European Commerce

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Market Forecast Report: European Commerce, 20032009 EUC04-V02

EUROPEAN COMMERCE
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MARKET FORECAST REPORT

European Commerce, 20032009

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EUROPEAN COMMERCE Volume 2, 2004 Research Topic

Market Forecasts

MARKET FORECAST REPORT

European Commerce, 20032009
The online commerce market in Europe will grow from 29 billion in 2003 to 117 billion in 2009, with 61 percent of European Internet users buying online and spending an average of 843 per buyer. Increased online tenure, growth in the online population, and improved broadband uptake will be the main drivers behind this solid growth.

Business Benefit
Market Opportunity Assessment

Lead Analyst
Lourdes Salcedo

Contributing Analysts
Julian Smith Ian Fogg Olivier Beauvillain

Research Director
Mark Mulligan

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A JupiterResearch report subscription is U.S. $22,000 per year. For subscription inquiries, e-mail info@jupiterresearch.com or call (toll-free) 800 481 1212. In Europe +44 (0) 20 7903 5020. Reproduction by any method or unauthorized circulation is strictly prohibited. JupiterResearchs analyst reports are intended for the sole use of clients. All opinions and projections are based on JupiterResearchs judgment at the time of publication and are subject to change. Published December 16, 2004. 2004 JupiterResearch, a division of Jupitermedia Corporation

Market Forecast Report: European Commerce, 20032009

CONTENTS

Table of Contents
1 2 12 Executive Summary Overview of Forecast Results Report Methodology

Table of Figures
2 3 4 5 6 7 8 9 10 Online Commerce Spending and Channel Shift, 20032009 Total Online Commerce Spending, 2009, and Compound Annual Growth Rate, 20032009, by Country Total Online Buyers as a Percentage of Internet Users in 2003, by Country Online Commerce Spending by Category, 2003 and 2009 Total Online Buyers by Commerce Category, 2009 Online CD Spending, 20032009 Online Video Retail Forecast, 20042009 Channel Shift in Computer Peripherals and Consumer Electronics Market and Importance of Better Product Information to Online Non-buyers, 2004 Process for Recapturing Lost E-commerce Web Site Visitors Using E-mail Marketing, 2004

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Market Forecast Report: European Commerce, 20032009

Research Highlights
European Commerce Consumer Survey: Quantifying Online Shopping Behavior
The Internet has become firmly established as a tool for both researching and purchasing products. Online tenure has a direct impact on consumers propensity to shop online, and as Europes Internet population continues to mature, security concerns become a less significant inhibitor to online buying adoption. (December 10, 2004)

European Financial Services Forecasts, 2003 to 2009

Internet banking adoption continues to grow in line with the growing maturity of the European online population, despite recent growth in security threats such as phishing and Trojans. The following report highlights the summary findings and methodology of JupiterResearchs European financial services forecasts. (November 30, 2004)

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Market Forecast Report: European Commerce, 20032009 EXECUTIVE SUMMARY

Executive Summary
The online commerce market in Europe will grow from 29 billion in 2003 to 117 billion in 2009, with 61 percent of European Internet users buying online and spending an average of 843 per buyer. Increased online tenure, growth in the online population, and improved broadband uptake will be the main drivers behind this solid growth.

Key Questions
How much will consumers spend online through 2009? How do online buying trends differ from country to country? Which retail categories will grow most rapidly, and which have reached relative maturity? Which types of products are the most widely purchased in Europe?

Key Findings
European online commerce revenues totaled 29 billion in 2003 and will reach 117 billion in 2009, driven mainly by increased online tenure, online population growth, and improved broadband uptake. At the end of 2003 the UK and Germany accounted for 53 percent of total European commerce revenues with 15.4 billion. By the end of 2003, a total of 72 million European consumers were shopping online, representing 44 percent of the online population. By the end of 2003, travel accounted for 37 percent of total online commerce spending in Europe, driven primarily by high average spending per buyer (608 compared to 68 for books). Online sales are an increasingly important part of the music retail equation, growing from seven percent of total recorded music revenues in 2003 to 16 percent in 2009. The online retail market for video is projected to grow strongly to reach 1.4 billion in 2009. The Internet will have the greatest impact on the video market via online DVD rental firms. In Sweden and Germany, 17 percent and 15 percent of consumers, respectively, stated that better product information would motivate them to begin purchasing online. In order to improve site conversions online retailers should look to Web site analytics data, as provided by the likes of Omniture or WebTrends, in order to gain real-time intelligence on the profile of site browsers, and in particular those who abandon their shopping cart.

