Internet Commerce Briefing: Business-To-Consumer E-Commerce Report

The Internet
Commerce Briefing
Business-to-consumer
e-commerce report
The Intermarket Group L.P.

www.intermarketgroup.com
Business-to-Consumer E-Commerce Report
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Published December 2001

ISBN No. 1-882113-15-2
The Internet Commerce Briefing | 1

Table Of Contents
Table of Contents ...................................................................... 2

List of Charts and Tables .......................................................... 3
Section I. The Online Consumer Population........................ 5
Section II. Online Consumer Activities.................................14
Section III. E-commerce Market Size and Composition........24
Section IV. Online Merchandising and Customer Service.....43
Section V. Privacy and Security Issues

Among Internet Users .........................................59
Section VI. E-commerce and the Holidays............................66
Appendix Data Sources and Contact Information...............93
Other reports in the Internet Commerce Briefing series:

Internet Population & Online Demographics
Online Advertising & Digital Marketing

Charts and tables in this report
1.01 Estimated U.S. Population Of Online Buyers 3.26 Online Market Share Of Top Internet And Click-And-Mortar
1.02 U.S. Online Buyers As A Share Of Active Internet Users Retailers (2000/2001)
1.03 U.S. Online Buyers vs. Active Internet Users By Month 3.27 Leading Websites By Buying Power Index Rating
1.04 Age Of U.S. Online Buyers 3.28 Leading Shopping Sites By Buying Power Index Rating
1.05 Age Of U.S. Online Buyers vs. Internet Users 3.29 Leading Portals By Buying Power Index Rating
1.06 Penetration Of Purchasing Online By Age Group In The U.S. 3.30 Leading Community Sites By Buying Power Index Rating
1.07 Individual Income Of U.S. Online Buyers
1.08 Education Of U.S. Online Buyers 4.01 U.S. Online Retailer Customer Acquisition Cost (1999-2001)
1.09 Education Of U.S. Online Buyers vs. U.S. Internet Users 4.02 U.S. Browser To Buyer Conversion Rate (1999-2001)
1.10 Ethnicity Of U.S. Online Buyers 4.03 U.S. Auction Site Browser To Buyer Conversion Rate (2001)
1.11 Marital Status Of U.S. Online Buyers vs. U.S. Internet Users 4.04 Incentives That Convert Online Shoppers Into Buyers
1.12 Primary Types Of Online Consumers 4.05 Incentives That Convert New & Repeat Customers Into
1.13 Top Concerns Of Online Consumers By Segment Buyers
4.06 Website Features That Convert Online Shoppers To Buyers
2.01 How Frequently U.S. Consumers Buy Online 4.07 Top Website Attributes Among Internet Users
2.02 Number Of Online Purchases Completed 4.08 Most Important Online Storefront Attributes
2.03 Number Of Online Purchases By Tenure 4.09 Important Online Storefront Attributes
2.04 Annual Spending Among Online Buyers By Tenure 4.10 U.S. Internet Users' Expectations For Merchandise
2.05 Spending For Online Purchases Assortment
2.06 Spending For Online Purchases 4.11 Top Online Storefront Attributes
2.07 Tenure Of U.S. Online Buyers 4.12 Interest In Personalization Among U.S. Internet Users
2.08 Tenure Of U.S. Online Buyers By Age 4.13 Frequency Of U.S. Internet Users Updating Personalization
2.09 Where U.S. Consumers Shop Preferences
2.10 How U.S. Internet Users Use The Web To Shop 4.14 U.S. Internet User Satisfaction With Online Shopping
2.11 How U.S. Consumers Gather Product Information 4.15 U.S. Online Shopper/Buyer Satisfaction With Customer
2.12 Seven Factors For Success In Online Retailing Service
2.13 How U.S. Internet Users Learn About Websites 4.16 U.S. Consumer Problems With Online Customer Service
2.14 How U.S. Internet Users Search For Products Online 4.17 U.S. Internet Users' Preferences For Resolving Customer
2.15 How Online Shoppers Get To Websites Service Issues
2.16 Internet Users Purchasing At The First Site Visited 4.18 Top Customer Service Features For Multi-Channel Retailer
2.17 Multi-Channel Online Shopping Activities Of U.S. Internet Sites
Users 4.19 Leading Consumer Barriers To Buying Online
4.20 Online Shopping Cart Abandonment Rates
3.01 U.S. Online Retail Sales Estimates (2001) 4.21 Shopping Cart Abandonment Rates For Selected Retailers
3.02 Total U.S. Consumer Internet Commerce (1999-2006) 4.22 Top Reasons U.S. Internet Users Abandon Shopping Carts
3.03 Total Worldwide Consumer Internet Commerce (2000-2004) 4.23 What Happens After A Shopping Cart Is Abandoned
3.04 U.S. Mobile Commerce Revenues (2000-2005) 4.24 Reasons For Not Purchasing Goods And Services Online
3.04a U.S. Mobile Commerce Revenues By Type (2005) 4.25 Why Internet Users Wait To Make The First Online Purchase
3.05 Quarterly Estimated U.S. Online Retail Sales 4.26 How Consumers Pay For Purchases
3.06 Online Retail Sales Share Of Total U.S. Retail Sales 4.27 Losses From Online Fraud At Internet Commerce Sites
3.07 U.S. Retail Sales By Month (2000/2001) (2000)
3.08 U.S. Online Retail Sales By Month (9/2000-9/2001) 4.28 Online Fraud At Internet Commerce Sites
3.09 Average U.S. Online Spending Per Household Per Month
(2000/2001) 5.01 Concern About Privacy Of Personal Information Provided
3.10 U.S. Online Buyers By Month (9/2000-9/2001) Over The Internet
3.11 Breakdown Of U.S. Online Retail Spending By Category 5.02 Concern About Website Access To Specific Personal
(2001) Information
3.12 U.S. Online Retail Spending By Category: Small Ticket Items 5.03 Personal Information Internet Users Are Willing To Share
(2000/2001) 5.04 Personal Information A Site Can Share In Return For
3.13 Average U.S. Online Spending Per Household: Small Ticket Customized Content
Items (2000/2001) 5.05 What Influences Internet Users To Share Information
3.14 U.S. Online Retail Spending By Category: Big-Ticket Items 5.06 Internet Users' Attitudes About Protecting Their Online
(2000/2001) Privacy
3.15 Average U.S. Online Spending Per Household: Big Ticket 5.07 Consumer Fears About Internet Crime
Items (2000/2001) 5.08 Concern About Misuse Of Credit Card Information Provided
3.16 U.S. Online Retail Spending: Top Categories (Q3-2000/Q3- Over The Internet
2001) 5.09 Concern About Misuse Of Credit Card Information Provided
3.17 U.S. Online Retail Spending Comparison: Top Categories Over The Internet By Age And By Gender
(Q3-2000/Q3-2001) 5.10 Comfort Level Providing Credit Card Information Over The
3.18 U.S. Online Buying Penetration By Product Category Internet
3.19 U.S. Online Buying Penetration By Product Category And 5.11 Comfort Level Providing Credit Card Information Over The
User Tenure Internet By Ethnicity
3.20 Types Of Online Purchases By U.S. Internet Users
3.21 Types Of Online Purchases By U.S. Teens
3.22 Estimated Revenue Mix For Amazon.com (Q4-2000)
3.23 Estimated Revenue Mix For eBay (Q4-2000)
3.24 U.S. Retail Auction Site Market Share (By Revenue)
3.25 U.S. Retail E-commerce Site Market Share (By Purchases)

Charts and tables in this report (con’t.)
6.01 U.S. Online Retail Sales: Q4/Holiday Period (2000/2001) 6.27 U.S. Consumer Satisfaction With Online Holiday Shopping
6.02 U.S. Online Retail Buyers: Q4/Holiday Period (2000/2001) Experience (1999/2000)
6.03 What Internet Users Do Online During The Holidays 6.28 Difficulties Experienced By Online Shoppers During Holiday
6.04 Where Do U.S. Consumers Plan To Shop For Holiday 2001 2000
6.05 Channel Allocation Of U.S. Consumers’ Holiday Shopping 6.29 Barriers To U.S. Internet Users Shopping Online For Holiday
Budget (2000/2001) 2000
6.06 How Long Holiday 2000 Online Buyers Have Shopped Online 6.30 U.S. Q4 Retail Sales Growth (1996-2000)
6.07 U.S. Online Holiday Buyers By Gender (1998/2000/2001) 6.31 U.S. Q4 Share Of Annual Retail Sales (1996-2000)
6.08 Share Of Holiday 2001 Gift Budget U.S. Consumers Plan To 6.32 Monthly Share Of U.S. Retail Sales (2000)
Spend Online 6.33 Growth In U.S. Retail Chain Store Holiday Sales (1996-2001)
6.09 Share Of Holiday 2000 Gift Budget U.S. Consumers Spent 6.34 Monthly Share Of U.S. Online Retail Sales (2000)
Online 6.35 Average Amount Spent Online In The U.S. During Q4-2000
6.10 Holiday 2001 Online Spending Plans Among U.S. Internet 6.36 Median Holiday 2000 Gift Budget Among U.S. Youths
Users 6.37 Holiday 2000 Online Spending By U.S. Youths
6.11 Share Of U.S. Consumers Who Plan To Spend The Same Or 6.38 Average Q-4 Online Spending Per U.S. Household Per Month
More Online During Holiday 2001 By Category (2000/2001)
6.12 When U.S. Consumers Plan To Begin Shopping For Holiday 6.39 U.S. Q4 Online Retail Spending By Category: Small Ticket
2001 Items (2000)
6.13 Growth Of U.S. Online Holiday Shopping (1998-2000) 6.40 Q4 Share Of Total Online Retail Spending By Category:
6.14 U.S. Online Holiday Shoppers And Buyers (1999/2000) Small Ticket Items (2000)
6.15 Average U.S. Online Order Value For Holiday 1999/2000 6.41 U.S. Q4 Online Retail Spending By Category: Big Ticket
6.16 Top 5 Product Categories By Holiday Spending (Nov./Dec. Items (2000)
2000) 6.42 Q4 Share Of Total Online Retail Spending By Category: Big
6.17 What U.S. Consumers Plan To Buy Online For Holiday 2001 Ticket Items (2000)
6.18 Top 10 BizRate.com Holiday 2001 Gift Product Searches 6.43 Weekly Online Shopping Activity For Holiday 2000
6.19 What U.S. Consumers Plan To Buy Online For Holiday 2001 6.44 Weekly Aggregate Online Shopping Trips For Holiday 2000
6.20 Sources Of Holiday 2000 Gift Ideas For Online Shoppers 6.45 Peak Traffic Week For Online Holiday Shopping By Category
6.21 What Influences Holiday 2000 Online Shoppers 6.46 Fulfillment Time For Internet-Only vs. Click-And-Mortar
6.22 Why U.S. Internet Users Plan To Shop Online For Holiday Retailers For Holiday 2000
2001 6.47 Fulfillment Time For Select Online Retailers For Holiday 2000
6.23 Why U.S. Internet Users Shopped Online For Holiday 2000 6.48 Total Time To Delivery For Select Online Retailers For
6.24 Number Of Websites Patronized By Holiday 2000 Shoppers Holiday 2000
6.25 Where Online Buyers Shopped For Holiday 2000 6.49 Fulfillment Time For Last Minute Holiday 2000 Orders
6.26 U.S. Consumer Satisfaction With Online Holiday Shopping
Experience (2000)

Section I.
The Online Consumer
Population

During a typical month, approximately 40 million Internet users in the U.S. -- or

roughly one-third of active Internet users and almost one-in-five American adults -
- complete at least one online purchase. By the end of 2001, almost one-half
(49%) of all Internet users in the U.S. will have made at least one online purchase
during the year, according to surveys conducted by the UCLA Internet Project.
Gartner Group estimates that more than 118 million individuals -- or roughly 84%
of all U.S. Internet users -- had made at least one online purchase at some point
in time by mid-2001. Harris Interactive largely concurs, with its own estimate of
online buyers which exceeds 100 million individuals in the U.S. alone.
1.01 Estimated U.S. Population Of Online Buyers

Est. % of US
Online Buyers Adults (18+) Period Covered Source
118.4 mn 56.6% Ever Gartner Group
100.2 mn 47.9% Ever Harris Interactive (1)
99.5 mn 47.6% 1/2001 - 7/2001 UCLA Internet Project (2)
75.3 mn 36.0% 5/2000 - 4/2001 Gallup Organization
71.5 mn 34.2% Q1-2001 Gartner Group
39.4 mn 18.8% 9/1/2001 - 9/30/2001 Forrester Research (3)
39.3 mn 18.8% 3/1/2001 - 3/31/2001 Taylor Nelson Sofres
38.6 mn 18.5% 9/1/2001 - 9/30/2001 Nielsen/NetRatings
35.2 mn 16.8% 3/1/2001 - 3/31/2001 Nielsen/NetRatings
35.0 mn 16.7% 3/1/2001 - 3/31/2001 Forrester Research (4)
(1) March 2001 estimate. (2) Based on 48.9% of Internet users, including children. (3) Based on
15.2 million households shopping online during September. (4) Based on 13.5 million households
shopping online during March.
1.02 U.S. Online Buyers As A Share Of Active Internet Users

Percent of active Internet users who have completed an online purchase during period
40%
38%
35.6%
36%
34.8%
34% 33.2% 32.9%

32.0% 31.7% 31.6%
32% 31.2% 31.3% 31.3%
30.3%
30%
28%
Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep.
2000 2000 2001 2001 2001 2001 2001 2001 2001 2001 2001
Source: Nielsen/NetRatings, 10/2001
The number of U.S. Internet users who have purchased something online has
grown slowly -- but steadily -- throughout 2001, according to data from both
Nielsen/NetRatings and Forrester Research (see also 3.10). The share of online
buyers as a percentage of active Internet users -- individuals who have gone
online at least once during the last 30 days -- has generally remained

between 31-32% throughout 2001, so the actual number of online buyers has
expanded essentially in parallel with the overall Internet population. During the
first nine months of 2001, Nielsen/NetRatings estimates that the number of active
Internet users went from roughly 107 million to about 112 million in the U.S. while
the number of online buyers in the U.S. fluctuated between 33 million and 39
million per month.
1.03 U.S. Online Buyers vs. Active Internet Users By Month

Millions of individuals
Online Buyers Internet Users At Home And At Work
110.8
Sep. 2001 38.6
112.6
Aug. 2001 37.1
112.6
Jul. 2001 35.2
112.9
Jun. 2001 35.3
113.7
May 2001 35.9
113.1
Apr. 2001 35.9
Mar. 2001 112.7

35.2
109.5
Feb. 2001 33.9
106.3
Jan. 2001 37.8
108.7
Dec. 2000 36.1
105.3
Nov. 2000 31.9
91.1
Oct. 2000 30.9
89.1
Sep. 2000 30.9
0 30 60 90 120 150

Although the U.S. Internet population is skewed toward younger individuals,

most e-commerce activity originates among older users, according to Gartner
Group. Internet users between 18 and 24 years old account for 15% of the adult
online population and 13% of online buyers, but they account for only 3% of
online retail spending. In contrast, Internet users between 25 and 34 account for
32% of online retail spending but only 22% of the online population. More than
one-half (53%) of all online retail spending originates from Internet users between
35 and 54 years old.
1.04 Age Of U.S. Online Buyers

