e Commerce Next Wave Productivity and Innovation Julie

e. Commerce Next Wave: Productivity and Innovation Julie Meringer Group Director Forrester Research Ltd.

Theme Leading organizations must use the Net to boost productivity and drive innovation

Agenda · What is the state of e. Commerce worldwide? · How will productivity play a role in e. Commerce? · What new innovations will drive economic growth through 2010?

European firms slow IT spending in 2002 “Has your IT budget changed compared to last year? “ Average increase: 17% Average decrease: 20% Source: Forrester Q 1 2002 European survey of 212 technology leaders

Why? Economic malaise “If your budget decreased, how important were these factors? “ Not at all important Very important Economic downturn Weak company financial performance Better efficiency with fewer resources Completion of last year’s projects Centralization of IT Merger and acquisition activity Decreased importance of e. Business Increased use of outsourcing Source: Forrester Q 1 2002 European survey of 212 technology leaders

Companies expect spending to recharge. . . “How will your technology budget and headcount change in 2005? “ Source: Forrester Q 1 2002 European survey of 212 technology leaders

2002 vs 2001 Tech Spending 2002 Percent of revenues Overall <$1 B G 3, 500 3. 1% 3. 5% 3. 0% 3. 5% IT executives 3. 4% 3. 5% Business executives 2. 5% 3. 6% 7. 2% 4. 8% IT executives 5. 0% Business executives 4. 7% spent on e. Business Percent of revenues spent on IT 2001 5. 4% Base: executives at North American companies

% of revenues on technology initiatives 13. 9% Financial 3. 9% 6. 4% Distribution 3. 4% Technology and 5. 4% 4. 5% business services Manufacturing Other 4. 1% 1. 6% 9. 4% 6. 1% 2002 IT 2002 e. Business Base: executives at less-than-$1 billion companies

% of revenue from e. Commerce Total Technology and telecom Chemicals and petroleum Services Distribution Primary production and supply Financial (noninsurance) Retail Finished goods mfg. Insurance Electricity, gas, and sanitation 0% 5% 10% 15% 20% 25% Base: executives at G 3, 500 companies 30% 2002 In 5 years

Forecast: Worldwide Online Trade Growth, 2002 To 2006 2002 2006 $264. 1 $2, 645. 6 $28. 2 $246. 3 $341. 6 $1, 677. 3 Total: $2, 293. 5 (US$ billions) $7, 469. 0 $2, 458. 6 North America Asia-Pacific Western Europe Rest of world Total: $12, 837. 3 (US$ billions)

2002 2003 2004 2005 Total (US$ billions) $2, 293. 5 $3, 878. 8 $6, 201. 1 $9, 240. 6 $12, 837. 3 18. 4% North America $1, 677. 3 $2, 642. 2 $3, 939. 8 $5, 563. 8 $7, 469. 0 26. 0% United States 2006 % of total sales in 2006 $1, 610. 4 $2, 527. 6 $3, 759. 7 $5, 296. 9 $7, 091. 6 26. 0% Canada $55. 1 $91. 3 $136. 2 $188. 6 $245. 6 20. 0% Mexico $11. 8 $23. 3 $43. 9 $78. 3 $131. 8 10. 0% Asia-Pacific $341. 6 $622. 8 $200. 5 $359. 2 $625. 4 $1, 056. 8 $1, 650. 2 14. 6% Australia $47. 8 $87. 7 $151. 1 $224. 1 $301. 7 22. 4% Korea, Republic of $29. 4 $55. 2 $97. 1 $156. 8 $231. 9 17. 5% Taiwan $29. 0 $56. 1 $101. 8 $158. 3 $223. 8 19. 6% Hong Kong $15. 6 $28. 8 $50. 0 $73. 8 $98. 8 22. 1% All other $19. 3 $35. 7 $62. 5 $96. 4 $139. 2 2. 1% Japan Western Europe $246. 3 $560. 8 $1, 087. 9 $1, 076. 7 $1, 766. 3 $1, 747. 5 $2, 645. 6 $2, 458. 6 11. 9% 19. 3% Germany $60. 5 $137. 6 $262. 2 $419. 3 $580. 9 21. 0% United Kingdom $51. 7 $113. 1 $210. 1 $330. 6 $454. 6 21. 0% France $36. 7 $85. 2 $165. 0 $269. 5 $381. 8 20. 0% Italy $28. 9 $68. 4 $135. 9 $226. 7 $322. 6 19. 0% $6. 2 $16. 3 $38. 5 $76. 1 $125. 5 15. 0% $62. 3 $140. 2 $264. 9 $425. 2 $593. 3 19. 7% $28. 2 $53. 0 $96. 7 $163. 1 $264. 1 4. 0% Spain All other Rest of world (numbers have been rounded)

