After difficult weeks in the Israeli and international financial markets, no one has any doubt that we're in the midst of the first serious slowdown of the digital age. We don’t know how long it will last or how bad it will get, but it appears that few households and businesses will be able to escape its effects.
In these dismal circumstances, the Internet has actually demonstrated soundness. Without doubt, there is solid evidence that the need to get the most out of every shekel has encouraged many people to go shopping online. In the UK, for example, despite the inclement economic climate, online sales in the first half of 2008 rose 38% to ₤26.5 billion. Online sales are now responsible for 17% (₤1 of every ₤6) of every pound that British consumers spend, an astonishing level in such a short time.
July figures show that the British public's appetite for online shopping has not been sated. The British Consumers Association reported a 0.9% drop in store sales in June, whereas online sales jumped by 11.3%.
In Israel, companies are learning the lessons as customers switch to the Internet. Last year, El Al Israel Airlines Ltd. (TASE: ELAL), for example, launched its online store, and saw its online sales jump multifold compared with 2007.
We're in the midst of an Internet-driven economic revolution. This revolution is also driven by consumers and businesses around the world, and there is no indication that the trend will change. It is important to bear in mind that 75% of Israelis have Internet access, and the number is expected to grow. We're also spending more time online: 95.2% of Israeli surfers say that they go online every day. In addition, the new generation of mobile telephones enables more people to surf the web even when in motion. Youths already devote more time to watching, listening, reading, and talking to friends online than they spend watching television.
The effect of the Internet on private consumption is not properly appreciated in view of the actual impressive online sales data. Although many people still do not feel secure enough to shop online, they use the Internet to collect information about products, compare prices, and read other users' critiques.
A study in Israel found that seven out of every ten car buyers went online to examine new cars even though they bought them in a dealer's showroom.
With less money available for recreation, and the surfeit of entertainment and content available online, many people prefer to stay at home. Tighter budgets and more free time are driving many families to become smart consumers. The cost of Internet access is falling and transmission speeds are rising, turning the Internet into a powerful tool for consumers.
No only consumers are trying to ensure that they are getting value for their money at a time of recession. Businesses are doing the same. The Internet enables small and large businesses alike to market their wares to potential customers in flexible, targeted, and cost-saving ways. In simple language, companies get more bang for their buck by advertising online. There is no doubt that during a recession, this achievement should not be minimized.
Furthermore, precise data on digital advertising expenditure has turned search-driven marketing from an art into a science. It enables businesses to target customer segments precisely where they want to buy. It enables businesses to pay only for the advertisement that generates results or sales, and to directly monitor spending in order to better control it. Therefore, it is no surprise that spending on search-based advertising in Israel is rising.
Obviously, not everything is knowable now. We have not experienced such a slump since the Internet began to fill such a central role in our world. But it is already clear that businesses that do not respond to these changes in consumer behavior and new opportunities risk lagging behind their competitors. The businesses that invest in building and expanding their Internet presence will have the best chances of growth despite the recession.
The author is Google Israel country manager.
Published by Globes [online], Israel business news - www.globes-online.com - on January 8, 2009
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