Europe includes Germany, Austria, Switzerland, the UK, Ireland, Sweden, Denmark, Norway, Finland, the Netherlands, Belgium, Luxembourg, France, Italy, Spain, Portugal, and Greece.

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Market Forecast Report: European Commerce, 20032009 OVERVIEW OF FORECAST RESULTS

Overview of Forecast Results

Increased Online Tenure, Online Population Growth, and Convenience of Online Purchasing Boost Commerce Revenues
Fig. 1 Online Commerce Spending and Channel Shift, 20032009
(in billions) Total Online Commerce Spending 120 100 80 60 40 20 0 29 1.5% 2003 38 4.5% 50 20% 5.3% 10% 0% 78 63 30% 96 117 50% 40% Channel Shift

2.0% 2004

2.5% 2005

3.1% 2006

3.7% 2007

Source: JupiterResearch Online Commerce Forecasts, 10/04 (Western Europe only) 2004 JupiterResearch, a division of Jupitermedia Corporation

2008

2009

Total online commerce spending Channel shift

European online commerce revenues totaled 29 billion in 2003 and will reach 117 billion in 2009, driven mainly by increased online tenure, online population growth, and improved broadband uptake. In addition, online commerce growth in Europe has benefited from the growth of retailers using local currencies, languages, and distribution channels. Tenure has proven to be a key factor in the propensity of consumers to purchase online. As they become more confident with the medium and are increasingly aware of the time- and cost-saving benefits of buying online, shoppers are more likely to make online purchases. According to the results of a recent JupiterResearch European consumer survey, just 24 percent of online users with more than five years online tenure had neither researched nor purchased products or services online in the previous six months compared to 37 percent of overall online users. By the end of 2003, 75 percent of online users had more than two years online tenure; this share will grow to 93 percent by the end of 2009. In addition, as online buying tenure increases across the European online population, so will consumers propensity to purchase higher-consideration items, which will help drive an increase in average spending per buyer from 403 at the end of 2003 to 843 in 2009.
For the purposes of this survey, Europe includes the UK, Germany, France, Italy, Spain, and Sweden.

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Market Forecast Report: European Commerce, 20032009 3

UK and Germany Will Remain the Largest Online Commerce Markets in 2009
Fig. 2 Total Online Commerce Spending, 2009, and Compound Annual Growth Rate, 20032009, by Country

(in billions) Total Online Commerce Spending (2009) Compound Annual Growth Rate (20032009) 40 28.7 19.7 27% 29% 26% 10 2.2 2.3 Germany Switzerland Austria UK 0 33% 22% 0.8 Ireland 26% 33% 32% 34% 30% 30% 32% 7.9 0.1 Luxembourg France Italy Spain 5.9 0.9 0.7 Portugal Greece 0% 38% 100% 80% 60% 40% 20%

30 28.2

20

18% 19% 17% 21% 5.7 4.2 2.8 2.3 2.3 1.6 Sweden Denmark Norway Netherlands Finland Belgium

Source: JupiterResearch Online Commerce Forecasts, 10/04 (Western Europe only) 2004 JupiterResearch, a division of Jupitermedia Corporation

Total online commerce spending Compound annual growth rate

At the end of 2003 the UK and Germany accounted for 53 percent of total European commerce revenues with 15.4 billion. Although this share will decline as other, less mature markets such as Spain and Italy experience strong growth, the UK and German markets will still make up 49 percent of the total in 2009 with 57 billion. The UK and Germany, France (20 billion), and Italy (8 billion) comprise the top four countries, together representing 73 percent of the total marketplace. The UK online commerce market leads the way in Europe due to the following factors:
Size and sophistication of the UK commerce market in general Size of the online population (28.3 million users at the end of 2003) High level of overall online tenure (80 percent of online users had more than two years online tenure by the end of 2003) The willingness of UK retailers to incorporate the Internet as a marketing and distribution channel High level of credit card ownership The predominantly English-language nature of the Web, which traditionally benefits Englishlanguage retailers. Cheaper shipping costs to European destinations give UK-based retailers an advantage over US-based retailers in this regard.

Although commerce revenue growth in Germany has historically been hindered by security concerns and low credit card penetration, German consumers are increasingly using the Web as both a research and a purchase channel. According to the recent survey, 64 percent visited a Web site about a product or service they were considering purchasing at least once a month, compared to a European average of just 40 percent.