B 2 B and B 2 C Trade As A Percentage Of Total Trade In 2006 B 2 B Raw materials B 2 C Manufacturing Online trade Distribution Households % % 39. 1% North America $7, 249. 2 59. 1% Asia-Pacific $2, 460. 4 20. 0% Asia-Pacific $185. 2 33. 0% Western Europe $2, 320. 3 18. 9% Western Europe $138. 3 24. 6% Latin America $7. 0 1. 3% Eastern Europe $6. 3 Africa and $5. 2 Middle East Total B 2 C $561. 8 1. 1% Latin America $93. 1 0. 8% Eastern Europe $83. 9 0. 7% Africa and $68. 6 0. 6% Middle East Total B 2 B $12, 275. 5 100% North America Online trade $219. 8 (US$ billions) (numbers have been rounded) 0. 9% 100%

Agenda · What is the state of e. Commerce worldwide? · How will productivity play a role in e. Commerce? · What new innovations will drive economic growth through 2010?

IT spending growth in percent

IT spending growth in millions of euros

Three phases of Net investment Rationalization 2000 -2003 • Net as integrated channel • Control costs • ROI-focused spending Growth in investment Experimentation 1995 -2000 • Web as separate business • Building presence • Ad hoc budgeting 1995 Renewed innovation 2002 -2010 • Intercompany collaboration • Gain advantage • Measured innovation 2000 2005 2010

A new wave of productivity Productivity: (% change in output per unit of labor input) IT productivity wave: Internally focused operational efficiencies from hardware, services, and ERP investments 1990 2000 e. Business productivity wave: Externally focused investments in technologies like supply chain and CRM yield efficiency gains in three key areas: 1. Lower transaction costs 2. Improved market information 3. Intensified new competition 2012

e. Business adds 15% productivity by 2012 Foundation Expansion Normalization 16 0. 8% 12 Total e. Business productivity gain 1. 2% 1. 7% Serve 46% 8 Produce 45% 4 Design: 9% 0 2002 2004 2006 2008 2010 2012

Agenda · What is the state of e. Commerce worldwide? · How will productivity play a role in e. Commerce? · What new innovations will drive economic growth through 2010?

The X Internet refers to two “Xs” An executable Internet that supplants today’s Web An extended Internet that connects to the real world

Executable Internet builds conversations Endpoints Server

The Web only provides answers How much is in my account? Account summary The Web

The executable Net creates a conversation What should I do with my account? Financial services tools (executables) The executable Internet Two-way conversation about my account

Extended Internet -- an Internet of things Extended endpoints Endpoints Server

The X Internet connects digital to physical Internet computers Digital Internet users Vehicles Telephones Buildings Physical

Where. Net devices simplify supply logistics Temp: 52° F Fuel: 1/2 tank Door: Closed • Tag is integrated with door, fuel, and temperature sensors • Sensor data is transmitted every few minutes

Where. Net devices simplify supply logistics Yard inventory is conveyed to users through maps and reports Colors indicate trailer status and alert conditions

Real-time alignment of supply and demand i. GPS-enabled truck fleet i 20 -minute delivery window i. Savings: $100 million

Summary · Leading firms must harness technology to drive productivity · Productivity via technology is e. Commerce’s next wave · As productivity takes hold, innovation will reignite around the X Internet

Thank you Julie Meringer +44 (0) 20 7323 7690 jmeringer@forrester. co. uk www. forrester. com