Percent of online buyers
55 And Older
16.3% 18 To 24 Years
Old
13.1%
25 To 34 Years
Old
35 To 54 Years 24.7%
Old
45.9%
Source: GartnerG2, 6/2001
1.05 Age Of U.S. Online Buyers vs. Internet Users

12.0%
55+ 16.3%
18.6%
53.0%
35 To 54 45.9%
44.3%
32.0%
25 To 34 24.7%
21.9%
3.0%
18 To 24 13.1%
15.2%
0% 10% 20% 30% 40% 50% 60%

Share Of Online Sales Revenue
Share Of Online Buyers
Share Of Internet Users Source: GartnerG2, 6/2001

1.06 Penetration Of Purchasing Online By Age Group In The U.S.

Percent of individuals in each age group who are online buyers
80%
60% 57%
53%
43% 45%
40%
20%
0%
18 To 24 25 To 34 35 To 54 55+
Although Internet users between 35 and 54 years old account for almost one-
half (46%) of all online buyers, only slightly more than one-half (53%) of them
have purchased anything online, according to Gartner Group. The highest
penetration for buying online is among Internet users between 25 and 34 years
old while the lowest is among 18 to 24 year olds.
A majority (58%) of online buyers earn $50,000 or less per year compared
with approximately 83% of the overall U.S. population. At the upper-end of the
income scale, 7% of online buyers have an income in excess of $100,000 versus
3.5% of the general population.
1.07 Individual Income Of U.S. Online Buyers

< $30,000
27%
No Response
4%
$100,000+
7%
$30K To $49K
$70K To $99K
31%
12%
$50K To $69K
19% Source: Ernst & Young, 2001

The level of education of online buyers is approximately the same as the

overall Internet population. Ernst & Young estimates that more than one-third
(35%) of online buyers are college graduates compared to 35% of the general
Internet population. Less than one-in-four (23%) online buyers have a high
school diploma or less versus 29% of all Internet users.
1.08 Education Of U.S. Online Buyers

Some High
High School
School
Graduate
Other 3%
20%
6%
Doctoral/Medical
Degree
3%
Graduate/Law
School Degree
10%
Some College
4-Year College
36%
Degree
22% Source: Ernst & Young, 2001
1.09 Education Of U.S. Online Buyers vs. U.S. Internet Users

Internet Users Online Buyers
High School 23%

Graduate Or Less 29%
36%
Attended College
34%
College Graduate 35%

Or More 37%
0% 10% 20% 30% 40% 50% 60%

Source: Ernst & Young, 2001; Mediamark Research, Spring 2001

The penetration rate for online shopping among both African-Americans and
Hispanic-Americans is significantly less than the penetration rate for the overall
Internet population, according to the Cultural Access Group. An August 2001
report by the organization estimated that only 31% of African-Americans and 32%
of Hispanic-Americans had ever purchased anything online, which is less than
one-half the penetration rate for Internet users overall.
1.10 Ethnicity Of U.S. Online Buyers

Percent of Internet users in each ethnic group
Research Purchases Online Complete Purchases Online

100%
80% 74%
69%
59%
60% 54%
40% 31% 32%
20%
0%
All Internet Users African-American Hispanic-American
Internet Users Internet Users
Source: Cultural Access Group, 8/2001
1.11 Marital Status Of U.S. Online Buyers vs. U.S. Internet Users
Single/Other Married
59%
Online Buyers
41%
61%
Internet Users
39%
0% 10% 20% 30% 40% 50% 60% 70%
Source: Ernst & Young, 2001; Mediamark Research, Spring 2001

1.12 Primary Types Of Online Consumers

Percent of online shoppers/buyers
Netizens
Cherry Pickers
15%
26%
Variety
Seekers
16%
Brand Reliants
Time Savers 22%
21%
Source: Accenture, 2001
The population of online shoppers and buyers fall neatly into five distinct
segments, according to Accenture, with each defined by a unique set of
purchasing needs and preferences. The company has identified the following
groups and their respective characteristics:
• Cherry Pickers -- Bargain hunters who want a wide selection of brands and
a diversity of products but consider pricing the highest priority in their
shopping decisions. Cherry Pickers have little in common with each other
beyond their shopping preferences, however, the segment skews somewhat
towards the young -- 47% are younger than 35 -- and the educated -- 42%
are college graduates, which is higher than any other segment.
• Brand Reliants -- These individuals value competitive pricing but are equally
concerned with brand reputation and the privacy of their personal information.
• Time Savers -- The Time Saver considers speed and convenience most
important in making their shopping decisions. They will gravitate toward
websites that are fast, functional, and easy to use; the relative weighting of
these particular performance measurements are collectively almost three
times more important to them than pricing.
• Variety Seekers -- The Internet’s shoppers and browsers, they want a
comprehensive selection of reputable brands, broad product selection, and
customized offerings along with fast-loading pages. Among Variety Seekers,
pricing does not even make their top 10 list of considerations.
• Netizens -- These individuals are at home on the Internet, but also aware of
the risks in cyberspace so the security of their personal information is
paramount, followed by website speed and quality. Although pricing is among
the top 10 concerns of Netizens, it ranks down the list in eighth place.

1.13 Top Concerns Of Online Consumers By Segment

Relative importance among each consumer segment
Cherry Pickers Brand Reliants Time Savers

Variety Seekers Netizens
97
79
Price Level 133
144
167
105
123
Brand Selection 75
86
126
104
121
Category Breadth 76
90
122
95
116
Brand Reputation 124
142
116
139
Customer Information 99
78
Privacy 143
113
116
108
Site Speed 130
103
106
101
106
Site Functionality 125
82
100
113
101
Interactive Experience 87
78
89
96
89
Site Ease Of Use 117
76
81
71
105
Brand Familiarity 74
126
81
94
Online/Offline 99
112
Integration 86
74
110
80
Site Personalization 78
67
72
60
75
Online/Offline Presence 90
78
53
0 50 100 150 200


Section II.
Online Consumer
Activities

The majority (61%) of online buyers complete no more than a few purchases
per year, according to the Gallup Organization. Surveys by the UCLA Internet
Project in May and July 2001 found that the average anticipated number of online
purchases for 2001 was 12. The UCLA surveys also found that Internet users
who had been online for five or more years expected to make 5-times more
purchases during the year -- an average of 20 online purchases -- than users who
had been online less than one year. These newer Internet users expected to
make an average of four online purchases during the same time period.
2.01 How Frequently U.S. Consumers Buy Online

Percent of adults in each group
As A Share Of All Internet Users As A Share Of Online Buyers Only

80%
60%
60%
43%
40%
23%
17% 18%
20%
8% 9% 7%
3% 3% 5% 3% 1% N/A
0%
Once A Several Few Times About Less Often No Never
Week Times A A Year Once A Response
Month Year
Source: Gallup Organization, 4/2001
2.02 Number Of Online Purchases Completed

Percent of Internet users purchasing online between 9/2000 and 2/2001
1 To 2
None 17%
12%
More Than 25
8%
3 To 5
26%
11 To 25
15%
6 To 10
22%
Source: Arthur Andersen, 3/2001

2.03 Number Of Online Purchases By Tenure

Percent of online buyers in each group
New Users (<1 year online) Very Experienced Users (5+ years online)
100%
94.7%
80%
68.6%
60%
40%
16.0%
20% 12.1%
5.3%
0.0% 0.0% 3.1%
0%
1 To 10 11 To 20 21 To 50 51+
Source: UCLA Internet Report, 7/2001
2.04 Annual Spending Among Online Buyers By Tenure

Percent of Internet users in each group
New Users (<1 year online) Very Experienced Users (5+ years online)
100%
79.1%
80%
60%
37.1%
27.3%
40%
19.0%
11.2%
8.0%
5.3%
4.1%
3.3%
20% 3.5%
1.1%
0.9%
0%
$0 $1 To $100 $101 To $201 To $301 To >$400
$200 $300 $400

More than three-quarters of all online buyers spend an average of less than
$100 per month on their purchases, according to estimates from Accenture,
Arthur Andersen, and the UCLA Internet Project. The UCLA surveys also found
that the amount spent by online buyers increases along with the amount of time
they’ve used the Internet (see 2.04).
Gartner Group has found that a significant variation in the amount spent online
also exists between age groups. The company estimates that buyers over 55
years old spent an average of $92 per month online during the first-quarter of
2001 compared to only $40 for buyers between 18 and 24 years old.
A survey of J.C. Penney shoppers conducted in 2001 by IBM found that the
average online purchase through the retailer’s website was $500 while the
average transaction in its department stores was $122. Individuals who shopped
through both the company’s website and the department stores spent an average
of $1,000.
2.05 Spending For Online Purchases

Percent of Internet users purchasing online between 9/2000 and 2/2001
No Purchases
13% Less Than $25
5%
More Than $25 To $49

$500 8%
23%
$50 To $99
12%
$100 To $499
39%
Source: Arthur Andersen, 3/2001
2.06 Spending For Online Purchases

More Than
$250 Per Month
Less Than $100
6%
Per Month
79%
$100 To $249
Per Month
15%

Generally speaking, the longer an individual has been using the Internet, the
more likely he or she is to purchase online. Gartner Group reports that less than
one-third of the individuals who started using the Internet during 2000 or 2001
had purchased anything online by mid-2001. Among Internet users who have
been online for four or more years, 62% were online buyers. The highest
penetration of online buying activity (65-66%) was among 25 to 34 year olds and
35 to 54 year olds who have been online since 1997 or earlier.
2.07 Tenure Of U.S. Online Buyers

Percent of Internet users in each tenure group buying online during Q2-2001
80%
62%
60%
51%
40%
40% 33%
24%
20%
0%
1997 Or 1998 1999 2000 2001
Before Year first used the Internet
2.08 Tenure Of U.S. Online Buyers By Age

Percent of Internet users in each tenure and age group buying online during Q2-2001
18 To 24 25 To 34 35 To 54 55 Or Older
80%
66%
65%
60%
57%
55%
51%
60%
45%
40%
40%
39%
38%
38%
37%
31%
40%
30%
29%
23%
21%
17%
15%
20%
0%
1997 Or Before 1998 1999 2000 2001
Year first used the Internet

Among individuals who shop online, more than one-half (57%) indicated that
they shopped at retail stores less frequently since going online, according to a
survey by Ernst & Young. The survey also found that an average of 59% of the
online purchases by these individuals would have otherwise been made from
traditional stores and catalogs. Almost one-third (30%) preferred to shop at
websites of companies that also have a physical presence. Only 38% of online
buyers in the survey, however, were likely to shop online but purchase through
another channel.
A November 2001 survey by the Yankee Group found that 46% of U.S. Internet
users go online at least weekly to gather information about products they are
considering buying. The UCLA Internet Project reports that 65% of its respondents
have shopped online and then purchased the product(s) in a local store. Between
2000 and 2001, the number of Internet users who frequently shopped online and
purchased offline increased from 16% to 23% while the number doing so
occasionally declined from 59% in 2000 to 42% in 2001. Trade association
Shop.org reports that among the online shoppers it surveyed in mid-2001 who
patronized so-called tri-channel retailers, 34% had completed purchases through all
three of the retailer’s sales channels -- physical stores, online, and mail order
catalogs.
2.09 Where U.S. Consumers Shop

Percent of adults in the U.S.
Women Men
89%
Malls/Dept. Stores
89%
33%
Catalogs
44%
30%
Internet
28%
7%
TV/Home Shopping
9%
0% 20% 40% 60% 80% 100%

Source: Gallup Organization, 4/2001
2.10 How U.S. Internet Users Use The Web To Shop

Percent of Internet users
Shop Online, 40%

Purchase Online
Shop Online,
51%
Purchase Offline
Shop Offline,
9%
Purchase Online
0% 10% 20% 30% 40% 50% 60%

Source: NPD Online Research, 5/2001

Ninety-two percent of Internet users use the Web to shop either for or
purchase products and services, according to NPD Online Research. The
company also reports that those individuals who aren’t actually purchasing online
are nevertheless still influenced by what they see on retailers’ websites.
Retailers who simply measure online sales overlook the full benefit of a web
presence. Among occasional buyers -- those who have made only one or fewer
online purchases during the last six months -- 84% use the Internet to shop online
but they most frequently make their purchase offline.
2.11 How U.S. Consumers Gather Product Information

Always Use Use Often Use Sometimes Never Use
8%
Browse Retail 36%
Website 39%
17%
29%
Use Online Price 34%
Comparison Tools 22%
15%
4%
Browse At Store Or 39%
Mall 36%
21%
6%
33%
Newspaper Ads 40%
21%
6%
46%
Word Of Mouth 39%
9%
0% 20% 40% 60%

Source: Know ledge Systems & Research, 5/2001
2.12 Seven Factors For Success In Online Retailing
The Yankee Group laid out in a March 2001 research report what they believed to
be the principal factors for success in online retailing. These factors include:
1. Selling goods at sufficient gross margins to sustain a profitable business

model
2. Offering online consumers a convincing and compelling value proposition
3. Ensuring customer acquisition costs are in line with average sales amounts
4. Providing customers with a user-friendly Web experience that engages
visitors
5. Achieving significant visitor traffic while simultaneously managing high
conversion rates
6. Managing cost-effective and efficient product fulfillment
7. Providing impeccable customer support through multiple touch points

Gartner Group reports that brand value and past experience play a significant
role in Internet users’ choices about which sites they decide to patronize. The
company’s research has found that 59% of online buyers typically limit their
purchases to only a handful of sites that they find familiar and comfortable.
If Internet users are unsure about which website to visit when shopping online,
typing the desired product name into a search engine is the most frequently
mentioned method for determining where to go. Search engines and e-mail are
also the most common means of learning about new websites.
2.13 How U.S. Internet Users Learn About Websites

Search Engine 73.4%
E-mail Message 72.8%
Word Of Mouth 53.0%
Banner Ad 48.3%
Print Article 43.2%
TV Commercial 41.4%
Magazine Ad 37.5%
Radio Ad 19.8%
0% 20% 40% 60% 80% 100%

Source: Forrester Research, 3/2001
2.14 How U.S. Internet Users Search For Products Online

Type Product Name Into Search Engine 28%
Go Straight To Store URL 23%
Type Brand Name Into Search Engine 9%
Type Store Name Into Search Engine 5%
Go To Shopping Channel Of Search

5%
Engine
0% 10% 20% 30% 40% 50%
Source: Jupiter Media Metrix, 7/2001

Most online buyers do very little cross-shopping between multiple sites,

according to Jupiter Media Metrix, which reports that many simply prefer to return
to the same sites they have done business with in the past. More than 80% of
online buyers complete their purchases at the first site they visit when shopping
for books, toys or music. Shoppers interested in computer- and travel-related
purchases are the most likely to visit competing sites before making a final
decision.
A May 2001 survey of Internet users by Knowledge Systems & Research
found that more than half (56%) of Internet users go directly to a specific website
when they are shopping online while only one-third (32%) typically start out at a
portal or search engine.
2.15 How Online Shoppers Get To Websites

Go Directly To
Don't Shop Online Store
Online 56%
12%
Begin At Online
Mall, Portal, Or
Search Engine
32%
2.16 Internet Users Purchasing At The First Site Visited

