KEY DRIVERS THE GROWTH OF E- COMMERCE

The economy, consumer spending, and retail spending

At a macro level, overall economic activity ,total retail spending and change in consumer life style are in general are key drivers to the growth of e-commerce. At a micro level, for instance, rising oil prices and gasoline costs could benefit e-commerce players, e.g., it is more expensive driving to the offline retail store than shopping online. The recession beginning in 2008 has slowed e-commerce, but overall sales are still growing. US online retail sales grew 11% in Q1 2008 compared to a growth of 16.9% in Q1 2007.

Online Taxation

Several proposals have been made at the U.S. state and local level that would impose additional taxes on the sale of goods and services through the Internet. These proposals, if adopted, could substantially impair the growth of e-commerce. The U.S. federal government's moratorium on states and other local authorities imposing access or discriminatory taxes on the Internet expired in November 2007. The taxation situation is a dynamic one, and one which is carefully being watched by many stakeholders.

Differentiation vs. Click-and-MortarsMany e-commerce websites have established their leadership positions through low prices, high customer satisfaction, and convenient interfaces--but that position is becoming less and less unique. The largest retailers, such as Wal-Mart, Target, and Best Buy are pressing harder to gain market share online. The inroads the click-and-mortar retailers have been making is evident in recent comScore data, which shows the unique user traffic at the aforementioned sites increasing at greater year-over-year rates vs. pure e-commerce players. Those pure play e-tailers that develop and deploy the most unique web technologies to enhance consumer experiences and keep prices competitive will be in the best position to ward off the click-and-mortar convoy.

Internet Penetration and Emerging Market

Global Internet penetration rates have an enormous impact on e-commerce growth rates. Currently, more than 90% of the world does not have access to the internet, and hence, e-commerce. Reduced Internet surfing charges, Internet technology development covering expanded bandwidth, and increased speeds & reliability could make e-commerce available to a large pool of emerging market consumers. In India, only about 60 million (or 5.2%) of a total 1 billion person population currently have access to the internet. In China, the internet penetration rate is now at 19% as of June 2008. The companies that are able to gain significant traction first in emerging markets will be at great advantage to competitors.