Internet’s Crowds Stunting Its Growth: Trends Report

More than half the world’s population — 3.8 billion people — have access to the Internet, and that may not be a good thing, at least for business, according to digital savant Mary Meeker’s Internet Trends 2019 report.

Global Internet user growth has slowed to 6 percent year over year, down from 7 percent, noted the Bond Capital general partner.

Nevertheless, “there is still half of the world not connected to the Internet,” said Ray Wang, principal analyst at Constellation Research.

The Asia-Pacific region leads in the number of Internet users and potential, accounting for 53 percent of Internet users despite just 48 percent penetration.

“As a market grows, growth rates tend to plateau at times as different waves of adapters migrate,” said Rob Enderle, principal analyst at the Enderle Group.

“The Asia-Pacific, which is relatively underdeveloped, will have the greatest growth potential,” he told the E-Commerce Times.

Privacy issues, breaches, and issues with social media also have created friction that impedes growth, which likely is reflected in the numbers, Enderle said.

E-Commerce Trends

Reaching nearly $140 billion, e-commerce sales accounted for 15 percent of retail sales in Q1 2019 versus 14 percent the previous year. There was a slight uptick in YoY sales growth from 2.1 percent in Q4 2018 to 2.4 percent in Q1 2019. However, the growth rate in general has been spiraling downward, Meeker said.

E-commerce growth mirrored the trend in physical retail sales. The uptick in both cases could be due to disappointing sales over the holiday period. Retail sales in December were 1.2 percent lower overall than in November.

That was the largest slippage since 2009, and it led to widespread skepticism among analysts, with some suggesting sales were undercounted. Sales by non-store retailers, including online operations, fell 3.9 percent month-over-month in December.

The slippage in online sales could be attributed to a number of factors.

“Retailers like Best Buy, Target, and Walmart are learning to fight back more effectively,” Enderle observed. “Also, package theft and missed delivery are becoming bigger problems, and buyers are learning that it’s often more convenient to just go to a local store for a lot of things.”

Still, e-commerce has been gaining ground overall, accounting for 15 percent of retail sales in Q1 2019 vs. 14 percent the previous year.

“I think that demographically, you will see an uptick as the millennials reach their prime consumption years in the next five to 10 years,” suggested Michael Jude, program manager at Stratecast/Frost & Sullivan.

Online Ads

Internet advertising spending increased 22 percent YoY from 21 percent YoY, Meeker said. Mobile ads showed most of the growth, a continuation of the trend that began in 2016.

However, quarterly Internet ad revenue on the leading U.S. platforms fell from 29 percent to 20 percent between Q4 2018 and Q1 2019.

“Too many channels,” Jude told the E-Commerce Times. “Where do you place your advertising? If online is one channel, how do you place your advertising to the best effect when there are other ways of reaching consumers? Also, competition is driving down prices as more online channels duke it out for share.”

The slippage is due in part to advertisers “getting smarter at balancing the ad venues and learning how to better direct market to their customers using communications tools and in-band social networking efforts,” Enderle suggested. “They are learning how to better target their spend.”

That said, global ad revenues on U.S.-based ad platforms Google and Facebook, as well as Amazon, Twitter, Snap, and Pinterest combined, are on an upward trend despite having dipped between Q4 2018 and Q1 2019 on all the platforms, according to Meeker.

The Impact of Mobility

Mobile devices accounted for 58 percent of site visits in 2018 by U.S. users, according to Stone Temple. Mobile devices accounted for 42 percent of time spent online.

More than 60 percent of global consumers shop online at least once a month, with the majority of them using a mobile device, according to an Episerver study of 1.3 billion Website visits. In some cases, more than 80 percent of sessions came through mobile devices on certain days.

However, consumers made more purchases using desktop computers — 3.6 items per order compared to 3.3 items per order for tablet users and 2.9 items for smartphones.

Mobile ads showed the most growth despite the reduction in online ad revenue.

Also, “mobile ads, due to the real estate limitations, have far more limitations,” Enderle remarked.

Going Digital

Digital media usage among U.S. adults grew 7 percent YoY, up from 5 percent, with the bulk of the growth coming from mobile users, Meeker said.

Meanwhile, voice-activated technology performed well, with the Amazon Echo installed base growing from 30 million in Q4 2017 to 47 million in Q4 2018.

Businesses “should realize that these voice-activated devices are digital storefronts they’re locked out of,” Enderle said. “Retailers “will either launch their own digital assistants or do what Microsoft’s competitors did to that company, and use anticompetition laws to force Amazon and others to open up their platforms.”

“A major push to change this dynamic” is likely within the next two years, he predicted.

This is “a battle of digital duopolies in every market — from gaming, media, digital ads, and cloud computing to social networks,” Constellation’s Wang told the E-Commerce Times.

“We will see a battle for time and attention,” he said. “Screen time, engagement, and usage are key.”