100%
89%
84% 81%
80% 76%
65%
60% 55%
40%
20%
0%
Books Toys Music Electronics Computers Travel
Source: Jupiter Media Metrix, 2001

The value of a multi-channel strategy is illustrated in the results of a March

2001 survey by Knowledge Systems & Research which found that 39% of U.S.
Internet users have gone online to identify an item to purchase and then visited a
brick-and-mortar store to make the actual purchase. One-in-ten have also
returned a purchase made online to a store or outlet.
The importance of call center capabilities are underscored by the one-third of
Internet users in the survey who have used the telephone at least occasionally to
either ask product-related questions, confirm that an online purchase has been
correctly processed, or place an actual order based on product information from
the company website.
2.17 Multi-Channel Online Shopping Activities Of U.S. Internet Users

Browsed online to determine what to

purchase then visited stores to make 39%
purchases
Telephoned customer service agent to ask

question about product considered 33%
purchasing online
Browsed online to determine what to

32%
purchase then called to make purchases
Telephoned customer service agent to

confirm an online transaction was 31%
processed correctly
Returned a purchase made online through

20%
the mail
Cancelled a purchase made online

13%
through a phone call
Returned a purchase made online to a

store or outlet
10%
None of the above 25%
0% 20% 40% 60%

Section III.
E-commerce Market Size
and Composition

3.01 U.S. Online Retail Sales Estimates (2001)

Billions of dollars
Giga Information (high) $107.8
IDC $81.4
Giga Information (low) $72.7
Boston Consulting Group $65.0
Forrester Research $65.0
Yankee Group $57.2
Robertson Stephens $57.0
Gartner Group (1) $48.7
CyberDialogue $41.0
Dataquest $39.3
BizRate.com $38.1
Jupiter Media Metrix (2) $34.0
$0 $30 $60 $90 $120 $150
1) Estimate for North America. 2) Excludes travel, autos and prescription drugs
Source: As noted, 2/2001-9/2001
3.02 Total U.S. Consumer Internet Commerce (1999-2006)

Billions of dollars, excluding travel, autos and prescription drugs
$200
$150 $130.3
$104.4
$100 $82.9
$63.9
$47.8
$50 $34.1
$24.1
$12.3
$0
1999 2000 2001 2002 2003 2004 2005 2006
Estimates of U.S. online retail sales for 2001 range from $34 billion -- a
forecast that does not include travel expenditures and online auto sales, which we
would estimate at approximately $15 billion -- and $38 billion on the low end to
$108 billion on the high end. Estimates of online retail sales worldwide range
from $49 billion on the low end to $494 billion on the high end (see 3.03).
Jupiter Media Metrix predicts that online retail sales in the U.S. will grow by

approximately 40% per year in 2001 and 2002, which is down from about 100%
from 1999 to 2000. By 2005, the company expects the annual growth rate will
slow further to approximately 25%.
3.03 Total Worldwide Consumer Internet Commerce (2000-2004)

Billions of dollars
Source 2000 2001 2002 2003 2004

Ovum $29 bn $49 bn $81 bn $133 bn $219 bn
Forrester Research $53 bn $96 bn $169 bn $284 bn $452 bn
IDC $59 bn -- -- $213 bn --
Gartner Group -- -- -- $380 bn --
Merrill Lynch $218 bn $398 bn $734 bn $1,317 bn --
Goldman Sachs $238 bn $494 bn $870 bn $1,392 bn $2,134 bn
Source: As noted, 2000, 2001
Almost one-in-four mobile wireless Internet users in the U.S. have completed
at least one purchase using a wireless device, according to Telephia. A five-
country survey by Accenture found that mobile wireless users in the U.S. were the
least likely to have Internet access, but they were the most likely to have made an
online purchase, with 12% having done so, followed by Germany (9%), Japan
(7%), the U.K. (6%), and Finland (5%). Forrester Research, however, reports
that less than one-in-ten (8%) users are comfortable with conducting wireless
transactions and 86% are either somewhat uncomfortable or not at all
comfortable.
3.04 U.S. Mobile Commerce Revenues (2000-2005)

Billions of dollars
Paid Content
$0.5 bn
$5
Advertising
$0.7 bn
$4
$3.3
$3
Shopping
$2 $1.7 $2.1 bn
$1 $0.6
$0.1 $0.2
$0.0
$0
2000 2001 2002 2003 2004 2005
Total m-commerce revenues worldwide during 2000 were estimated at less

than $450 million, according to Jupiter Media Metrix. Japan accounted for
approximately $400 million of that activity, followed by Europe ($15 million) and
the U.S. ($10 million). Jupiter predicts that global m-commerce activity will reach
$1.5 billion in 2001 and $14.5 billion by 2004. In 2005, the company predicts that
$22.2 billion in m-commerce revenues will come from shopping ($10.8 billion),
paid content ($8.0 billion), and advertising ($3.3 billion). Forecasts by IDC predict
a faster growth rate from a lower starting point, with global m-commerce

revenues reaching $1.0 billion during 2001 and expanding to $20.8 billion in 2004.
Ovum comes in on the high end of m-commerce forecasts, predicting almost $70
billion in global revenues in 2005.
M-commerce revenues in North America are expected to lag significantly
behind those in Europe and Asia. Jupiter predicts that revenues in the U.S. will
increase from approximately $10 million in 2000 to $3.3 billion in 2005. In 2005,
the company expects shopping to account for $2.1 billion in revenue followed by
advertising ($0.7 billion) and paid content ($0.5 billion).
3.05 Quarterly Estimated U.S. Online Retail Sales

Billions of dollars, including auction fees and commissions
Q3-2001 $7.472
Q2-2001 $7.458
Q1-2001 $7.592
Q4-2000 $8.881
Q3-2000 $6.898
Q2-2000 $5.982
Q1-2000 $5.526
Q4-1999 $5.266
$0.0 $2.0 $4.0 $6.0 $8.0 $10.0
Source: U.S. Census Bureau, Economics & Statistics Administration, 11/2001
3.06 Online Retail Sales Share Of Total U.S. Retail Sales

Percent of total retail sales during each period
Q3-2001 0.95%
Q2-2001 0.92%
Q1-2001 1.04%
Q4-2000 1.09%
Q3-2000 0.89%
Q2-2000 0.77%
Q1-2000 0.77%
Q4-1999 0.67%
0.0% 0.4% 0.8% 1.2% 1.6% 2.0%

The U.S. Department of Commerce began tracking online retail sales in late
1999. The estimates are based on monthly surveys of approximately 11,000 retail
establishments in the U.S., excluding travel and ticketing agencies and financial

services. Since the fourth-quarter of 1999, the Department of Commerce

estimates that consumer e-commerce has grown from 0.67% of total retail sales to
approximately 1%.
Total U.S. retail sales -- both online and offline -- during the first 10 months of
2001 were $1.86 trillion, which is up 2.7% from the comparable period in 2000,
according to the Department of Commerce. Total retail sales for the entire 2000
calendar year were $2.25 trillion.
The slowest months for retail sales activity in 2000 and 2001 were January and
February. The busiest months during 2000 were, not surprisingly, November and
December.
3.07 U.S. Retail Sales By Month (2000/2001)

Billions of dollars, excluding auto sales and parts (not seasonally adjusted)
2000 2001
$170.59
January
$158.69
$166.18
February
$164.73
$186.60
March
$183.88
$186.06
April
$178.78
$198.79
May
$190.75
$192.12
June
$187.87
$187.43
July
$182.89
$198.88
August
$191.65
$180.53
September
$183.23
$191.34
October
$186.55
N/A
November
$198.71
N/A
December
$243.26
$0 $50 $100 $150 $200 $250 $300

Data from both Forrester Research and Nielsen/NetRatings indicate that

month-to-month fluctuations in online retail sales track the fluctuations in overall
retail sales with a reasonably high degree of correlation. Between September
2000 and September 2001, January and February were the slowest months for
online retail sales while November and December were generally the busiest.
3.08 U.S. Online Retail Sales By Month (9/2000-9/2001)

Millions of dollars
Forrester Research Nielsen/NetRatings
$3,086
Sep. 2000
$4,221
$3,703
Oct. 2000 $4,212
$4,788
Nov. 2000 $6,394
$7,223
Dec. 2000 $6,165
$3,780
Jan. 2001
$3,044
$3,390
Feb. 2001
$3,358
$3,517
Mar. 2001 $3,512
$4,489
Apr. 2001 $4,286
$5,383
May 2001 $3,928
$5,299
Jun. 2001
$3,208
$4,932
Jul. 2001
$3,979
$5,562
Aug. 2001 $4,043
$4,743
Sep.2001 $3,971
$4,600
Oct. 2001 $3,634
$5,300
Nov. 2001
$4,931
$0 $2,000 $4,000 $6,000 $8,000 $10,000

The average amount spent by households shopping online increased steadily

during each of the first five months of 2001 -- both in month-to-month terms and
relative to the comparable periods in 2000 -- however, monthly spending levels
after May 2001 have lagged behind the levels in 2000, with sole the exception of
a slight increase (2.4%) in November.
Over the first ten months of 2001, the average amount spent per month by
households buying online was $259. The average for the same period in 2000
was $251 and $259 for the entire 2000 calendar year.
3.09 Average U.S. Online Spending Per Household Per Month

(2000/2001)
Dollars per household across 25 categories
2001 2000
$202.59
January
$228.88
$178.20
February
$247.89
$228.92
March $263.07
$256.18
April
$273.18
$249.29
May
$265.13
$288.20
June
$246.62
$290.01
July $270.27
$280.41
August
$272.69
$272.42
September
$261.66
$268.33
October
$264.86
$285.34
November $292.28
$308.34
December
N/A
$0 $100 $200 $300 $400
Source: Forrester Research

The number of online buyers per month has grown by less than 10% during
the first nine months of 2001, according to data from both Nielsen/NetRatings and
Forrester Research. Over the course of 2001, estimates of the number of online
buyers from both companies have tracked very closely with each other.
3.10 U.S. Online Buyers By Month (9/2000-9/2001)

Millions of buyers
Forrester Research (1) Nielsen/NetRatings
30.9
Sep. 2000
40.1
30.9
Oct. 2000 41.4
31.9
Nov. 2000 57.0
36.1
Dec. 2000
51.8
37.8
Jan. 2001 34.4
33.9
Feb. 2001
35.0
35.2
Mar. 2001
35.0
35.9
Apr. 2001 40.4
35.9
May 2001
38.3
35.3
Jun. 2001
33.9
35.2
Jul. 2001
38.1
37.1
Aug. 2001 38.3
38.6
Sep.2001 39.4
0 20 40 60 80
(1) Based on estimated number of households buying online during period

Travel expenditures accounted for almost one-third (31%) of all online retail
spending during the first 10 months of 2001, according to Forrester Research.
Outside of the travel sector, the next-largest consumer categories for online
spending were computer hardware -- accounting for almost one-in-ten of all
dollars spent -- apparel, and consumer electronics. The smallest consumer
categories among online buyers are garden supplies, appliances, tools and
hardware, and small appliances.
3.11 Breakdown Of U.S. Online Retail Spending By Category (2001)

Percent of total online retail expenditures between January and October 2001
Software 3.28%
Books 4.16%
Music 3.19%
Videos 2.35%
Office Supplies 2.75%
Apparel 6.35%
Footwear 1.66%
Jewelry 2.33%
Flowers 1.43%
Linens & Home Décor 1.94%
Health & Beauty 3.14%
Small Appliances 1.23%
Toys/Video Games 3.03%
Sporting Goods 1.85%

Tools & Hardware 1.13%
Garden Supplies 0.73%
Computer Hardware 9.33%
Consumer Electronics 5.00%
Appliances 0.80%
Furniture 1.32%
Food & Beverages 2.65%
Air Tickets 16.96%
Car Rental 4.29%
Hotel Reservations 9.65%
Other 9.44%
0% 5% 10% 15% 20%

During the first 10 months of 2001, online retail sales of so-called small-ticket
items actually declined across more than one-half of the product categories
tracked by Forrester Research when measured against the comparable period in
2000. The only categories which have shown year-over-year growth for the
January to October period are apparel, footwear, jewelry, linens/home décor
items, small appliances, and sporting goods. The fastest growth occurred in the
sales of apparel and footwear, which expanded by 29% and 25% respectively.
The largest declines took place in the sales of software and books which each fell
by 16% between 2000 and 2001.
3.12 U.S. Online Retail Spending By Category: Small Ticket Items

(2000/2001)
Millions of dollars
Jan.-Oct. 2001 Jan.-Oct. 2000
$1,446.02
Software $1,211.65
$1,818.82
Books $1,536.57
$1,326.35
Music $1,180.49
$911.10
Videos $868.95
$1,186.30
Office Supplies $1,018.18
$1,821.83
Apparel $2,347.27
$493.80
Footwear $614.90
Jewelry $716.18
$860.58
$528.32
Flowers $528.68
$622.34
Linens & Home Décor $715.26
$1,294.58
Health & Beauty $1,160.78
$445.13
Small Appliances $455.79
$1,223.38
Toys/Video Games $1,118.45
$610.99
Sporting Goods $684.56
$444.90
Tools & Hardware (1) $417.48
Garden Supplies (1) $181.46

$269.02
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
Prior ro May 2000, Garden category w as included in Tools & Hardw are

3.13 Average U.S. Online Spending Per Household: Small Ticket

Items (2000/2001)
Dollars per household
October 2001 October 2000
$42.02
Software
$43.34
$33.83
Books
$38.58
$30.29
Music
$33.42
$35.97
Videos $31.09
$53.01
Office Supplies $57.30
$64.76
Apparel
$69.69
$60.79
Footwear
$65.92
$63.57
Jewelry
$82.04
$47.82
Flowers $59.20
$70.04
Linens & Home Décor $62.98
$37.04
Health & Beauty $39.94
$60.05
Small Appliances
$73.22
$51.96
Toys/Video Games
$49.97
$73.43
Sporting Goods $72.28
$61.58
Tools & Hardware $77.29
$50.83
Garden Supplies $58.26
$0 $20 $40 $60 $80 $100
Jewelry, tools/hardware, and small appliances were the small ticket product
categories in which households that shopped online during October 2001 spent
the most money, according to Forrester Research. Two of these three product
categories also showed the most growth over the previous year, with the average
amount spent on jewelry increasing to $82.04 in October 2001, or 29% higher
than October 2000, and spending for tools/hardware increased 26% to $77.29 per
household in October 2001.
Among big ticket items, travel-related expenditures accounted for 35% of total
online spending during the first ten months of 2001, down slightly from 38% for
the comparable period in 2000. Outside of the travel sector, computer hardware
and consumer electronics were the largest big ticket product categories in
revenue terms, accounting for 10% and 7.4% of total big ticket spending
respectively.