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Market Forecast Report: European Commerce, 20032009 4

Online Buying Population Growth in Southern Europe Has Been Limited Due to Low Internet Penetration
Fig. 3 Total Online Buyers as a Percentage of Internet Users in 2003, by Country

15

14 47% 48% 49% 49% 38% 4 2 Sweden Denmark 2 Norway 1 Finland Netherlands 2 0 Luxembourg Belgium France Italy Spain 1 Portugal 1 Greece 54% 52% 53% 45% 44% 44% 44% 33% 9 3 2 Germany Austria 2 1 Switzerland Ireland UK 32% 6 35% 4

80% 60% 31% 28% 40% 20% 0%

10

Source: JupiterResearch Online Commerce Forecasts, 10/04 (Western Europe only) 2004 JupiterResearch, a division of Jupitermedia Corporation

Total online buyers Online buyers as a percentage of Internet users

By the end of 2003, a total of 72 million European consumers were purchasing online, representing 44 percent of the online population. This online buying population will increase at a compound annual growth rate (CAGR) of 12 percent from 2003 to 2009 to reach a total of 138 million online shoppers (61 percent of the online population). Southern Europe (consisting of Italy, Spain, Portugal, and Greece) had the lowest online buying penetration rates in Europe in 2003 with a combined total of just 32 percent 12 percent below the European average. This is mainly due to low Internet penetration, which had reached only 32 percent in Italy, 30 percent in Spain, 32 percent in Portugal, and 25 percent in Greece, compared to a European average of 41 percent. Low PC penetration rates and low overall online tenure (just over two-thirds of online users had more than two years online experience in 2003) also contribute to Southern Europes low level of online buying penetration. Sweden, Norway, and Denmark had the highest percentage of online buyers as a percentage of Internet users (54 percent, 53 percent, and 52 percent, respectively). This is mainly due to high broadband penetration and tenure levels in these three markets; both factors tend to increase the frequency with which consumers shop online and the amount of money they spend online. (Nearly 90 percent of the online population of these three countries had more than two years online tenure in 2003.) However, because of the relatively small size of the online buying populations in the Nordic markets (due to smaller overall populations), the whole of Nordic online commerce spending in 2003 accounted for just 13 percent of the European total. This percentage will decrease even more by the end of 2009 to represent just nine percent of the European total.

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Online Buyers as a Percentage of Internet Users (2003)

(in millions) 20 18 Total Online Buyers (2003)

100%

Market Forecast Report: European Commerce, 20032009 5

Travel Will Play the Most Important Role in the Commerce Category Spending Mix Through 2009
Fig. 4 Online Commerce Spending by Category, 2003 and 2009
36% 37% 8% 6% 8% 7% 3% 4% 3% 5% 7% 9% 3% 4% 1% 2% 1% 2% 6% 8% 22% 17% 10% 20% 30% 40% 50% Online Category Spending as a Percentage of Online Commerce Spending 2009 2003

Travel

Apparel

Groceries

Consumer electronics

Computer peripherals

PCs and laptops

Software

Video

Music

Books

Other 0%

Source: JupiterResearch Online Commerce Forecasts, 10/04 (Western Europe only) 2004 JupiterResearch, a division of Jupitermedia Corporation

By the end of 2003, travel accounted for 37 percent of total online commerce spending in Europe, driven primarily by high average spending per online category buyer (608 compared to 68 for books). Nearly one-quarter (24 percent) of online buyers bought travel online at the end of 2003, driven by the following:
Web-specific benefits such as search and comparison-shopping capabilities, and comprehensive service bundles The entrance of low-cost airlines into the European market using the Internet as a direct sales channel An increase in availability of rich media content (propelled by high broadband penetration)

The strength of this market in the UK, which accounted for 31 percent of the total online travel spending in Europe at the end of 2003 (3.3 billion), is mainly due to a very mobile and mature online population. In addition, the online travel market in the UK provides one

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Market Forecast Report: European Commerce, 20032009 6

of the most competitive low-cost airline offerings. (See The Online Travel Market in Europe, European Market Forecasts, September 15, 2004.) PCs and laptops and books are the next two largest online shopping categories, accounting for nine percent and eight percent, respectively, of total online spending in Europe. While the 10.5 billion in online travel revenues represented a channel shift of only 4.6 percent for the category in 2003, the 2.6 billion in online PC and laptop revenues and the 2.3 billion in online book revenues accounted for channel shift of 14.1 percent and 7.3 percent, respectively. Online grocery sales in the UK market are the strongest in Europe, and are expected to reach 2.8 billion in 2009 (30 percent of the total). This market has benefited from the early entrance of such robust players as Tesco.com and its multichannel, multiproduct business model. In the rest of Europe this category will remain marginal.

