Electronic commerce companies and content sites are joining forces to increase Internet traffic, a recent Simba Information Inc. study has found.
In the past year, several content providers and search engines have signed multimillion-dollar deals with on-line retailers to spur interest in their sites and increase Internet sales, according to Simba, a market research firm in Stamford, Conn.
For instance, start-up virtual music stores have formed partnerships with Internet access companies and search engines. CDnow Inc. has signed an agreement with Yahoo! Inc. to get an exclusive banner and key placement in the search engine's music areas. N2K Inc. and America Online Inc. have an $18 million contract to make N2K the exclusive music retailer on the giant service provider.
The deals indicate that securing prime "real estate" at popular Internet gathering places can be an expensive proposition. In one example of a bank playing this game, Citicorp last week announced it will be a prime sponsor of Netscape Communications Corp.'s Personal Financial Channel.
Marketers and Internet traffic aggregators are "really feeding off each other," said Tony Jaros, the Simba study's author. "Sites such as Yahoo! and America Online are trying to add as much content as possible to keep people from going out on the Web."
However, these smaller companies must be able to fill orders and satisfy customers if they want to survive. Also, the retailers must make sure consumers realize they are buying products from them, not from Yahoo! or Excite, according to the study.
In addition larger companies, such as Barnes & Noble Inc., have enough money and marketing power to threaten the start-ups, though they may have entered the arena years before, the study found.
The 184-page research report, titled "The Electronic Marketplace 2002: Strategies for Connecting Buyers and Sellers," also said business-to- business commerce would dominate the industry for the foreseeable future, though its market share will drop. This segment is expected to total $19 billion, or 67.3%, of the electronic marketplace in 1998. It is projected to total $57.9 billion, or 56.8%, of the market in 2002.
Overall, Internet shopping is projected this year to hit $28.2 billion, up 57.7% from 1997. Electronic commerce is forecast to grow by more than 30% a year, reaching $102 billion in 2002.
While the on-line marketplace is growing fast, some researchers have overestimated its success, Mr. Jaros said.
"It doesn't explode instantly," he said. "It takes time for people to ramp up."
Factors that have enhanced electronic commerce companies' success include the ability to drive large, continuous traffic numbers to one's site, aggressively market services, bring buyers together in communities to which they will return regularly, and provide a solid back-office operation that aids on-line transactions, the study said.
Computers and other technology are the favored purchases of business buyers, Mr. Jaros said. Sales of computer products and services are forecast to reach $665 million, or 23.6% of the market, in 1998.
The top-selling consumer products are books and music, which are projected to roll up $625 million of 1998 sales, up 140% from the year before. Book and music sales are projected to reach $3.4 billion by 2002.
Entrepreneurs, however, are flooding certain retail categories, Mr. Jaros said. It's not hard to set up an on-line book or music store because the products are small and easy to ship, but not all the merchants can survive.
The key to success, Mr. Jaros said, is opening a superstore like Amazon.com or a specialty store with good customer service, such as Virtual Vineyards. Those who launch general on-line stores "will get eaten alive," he said.