3.14 U.S. Online Retail Spending By Category: Big-Ticket Items

(2000/2001)
Millions of dollars
Jan.-Oct. 2001 Jan.-Oct. 2000
$3,289.45
Computer Hardware $3,448.42
$1,770.24
Consumer Electronics
$1,849.83
$234.92
Appliances $295.51
$415.68
Furniture
$486.09
$1,236.38
Food & Beverages $981.12
$5,758.48
Air Tickets $6,270.57
$1,491.48
Car Rental $1,585.64
$3,121.41
Hotel Reservations $3,567.60
$3,336.03
Other $3,489.93
$0 $2,000 $4,000 $6,000 $8,000 $10,000
3.15 Average U.S. Online Spending Per Household: Big Ticket Items
(2000/2001)
Dollars per household
October 2001 October 2000
$191.78
Computer Hardware
$188.80
$138.82
Consumer Electronics
$140.72
$451.90
Appliances
$531.93
$243.02
Furniture
$193.16
$74.89
Food & Beverages
$80.26
$330.71
Air Tickets
$285.53
$186.53
Car Rental
$173.03
$228.84
Hotel Reservations
$197.93
$105.27
Other
$105.30
$0 $200 $400 $600 $800


3.16 U.S. Online Retail Spending: Top Categories (Q3-2000/Q3-2001)

Thousands of dollars
September August July Total Q3- Total Q3-

Category 2001 2001 2001 2001 2000
Air Tickets $575,261 $742,574 $746,170 $2,064,005 $2,099,781
Hotel Reservations $342,403 $458,372 $445,186 $1,245,961 $1,181,519
Computer Hardware $400,217 $353,960 $335,784 $1,089,961 $1,123,747
Apparel $288,420 $262,642 $224,743 $775,805 $611,591
Books $183,288 $202,494 $151,561 $537,343 $607,437
Total $1,789,589 $2,020,042 $1,903,444 $5,713,075 $5,624,075
Total across all 25
categories $3,970,632 $4,043,396 $3,978,713 $11,999,741 $12,469,956
Source: Forrester Research, 2001
3.17 U.S. Online Retail Spending Comparison: Top Categories

Millions of dollars
Q3- 2001 Q3 -2000

Forrester Nielsen/ Forrester Nielsen/
Category Research NetRatings Research NetRatings
Travel Services -- $4,258 -- $2,788
Air Tickets $2,064 -- $2,100 --
Hotel Reservations $1,246 -- $1,182 --
Computer Hardware $1,090 $1,137 $1,124 $928
Clothing/Apparel (1) $1.002 $1,482 $778 $839
Auctions -- $1,215 -- $626
Books $798 $537 $447 $607
(1) Estimates from Forrester Research include apparel and footwear. Source: As noted
The top five product categories -- both in terms of online sales and market
penetration among online buyers -- are books, travel, clothing/apparel, and
music/videos/DVDs. Books, clothing/apparel, and music CDs are also the most
frequently purchased items among repeat online buyers, according to Taylor
Nelson Sofres (see 3.20).
3.18 U.S. Online Buying Penetration By Product Category

Percent of online buyers who have ever purchased in each category
Books 52%
Computers And Related Products 49%
Music/CDs 49%
Apparel 37%
Travel 29%
Toys 28%
Consumer Electronics 28%
Videos 27%
Health & Beauty 25%
0% 10% 20% 30% 40% 50% 60%

Source: Ernst & Young, 2001

The UCLA Internet Project has found that the market penetration of different
product categories varies among online buyers depending on the amount of time
they have used the Internet. Much of the difference may be attributable to the
technical orientation of many early Internet users. For example, the market
penetration rate for computer hardware is four times higher among online buyers
with five or more years of Internet experience than it is among those who have
been online less than one year (17.2% vs. 4.5%). Veteran Internet users are also
more likely than new users to purchase books, electronics, and make travel
arrangements online, according to UCLA. Online buyers with less than one year
of Internet experience were more likely than veterans to purchase personal items,
such as children’s goods, sporting goods, hobby items. jewelry, and prescription
drugs.
3.19 U.S. Online Buying Penetration By Product Category And

User Tenure
Percent of online buyers from each group who have ever purchased in each category
Very Experienced Users (5+ years online)

New Users (<1 year online)
40.8%
Books
10.9%
36.6%
Clothes
35.6%
24.7%
Music CDs
23.0%
20.7%
Travel
11.6%
Computers / 17.2%
Peripherals 4.5%
15.8%
Software / Games
3.0%
14.7%
Gifts
14.5%
14.6%
Electronics
4.2%
8.8%
Children's Goods
16.8%
8.4%
Sporting Goods
10.7%
5.9%
Hobby Items
7.5%
3.8%
Jewelry / Watches
6.6%
2.6%
Drugs
5.0%
0% 10% 20% 30% 40% 50%

3.20 Types Of Online Purchases By U.S. Internet Users

Percent of Internet users purchasing within category during past month (March/April 2001)
Books 24%
Clothes 24%
Music/CDs 19%
Furniture/Furnishings 14%
PC Hardware 13%
Toys/Games 12%
PC Software 11%
Leisure Travel 10%
Business Travel 8%
Movie/Theater Tickets 9%
Food/Groceries 8%
Sports Equipment 8%
Electronics 8%
Videos 6%
Stocks/Mutual Funds 5%
Jewelry 5%
Cosmetics 2%
Cars 2%
Other 18%
0% 5% 10% 15% 20% 25% 30%
Source: Taylor Nelson Sofres, 4/2001
3.21 Types Of Online Purchases By U.S. Teens

Percent of teenage online buyers from each gender group
Boys Girls
100%
80% 75%
60% 52%
40% 43%
40% 36%
23% 26%
18% 21%
20%
7% 8% 5%
0%
Clothing Shoes Film Software Stereo Video
Equipment Games
Source: Harris Interactive, 2000

3.22 Estimated Revenue Mix For Amazon.com (Q4-2000)

Percent of $972 million total Q4-2000 revenue
Books 35%
Electronics 20%
Music 15%
Video 14%
DVD 4%
Software 3%
Computer/Video Games 3%
Toys & Games 2%
Tools & Hardware 1%
Lawn & Patio 1%
Kitchen Products 1%
Camera & Photo 1%
0% 10% 20% 30% 40% 50%
Source: Morgan Stanley, 2001
3.23 Estimated Revenue Mix For eBay (Q4-2000)

Percent of 79 million total Q4-2000 online auctions hosted
Collectibles 22%
Sports 14%
Automotive 10%
Antiques 8%
Books, Movies, Music 7%
Jewelry, Gemstones 6%
Photo & Electronics 6%
Computers 5%
Pottery & Glass 5%
Toys, Bean Bag Plush 4%
Coins & Stamps 2%
Dolls, Figures 1%
Everything Else 10%
0% 5% 10% 15% 20% 25%
Source: Morgan Stanley, 2001

Amazon.com and eBay are clearly the dominant players in the online retailing
space. The two companies together account for almost one-third (30%) of all
online retail transactions, according to Nielsen/NetRatings, and individually almost
four times more transactions than the next closest competitor. In the online
auction market space, Nielsen/NetRatings estimates that eBay accounts for
almost two-thirds (64%) of all revenues generated or more than 4-1/2 times its
closest competitor, uBid.com.
3.24 U.S. Retail Auction Site Market Share (By Revenue)

Percent of all online auction revenues during May 2001
eBay.com 64.3%
uBid.com 14.7%
Egghead.com 4.0%
Yahoo! Auctions 2.4%
.
Amazon Auctions 2.0%
0% 10% 20% 30% 40% 50% 60% 70% 80%

3.25 U.S. Retail E-commerce Site Market Share (By Purchases)

Percent of all online buyers during March 2001
Amazon.com 15.1%
eBay.com (1) 14.5%
BMG.com 4.3%
BarnesandNoble.com 3.8%
ColumbiaHouse.com 3.7%
Half.com 3.1%
JCPenney.com 3.0%
Travelocity.com 2.5%
CDnow.com 2.2%
Southwest.com 2.0%
0% 5% 10% 15% 20%

(1) Does not include Half.com activity

The online storefronts of leading offline retailers have steadily picked-up

ground on many of their pure-play Internet counterparts since 2000, according to
Jupiter Media Metrix. Among the top 50 retail websites, Jupiter estimates that
click-and-mortar retailers such as Wal-Mart and J.C. Penney collectively attracted
about one-half as many visitors as their pure-play Internet counterparts during
March 2000. By March 2001, the situation had completely reversed and offline
retailers accounted for 56% of all traffic among the top 50 retail sites while pure-
play retailers attracted only 44% of the visitor traffic.
3.26 Online Market Share Of Top Internet And Click-And-Mortar

Retailers (2000/2001)
Percent of top 50 retail sites ranked by traffic
Click-and-Mortar Retailers Internet-Only Retailers
44%
March 2001
56%
50%
September 2000
50%
62%
March 2000
38%
0% 10% 20% 30% 40% 50% 60% 70%

Six of the ten leading websites -- in terms of their relative Buying Power Index
(BPI) ratings -- are in the travel sector and the balance are shopping sites
serving both consumers and businesses. The BPI is calculated by comScore
Networks and it measures the total dollars spent online by the average member
of a site’s audience, indexed to the total online dollars spent by the average
Internet user. For example, a BPI of 200 would mean the average visitor to that
site spends twice as much online as the average Internet user.
3.27 Leading Websites By Buying Power Index Rating

Top 10 websites with the highest comScore Buying Power Index ratings
Buying Power Unique

Index Visitors
Website (May 2001) (May 2001) Type Of Site
Hertz.com 874 1,138,000 Travel
Staples.com 770 1,834,000 Shopping
BizRate.com 748 5,882,000 Shopping
BassHotels.com 686 1,059,000 Travel
Delta.com 668 2,555,000 Travel
Newport-News.com 660 1,075,000 Shopping
Hilton.com 649 930,000 Travel
Budget.com 635 949,000 Travel
Southwest.com 598 3,978,000 Travel
OfficeDepot.com 579 2,341,000 Shopping
Source: comScore Networks, 6/2001

3.28 Leading Shopping Sites By Buying Power Index Rating

Top 10 online shopping sites with the highest comScore Buying Power Index ratings
Buying Power Unique

Index Visitors
Staples.com 770 1,834,000 Shopping
BizRate.com 748 5,882,000 Shopping
Newport-News.com 660 1,075,000 Shopping
OfficeDepot.com 579 2,341,000 Shopping
Dell.com 557 4,304,000 Shopping
Egghead.com 531 1,470,000 Shopping
UrbanG.com 508 1,108,000 Shopping
Buy.com 467 2,452,000 Shopping
CompUSA.com 466 984,000 Shopping
NECXdirect.com 460 1,115,000 Shopping
3.29 Leading Portals By Buying Power Index Rating

Top 10 portals with the highest comScore Buying Power Index ratings
Buying Power Unique

Index Visitors
AltaVista.com 143 15,115,000 Portal
Excite.com 142 20,106,000 Portal
Juno.com 142 5,132,000 Portal
Netscape.com 140 33,063,000 Portal
NBCi.com 140 19,566,000 Portal
AOL.com 140 61,507,000 Portal
Go2Net.com 139 8,458,000 Portal
Lycos.com 133 29,717,000 Portal
Yahoo.com 125 90,438,000 Portal
MSN.com 123 85,944,000 Portal
3.30 Leading Community Sites By Buying Power Index Rating

Top 10 community sites with the highest comScore Buying Power Index ratings
Buying Power Unique

Index Visitors
PsychicRealm.com 286 947,000 Community
Genealogy.com 257 1,515,000 Community
ThirdAge.com 232 1,192,000 Community
ePinions.com 201 3,166,000 Community
RootsWeb.com 193 2,279,000 Community
Esquire.com 182 971,000 Community
Crosswalk.com 177 1,016,000 Community
iVillage.com 172 6,657,000 Community
Oxygen.com 165 5,022,000 Community
HighSchoolAlumni.com 164 1,114,000 Community

Section IV.
Online Merchandising and
Customer Service

The cost of acquiring new online customers has declined steadily since 1999,
according to Boston Consulting Group and Shop.org. Among 79 online retailers
surveyed by the organizations, the average cost to acquire a new customer
declined by 60% between Q1-2000 and Q1-2001, from $45.00 to $18.00 each.
Customer acquisition costs have continued their decline throughout 2001,
according to both organizations, averaging just $12.00 during the third quarter.
During 2000, Boston Consulting Group also found a significant difference in
customer acquisition cost between companies operating in the various retail
channels, with Internet-only retailers spending 156% more than the overall
average while click-and-mortar retailers and catalog merchants spent 3% less
and 66% less than average respectively.
4.01 U.S. Online Retailer Customer Acquisition Cost (1999-2001)

Cost in dollars per new customer
$100
$80 $71.00
$60
$45.00
$40.00
$35.00
$40
$20.00 $23.00 $18.00
$20 $14.00 $12.00
$0
Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3-
1999 1999 2000 2000 2000 2000 2001 2001 2001
Source: Boston Consulting Group/Shop.org, 2001
4.02 U.S. Browser To Buyer Conversion Rate (1999-2001)

Percent of website visitors who place an order online
5.0%
4.0%
3.0% 2.6%
2.3% 2.3% 2.2%
1.9% 2.0%
2.0% 1.8%
1.5%
1.0%
0.0%
Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3-
1999 2000 2000 2000 2000 2001 2001 2001
Source: Boston Consulting Group/Shop.org, 2001

4.03 U.S. Auction Site Browser To Buyer Conversion Rate (2001)

Percent of website visitors who place an order online
eBay.com 22.5%
uBid.com 11.0%
Egghead.com 8.0%
Amazon Auctions 6.5%
Yahoo! Auctions 4.4%
0% 5% 10% 15% 20% 25% 30%

Nielsen/NetRatings, 5/2001
4.04 Incentives That Convert Online Shoppers Into Buyers

Not Important
Somewhat Important
Very Important
3%
Free Shipping 28%
69%
3%
Price Discounts 30%
67%
6%
Improved Product Selection 39%
55%
8%
Ability To Return Items To Retail Store 43%
49%
9%
Guaranteed Delivery Date 43%
48%
10%
Faster Delivery 46%
44%
15%
VIP Customer Service 48%
37%
24%
Contests, Prizes, Giveaways 47%
29%
24%
Loyalty/Rewards Programs 51%
25%
34%
Personalized Information 46%
20%
58%
Free Newsletters 31%
11%
0% 20% 40% 60% 80% 100%

4.05 Incentives That Convert New & Repeat Customers Into Buyers
Incentive/Feature New Customer Repeat Customer

Online Coupon 24% 37%
Free Shipping 32% 27%
Satisfaction Guarantee 14% 17%
Discounted Shipping 15% 15%
Product Guarantee 13% 13%
Price Guarantee 12% 12%
Rebate 7% 7%
Gift Certificate 7% 7%
Loyalty Program Rewards 5% 6%
Airline Miles 3% 3%
First-time Buyer Discount 13% 2%
Charitable Donations 1% 1%
Source: BizRate.com, 2000
Online coupons and free or discounted shipping are among the most effective
incentives for converting shoppers into buyers, according to a BizRate.com
survey conducted during 2000. Although guarantees on pricing, product, and
overall satisfaction were mentioned as effective incentives by only 12-17% of the
individuals surveyed by BizRate.com, 40% of the consumers surveyed by Jupiter
Media Metrix indicated that an efficient returns policy was an important motivator
and 37% said the same about “good customer service.” Loyalty programs served
as an incentive to buy among 22% of the Jupiter survey respondents but only 5-
6% of BizRate.com respondents.
PriceWaterhouseCoopers reports that a majority (77%) of Internet users have
used the search function on a website at least once while shopping online and
that most have been sufficiently satisfied with the results to use them on a regular
basis. In a ranking of the most important online shopping features, search
functionality was mentioned by 43% of online shoppers followed by product
information at 40%.
4.06 Website Features That Convert Online Shoppers To Buyers