Books and Music Will Remain the Most Widely Purchased Products in 2009
Fig. 5 Total Online Buyers by Commerce Category, 2009

(in millions) 100 83 Total Online Buyers by Category (2009) 80 68 60% 60 43 40 20 0 38 31% 28% 12 49% 31 22% 18 8% PCs and laptops Computer peripherals Software Books Music Video 41% 34 25% 11 8% 13% Consumer electronics Event tickets Groceries Apparel Travel Toys 13% Sporting goods Footwear Personal care Other 0% 62 56 45% 37 27% 18 19% 45 32% 27 54 39% 40% 20% 60% 80% 100% Percentage of Online Buyers Who Buy in Category (2009)

Source: JupiterResearch Online Commerce Forecasts, 10/04 (Western Europe only) 2004 JupiterResearch, a division of Jupitermedia Corporation

Total online buyers by category Percentage of online buyers who buy in category

Although the books category is maturing, it will continue to drive consumer adoption of online shopping through 2009. JupiterResearch expects that 83 million online buyers will buy books by the end of 2009, up from 34 million in 2003. Even in more mature markets such as the UK and Germany, online spending on books will grow at a CAGR of 17 percent from 2003 to 2009. In this category, Spain will experience the highest CAGR (29 percent) in Europe mainly due to the entrance of new online users into the market. (Spain had one of the lowest online penetration rates in Europe in 2003, 11 percent below the European average of 41 percent.)

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Market Forecast Report: European Commerce, 20032009 7

Music was the second largest online shopping category in Europe in 2003, with 21 million online shoppers buying music via the Internet. According to a recent JupiterResearch consumer survey, 11 percent of European consumers purchased CDs, tapes, or albums online in the past six months. Given that CD buyers are largely music fans by definition, and that online tenure is directly correlated to willingness to pay for content, it is not surprising that they are also more willing to pay for digital music services (29 percent compared to 19 percent of overall online users). This illustrates the significant opportunity that exists for music retailers currently operating or planning to deploy digital music stores. (See Profiling Online CD and DVD Buyers, European Market Forecasts, October 27, 2004.)

Online CD Retailing Is Key to Music Industry Revenues

Fig. 6 Online CD Spending, 20032009
(in billions) 2.0 1.5 1.6 40% 30% 16% 20% 10% 0% Channel Shift 50%

Online CD Spending

1.5 1.1 1.0 0.7 0.5 7% 9% 11% 0.9

1.3

1.4

13%

14%

15%

0.0
Source: JupiterResearch Online Commerce Forecasts, 10/04 (Western Europe only) 2004 JupiterResearch, a division of Jupitermedia Corporation

2003

2004

2005

2006

2007

2008

2009

Online CD spending Channel shift

Online CD retailing is key to the long-term viability of the music industry. In the first half of 2004 total European recorded music revenues declined by nearly eight percent. By contrast, at the end of 2004 online sales of recorded music (not including downloads) have increased by 28 percent over sales in the previous 12 months. The positive growth of online CD sales has continued while total sales have declined across Europe. The net effect is that online CD sales are becoming an increasingly important part of the music retail equation, growing from seven percent of total recorded music revenues in 2003 to 16 percent in 2009. Competitive pricing is a major factor driving the popularity of online CD purchasing. Pricing is so key because competition for music spending from interactive media such as DVDs and console games, combined with illegal file sharing and the
International Federation of the Phonographic Industry Interim Sales (2004)

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Market Forecast Report: European Commerce, 20032009 8

increasing popularity of home CD burning, have reduced both consumer demand for CDs and the perceived value of music as a commodity. Online retailers such as Amazon continue to sell CDs more cheaply than do traditional retail stores, but the gap is narrowing. In the UK, low CD prices offered by online retailers such as Amazon and CDWow, as well as by such unlikely music retailers as the supermarket Tesco, have resulted in an overall decline in average CD prices. However, because online retailers incur lower fixed costs, they will continue to be able to undercut traditional retailers, even if the differences narrow.

