IDC Predicts Major Web Portal Shakeout

Posted on December 30, 1998

A significant consolidation of Web portal giants, as well as a dramatic Internet stock correction, loom for the online industry in 1999, International Data Corporation (IDC) predicted today. These Internet market developments are among IDC's Fourth Annual Predictions of key Internet trends, strategies and events that will reshape business and society.

Major predictions for 1999 by Frank Gens, IDC's Senior Vice President, Internet Research are:

Mergers and Acquisitions: Yahoo! Partnering with TimeWarner or CBS, Microsoft to purchase a major Portal, a global financial services company such as Citigroup or Wells Fargo buying E*trade
Web access will become available in many retail stores, while live salespeople can be reached through retail Web sites
PC prices will drop to the $400 price range and finally penetrate more than half of U.S. homes
Men become the new minority on the Web, as does the U.S. as a whole
Internet usage will rocket to 147 million users, larger than the population of Japan
On-line spending will total nearly one trillion dollars by 2002
Disruptions from Y2K will be as low as 0.2% for business-critical applications

"Just as everyone thinks they know where the Internet is going in 1999, we are going to shift into a decidedly new phase in the Internet revolution," Gens said. "The Internet is going to closely mirror reality in who the Internet shopper is and where they live, how businesses succeed on the Net and how Internet stocks are valued in the market."

These Internet market shifts will create new opportunities and risks, resulting in new winners and losers. Gens' predictions -- which have been more than 70 percent accurate over the last three years -- rest solidly on IDC's in-depth research.

Three years ago, IDC shocked the market by predicting $800 to $1,000 PCs and last year, predicted major strategy shifts by Microsoft, Intel, Compaq and other key players. "The success of our predictions has been not to focus on what suppliers say they'll do. Instead, we focus on what the market will require them to do."

Competitive Realities Spawn Market Corrections, Consolidation Frenzy In 1999, IDC predicts the stock market will begin to correct artificially high values for Internet stocks. These deflated valuations, coupled with growing cash needs, intensifying competition, the need for critical mass and a possible recession, will drive a trend toward acquisitions of Internet companies by "real world" companies and mergers among Internet companies.

Possible additional deals include:

NBC buying more of CNET and Snap
Compaq selling off AltaVista
Infoseek merging with Lycos

Internet Commerce Boom Includes Web Access Entering Retail Stores IDC predicts that Internet commerce will more than double to $68 billion, making it the same scale as the gross domestic product (GDP) of Ireland and Poland. "For the first time ever, Internet commerce volume will exceed Bill Gates' wealth," said Gens.

Certain trends will emerge:

Fifty percent of U.S. households who are online will buy online
Virtual sites will become voice-enabled to give customers live sales assistance and customer support
"Brick-and-mortar" retailers will introduce Internet kiosks into their stores to give customers the information resources of the Internet
Personalization will be the ante for successful commerce sites
There will be a growing demand to measure the value of online sites in terms of "Lifetime Value of Customers"
Reaching international customers will become a critical success factor
"Not having an Internet presence and an Internet Commerce strategy is a recipe for market share loss," noted Gens. "In the U.S. market, starting in 1999, the virtual market is reality."

Changes on the technology front will continue in 1999:

PC prices will drop to the $400-$600 range among industry heavyweights such as Compaq and HP
More than three million Net TVs will be installed and activated
Home networking will roll out

Shifts in Demographic Profile, Men and U.S. No Longer the Majority on 'Net

In 1999 women become the online majority in the U.S. and the U.S. becomes an online minority:

Women will break through the 50 percent mark in online populations
For the first time, a majority of Internet users -- 51 percent -- will live outside the U.S.

"The feminization of the Internet is a very important shift, because women seek out different Web destinations than men, spend less time surfing online and are the primary decision-makers in the majority of household purchases," noted Gens.

IDC predicts that -- contrary to many current views -- the Year 2000 crisis will cause only modest disruptions. "A mere two-tenths of one percent of Y2K bugs will cause business-critical problems," Gens said.

The full text of Gens' Predictions will be on the IDC website. International Data Corporation is a comprehensive resource on worldwide IT markets, trends, products, vendors, and geographies. IDC's research and opinions are based on the results of more than 300,000 end-user surveys, in-depth competitive analysis, broad technology coverage, and strategic analysis.