Percent of online shoppers rating feature as increasing likelihood of purchasing
Close-up Product Images 44%
Product Availability 39%
Product Comparison Guides 34%
Search Function 30%
800-Number For Customer Service 25%
Product Reviews & Evaluations By

24%
Online Shoppers
0% 20% 40% 60%

Source: Pricew aterhouseCoopers, 1/2001

Most Internet users have little patience when it comes to navigating websites,
according to Knowledge Systems & Research, which found that 80% of the users
it surveyed in April 2001 would click a median of four times to find what they were
looking for before becoming frustrated. Once frustrated, only 13% bother to use
an online search function and 2% call customer service while 83% move on to
another site.
Generally speaking, however, Knowledge Systems & Research found that a
majority of Internet users think websites today are easier to navigate than one
year ago, with 58% indicating that they are somewhat easier to use and 25%
indicating that they are much easier to use. Only 2% of the users surveyed felt
that websites had generally become more difficult to navigate.
4.07 Top Website Attributes Among Internet Users

Percent of Internet users indicating attribute was very important in whether to return to site
Ease Of Use/Navigation 74%

Fast Download Times 65%
Regularly Updated Content 58%
Quality Of Content 57%
Organization Of Content 40%

Access To Customer Service 40%
Quantity Of Content 30%
On-site Search Engine 25%

Front Page Layout 20%
Fun 19%
Site Look And Feel 18%
0% 20% 40% 60% 80% 100%

4.08 Most Important Online Storefront Attributes

Percent of online shoppers rating each attribute as important
Convenience 77%
Product Selection 58%
Ease Of Use 58%
Speed 50%
Reliability 42%
Best Price 39%
Best Value 32%
Security 31%
0% 20% 40% 60% 80% 100%

Source: Odyssey, 2000

Convenience and site usability ranked high among online buyers surveyed by
Odyssey over a six-month period last year. Considerations related to security
and pricing among those same individuals, however, ranked noticeably lower
than among groups surveyed by Accenture and Knowledge Systems & Research
earlier this year. Gartner Group has also found that among Internet users who
have completed online purchases, 81% valued convenience -- including website
speed and usability -- while only 33% valued price savings.
Although price is rarely the most important consideration for most online
buyers, they are also not entirely disinterested in what they pay for their
purchases. A March 2001 survey of Internet users by Knowledge Systems &
Research found that 90% said pricing was a very important aspect of online
shopping and 10% said it was somewhat important while one-half (53%) said
convenience was very important and 45% said it was somewhat important.
4.09 Important Online Storefront Attributes

Very Important Somewhat Important Not Important
N/A
Price 10%
90%
2%
Product Selection 37%
61%
1%
Customer Service 40%
59%
2%
Convenience 45%
53%
Recognized Or 17%
61%
Known Retailer
22%
0% 20% 40% 60% 80% 100%

4.10 U.S. Internet Users’ Expectations For Merchandise Assortment

About The Same Number Of Products Plus

51%
Specials Not Available In Retail Store
About The Same Number Of Products As
21%
Retail Store
More Products Than Retail Store Or
18%
Catalog
Fewer Products Than Retail Store Or
8%
Catalog
Entirely Different Range Of Products 2%
0% 20% 40% 60% 80%


4.11 Top Online Storefront Attributes

Easy Order Processing 68%
Security Features 65%
Ease Of Use/Navigation 42%
Quantity Of Product Information 28%
Variety Of Products 27%
Access To Customer Service 22%
Fast Download Times 20%
Organization Of Product Selections 13%
Personalized Product Recommendations 7%
On-site Search Engine 6%
Front Page Layout 2%
Fun 2%
Site Look And Feel 2%
0% 20% 40% 60% 80% 100%
4.12 Interest In Personalization Among U.S. Internet Users

Yes
54%
No
46%
A majority (54%) of Internet users have taken advantage of personalized web

pages, according to Knowledge Systems & Research. A March 2001 survey
conducted by CyberDialogue for the Personalization Consortium also found that
56% of Internet users were more likely to purchase from a site that supports

personalization and 63% were more likely to register at a site that allows
personalization or content customization. In addition, the CyberDialogue survey
found that:
• 82% of Internet users were willing to provide personal information such as

age, gender, and ethnicity if the site will remember their preferences and
profile details
• 82% of Internet users indicated that a site’s privacy policy is a critical factor in
their decision to purchase online
• 84% of users have refused to provide information at a site because they were
unsure how it would be used
• 28% of “personalizers” spent more than $2,000 online last year (2000) while
only 17% of “non-personalizers” spent as much
• 21% of “personalizers” have paid for online subscriptions compared to only
11% of “non-personalizers”
Internet users who avail themselves of a website’s personalization features

appear more likely than the average visitor to revisit the site. In addition, sites
that offer personalization appear more likely to attract repeat visitors. Among
Internet users who use personalized websites or web pages, more than two-thirds
(69%) update their preferences quarterly or more frequently, according to
Knowledge Systems & Research.
4.13 Frequency Of U.S. Internet Users Updating Personalization

Preferences
Percent of Internet users who use personalized sites/pages
Every Two Weeks

15%
Or Less
Monthly 24%
Quarterly 30%
Bi-annually 15%
Annually 9%
Never 7%
0% 10% 20% 30% 40%

The majority (70%) of online shoppers and online buyers are generally
satisfied with the experience, including website features and usability, product
selection, pricing, and order fulfillment. Consumers, however, are split on the
quality of customer service, according to Knowledge Systems & Research, whose
surveys have found that almost one-in-four (23%) online shoppers and buyers are
either somewhat or very dissatisfied and another 20% are neutral on the topic.
Only 49% of survey respondents were satisfied with the current level of online
customer service.
When it comes to customer service shortcomings, the biggest complaints
among consumers included slow responses to their questions or problems and
the limited number of options they were frequently offered for contacting a
particular online retailer.
A survey of 502 online shoppers by Primus Knowledge Solutions back in 2000
found that the number one expectation among consumers was a timely response
to their questions; 14% of respondents also expected 24-hour availability from
online retailers.
4.14 U.S. Internet User Satisfaction With Online Shopping

Neutral
Somewhat/Very
15%
Satisfied
70%
Somewhat/Very
Dissatisfied
7%
Not Applicable
8%
4.15 U.S. Online Shopper/Buyer Satisfaction With Customer Service

Percent of online shoppers and buyers
Neutral Somewhat/Very
20% Satisfied
49%
Somewhat/Very
Dissatisfied
23%
Not Applicable
8%

4.16 U.S. Consumer Problems With Online Customer Service

Somewhat Of A Problem Significant Problem

Not A Problem
27%
Form Reply Is Only
29%
Option
44%
31%
No Phone Number
25%
Listed
44%
Lack Of Coordination 30%

Between Different 24%
Parts Of Company 46%
25%
Slow Response
21%
Time
54%
0% 10% 20% 30% 40% 50% 60%
When customer service issues arise, almost three-quarters (71%) of Internet

users indicated that the most important action a company can take to avoid losing
their future business is simply respond quickly in resolving the problem. Offering
customers refunds is not automatically the best approach to resolving problems,
according to Knowledge Systems & Research which found only 16% of Internet
users said that was the resolution action most likely to lead to future business.
4.17 U.S. Internet Users’ Preferences For Resolving Customer

Service Issues
Percent of Internet users indicating item is the “most important” action
Coupons For
Future
Purchase
4%
Free Shipping
5% Quick
Resolution To
The Problem
A Full Refund 71%
16%
Other
4%

Less than one-in-five (18%) click-and-mortar retailers are currently capable of

accessing a customer’s consolidated account activity across both on- and off-line
channels, according to Jupiter Media Metrix. Customers, however, would almost
universally welcome such integration, with 95% of online buyers indicating they
would return online purchases to offline stores at least occasionally and 43%
would always return online purchases to stores. A separate survey by Jupiter
also found that 45% of Internet users have visited a retailer’s website to research
a product before purchasing it in the same company’s store.
4.18 Top Customer Service Features For Multi-Channel Retailer Sites

Return Online
Purchases At Retail 83%
Store
Pick-up Online
Purchases At Retail 59%
Store
Ability Of In-store
Staff To View Online 67%
Account Details
0% 20% 40% 60% 80% 100%
4.19 Leading Consumer Barriers To Buying Online

2001 2000
Shipping Costs Too 42%

High 52%
38%
Can't Try On For Fit
40%
Inappropriate For 37%

Large Items 30%
Item Is Very High 24%

Cost 30%
44%
Credit Card Security
27%
0% 10% 20% 30% 40% 50% 60%

Source: Ernst & Young

Estimates of the rate at which online shopping carts are abandoned vary
widely between researchers, from a low of 25% from Accenture to a high of 78%
from Ernst & Young. Jupiter Media Metrix estimates the average abandonment
rate at approximately 66%, however, the company also reports that the rate
varies significantly between sites. An analysis conducted earlier this year (2001)
found that the abandonment rate varied from 25% at flower and gift retailer
FTD.com to 62% at the health and beauty products retailer drugstore.com.
Jupiter believes that the abandonment rate has been declining as less
trustworthy and poorly designed sites have gone out of business while the
surviving retailers have worked to improve their customer service and website
usability.
4.20 Online Shopping Cart Abandonment Rates

Percent of online carts abandoned before a purchase is completed
Ernst & Young (1) 78%
Yankee Group (1) 77%
Vividence (2) 75%
Greenfield Online (1) 67%
Jupiter Media Metrix (2) 66%
Forrester Research (1) 65%
Boston Consulting (1) 53%
Zona Research (1) 50%
AT Kearny (1) 46%
Accenture (1) 25%
0% 20% 40% 60% 80% 100%
(1) 2000 estimate (2) 2001 estimate

Source: As Noted
4.21 Shopping Cart Abandonment Rates For Selected Retailers

Percent of online carts abandoned before a purchase is completed
Drugstore.com 62%
Travelocity.com 55%
Expedia 44%
Egghead.com 44%
Buy.com 38%
FTD.com 25%
0% 10% 20% 30% 40% 50% 60% 70%
Source: Jupiter Media Metrix, 1/2001-3/2001

Among the top reasons given by consumers for abandoning an online

shopping cart are high shipping costs and “just comparison shopping,” according
to an October 2001 survey by Vividence Corp. Jupiter found that 63% of
consumers have abandoned an online purchase because of high shipping costs
and 21% have done so to avoid paying state sales taxes.
As a side note, among the online buyers surveyed by Jupiter, 46% believed
that shipping costs should be based on the weight of packages while only 10%
thought that price or order size should drive shipping costs. Almost three-in-four
(73%) consumers evaluate the total price of products, including shipping costs,
before making an online purchase.
The majority of individuals who abandon shopping carts ultimately complete a
purchase, however, less than one-in-five (18%) make their purchase at the site
where they abandoned the cart, according to Ernst & Young. One-in-four (26%)
complete their purchase with a competitor and 17% purchase the item(s) offline
while 39% do not purchase the item(s) at all.
4.22 Top Reasons U.S. Internet Users Abandon Shopping Carts

Percent of shoppers who have abandoned an online cart
High Shipping Costs 72%
Just Comparison Shopping 61%
Changed Mind 56%
Saving Items For Later Purchase 51%
Total Cost Is Too High 43%
Checkout Process Is Too Long 41%
Checkout Requests Too Much Personal

35%
Information
Site Requires Registration Before
34%
Purchase
Site Is Unstable Or Unreliable 31%
Checkout Process Is Confusing 27%
0% 20% 40% 60% 80% 100%
Source: Vividence Corp., 10/2001

4.23 What Happens After A Shopping Cart Is Abandoned

Percent of shoppers who have abandoned an online cart
Purchased
Purchased Item
From Site At A
Offline
Later Date
17%
18%
Purchased Item
From Did Not
Competitor Purchase Item
26% At All
39%
4.24 Reasons For Not Purchasing Goods And Services Online

Percent of shoppers who have NOT purchased online
Don't want to give credit card details/Security

37%
concerns
It's more secure buying goods/services in a

23%
store
Easier/more fun to buy from a store 22%
You don’t know what you get 13%
Don't trust online brands/Lack of

11%
trustworthiness
Time to deliver goods is too long/Other

8%
delivery problems
Prices too high/Expect lower prices on the

8%
Internet
It's too difficult/Lack of knowledge 5%
Products/services on the Internet not very

3%
interesting
Didn't pass the credit check 2%
Other reasons 26%
0% 10% 20% 30% 40% 50%
Source: Taylor Nelson Sofres, 4/2001
Consumer concerns about security remain the top reasons why Internet users
who are not yet online buyers hesitate about taking the plunge. More than one-
third of non-buyers are concerned about providing their credit card details over
the Internet while one-in-ten are concerned about online fraud in general and a
lack of trust in online brands.

