Online spend has been hit recently by the UK postal strikes, contributing to a record low in its growth in September. Year-on-year growth stood at 8% for the year and month-on-month growth at 1.9%, an ‘unusually low rate’, according to the report by Capgemini.

Christmas fear

In the run up to Christmas, a crucial period for online retailers, UK consumers are still concerned that postal delays could prevent their purchases from arriving in the expected time period. The postal strikes ‘may have acted as a deterrent for online shoppers’, the report said, adding that it ‘will continue to be a key concern for e-retailers in the lead up to Christmas.’

The slow-down in growth was also attributed to warm weather, enticing people away from their computers, as well as heavy discounting on the high street. Internet-based clothes and electrical retailers are thought to be suffering the most.

Only a 'blip'

Capgemini described the recent results as a blip, commenting that the trend for online spend is expected to continue upwards, reaching around 15%, year-on-year.

‘The results for September show a slowdown in the growth of online spending but we view this as a temporary blip and expect growth rates to return to the 15% year-on-year trend we have seen over the last year’, said Capgemini UK head of consulting for retail Mike Petevinos.

‘The underlying trend is still that consumers are turning to the internet to make more informed purchase decisions,’ he added.

The managing director of John Lewis Direct, Robin Terrell, echoed this view. He said: ‘It’s clear that our customers are increasingly shopping online and enjoying the benefits of our online shopping experience more than ever. We are seeing growth online across all product lines, particularly fashion since the relaunch of our fashion site, but also encouragingly in home.’

Alternatives to Royal Mail?

John Lewis Direct is now working with other carriers to avoid disruption to its online deliveries. Amazon have announced similar action. Smaller businesses, though, particularly those sending lower value items, are finding the costs of alternative delivery services prohibitive.

The high street may be struggling but online shopping was at its highest rate ever last month. Shoppers spent £4.67bn online last month, up nearly 15 per cent on 2007, according to the latest figures.

One startling statistic to make the headlines being that more individuals shopped on the internet on the Christmas Day than went to church.

Meanwhile, high street retail sales fell by 1.4 per cent in December, the worst Christmas for at least 14 years, according to the British Retail Consortium.

Auction website eBay has seen profits and sales tumble for the first time. Profits in the final three months of 2008 plunged 31 per cent to £264million, while revenues in its “Marketplaces” business dropped 16 per cent.

The firm is blaming lower consumer spending due to the recession, along with the strength of the US dollar, with chief executive John Donahoe admitting: “We’re not happy.”

Microsoft is also suffering from the recession, and will be cutting 5,000 jobs due to the sharp downturn in technology spending among companies hit by the global economic slump.

According to Ofcom, online now accounts for 19 percent of advertising spend in the UK, a bigger share than in any other country in the world.

However, some industry analysts are now suggesting that growth in online advertising is likely to slow as the recession bites.

An IAB report shows that from the fourth quarter of 2007 to the first quarter of 2008, the industry saw its first quarter-to-quarter revenue drop since the second quarter of 2004.

Randall Rothenberg, chief executive of the IAB, said: ‘The growth of interactive advertising that we've been experiencing over the past few years has stabilized due in large part to the difficult current economic climate.’

It should be noted, though, that despite the recession, online ad spend is still growing, if at a slower pace.

PwC partner David Silverman argued that the internet ad market will stay strong, partly because internet ads are more 'measurable' than other forms of media.
 
He said: ‘The Internet should be better poised to withstand the storm given its ability to combine performance-based advertising along with broad-based branding.’

At atom⁴², news of Google’s recent surge in profits has not come as such a big shock. Over the past few months, we have seen plenty of evidence of Google attempting to keep revenues high, with Adwords practices and policies continuing to change in Google’s favour.

Expanded broad match, the lifting of a previously strict trade marking policy and the reintroduction of gambling ads are a clear sign that Google are desperately trying to beat the crunch. For now they are succeeding, but what does the future hold for Google?

Obvious strategies will include the improvement and increased take up of current products including local search (via Google Maps and Local Business Search), mobile advertising and product search.

Display advertising will also undoubtedly form part of Google’s long term strategy, with Co-founder Sergey Brin admitting ‘We see this as an area that is ripe for development and innovation, and we think we can create great tools for...display.’

Google TV Ads are also an exciting development, with partnerships already forming with cable networks to support this venture.

Increased transparency in reporting along with new tools should also take a front seat if Google are to truly battle the storms ahead. Just today, Google released a new tool in the US which will allow for the easy creation of display ads, and also announced that separate reporting for Google and their search network will soon be available.

Atomic is looking forward to seeing what will come next...

Google today announced its revenue figures for Q3 and, despite the global economic crisis, along with the recently reported dip in share prices, the company has reported revenue of $5.54 billion. This represents an increase of 3% on Q2 of 2008 and a 31% increase on revenues for the same quarter in 2007.

This announcement has surprised analysts, many of whom predicted that Google stocks would fall below $300, the lowest level since 2005 (share price in fact rose 4% to $353.02 by the end of trading on Thursday).

One explanation for such positive results is simply that advertising on Google is simply too effective for the recession to cause companies to pull out of their Google PPC advertising campaigns. With search continuing to be one of the most transparent and cost-effective advertising mediums for the majority of businesses, it makes sense that advertisers are pulling spend out of traditional media ahead of PPC.

Nevertheless, Google Chairman Erik Schmidt remained cautious following the news, admitting Google is not immune to economic conditions and stating that the company is in 'unchartered conditions' and should plan for the long term.

What effect will the global economic crisis have on the tech industry? With the unchartered territory economies in the Western world are now entering, only time will reveal the full impact the current unprecedented situation will have on any industry sector.

However, a glimpse into the gloom that could be afoot for the computing world came on September 29 when shares fell sharply for Google, Microsoft and Apple.

By close of business on Monday September 29, Apple stocks had fallen 18 percent, Google stocks dipped to below $400 for the first time in two years, dropping 11.6 percent, and Microsoft shares fell 8.7 percent.

The dramatic news came following an assurance by Microsoft CEO Steve Ballmer that the tech industry was buoyant despite the credit crunch.