Online Video Retail Market to Reach 1.4 Billion by 2009

Fig. 7 Online Video Retail Forecast, 20042009
(in billions) 2.0 Online Video Spending 50% 40% 30% 20% 9% 10% 11% 11% 11% 10% 0% Channel Shift

1.5 1.2 1.0 0.7 0.5 0.5 6% 8% 0.9 1.0

1.3

1.4

includes VHS and DVD formats Source: JupiterResearch Online Commerce Forecasts, 10/04 (Western Europe only) 2004 JupiterResearch, a division of Jupitermedia Corporation

0.0

2003

2004

2005

2006

2007

2008

2009

Online video spending Channel shift

The online retail market for video (both DVD and VHS formats) is projected to grow strongly to reach 1.4 billion in 2009, when it will represent more than 11 percent of the overall video sales market. Web sites like Cdiscount in France and DVDgo in Spain have established themselves as destination sites to buy DVDs online with impressive promotions from the DVD back catalog. In parallel with this retail growth, and ahead of widespread video on demand deployments around Europewhich JupiterResearch does not anticipate before 2006the Internet will have the greatest impact on the video market via online DVD rental firms. Consumers can subscribe to such services at a cost of approximately 15 per month in order to receive regular shipments of DVDs by mail, which they return afterward in the same manner. Already popularized by US company Netflix (with 2.1 million subscribers at the end of 2004), these extensions of off-line retail video rental companies are trying to replicate similar services in Europe; their ranks include players like ScreenSelect/Video Island in the UK, Glowria Entertainment in France, and DiViDi and Netleih in Germany. Although they

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Market Forecast Report: European Commerce, 20032009 9

are all far from achieving Netflixs impressive figures, JupiterResearch estimates that between 100,000 and 200,000 European online users already subscribe to such services, and expects continued growth.

Providing Useful Product Information Is Critical for Successful Online PC and Peripheral Sales
Fig. 8 Channel Shift in Computer Peripherals and Consumer Electronics Market and Importance of Better Product Information to Online Non-buyers, 2004

50% 40%

Channel Shift

Percentage of Products Sold Online

30% 30% 20% 14% 10% 4% 1% 0% Spain UK 8% 2% Italy 10% 2% France 4% Germany 6% 18% 15%

Sweden

Computer peripherals Consumer electronics

50% Percentage of Consumers 40% 30% 20%

Consumer Experiences and Motivations 37% 28%

Questions: Which of the following would motivate you to start buying products online this year? Which, if any, of the following statements best describe your experience when purchasing products or services online in the past six months? Source: JupiterResearch Online Commerce Forecasts, 10/04 (Western Europe only); JupiterResearch/Ipsos European Consumer Survey (9/04), n = 3,950 and n = 2,273 (non-online buyers) (UK, France, Germany, Spain, Italy, and Sweden only) 2004 JupiterResearch, a division of Jupitermedia Corporation

17% 11% 14% 5% 7% 11% 11% 12%

15%

17%

10% 0%

Spain

UK

Italy

France

Germany

Sweden

I have researched, but not purchased, products or services online Better information about products would motivate me to start buying online

Access to better information can drive online researchers to become online buyers. In Sweden and Germany, 17 percent and 15 percent of surveyed consumers, respectively, stated that better product information would motivate them to begin purchasing online. These two countries also record the highest shares of online researchers who are non-buyers, with 28 and 37 percent, respectively, investigating products but not completing the purchase online. In southern European countries, such as Spain and Italy, consumers still desire better product information, but their needs are more often fulfilled via telephone and personal contact.

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Market Forecast Report: European Commerce, 20032009 10

While consumer electronics are designed to be simple to use and their product benefits easy to communicate, users require detailed information on computer peripherals performance, compatibility, and version numbers. For this reason, the category benefits from distribution via the online medium and enjoys a greater channel shift online. Online retailers selling PCs and peripherals must offer clear and extensive product information to enable consumers to decide upon a purchase. In Germany, the potential for increasing sales of high-consideration goods such as PCs via the online channel is particularly great. More than one-third (37 percent) of German online consumers have researched but not purchased online, providing retailers of these kinds of products with an opportunity to capture a fairly large segment of new shoppers.

Link Behavioral Data to E-mail Messaging to Help Turn Browsers into Buyers
Fig. 9 Process for Recapturing Lost E-commerce Web Site Visitors Using E-mail Marketing, 2004

E-commerce Web site

Targeted e-mail

Site browser

Site buyer

1. Browsing behavior of registered users highlights product affinity

3. Targeted e-mail sent to departed visitor with promotional offer around product affinity

Source: JupiterResearch (12/04) 2004 JupiterResearch, a division of Jupitermedia Corporation

Site analytics tool

2. Product affinity data + e-mail address delivered to e-mail engine

E-mail distribution platform

While the drivers of Internet commerce in Europe will benefit online retailers in all categories over the long run, the challenge of maximizing site visitor conversions will remain key to the success of their businesses. Many online consumers visit commerce Web sites to browse and conduct research but stop short of making a purchase, often abandoning shopping carts in the process. When survey respondents were asked to describe their experience purchasing products or services online in the last six months, 21 percent claimed they had researched but not purchased, while 37 percent claimed not to have researched or purchased at all. Thus, only 42 percent of respondents had actually purchased online in the last six months. In order to improve site conversions, online retailers should look to Web site analytics data, as provided by firms such as Omniture or WebTrends, in order to gain real-time