4.25 Why Internet Users Wait To Make The First Online Purchase
Concerned About Giving A Credit Card Number 28.4%
No Products Or Services That Are Of Interest 12.0%
Concerned About Deception 9.8%
Don't Know Where To Find What I Wanted 8.6%
Never Thought About It 6.8%
Didn't Know It Was Possible To Buy On The

4.0%
Internet
Didn't Use Internet Much At First 2.6%
Didn't Have A Credit Card 2.1%
Not Sure It Was Cheaper 1.0%
Other 24.8%
0% 10% 20% 30% 40% 50%
The majority (51.3%) of consumers’ purchases during 2000 -- both offline and
online -- were paid for with a check, according to data from Visa USA, while one-
quarter (24.5%) was paid for with a credit card. General purpose cards such as
Visa, MasterCard, and American Express were used for 20.4% of expenditures
while proprietary cards -- department store, gasoline, etc. -- were used for
another 4.1%. Almost 18% of expenditures were paid for by cash and 7.6% by
“other” means, such as money orders.
4.26 How Consumers Pay For Purchases

Percent of all personal consumption expenditures during 2000
Credit Cards
20%
Checks
51%
Proprietary
Cards
4%
Cash
17%
Other
8%
Source: Visa USA, Nilson Report, DRI; 2000

At the end of 2000, Visa USA reported that fraud losses for all types of credit
card transactions -- including both card present and card not present transactions
-- was $0.06 per $100.00. The fraud rate among card not present transactions
only -- which includes all e-commerce activity -- during the same period was
somewhat more than twice as high at $0.15 per $100.00.
The issue of fraud, however, cuts both ways, according to Boston Consulting
Group. The company reports that by 2000, more than one-in-ten (11%) online
buyers had at some point ordered and paid for products that they never received,
which was up from 6% in 1999.
4.27 Losses From Online Fraud At Internet Commerce Sites (2000)

Percent of companies surveyed
Comparable Losses in Same-Company Offline Channels (N=360)

Sites That Accept Online Orders (N=432)
61%
No Fraud Losses
72%
28%
Under 2% of Sales
20%
7%
2% - 5% of Sales
4%
2%
6% - 10% of Sales
2%
2%
Over 10% of Sales
2%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Source: ActivMedia Research
4.28 Online Fraud At Internet Commerce Sites

Percent of companies surveyed
Occurs, but
with minimal
impact on
business
Somewhat of a
11%
problem, deal
with it regularly
2%
A substantial
problem
1%
Not a problem
86%
Source: ActivMedia Research

Section V.
Privacy and Security Issues
Among Internet Users

Privacy remains a significant issue among many Internet users, with 78% of
respondents in a June 2001 survey by Gallup indicating that they were either
somewhat concerned or very concerned about the privacy of both the information
they provided to websites as well as their activities while they were online.
Approximately one-half of Internet users surveyed by Arthur Andersen in
March 2001 expressed some level of concern about websites having access to
their address and online purchasing history. The use of demographic information
was less problematic, according to Arthur Andersen, with approximately one-
quarter to one-third of respondents expressing concerns about the sharing of
their age, size, and gender. The Gallup survey found that 65% of respondents
were either somewhat concerned or very concerned about providing their home
phone number, 53% mentioned their age, and 51% mentioned their address.
Less than one-in-four (22%) were concerned about sharing their e-mail address,
according to Gallup.
5.01 Concern About Privacy Of Personal Information Provided Over

The Internet
Very Somewhat
Concerned Concerned
28% 50%
No Answer
1%
Not At All
Concerned
3% Not Too
Concerned
18% Source: Gallup, June 2001
5.02 Concern About Website Access To Specific Personal

Information
Very Concerned Somewhat Concerned
37%
My Address
14%
28%
My Purchase History
14%
19%
My Age
8%
19%
My Size
7%
17%
My Gender
7%
0% 10% 20% 30% 40% 50%

Source: Arthur Anderson, 3/2001

Although many Internet users are concerned about privacy and the security of
their personal information, an increasing number are willing to provide varying
levels of information in return for value-added services. CyberDialogue reports
that 51% of the online consumers it has surveyed either have no opinion about
one website sharing certain information with another website or they believe that
such sharing represents an effort to improve the relevancy and usefulness of the
interactive experience; the balance of respondents, however, viewed any sharing
of their personal information as an invasion of privacy.
Internet users were most receptive to the sharing of anonymous information
related to their interests and to the ads or promotions they’ve responded to. As
the nature of the information becomes more personal -- such as name, address,
income -- the level of support among consumers for sharing declines rapidly.
5.03 Personal Information Internet Users Are Willing To Share

Name 88%
Education 88%
Age 86%
Hobbies/Special Interests 83%
Household Income 59%
Salary 41%
Credit Card Number 13%
0% 20% 40% 60% 80% 100%
Source: CyberDialogue, 2000
5.04 Personal Information A Site Can Share In Return For

Customized Content
Promotions I Respond To 56%

Ads I Click On 52%
Attitudes About The Internet 50%
Products I Buy On The Site 48%
My Hobbies/Special Interests 47%
My Age 41%
My Level Of Education 39%
My Name 30%
My Mailing Address 17%
My Household Income 14%
My Salary 13%
My Credit Card Number 1%
None Of The Above 29%
0% 20% 40% 60% 80%
Source: CyberDialogue, 2000

A March 2001 survey of online buyers by Jupiter Media Metrix found that many
were willing to register with retailers and share personal information such as their
e-mail address. The survey also found that:
• 70% would consider registering to receive e-mails for new products and
special offers
• 68% would consider registering prior to making a purchase
• 50% would consider registering in order to store personal information on a
site for future use
• 41% would consider registering in order to receive physical mail
Internet users are most receptive to sharing their personal information with a
website if they have the ability to control how it is used and determine when it can
be shared with a third party, according to IDC.
A November 2000 survey of Internet users by PriceWaterhouseCoopers found
that almost two-thirds (60%) of respondents would shop online more frequently if
they were certain that retailers would not use their personal information; 40% said
they would make more online purchases if they knew how the information they
provided at checkout was being used. Respondents also agreed almost
unanimously that retailers should ask customers for their permission before using
or sharing any personal information.
5.05 What Influences Internet Users To Share Information

Ability to control conditions under which personal

84%
information is shared
Website guarantees information will not be shared 83%
Ability to decide with whom website's personal

83%
information is shared
Ability to view and edit website's collected personal

information
77%
Perceived personal nature of information requested 75%
Frequency of respondents' visits 71%
Website is well-known brand name 70%
Website asks few questions 65%
0% 20% 40% 60% 80% 100%
Source: International Data Corp, 2000

5.06 Internet Users’ Attitudes About Protecting Their Online Privacy

Retail websites are responsible for asking me before

97%
sharing any personal information with other firms
Retail websites are responsible for asking me before

95%
using any of my personal information
It concerns me that retail websites store my credit

65%
card information online for future use
I shop from a few retail websites to minimize overall

48%
access to my personal information
Retail websites do not ask my permission before

44%
sharing my information with other firms
Retail websites do not ask my permission before

42%
using my personal information
I always turn off cookies 29%
I prefer to pay for my online purchases via 1-800

28%
number rather than give my credit card number online
0% 20% 40% 60% 80% 100%
Source: Pricew aterhouseCoopers, 2000
Harris Interactive found that one-half of online users felt that they did not have
an appropriate level of control over how their personal information was collected
and used while 43% felt that companies had no incentive to protect consumer
privacy. Only 39% of respondents in the May 2001 survey felt that companies
collected and handled personal information in a proper and confidential manner.
More than two-thirds (70%), however, believe that the existing laws and company
privacy policies provide an adequate level of privacy, according to Harris.
5.07 Consumer Fears About Internet Crime

Women 50%
Men 35%
High School
49%
Graduates
College Graduates 31%
0% 10% 20% 30% 40% 50% 60%
Source: Pew Internet & American Lif e Project, 2/2001

5.08 Concern About Misuse Of Credit Card Information Provided

Over The Internet
Not Too
Concerned
Somewhat
15%
Concerned
Not Concerned 36%
1%
No Answer
2%
Very
Concerned
46% Source: Gallup, 6/2001
There is little difference between Internet users and those who are not yet
online when it comes to concerns about the misuse of credit card information,
according to a February 2001 survey by the Pew Internet & American Life Project.
The organization found that 68% of Internet users were concerned about the
issue compared to 70% of non-users; overall, 69% of adults in the U.S.
expressed at least some concern. Women were more likely than men to be “very
concerned” about the misuse of credit card information -- as well as Internet
crime in general (see 5.07).
5.09 Concern About Misuse Of Credit Card Information Provided

Over The Internet By Age And By Gender
Percent of individuals who are “very concerned”
Women 72%
Men 65%
Age 18-29 60%
Age 30-49 72%
Age 50-64 73%
Age 65+ 69%
0% 20% 40% 60% 80% 100%
Source: Pew Internet & American Lif e Project, 2/2001

Although 97% of Internet users surveyed by Gallup expressed varying levels

of concern about providing their credit card information over the Internet, one-
third view the risks as acceptable and are either somewhat or very comfortable
doing so.
An August 2001 survey by the Cultural Access Group found that the number of
African-Americans who were uncomfortable providing their credit card information
online was three times that of the general Internet population and the number of
Hispanic-Americans with the same attitude was double that of the general
Internet population.
5.10 Comfort Level Providing Credit Card Information Over The

Internet
Not Too
Comfortable
30%
Somewhat
Comfortable
28%
Not Very
Comfortable Comfortable
37% 5%
Source: Gallup, 6/2001
5.11 Comfort Level Providing Credit Card Information Over The

Internet By Ethnicity
Percent of Internet users within each group
Somewhat/Very Comfortable Not Comfortable

100%
80% 76%
60%
49% 47%
39% 38%
40%
20% 16%
0%
African-Americans Hispanic-Americans All Internet Users
Source: Cultural Access Group, 8/2001

Section VI.
E-commerce and
the Holidays

Nielsen/NetRatings predicts that almost two-thirds (60%) of U.S. Internet

users will go online to shop for -- but not necessarily buy -- at least some of their
Holiday 2001 gifts. Approximately one-in-three online households will actually
make at least some of their Holiday 2001 purchases over the Internet, according
to data from both Forrester Research and Jupiter Media Metrix, compared to
between 28-30% during last year’s Holiday shopping period. IDC predicts that
42% of Internet users will make at least one online purchase during Q4-2001.
The average forecast for the growth in online retail sales during the Q-
4/Holiday 2001 period is 25%. BizRate.com reported that over the 2001
Thanksgiving weekend -- traditionally the busiest shopping weekend of the year
and the kick-off for the Holiday shopping period -- online sales totaled $395
million, representing a 26% increase over the comparable period in 2000. In
contrast, mall traffic through Saturday of that same weekend was down 7.5%
from 2000, according to RCT Systems’ National Retail Traffic Index. During
October, AOL reports that its own members collectively spent $2.7 billion online,
representing a 80% increase over October 2000.
6.01 U.S. Online Retail Sales: Q4/Holiday Period (2000/2001)

Billions of dollars
Pct. Period
2001 2000 Change Covered Source
$17.50 bn $12.00 bn 46% Q-4 IDC (1)
$12.40 bn -- -- Q-4 ACNielsen (1)(2)
$11.90 bn $10.80 bn 11% Nov. - Dec. Jupiter Media Metrix (1)
$11.86 bn $9.13 bn 30% Q-4 GartnerG2 (3)
$11.55 bn $9.24 bn 25% Q-4 BizRate.com
5 wks before
$11.00 bn $10.00 bn 10% Christmas Forrester Research (1)
$9.90 bn $6.90 bn 43% Nov. - Dec. Nielsen/NetRatings
$9.50 bn $8.90 bn 7% Q-4 Yankee Group
$6.3 bn $4.80 bn 31% 11/19 - 12/26 BizRate.com
(1) Includes travel expenditures. (2) Holiday-related spending only; total Q-4 2001 spending forecast
is $17.5 bn. (3) Includes Canada.
6.02 U.S. Online Retail Buyers: Q4/Holiday Period (2000/2001)

Millions of individuals
Pct. Period
2001 2000 Change Covered Source
Boston Consulting
109 mn -- -- Nov. - Dec. Group (1)
106 mn 85 mn 27% Nov. - Dec. Nielsen/NetRatings (1)
69 mn -- -- Q-4 ACNielsen (2)
59 mn -- -- Q-4 IDC
52 mn -- -- Nov. - Dec. Advertising.com (3)
5 wks before
49 mn 43 mn 14% Christmas Forrester Research (4)
46 mn 36 mn 28% Nov. - Dec. Jupiter Media Metrix
(1) Online shoppers but not necessarily buyers. (2) Based on estimate of 60% of Internet users. (3)
Based on estimate of 25% of consumers. (4) Based on 16.6 mn households for 2001.

6.03 What U.S. Internet Users Do Online During The Holidays

Pct. of
Online Activity Internet Users
Send e-mails to relatives and friends to discuss
holidays and make plans 53%
Send e-greeting cards to friends and family 32%
Look for gift ideas 45%
Compare prices of gifts 32%
Get information on crafts, recipes, and ideas for
celebrations 24%
Purchase gifts online 24%
Source: Pew Internet & American Life Project, 2000
6.04 Where Do U.S. Consumers Plan To Shop For Holiday 2001

Percent of U.S. adults
Traditional
76.5%
Department Stores
Discount
71.3%
Department Store
Specialty Retailers 68.9%
Catalogs/Mail Order 37.2%
0% 20% 40% 60% 80% 100%
Source: National Retail Federation, 10/2001
6.05 Channel Allocation Of U.S. Consumers’ Holiday Shopping

Budget (2000/2001)
Percent of U.S. adults’ total holiday expenditures
2000 2001
79%
Stores
80%
15%
Online
13%
6%
Catalogs
7%
0% 20% 40% 60% 80% 100%
Source: Goldman Sachs, Harris Interactive, Nielsen/NetRatings, 11/2001

6.06 How Long Holiday 2000 Online Buyers Have Shopped Online
First Holiday
Shopped Online
12%
Started
Shopping
Online Since
Shopped Online Last Holiday
More Than One 15%
Year
65% Shopped Online
Last Holiday
8%
Source: Cognitiative.com, Q1-2001
A majority of online buyers during the Holiday 2001 shopping season will be
women, by a margin of 53% to 47%, according to Jupiter Media Metrix. This
skew towards women is down slightly from 2000, but is still a significant shift from
Holiday 1999 when men accounted for 61% of online buyers.
Although women are expected to account for a majority of online buyers
during Holiday 2001, men are more likely to buy at least some of their gifts online.
NextCard expects two-thirds of male Internet users to make one or more
purchases online during Holiday 2001 compared with 56% of female Internet
users.
6.07 U.S. Online Holiday Buyers By Gender (1998/2000/2001)

Men Women
39%
1999 (2)
61%
55%
2000 (2)
45%
53%
2001 (1)
47%
0% 20% 40% 60% 80%
(1) Jupiter Media Metrix; (2) BizRate.com

The majority (51%) of Holiday 2001 online buyers will spend 25% or less of
their gift budgets at online storefronts, according to Jupiter Media Metrix, which is
roughly comparable to the spending pattern in 2000. Boston Consulting Group
estimates that online buyers will spend an average 27% of their Holiday budgets
online in 2001, which is up from 22% for 2000. Among veteran Internet users,
IDC predicts that buyers will spend approximately 27% of their Holiday 2001
budgets online while those who are new to the Internet will allocate about 23% to
online purchases.
6.08 Share Of Holiday 2001 Gift Budget U.S. Consumers Plan To

Spend Online
Less Than 10%

14%
More Than 90% 10% To 25%

1% 37%
76% To 90%
4%
51% To 75%
13%
26% To 50%
31%
6.09 Share Of Holiday 2000 Gift Budget U.S. Consumers Spent

Online
Less Than 10%

32%
75% Or More
9%
51% To 74%
10%
10% To 30%
31% To 50% 30%
19%
Source: BIGresearch, 3/2001

Almost three-in-four (74%) online buyers will spend at least $100 during
Holiday 2001, according to Advertising.com, and one-in-four (25%) will spend
more than $300. Harris Interactive predicts that the average online buyer this
year will spend $276 on Holiday purchases, up from $179 for the previous year.
IDC predicts that online spending per buyer for the fourth-quarter of 2001 will be
$297.
6.10 Holiday 2001 Online Spending Plans Among U.S. Internet Users
> $300
25%
< $100
26%
$100 To $300
49% Source: Advertising.com, 2001
6.11 Share Of U.S. Consumers Who Plan To Spend The Same Or

More Online During Holiday 2001
Percent of Holiday 2001 online buyers
GartnerG2 86%
Harris Interactive 76%
Advertising.com 75%
Boston Consulting 68%
Wirthlin Worldwide 61%
Vividence 56%
Accenture 56%
0% 20% 40% 60% 80% 100%
Source: As Noted, 2001

Women are generally more likely to be early bird shoppers, according to

NextCard, which expects 41% of them to begin their online Holiday shopping prior
st
to November 1 compared to only 25% of men. Among the biggest
procrastinators are men aged 18 to 34, with 19% planning to wait until December
to begin their online shopping.
6.12 When U.S. Consumers Plan To Begin Shopping For

Holiday 2001
Prior To 11/1
33%
After 11/30
14%
Between 11/1
Between 11/15
And 11/14
And 11/30
31%
22%
Source: NextCard, 10/2001
6.13 Growth Of U.S. Online Holiday Shopping (1998-2000)

Percent of Internet users shopping online
Q4-2000 72%
Q4-1999 69%
Q4-1998 65%
0% 20% 40% 60% 80% 100%

Source: Greenfield Online, 3/2001
Almost three-in-four (72%) Internet users shopped for at least some of their
gifts online for Holiday 2000, Greenfield Online while America Online estimates
that 75% of its own members bought something online during the same period.
The likelihood that an individual will do at least part of his or her Holiday
shopping online is, not surprisingly, highly correlated with household income.
Greenfield estimates that 81% of households with incomes of $50,000 or more
made one or more online purchases for Holiday 2000 compared to 64% of
households earning less than $50,000.

