RealTime IT News

E-Commerce to Be Profitable in the Distant Future

E-commerce Web sites enjoyed a bountiful holiday season, and while its future looks bright, a new study predicts the industry will not reach profitability during the next 12-18 months.

According to the Giga Information Group, only 5 percent of online ventures will turn a profit in the next year. There will be benefits, however, as customer service improves and costs decrease.

"Electronic commerce will play an increasing role in business, but even the best-known startups aren't profitable yet and only a few Fortune 100 companies have profitable Internet commerce operations," said senior electronic commerce analyst Erica Rugullies.

Until mainstream brand names enter the e-commerce sector seriously, the industry as a whole will not make money, she said. Rugullies also said companies should focus their e-commerce efforts on goals other than revenue generation.

"Early adopters of electronic commerce have an opportunity to build an infrastructure that dramatically reduces the costs of doing business while improving relationships with customers and suppliers," she said. "This will be to their advantage over the long run."

E-commerce should not be discredited, however. The recent holiday shopping boom is a precursor to future success, the study said. There is money to be made through e-commerce.

For example, America Online estimated that visitors spent approximately $1.2 billion via its shopping channel during November and December. The mega-Web site also approximated 1.25 million members made their first online purchases this holiday season on its service.

"It's clear that this past holiday shopping season marks a turning point--when shopping online really became a key part of consumers' shopping patterns," said Bob Pittman, AOL's president and COO.

"But now that they've tried it and experienced all its benefits, we expect they'll come back and shop again throughout the year."