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Market Forecast Report: European Commerce, 20032009 11

intelligence on the profile of site browsers, and those who abandon their shopping carts in particular. (See Web Analytics: Spending, Staffing, and Vendor Selection, Site Technologies & Operations, October 27, 2004.) An understanding of these consumers browsing behavior and product interests, coupled with their registered e-mail addresses, can then be used to automatically trigger highly targeted and relevant post-visit e-mail communications to encourage future purchases. By combining its SiteAdvance analytics platform with its DARTmail e-mail distribution tool, DoubleClick has helped a number of its commerce clients implement highly effective e-mail campaigns, in which open rates have doubled, click-through rates have trebled, and revenues from mailings improved, in some cases, by 800 percent.

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Market Forecast Report: European Commerce, 20032009 REPORT METHODOLOGY

Report Methodology
The core of JupiterResearchs products is the perspective and opinion of JupiterResearchs professionals. JupiterResearch analysts are immersed in the industries they cover through ongoing contact with corporate and technology leaders, daily study of trends and events in the online world, and their collective professional experience. Individual analyst perspectives are filtered through rigorous collective debate and deliberation, producing research that reflects the combined sensibility of JupiterResearchs entire research team. Analyst perspectives are enhanced and refined through JupiterResearch-designed market research. JupiterResearch uses many data research tools, including consumer surveys and systematic polling of leading industry executives and a rigorous approach to building market forecast models. Specialists with JupiterResearchs Data Research Group assist analysts in the technical development of these tools, such as survey design, sample building, data weighting, and data analysis. This report benefited from a number of specific market research projects, described below.

JupiterResearch/Ipsos Consumer Survey Methodology

For the UK, France, Germany, Spain, and Italy all information was collected via Capibus, Ipsoss face-to-face weekly omnibus survey. Capibus uses state-of-the-art CAPI (computerassisted personal interviewing) technology to interview at least 1,000 adults a week in each of these countries, and the sample is rigorously controlled to be random and representative of the national adult populations. In Sweden, Ipsos uses a preferred local supplier to carry out interviewing by telephone omnibus. The supplier works to Ipsoss strict guidelines to ensure the data is representative of the national adult population and of a high quality. All data processing and final quality control checks are carried out in-house by Ipsos. Capibus uses a random or random location sampling design to select survey respondents. Each week Ipsos interviewers are given carefully selected areas of up to circa 100 addresses in which to work. At each locationa Capibus survey will use up to 250 random locations per week in any one countryquotas for age, sex, occupation, and working status are set; in France, housing type is included. This ensures that the survey sample is representative at a national level. In Sweden, where a telephone omnibus is used, respondents are selected at random through random digit dialing. Quotas are set for age, sex, working status, and occupation to control the sample and ensure it is nationally representative of each country.

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JupiterResearch European Internet Commerce Model

JupiterResearchs European Internet Commerce model covers 16 core product categories, each of which is independently modeled and projected. These include apparel; books; consumer electronics; groceries; music; personal computers; peripherals; software; toys and games; travel, tours, and accommodations; and videos. JupiterResearchs forecast also includes emerging product categories (e.g., do-it-yourself or DIY, housewares, and furniture), but due to the immaturity of these categories, these are only shown in aggregate. A complete category list is presented in the Definitions section of this report. The geographic scope of the forecast covers 17 major Western European countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Switzerland, the UK, Sweden, Norway, Denmark, Luxembourg, the Netherlands, Portugal, and Spain. JupiterResearch classifies online consumer behavior into three key segments:
Online transacting. This activity is the simplest interpretation of online shopping: Consumers decide on a product and then order it online. Online product selection. A broader range of shopping behavior takes place during online product selection when consumers research a merchant or product online and decide on a purchase but make payment arrangements off-line (e.g., by phone, mail, or in person). Online influence. An indirect influence of online shopping research surfaces when consumers do not explicitly decide on a purchase through online research, but this research eventually affects a purchase decision. The online shopping population does not consist only of online buyers: JupiterResearch data show that 36 percent of online consumers use the Internet primarily as a research tool to identify prices and products before completing purchases off-line. However, the JupiterResearch European Internet Commerce Model exclusively assesses the first segment of online shopping: online transacting. While the impact of online product selection and influence on consumer spending cannot be ignored, these metrics are inherently problematic to quantify and measure, and for the purposes of this model JupiterResearch focused solely on transactions completed online, thus providing the cleanest definition of online shopping. JupiterResearchs forecasts concentrate on sales of retail products and travel. Automotive purchasing is excluded because such transactions are typically completed off-line, although there is substantial online research and ordering activity. With the exception of travel, JupiterResearch also excludes service businesses such as restaurants, video rental, and financial services (the latter of which is covered by JupiterResearchs European Financial Services Model).