6.14 U.S. Online Holiday Shoppers And Buyers (1999/2000)

1999 2000
74%
Buyers
67%
80%
Shoppers
69%
0% 20% 40% 60% 80% 100%

Nielsen/NetRatings estimates that 36 million individuals in the U.S. made at

least one purchase online for Holiday 2000 and that 85 million shopped online.
The company also estimates that for each dollar spent online, an additional $1.97
was spent offline as a result of online shopping trips.
The average online order during the Holiday 2000 shopping season was $114,
according to BizRate.com, which was up 15% over 1999. During the kick-off
weekend for the Holiday 2001 shopping season -- Thanksgiving weekend, 11/23
through 11/25 -- BizRate.com reports that the average online order was $131,
representing a 15% increase over 2000.
6.15 Average U.S. Online Order Value For Holiday 1999/2000

In dollars
2000 $114
1999 $99
$0 $50 $100 $150 $200

Source: BizRate.com, 1/2001

6.16 Top 5 Product Categories By Holiday Spending (Nov./Dec. 2000)

Millions of dollars
Apparel $2,445
Books/Music/Videos $1,696
Auctions $1,364
Toys $1,053
Computer Hardware $973
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
As is the case during the rest of the year, the most popular product categories
among Holiday shoppers are books, music/videos/DVDs, and apparel. Product
categories which jump the most in popularity among online buyers during the Q-
4/Holiday shopping period include toys and games, gift certificates, food and
wine, and home décor items.
6.17 What U.S. Consumers Plan To Buy Online For Holiday 2001
Jupiter Media
Product Category Metrix Advertising.com NextCard
Books 40% -- 48%
CDs/Videos 28% / 20% 36% / -- 41%
Toys/Games 29% 34% 41%
Apparel & Accessories 30% 32% 36%
Gift Certificates 18% -- 24%
Home/Garden Items (1) 9% 23% 24%
Consumer Electronics 13% 39% 17%
Computers/Software 18% -- 17%
Food/Wine 11% / 4% -- 9%
Beauty/Health Items -- -- 8%
Jewelry 13% 9% --
(1) Jupiter Media Metrix and Advertising.com estimates are for housewares only.
6.18 Top 10 BizRate.com Holiday 2001 Gift Product Searches

Searches conducted Thanksgiving weekend - 11/23 through 11/25
1. G.I. Joe 6. Nikon Coolpix 885

2. Fuji FinePix 2600 Zoom 7. Sony Cybershot DSC-F707
3. Canon PowerShot G2 8. RCA 2.3 MP Digital Camera
4. Nikon Coolpix 5000 9. Sony Cybershot DSC-P5
5. Minolta Dimage 7 10. Olympus Camedia C-700
Source: BizRate.com, 11/2001

6.19 What U.S. Consumers Plan To Buy Online For Holiday 2001
Books 40%
Clothing And Shoes 30%
Toys 29%
Music 28%
Videos 20%
Gift Certificates 18%
Computers And Accessories 18%
Apparel Accessories 15%
Event Tickets 14%
Bed And Bath 14%

Software 14%
Fragrance/Cosmetics 14%
Flowers 13%
Consumer Electronics 13%
Jewelry/Watches 13%
Food 11%
Home Furnishings 10%
Video Games 10%
Sporting Goods 9%
Pet Supplies 9%
Housewares And Appliances 9%
Kitchen 7%
Tools And Hardware 6%
Wine And Spirits 4%

Cellular Phones 3%
PDAs 2%
0% 10% 20% 30% 40% 50%

Almost two-thirds (65%) of online shoppers looking for Holiday gift ideas used
search engines for assistance, according to Accenture, and a majority (55%)
already had some gift ideas in mind before visiting retailer websites. The
company also reports that the gift ideas of almost one-in-four (22%) Holiday 2000
online shoppers were influenced by banner ads and by word of mouth.
6.20 Sources Of Holiday 2000 Gift Ideas For Online Shoppers

Percent of online shoppers
Use Search
Engines To Find 65%
Retail Sites
Have Gift Ideas In

55%
Mind
Randomly Surf
38%
Internet
0% 20% 40% 60% 80%

6.21 What Influences Holiday 2000 Online Shoppers

Percent of online shoppers
Banner Ads 22%
Word Of Mouth 22%
TV And Billboards 13%
News Reports 6%
0% 5% 10% 15% 20% 25%

6.22 Why U.S. Internet Users Plan To Shop Online For Holiday 2001
Ability To Shop
47%
When I Want
Avoid The Crowds 14%
Saves Time 11%
Can Send Gifts To

10%
Friends/Family
Saves Money 8%
0% 10% 20% 30% 40% 50% 60%
Source: NextCard, 10/2001
6.23 Why U.S. Internet Users Shopped Online For Holiday 2000
Cognitiative.com (Q1-2001) BIGresearch (3/2001)

Pew Research Center (2000)
Shop At Unusual N/A

72%
Hours 72%
N/A
Avoid Crowds/Traffic N/A
72%
N/A
Convenient 66%
71%
79%
Save Time 27%
70%
58%
Easier 41%
51%
N/A
Compare 30%
49%
51%
Saved Money 31%
47%
N/A
Better Selection 40%
28%
Better Product N/A

20%
Information
N/A
0% 20% 40% 60% 80% 100%
Source: As noted

Harris Interactive and the Boston Consulting Group report that while Holiday
shoppers may visit a variety of online storefronts, they actually buy from only a
small number of sites. From Holiday 1999 to 2000, the companies estimate that
the number of sites patronized by online buyers declined from an average of
slightly more than two to 1.7.
More than one-in-four (28%) online buyers purchased something from
Amazon.com during Holiday 2000, according to Gartner Group, which is more
than twice as many as the closest competitor, eBay at 13%. An October 2001
survey of online buyers by NextCard found that almost one-half (46%) planned to
spend a portion of their Holiday 2001 budget at Amazon.com, followed by eBay
(24%) and BarnesandNoble.com (21%). The remaining top 5 sites among
Holiday shoppers include WalMart.com, JCPenney.com, and Target.com.
6.24 Number Of Websites Patronized By Holiday 2000 Shoppers

2000 1999
2.4
Apparel Buyers
1.7
1.9
Electronics Buyers
1.7
2.2
Toy Buyers
1.7
0.0 0.5 1.0 1.5 2.0 2.5 3.0
Source: Harris Interactive, Boston Consulting Group, 2001
6.25 Where Online Buyers Shopped For Holiday 2000

Percent of online buyers who ordered from company
Amazon.com 28%
eBay.com 13%
eToys.com 8%
BarnesandNoble.com 5%
Buy.com 4%
JCPenney.com 4%
EddieBauer.com 4%
ToysRus.com 3%
WalMart.com 3%
LLBean.com 2%
Spiegel.com 2%
Gap.com 2%
VictoriasSecret.com 1%
ZanyBrainy.com 1%
0% 10% 20% 30% 40%
Source: Gartner Group, 2/2001

Boston Consulting Group reports that 82% of online buyers were generally
satisfied with the experience during Holiday 2000 compared with 76% the
previous year. The number of buyers who were dissatisfied declined by 40%
between 1999 and 2000, from 5% to 3%. A similar survey conducted by NPD
Group found that 57% of online shoppers in 2000 were “very or extremely
satisfied,” 35% were “somewhat satisfied” and only 8% were “not too/not at all
satisfied.”
Buyers were generally more satisfied than shoppers with the online
experience, according to PriceWaterhouseCoopers. Almost four-in-five (79%)
buyers were completely satisfied compared to 55% of shoppers. The most
common complaints among online Holiday shoppers/buyers included items that
were out of stock, unable to find a particular item, and websites that were too
slow or temporarily unavailable (see 6.28).

Experience (2000)
Percent of Internet users within each group
Shoppers Buyers
Satisfied With All 79%

Sites 55%
Satisfied With 21%

Some, Dissatisfied
With Others 42%
Dissatisfied With 0%
All Sites 3%
0% 20% 40% 60% 80% 100%

Experience (1999/2000)
2000 1999
27%
Very Satisfied
38%
49%
Satisfied
44%
19%
Neutral
15%
3%
Dissatisfied
2%
2%
Very Dissatisfied
1%
0% 10% 20% 30% 40% 50% 60%
Source: Harris Interactive/Boston Consulting Group, 2001

6.28 Difficulties Experienced By Online Shoppers During Holiday

2000
Percent of online shoppers/buyers
NPD Group Harris Interactive/Boston Consulting Group
44%
No Difficulties
37%
22%
Item Out Of Stock
31%
Site Too Slow Or 12%

Temporarily Down 23%
7%
Could Not Find Item
21%
N/A
Item Received Late
14%
Did Not Receive 7%

Item 6%
Poor Customer N/A

Service 6%
Site Out Of N/A

Business 5%
Order Received 8%
Incomplete N/A
0% 10% 20% 30% 40% 50%
Source: As noted, 2001
6.29 Barriers To U.S. Internet Users Shopping Online For Holiday 2000
Prefer To See Gift In Store First 85%
Concerned About Security Of Credit Card Or

79%
Personal Details
Can Get Better Prices In Stores Or Catalogs 52%
Concerned Gifts Won't Arrive On Time 45%
Shopping Online Is Too Confusing 41%
0% 20% 40% 60% 80% 100%
Source: Pew Research Center, 2000

6.30 U.S. Q4 Retail Sales Growth (1996-2000)

Percent change year over year, excluding auto sales and parts (not seasonally adjusted)
Q4-2000 5.01%
Q4-1999 8.82%
Q4-1998 5.26%
Q4-1997 3.97%
Q4-1996 5.74%
0% 2% 4% 6% 8% 10%
U.S. Census Bureau, Economics & Statistics Administration, 2001
6.31 U.S. Q4 Share Of Annual Retail Sales (1996-2000)

Percent change year over year, excluding auto sales and parts (not seasonally adjusted)
Q4-2000 27.9%
Q4-1999 28.7%
Q4-1998 28.4%
Q4-1997 28.3%
Q4-1996 28.4%
0% 10% 20% 30% 40%


6.32 Monthly Share Of U.S. Retail Sales (2000)

Percent of total sales for calendar 2000, excluding auto sales and parts
20%
16%
10.81%
8.82%
12%
8.47%
8.51%
8.35%
8.29%
8.17%
8.13%
8.14%
7.94%
7.32%
7.05%
8%
4%
0%
February
January
May
July
August
September
November
October
December
April
March
June
6.33 Growth In U.S. Retail Chain Store Holiday Sales (1996-2001)

Percent change year over year
1996 3.1%
1997 4.5%
1998 5.1%
1999 5.4%
2000 2.4%
2001 (1) 4.0%
0% 1% 2% 3% 4% 5% 6%
Source: Bank of Tokyo-Mitsubishi, 9/2001

(1) Forecast

6.34 Monthly Share Of U.S. Online Retail Sales (2000)

Percent of total online sales for calendar 2000
20%
13.24%
12.77%
16%
9.14%
12%
8.75%
8.74%
8.32%
8.34%
6.99%
6.83%
6.24%
5.77%
4.88%
8%
4%
0%
December
September
October
November
March
June
April
August
January
February
May
July
6.35 Average Amount Spent Online In The U.S. During Q4-2000

In dollars per household buying online
2001 2000
$268.33
October
$264.86
$285.34
November
$292.28
$308.44
December
N/A
$0 $100 $200 $300 $400 $500


6.36 Median Holiday 2000 Gift Budget Among U.S. Youths

In dollars per youth each group
-----------------Amount Spent-----------------
Age Group Girls Boys
8 to 9 years old $ 16.08 $ 14.92
10 to 12 years old $ 33.70 $ 26.64
13 to 15 years old $ 47.75 $ 34.44
16 to 17 years old $ 97.20 $ 67.29
18 to 21 years old $156.03 $103.53
Source: Harris Interactive, 1/2001
Harris Interactive estimates that American youths collectively spent

approximately $2.4 billion on- and offline purchasing gifts for other people during
the Holiday 2000 period. Among those buying gifts online, girls generally spent
more than boys and the amount spent generally increased along with age.
Youths between 8 and 9 years old who completed online purchases spent an
average of $15.00 while young adults between 18 and 21 spent an average of
slightly less than $130.00, according to the company.
6.37 Holiday 2000 Online Spending By U.S. Youths

Percent of Holiday 2000 purchases completed online
Girls Boys
3%
8 To 9 Years Old
2%
3%
10 To 12 Years Old
6%
2%
13 To 15 Years Old
2%
6%
16 To 17 Years Old
3%
18%
18 To 21 Years Old
7%
0% 5% 10% 15% 20%

Source: Harris Interactive, 2001

6.38 Average Q-4 Online Spending Per U.S. Household Per Month By
Category (2000/2001)
In dollars per household buying online
2000 2001
Category Oct. Nov. Dec. Oct. Nov.
Small Ticket Items:
Software $42.02 $53.48 $44.27 $43.34 $48.35
Books $33.83 $39.97 $36.51 $38.58 $36.52
Music $30.29 $33.68 $32.13 $33.42 $32.97
Videos $35.97 $30.86 $38.51 $31.09 $34.22
Office Supplies $53.01 $83.28 $61.86 $57.30 $57.34
Apparel $64.76 $76.60 $85.66 $69.69 $76.07
Footwear $60.79 $63.78 $64.31 $65.92 $58.62
Jewelry $63.57 $45.78 $76.79 $82.04 $73.90
Flowers $47.82 $43.24 $57.57 $59.20 $46.83
Linens/Home Décor $70.04 $61.94 $70.63 $62.98 $58.68
Health & Beauty $37.04 $37.98 $40.15 $39.94 $39.45
Small Appliances $60.05 $87.42 $77.64 $73.22 $62.58
Toys/Video Games $51.96 $73.95 $75.69 $49.97 $66.98
Sporting Goods $73.43 $81.98 $88.44 $72.28 $67.08
Tools & Hardware $61.58 $63.62 $68.65 $77.29 $64.70
Garden Supplies $50.83 $30.03 $41.20 $58.26 $31.73
Big Ticket Items:

Computer Hardware $191.78 $216.98 $190.37 $188.80 $194.12
Consumer Electronics $138.82 $136.41 $170.67 $140.72 $161.01
Appliances $451.90 $161.13 $374.95 $531.93 $236.48
Furniture $243.02 $153.70 $181.78 $193.16 $168.72
Food/Beverages $74.89 $88.98 $100.72 $80.26 $95.31
Air Tickets $330.71 $353.90 $338.47 $285.53 $313.56
Car Rental $186.53 $219.68 $193.74 $173.03 $157.76
Hotel Reservations $228.84 $223.74 $223.31 $197.93 $199.99
Other $105.27 $77.95 $130.53 $105.30 $120.33
Average - 2000 $268.33 $285.34 $308.44 -- --

