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EXECUTIVE SUMMARY

This report considers individual non-business usage of, and spending on, the Internet. The focus of the report is on two areas:

• individual spending on Internet connectivity
• individual spending on electronic commerce (e-commerce). The Internet market (covering both connectivity and e-commerce services) was worth around £915m in 1999, and is predicted to grow to around £2.1bn in 2000. The market continues to experience exceptionally rapid growth, supported by the rapid uptake of subscription-free and unmetered Internet access and the growing penetration of web-enabled personal computers (PCs) into UK households. The key focus for the consumer Internet market is now shifting away from connectivity and towards e-commerce. This is causing Internet/online service providers (ISPs/OSPs) to change the basis of their operations. Most are focusing strongly on generating revenues from e-commerce. For those still focused on connectivity, the introduction of new broadband services like ADSL and cable modems is seen as the best option for generating revenues from connectivity services. The key issues now shaping the consumer market are as follows:
• There is greater realism among investors about the long-term potential of dotcom operations. This may slow the floatation of new dotcoms but it will inject more financial scrutiny into the business plans of potential Internet companies.
• The growth of unmetered Internet access, in addition to subscription-free access, is putting more pressure on ISPs to generate non-connectivity revenues. It is also putting a strain on the ability to deliver unmetered access by certain ISPs.
• Many ISPs see the introduction of the next generation of Internet access devices and technologies like ADSL, cable modems and WAP phones, as potential sources of revenues, given that these new services are invariably paid for and charged at a premium over the standard analogue dial-up services.
• New legislation and legal developments, specifically the Regulation of Investigatory Powers Bill, the Demon Internet libel case and the new Data Protection Act, are causing concern to ISPs and website owners. The consumer Internet market will see major change in the next 5 years, including new telecommunications technologies, access devices, Internet services and business pricing models to handle the new Internet access technologies. The Internet market (connectivity and e-commerce) will be valued at £17.57bn in 2005, having grown by 738.5 percent between 2000 and 2005.

* the shift of power in the industry from content publishers to e-commerce providers
* the growth of new forms of e-commerce sites, such as secure malls and auction sites
* the importance of messaging for improving consumer loyalty to a website
* proposed new arrangements and legislation to govern the Internet (i.e. new e-commerce regulations)
* the growing strategic importance of Internet advertising and the role in this taken by the portal and e-commerce sites.

The consumer Internet market will see major changes between 1999 and 2003, including new telecommunications access technologies (e.g. integrated services digital network -- ISDN, digital subscriber lines -- xDSL, cable modems, wireless technology and electricity access), new access devices (e.g. personal computer televisions -- PC/TVs and NetTVs), new Internet services (e.g. full development of online shopping, gaming and education), and new business pricing models to handle new access technologies.
The consumer Internet market (including connectivity and e-commerce) will be worth £6.21bn in 2003, having grown by 456.5 percent between 1999 and 2003, with the main growth coming in the e-commerce sector. The number of individual accounts (mid-year) will rise from 4.8 million in 1999 to 12.9 million in 2002.

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Last updated by Jacob van Eldik 24th October 2000