A Perfect MarketWhen the technology bubble burst in 2000, the crazy valuations for online

A Perfect Market

When the technology bubble burst in 2000, the crazy valuations for online companies vanished with it, and many businesses folded. The survivors plugged on as best they could, encouraged by the growing number of Internet users. Now valuations are rising again and some of the dot-coms are making real profits, but the business world has become much more cautious about the Internet's potential. The funny thing is that the wild predictions made at the height of the boom—namely, that vast chunks of the world economy would move into cyberspace—are, in one way or another, coming true.

The raw numbers tell only part of the story. According to America's Department of Commerce, online retail sales in the world's biggest market last year rose by 26%, to ＄55 billion. That sounds a lot of money, but it amounts to only 1.6% of total retail sales. The vast majority of people still buy most things in the traditional markets.

Tip of the iceberg

But the commerce department's figures deal with only part of the retail industry. For instance, they exclude online travel services, one of the most successful and fastest-growing sectors of e-commerce. Nor do the figures take in things like financial services, ticket-sales agencies. And there is more. The commerce department's figures include the fees earned by Internet auction sites, but not the value of goods that are sold: an astonishing ＄24 billion-worth of trade was done last year on eBay, the biggest online auctioneer. Nor, by definition, do they include the billions of dollars-worth of goods bought and sold by businesses connecting to each other over the Internet. Some of these B2B (Business-to-Business) services are proprietary (专利的，专营的); for example, Wal-Mart tells its suppliers that they must use its own system if they want to be part of its annual turnover (营业额) of $＄250 billion.

So e-commerce is already very big, and it is going to get much bigger. But the actual value of transactions currently concluded online is dwarfed by the extraordinary influence the Internet is exerting over purchases carried out in the offline world. That influence is becoming an integral part of e-commerce.

To start with, the Internet is profoundly changing consumer behavior. One in five customers walking into a Sears department store in America to buy an electrical appliance will have researched their purchase online—and most will know down to a dime what they intend to pay. More surprisingly, three out of four Americans start shopping for new cars online, even though most end up buying them from traditional dealers. The difference is that these customers come to the showroom armed with information about the car and the best available deals. Sometimes they even have computer print-outs identifying the particular vehicle from the dealer's stock that they want to buy.

People seem to enjoy shopping on the Internet, if high customer-satisfaction scores are any guide. Websites are doing even more and cleverer things to serve and entertain their customers, and seem set to take a much bigger share of people's overall spending in the future.

Why websites matter

This has enormous implications for business. A company that neglects its website may be committing commercial suicide. A website is increasingly becoming the gateway to a company's brand, products and services—even if the firm does not sell online. A useless website suggests a useless company, and a rival is only a mouse-click away. But even the coolest website will be lost in cyberspace if people cannot find it, so companies have to ensure that they appear high up in Internet search results.

For many users, a search site is now their point of entry to the Internet. The best-known search engine has already entered the lexicon (辞典): People say they have "Googled" a company, a product or their plumber. The search business has a

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