Average - 2001 -- -- -- $264.86 $293.28

Toys and video games accounted for the largest share (8.7%) of online retail
spending among small ticket items during the fourth-quarter of 2000, followed by
apparel (7.5%) , books (5.2%), and music (3.7%). The top five categories
combined accounted for approximately one-quarter (28.4%) of total small ticket
online retail sales during the period. Small ticket items collectively accounted for
48% of total online retail sales while big ticket items (see 6.41) accounted for
52%.
6.39 U.S. Q4 Online Retail Spending By Category: Small Ticket

Items (2000)
Percent of total Q4 online spending across 25 categories (see 6.41 for remaining categories)
Apparel 7.54%
Books 5.15%
Music 3.64%
Software 3.35%
Videos 2.56%
Jewelry 1.90%
Footwear 1.50%
Flowers 1.40%
0% 2% 4% 6% 8% 10%

More than one-half of all online sales for the entire 2000 calendar year were
generated during the fourth-quarter in the toys/video games and linens/home
décor product categories. Other products whose online sales appear highly
dependent upon fourth-quarter activity are apparel, small appliances, and
sporting goods.
6.40 Q4 Share Of Total Online Retail Spending By Category: Small

Ticket Items (2000)
Percent of total online spending in each category for 2000 calendar year
Apparel 44.94%
Footwear 37.44%
Videos 35.50%
Books 35.11%
Music 34.37%
Jewelry 33.90%
Flowers 33.20%
Software 30.73%
0% 20% 40% 60% 80%

No doubt propelled in large-part by Holiday travel, airline tickets accounted for

the largest share of total fourth-quarter 2000 spending on big ticket items. The
big ticket product categories which appear most dependent on fourth-quarter
sales were food/beverages and consumer electronics. Among the nine different
big ticket product categories, six generated one-third or more of their annual
online revenue during the fourth-quarter.
6.41 U.S. Q4 Online Retail Spending By Category: Big Ticket

Items (2000)
Percent of total Q4 online spending across 25 categories (see 6.39 for remaining categories)
Air Tickets 14.58%
Car Rental 3.47%
Furniture 1.11%
Appliances 0.63%
Other 7.07%
0% 4% 8% 12% 16% 20%
6.42 Q4 Share Of Total Online Retail Spending By Category: Big

Ticket Items (2000)
Percent of total online spending in each category for 2000 calendar year
Furniture 34.54%
Appliances 34.37%
Air Tickets 32.78%
Car Rental 30.74%
Other 29.04%
0% 10% 20% 30% 40% 50% 60%

6.43 Weekly Online Shopping Activity For Holiday 2000

Percent change in traffic week to week for five representative sites in each category
Change in Traffic for Week Ending

Category 11/5 11/12 11/19 11/26 12/3 12/10 12/17
Toys & Games -12% 47% 3% 55% 15% -3% -7%
Apparel 5% 43% 26% -16% 16% 24% -18%
Consumer Electronics 2% 17% 16% 54% -11% 12% 2%
Virtual Dept. Stores 1% 12% 24% 14% 13% 12% -5%
Books/Music/Videos 0% 9% 5% -5% 22% 12% -7%
Value-Oriented Sites 3% -1% 8% -15% 53% 5% -26%
Computer Hardware -13% -4% 19% -14% 14% 10% -6%
Specialty Gifts 35% -10% 33% -1% 80% 2% 25%
Source: Nielsen/NetRatings Holiday E-commerce Index
Online shopping activity during Holiday 2000 peaked in week 7, between 12/3
and 12/10/2000, according to Nielsen/NetRatings’ Holiday E-commerce Index.
The Holiday E-commerce Index is comprised of five representative e-commerce
sites in each of eight categories and is designed to act as a barometer which
gauges the weekly level of online holiday shopping traffic.
6.44 Weekly Aggregate Online Shopping Trips For Holiday 2000

Millions of visits from work and home combined
100
80
68.4
62.2 63.4
60 53.6
49.5
42.3
37.9
40
20
0
10/25 To 11/5 To 11/12 To 11/19 To 11/26 To 12/3 To 12/10 To
11/5 11/12 11/19 11/26 12/3 12/10 12/17
Source: Nielsen/NetRatings, 2000
6.45 Peak Traffic Week For Online Holiday Shopping By Category

Percent increase in visitors between start of holiday season and week of peak traffic
Holiday Shopping Week

Category Wk 1 Wk 2 Wk 3 Wk 4 Wk 5 Wk 6 Wk 7
Toys & Games +138%
Apparel +130%
Consumer Electronics +115%
Virtual Dept. Stores +104%
Books/Music/Videos + 49%
Value-Oriented Sites + 51%
Computer Hardware + 8%
Specialty Gifts +264%
Source: Nielsen/NetRatings Holiday E-commerce Index

Bizmetric.com tracked the order fulfillment performance of select online

retailers during the Holiday 2000 shopping season and found that the Internet-
only retailers were generally able to ship an order slightly more than one day
sooner than their click-and-mortar counterparts. One of the biggest factors in
6.46 Fulfillment Time For Internet-Only vs. Click-And-Mortar

Retailers For Holiday 2000
Average time to ship in days
Click-and-Mortar
2.97
Retailers
Internet-Only
1.86
Retailers
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Average Fulfillment Time in Days
Source: Bizmetric.com, 2/2001
6.47 Fulfillment Time For Select Online Retailers For Holiday 2000
Average time to ship
Online Retailer Average Fulfillment Time

drugstore.com 0 days, 10 hours, 5 minutes
eToys 0 days, 22 hours, 14 minutes
800.com 0 days, 22 hours, 35 minutes
SmarterKids.com 1 days, 2 hours, 38 minutes
Outpost.com 1 days, 3 hours, 9 minutes
Borders.com 1 days, 11 hours, 36 minutes
KBKids.com 1 days, 15 hours, 57 minutes
BestBuy 1 days, 18 hours, 21 minutes
Tower Records 1 days, 21 hours, 42 minutes
CDnow 1 days, 23 hours, 35 minutes
BabyCenter 2 days, 3 hours, 0 minutes
GAP 2 days, 6 hours, 9 minutes
Wal-Mart 2 days, 11 hours, 50 minutes
Egghead.com 2 days, 18 hours, 40 minutes
BarnesandNoble.com 2 days, 22 hours, 12 minutes
Amazon.com 3 days, 12 hours, 16 minutes
REI (1) 3 days, 13 hours, 39 minutes
Bluelight (1) 4 days, 8 hours, 7 minutes
REI Outlet (1) 4 days, 11 hours, 0 minutes
Lands’ End (2) 4 days, 11 hours, 48 minutes
Target (2) 4 days, 12 hours, 9 minutes
Average 2 days, 8 hours, 24 minutes
(1) Companies did not notify customers when orders shipped so delivery time is used as ship time,
since this is the first indication to the customer their order has shipped. (2) Companies notified
customers that orders had shipped, but often did so after delivery had already been made therefore
fulfillment time appears longer than time to delivery. Source: Bizmetric.com, 2/2001

fulfillment performance was the primary shipping method offered by each retailer,
with most employing UPS Ground or Priority Mail from the U.S. Post Office. The
stand-out retailer in fulfillment performance, Outpost.com, was able to deliver its
customers’ orders on average in less than two days due in large part to its
offering Airborne Overnight Air delivery as its standard shipping method. Among
all of the retailers tracked by Bizmetric.com, the average elapsed time between
placing an order and the customer receiving his or her order was 4 days, 15
hours, 8 minutes.
6.48 Total Time To Delivery For Select Online Retailers For

Holiday 2000
Average elapsed time from order placement to delivery for orders placed between 11/27 and 12/24
Borders.com 6.81
Amazon.com 6.63
eToys 5.75
BarnesandNoble.com 5.35
BestBuy 5
Walmart.com 4.78
Egghead.com 4.76
SmarterKids.com 4.53
BabyCenter 4.47
REI-Outlet 4.46
Bluelight 4.34
Gap 4.15
Tower Records 3.87
800.com 3.75
REI-Outlet 3.57
KBkids 3.56
CDnow 3.1
Target 2.61
Lands' End 2.47
Outpost.com 1.77
0 2 4 6 8
Total Time to Delivery in Days

BizMetric found that most of the online retailers it tracked were able to keep
their promises of delivery by Christmas if orders were placed by the published
deadlines. Out of 84 last minute orders placed, 92% were delivered on time and
10 of the 16 companies were able to deliver by Christmas 100% of the 47 orders
they received.
6.49 Fulfillment Time For Last Minute Holiday 2000 Orders

Percent of orders delivered late or on time
Last
Minute Late Pct. of Late On-Time
Online Retailer Orders Orders Deliveries Delivery
Amazon.com 10 0 0% 100%
CDnow 7 0 0% 100%
eToys 6 0 0% 100%
GAP 2 0 0% 100%
KBKids 5 0 0% 100%
REI-Outlet 4 0 0% 100%
SmarterKids.com 5 0 0% 100%
Tower Records 2 0 0% 100%
Wal-Mart 4 0 0% 100%
Lands’ End 2 0 0% 100%
BarnesandNoble.com 12 1 8% 92%
800.com 9 1 11% 89%
Outpost.com 6 1 17% 83%
Target 4 1 25% 75%
Bluelight 2 1 50% 50%
Borders 4 2 50% 50%
Average 84 7 8% 92%

Appendix
Data Sources

The charts, tables, and other data provided in this report are all sourced from
published, publicly-available information produced by the following organizations:
ActivMedia Research Gartner Group, Inc./GartnerG2

www. activmediaresearch.com www.gartner.com
Accenture Global Reach
www.ac.com www.glreach.com
ACNielsen Goldman Sachs Group, Inc.
www.acnielsen.com www.gs.com
Advertising.com Gomez Advisors Inc.
www.advertising.com www.gomez.com
The Arbitron Company Greenfield Online, Inc.
www.arbitron.com www.greenfieldonline.com
Arthur Andersen Harris Interactive Inc.
www.arthurandersen.com www.harrisinteractive.com
Bank of Tokyo-Mitsubishi Insight Express
www.btmny.com www.insightexpress.com
BIGresearch International Data Corp. (IDC)
www.bigresearch.com www.idcresearch.com
Bizmetric Inc. Internet Advertising Bureau (IAB)
www.bizmetric.com www.iab.net
BizRate.com Jupiter Media Metrix
www.bizrate.com www.jup.com
The Boston Consulting Paul Kagan Associates, Inc.
Group www.kagan.com
www.bcg.com Kinetic Strategies
Cahners InStat Group www.kineticstrategies.com
www.instat.com Knowledge Systems & Research
CMRi www.ksrinc.com
www.cmr.com KPMG International
Cognitiative Inc. www.kpmg.com
www.cognitiative.com Mediamark Research
comScore Networks www.mediamark.com
www.comscore.com Morgan Stanley Dean Witter
Consumer Electronics www.msdw.com
Association (CEA) Myers Reports
www.techhome.org www.myers.com
Content Intelligence National Retail Federation (NRF)
www.contentintelligence.com www.nrf.com
Cultural Access Group NetValue
www.accesscag.com www.netvalue.com
CyberDialogue, Inc. NextCard Inc.
www.cyberdialogue.com www.nextcard.com
eMarketer, Inc. Nielsen/NetRatings Inc.
www.emarketer.com www.netratings.com
Employment Policy The NPD Group Inc.
Foundation www.npd.com
www.epf.org Odyssey L.P.
Ernst & Young LLP www.odysseylp.com
www.ey.com Ovum
eTForecasts www.ovum.com
www.etforecasts.com Pew Research Center
Forrester Research www.pewinternet.org
www.forrester.com J.D. Power & Associates
The Gallup Organization www.jdpa.com
www.gallup.com

PriceWaterhouseCoopers Universal McCann

www.pwcglobal.com www.mccan.com
Rasmussen Research Inc. U.S. Census Bureau
www.portraitofamerica.com www.census.gov
Roper Starch Worldwide Inc. Veronis Suhler
www.roper.com www.veronissuhler.com
Scarborough Research Visa USA
www.scarborough.com www.visa.com
Taylor Nelson Sofres and Vividence Corp.
TNS Intersearch www.vividence.com
www.tnsofres.com The Yankee Group
Telephia Inc. www.yankeegroup.com
www.telephia.com Zona Research
UCLA Internet Project www.zonaresearch.com
www.ccp.ucla.edu

Internet Commerce Briefing: Business-To-Consumer E-Commerce Report

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The Internet

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Published December 2001

The Internet Commerce Briefing | 1

Table of Contents ...................................................................... 2

Section I. The Online Consumer Population........................ 5

Section II. Online Consumer Activities.................................14

Section III. E-commerce Market Size and Composition........24

Section IV. Online Merchandising and Customer Service.....43

Section V. Privacy and Security Issues

Section VI. E-commerce and the Holidays............................66

Appendix Data Sources and Contact Information...............93

Other reports in the Internet Commerce Briefing series:

The Internet Commerce Briefing | 2

Charts and tables in this report

The Internet Commerce Briefing | 3

Charts and tables in this report (con’t.)

The Internet Commerce Briefing | 4

The Internet Commerce Briefing | 5

During a typical month, approximately 40 million Internet users in the U.S. -- or

1.01 Estimated U.S. Population Of Online Buyers

1.02 U.S. Online Buyers As A Share Of Active Internet Users

34% 33.2% 32.9%

The Internet Commerce Briefing | 6

1.03 U.S. Online Buyers vs. Active Internet Users By Month

Online Buyers Internet Users At Home And At Work

Mar. 2001 112.7

Source: Nielsen/NetRatings, 10/2001

The Internet Commerce Briefing | 7

Although the U.S. Internet population is skewed toward younger individuals,

1.04 Age Of U.S. Online Buyers

1.05 Age Of U.S. Online Buyers vs. Internet Users

0% 10% 20% 30% 40% 50% 60%

The Internet Commerce Briefing | 8

1.06 Penetration Of Purchasing Online By Age Group In The U.S.

1.07 Individual Income Of U.S. Online Buyers

The Internet Commerce Briefing | 9

The level of education of online buyers is approximately the same as the

1.08 Education Of U.S. Online Buyers

1.09 Education Of U.S. Online Buyers vs. U.S. Internet Users

Internet Users Online Buyers

High School 23%

College Graduate 35%

0% 10% 20% 30% 40% 50% 60%

The Internet Commerce Briefing | 10

1.10 Ethnicity Of U.S. Online Buyers

Research Purchases Online Complete Purchases Online

40% 31% 32%

Source: Cultural Access Group, 8/2001

0% 10% 20% 30% 40% 50% 60% 70%

Source: Ernst & Young, 2001; Mediamark Research, Spring 2001

The Internet Commerce Briefing | 11

1.12 Primary Types Of Online Consumers

The Internet Commerce Briefing | 12

1.13 Top Concerns Of Online Consumers By Segment

Cherry Pickers Brand Reliants Time Savers

0 50 100 150 200

The Internet Commerce Briefing | 13

The Internet Commerce Briefing | 14

2.01 How Frequently U.S. Consumers Buy Online