) in the developed world stood at 24.4% in 2011; However, factors such as low IT literacy, poor accessibility in rural areas, low speeds and high tariffs remain barriers to wider Internet uptake. Businesses also have to contend with cultural differences and security concerns, with many consumers preferring to conduct business activities face to face and with cash. In SubSaharan Africa, for example, the adult literacy rate stood at only 64.2% in 2011.

Why are retailers increasingly looking to the online consumer market?

A sector that has been perhaps more revolutionised than any other by the Internet is that of retail, as businesses are now able to sell goods and services instantly without the running costs of a physical outlet: The ease of online transactions, reviews and product demonstrations, and better deals on the web have formed to make online retail consumption synonymous with web usage. In-store retailing has suffered as a result, with major chains such as Blockbuster, Comet and GAME filing for bankruptcy, unable to compete against their online equivalents; Rising Internet usage, the growing availability of Internet payment gateways such as PayPal, more secure transaction processes, and the availability of greater bargains online have meant that consumers have flocked to e-commerce. Internet retailing has been the fastest expanding retail category by value, expanding by 98.9% in real terms over 2006-2011 globally;

Chart 2

Global Internet Retailing Value and Online Adspend: 2006-2011

US$ million

Source: Note:

Euromonitor International from World Association of Newspapers/trade sources/national statistics Retail value RSP excluding sales tax

The efficiencies of Internet-only retailing, which demands only IT, delivery and storage costs, have allowed marketplaces such as Amazon and eBay to become global brands, while allowing consumers themselves to become self-operating businesses, otherwise known as sellsumers. At end-2011, eBay claimed 100 million active users worldwide while by Q2 2011 Amazon recorded 144 million active users, according to the company; Nonetheless, Internet retailing has largely took off in markets that have strong telecom infrastructure, available online payment systems and reliable postage services, with the segment still underdeveloped in regions such as Africa and Latin America. Countries that hold underdeveloped consumer markets remain dependent on in-store retailers.

What is the impact of the web on the advertising sector?

The advertising market is rapidly changing, as the traditional mediums of print, radio and TV are facing mounting competition from online marketing, which allows greater interactivity and customer penetration: Online adspend is the most rapidly growing advertising segment, seeing surging growth in almost every country worldwide, although typically from a low base. The digitalisation of the Internet allows for a multitude of marketing options, from banners and pop-ups to more traditional video ads on an online platform, allowing businesses greater diversity and cheaper rates than TV advertising; Over 2006-2011, globally only three adspend categories saw growth in real terms, cinema, TV and online, yet online surged ahead of all the rest with expansion of 115%. By 2011, online adspend made up 15.4% of total global adspend, having increased from 6.7% in 2006. It is by far the most dynamic and innovative advertising sector globally; By contrast, the rise of online advertising and the popularity of Internet-based news and media has decimated the print and radio ad market, with major newspaper and radio stations frequently closing down. In the USA, print adspend contracted by 45.7% in real terms over 2006-2011; Online adspend is attractive to businesses as it allows tailored marketing techniques, based on consumer web traffic, preferences and habits, as well as on-the-go accessibility to users of web-enabled handheld devices such as smartphones. Google's Gmail, somewhat controversially, tailors its inbox ads based on the keywords of user email content.

How are IPTV and VoIP challenging fixed and mobile telephony as well as traditional pay-TV segments?
Internet protocol technologies are increasingly encroaching on the dominance of subscription services such as mobile phones and satellite TV, offering cheaper rates, more personalised services and a complete whole-in-one package accessible via one device:

One of the primary strengths of the Internet is that it transforms a web-enabled device into a multi-platform multimedia centre, a process that has been aided by increasingly faster broadband speeds (whether through 4G or fibre optics) and rising penetration of web-enabled equipment. This has allowed Internet protocol services to compete with almost every other telecom segment; VoIP services, via providers such as Skype, offer consumers an alternative to mobile or fixed telephony, with the latter especially impacted by the technology due to its immobility, making landline telephones increasingly redundant. In Western Europe, for example, telephone lines in use declined by 6.5% over 2006-2011; VoIP services have been blocked across a number of countries, especially across the Gulf, in order to protect domestic operators' revenues. VoIP providers in the EU have also complained that mobile operators often block them. Mobile telecom revenues as a share of total telecom revenues in the UK declined from 24.4% in 2006 to 22.2% in 2011, in part attributed to rising VoIP usage via smartphones; Similarly, the IPTV sector, essentially TV online, is placing pressure on the traditional pay-TV markets of satellite and cable. Often cheaper, without extra equipment costs and installations, IPTV's ease of use is proving luring to consumers, despite its requirement of a relatively fast Internet connection. In North America, household possession of cable TV has seen a decline from 61.7% in 2006 to 58.5% by 2011.

How is social media changing the way consumers and businesses interact?
Social networking is one of the most rapidly expanding online segments, with its core strengths being its adaptability to environments, technologies and business practices. Building a brand on social media has become a core strategy for most businesses, with consumers able to interact with companies, something not available via more traditional mediums such as print or TV: Social media usage, a phenomenon of the Internet age, allows businesses to target their marketing techniques at specific consumer groups, based on their profiles, likes and dislikes. One of social media's most appealing aspects for marketers is its frequent use, with users visiting their profiles regularly and often for several hours daily. Reach is also a growing factor, with Facebook announcing 1.0 billion global users in October 2012; News providers, whether on the TV, print or radio, are being increasingly squeezed by social media's fast response times, with the latest news often made available either through rumours or personal accounts on social networks. Major companies globally, such as American Airlines for example, have taken to announcing updates on micro-blogging platform Twitter; Consumers are also increasingly benefitting from their ability to interact with businesses through social media, somewhat minimising the significance of call centres and increasing accountability levels. Online techniques such as crowdsourcing also allow businesses to discover trends, plan strategies and receive feedback, reducing the dependence on traditional mediums such as surveys and consultancies; However, while the development of brands on social media is a progressive strategy, the social networking platform is also primarily an ageist one, dominated by the 16 to 35 demographic and largely excluding more elderly brackets. This is likely to change though, as Internet-age baby boomers mature and telecom penetration levels rise. Global possession of a broadband Internet enabled computer is expected to reach almost one-half of all households by 2020. For further information, please contact Pavel Marceux, Technology, Communications and Media Analyst at Pavel.Marceux@research.euromonitor.com