We’re all online more than ever.
From our computers, tablets, cell phones, home assistants and smart TVs – virtually all of our “devices” are connected to the internet. And the World Economic Forum, a non-profit international organisation created to bring together global leaders in politics and business, says about half of the world’s population is now online.
So it shouldn’t be a surprise that buying things on the internet – known as e-commerce – has exploded.
E-commerce retail sales globally have been rising nonstop and are on-track to double between 2017 and 2021.
And China has embraced online shopping in a way no other country has. E-commerce sales there are growing nearly 30 percent a year, and will make up one-fourth of total retail sales in China by 2019. (That compares to 10 percent in the U.S.)
With the explosion in online sales, a lot of the world’s biggest growth companies and sectors are now based on the internet. Without it, Amazon, the world’s third-largest company by market cap, wouldn’t exist.
But the continued growth in e-commerce relies on two things: More people using it… and people trusting it.
And increasingly… those two things are a challenge.
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1. Lots of people have yet to use it
As I said, about half of the world’s population is now online.
But internet penetration varies widely by region. The graph below shows the percentage of the population that’s on the internet in different regions of the world. As you can see, Africa has just 22 percent penetration… Asia has 44 percent and Europe has 80 percent.
According to the Broadband Commission for Sustainable Development, annual internet user growth reached 17 percent in 2007. But by 2016, annual growth was just 9.4 percent. And in 2018, it was just 5.5 percent.
The World Economic Forum cites affordability as one of the biggest factors preventing people from getting connected. This is also because much of the remaining untapped market is in some of the poorest regions in the world.
Growth in internet use has also been associated with the growth in smartphone users, which are taking the place of computers as a way to get online. They’re cheaper and more convenient to use. In China, 90 percent of online consumers buy things through a mobile device.
Recently, smartphone sales globally have plateaued, leading to the slower growth of internet penetration as well. But it varies depending on where you are. Sales in developed markets are stagnating, while in many emerging markets they’re rising strongly.
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2. Can people trust the internet?
With the growing number of people connected to the internet, the number of cyber-attacks and data breaches have rapidly increased.
And after several high-profile breaches in 2017 and 2018, cyber and data risks are the top concerns among many businesses and consumers.
For example, the WannaCry ransomware attack affected 300,000 machines in 150 countries. And the NotPetya malware attack caused huge corporate losses for Merck, FedEx and Maersk. Each reported losses of around US$300 million in the third quarter of 2017, according to the World Economic Forum.
And cyber-attacks are increasing rapidly. According to the World Economic Forum, an incredible 74 percent of businesses can expect to be hacked in 2018.
Meanwhile, over 4.5 billion records were compromised in the first half of 2018, up from 2.7 billion records for all of 2017. This translates to over a million records lost or stolen every hour.
The World Economic Forum says cyberattacks result in annual losses of over US$400 billion to the global economy. And the average cost of a data breach is US$3.62 million.
With the increase of breaches and hacks, many are wondering if they can trust the internet. This is preventing some people from connecting at all – or from buying things online.
What needs to happen
The World Economic Forum says smart fiscal policies will help internet users – and e-commerce – to keep growing.
For example, several counties have “connectivity taxes” on mobile and fixed internet connections that drive up the cost of connecting. Instead, the World Economic Forum says governments should focus on policies that support transparent, accountable, timely and efficient “allocation of spectrum”.
The World Economic Forum also says governments should consider adopting or revising national broadband plans.
In short, for the number of internet users to keep growing, governments must focus on tackling language, gender, disability and geographic divides and build platforms to encourage and identify innovation.
And as for security, the World Economic Forum says the highest levels of companies, organisations and governments must recognise the risks and develop strategies to keep data safe.
One element that the World Economic Forum doesn’t discuss, however, is internet speed.
Internet speed has a big impact on conversion of e-commerce sales. But internet speeds vary greatly throughout the world.
South Korea, Japan, Norway and Hong Kong have some of the fastest internet connections on the planet. Meanwhile, the Philippines, India and Brazil still suffer from slow internet speeds – despite high internet penetration rates.
That’s a problem when nearly one-fifth of online shoppers who end up abandoning a purchase do so because the page loads too slowly on their computers or mobile devices.
According to Shopify, a leading e-commerce solutions provider, online shoppers expect a website to load in just two seconds or less. Every one-second delay results in a 7 percent drop in conversion (people actually making a purchase).
That’s why, beyond giving more people access to the internet and making sure transactions are secure, countries should also be addressing internet speeds if they want to maximise the potential of their e-commerce markets.
Publisher, Stansberry Pacific Research