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Market Forecast Report: European Commerce, 20032009 14

Forecast Methodology In addition to presenting a series of market size forecasts, JupiterResearchs European Internet Commerce Model presents a detailed measurement of the European market as it stands today. JupiterResearch places utmost importance upon accurate measurement of the current market because this provides the solid foundations on which reliable forecasts can be built. Thus, an extensive program of primary and secondary research (both supply side and demand side) was carried out to quantify the European Internet consumer commerce market.

JupiterResearch Consumer Survey Data JupiterResearch conducted a JupiterResearch Consumer Commerce Survey asking consumers about their online shopping behavior. The results of the survey provided invaluable data about the demographic makeup of the European online consumer market, including the percentage of respondents who had purchased online within each product category. Furthermore, detailed consumer segmentation and cross-cutting of product line purchases by online tenure provided a key input into modeling product category growth: Increased online tenure has a direct correlation with proclivity to purchase and migration toward purchase of higher-consideration items online.

Supply-Side Research JupiterResearch carried out an extensive research program. Online merchants across all product sectors and countries were interviewed on an ad-hoc basis to help assess current market sizes. Where appropriate and where available, quarterly accounts were also used. Information was gathered on a nondisclosure basis, granting a unique perspective on the European commerce market. Other Sources Analogous market behavior. While European markets will develop with distinct characteristics, there is no doubt that many of the same growth patterns that have been seen in the US will also apply. Consequently, historical adoption rates and expected adoption in the US were inputs into JupiterResearchs forecasts for the European market. Real-world behavior. Understanding of overall market size, the portion of the overall population buying within particular categories, and average spending per buyer also factor into the projections. JupiterResearch relies on a variety of industry associations, government surveys, and external industry experts to interpret the growth of real-world markets and patterns of consumer behavior. JupiterResearch analyst input. In addition to the data sources previously mentioned, information from the collective expertise of JupiterResearchs analysts is a crucial factor

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Market Forecast Report: European Commerce, 20032009 15

in developing the projections. Analyst input was essential for factoring the qualitative characteristics of a particular market into the forecasts. Understanding the viability of overall online shopping and product segments in particular requires analyzing the intersection of consumer behavior, market dynamics, and technology adoption. JupiterResearchs forecasts represent the input of experts in online commerce, vertical markets, survey research, and forecasting.

Forecast Structure Drivers of spending growth. In developing the commerce model, JupiterResearch isolated the key metrics to measure online shopping in order to understand what fuels online consumer expenditures. The following four factors are the major drivers influencing the future of digital commerce:
Growth in online population. In assessing the potential of digital commerce, JupiterResearch began with the size of the online consumer base as a large share of the expected growth in digital commerce that can be attributed to the increase in the online population. Growth in the online buying population. As online users become more comfortable about security and service related to online shopping, the portion who buy products online will increase. Category penetration. This refers to growth in the portion of the online buying population that will purchase within a particular category. As online shoppers become more familiar with shopping online and online merchant activity gains momentum, online consumers will make a broader range of purchases online. Wallet share. JupiterResearch defines the portion of shoppers purchases within a product category that are actually made online as wallet share. Equally important in determining how many online users will make purchases within each category is an understanding of how much they spend per category. As online shoppers move out of the experimentation stage, they will shift a larger amount of their category purchases onto the Internet. In assessing the potential wallet share for particular product types, JupiterResearch examined a variety of criteria that will affect what portion of buyers annual purchases within a product category will shift online. JupiterResearch shopping scorecards. Although the overall size of the online shopping market will continue to grow, not all categories will fare equally well. To assess the online potential of market segments as diverse as groceries, software, and travel, JupiterResearch created scorecards that capture relevant factors likely to influence the success and failure of particular categories. These scorecards first identify the most significant drivers of success for online shopping and then rank each product category relative to the others on each of the criteria. The creation and calibration of these scorecards was done largely using the US market, where the relative maturity of the market allows more ready comparison between product categories.

2004 JupiterResearch, a division of Jupitermedia Corporation/EUC04-V02 COPYRIGHT STRICTLY ENFORCED

Market Forecast Report: European Commerce, 20032009 16

To localize the scorecards for European countries, JupiterResearch developed an additional set of criteria that isolate the unique set of challenges and opportunities for each European country. In sum, there are four separate scorecards: Online buying penetration. This scorecard rates each countrys online user population for its proclivity to purchase online. Category penetration. This scorecard isolates the criteria that drive the likelihood that an online buyer will purchase within a particular product category. Wallet share. This scorecard isolates the criteria that affect the portion of an online buyers budget within a category that will shift online. Europe. This scorecard factors in criteria that are unique to the European marketplace.

Drivers of online buying penetration. To develop the forecast for online buyers (those who complete transactions online), JupiterResearch rated each country by criteria that will affect propensity toward online purchasing. These criteria, as follows, were weighted and aggregated to produce an index that guided the forecast, with users in countries with a high score being more likely to purchase online than users in countries with a low score:
General sophistication. The economics and attitudes of individual countries online user bases will affect online shopping penetration. Specific factors considered include penetration of technologies and media consumption. Size of market. Given the importance of local merchant availability, the scale of the market and its ability to sustain local merchants will be a key driver in online shopping adoption. Credit/debit card usage and penetration. Until alternative payment mechanisms make online purchasing easier, low credit card penetration will limit the number of users who purchase online. Ease of delivery. Delivery of purchases also poses a near-term barrier to the development of online shopping in Europe. Online tenure. JupiterResearchs research among online shoppers has found that a clear correlation exists between users experience on the Internet and the likelihood that they will purchase online. Users who have been online for two years or more show a markedly higher propensity to shop online due to their increased comfort with online use and greater awareness of online merchants.

Product Definitions
Books. Hardback and softback books, e-books Music. CDs, tapes, vinyl, MiniDiscs, but does not include digital downloads, digital subscriptions Video and DVD. Prerecorded VHS videos and DVDs, but does not include online digital video services Software. Computer software packages

2004 JupiterResearch, a division of Jupitermedia Corporation/EUC04-V02 COPYRIGHT STRICTLY ENFORCED

Market Forecast Report: European Commerce, 20032009 17

PCs. Computers sold as complete packages (including monitors), laptops Peripherals. Printers, modems, scanners, monitors (sold separately), hard drives, CD writers Consumer electronics. CD players, tape players, MiniDisc players, MP3 players, turntables, hi-fi systems, audio components, portable music devices (i.e., all formats, including walkmans and memory sticks), PDAs, mobile phones, game consoles Apparel. Clothing, clothing accessories (e.g., belts, gloves, and scarves) Footwear. Shoes, boots, sandals, trainers Toys. Toys and games, computer games Groceries. Food and nonalcoholic drinks; consumer packaged goods (CPGs); beer, wine, and spirits Travel, tours, and accommodation. Unmanaged air travel; packaged tours; train, bus, and ferry tickets; hotel, bed and breakfast, and hostel room bookings Concerts and events tickets. Tickets for concerts, festivals, cinema, opera, theater, sports events, exhibitions Sporting goods. Sportswear, sports footwear, sports accessories (e.g., golf clubs and footballs) Personal care and cosmetics. Makeup, hair care, skincare, eye care, disposable paper products Others. Specialty gifts, jewelry, home furnishings, housewares, flowers, over-the-counter drugs, gift certificates, stationery, antiques, magazine subscriptions, DIY, gardening supplies

Other Definitions
Browsers. Users who research products and services online but only transact off-line Buyers. Users who transact (i.e., purchase goods or services) via the Internet Nonshoppers. Consumers who conduct no shopping-related activities online Channel shift. The percentage of the value of a total market that is transacted online Brick-and-mortar. A retailer that sells to consumers only via the off-line, physical-store channel

2004 JupiterResearch, a division of Jupitermedia Corporation/EUC04-V02 COPYRIGHT STRICTLY ENFORCED

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JupiterResearch provides analyst research and advisory services to help companies develop, extend and integrate business strategies across online and emerging channels. Backed by proprietary data, JupiterResearchs industry-specific analysis, competitive insight and strategic advice give businesses the tools they need to exploit new technologies and business processes. JupiterResearch is headquartered in New York City with offices throughout the United States and around the world. For more information or a comprehensive list of services, visit jupiterresearch.com, call 800 481 1212 or e-mail info@jupiterresearch.com. In Europe call +44 (0) 20 7903 5020.

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