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Trends in 2004

eMarketer's team of senior analysts have come together to present 11 trends that will influence business and society in 2004.

1. DIGITAL MUSIC: Online retailers will have the most success in selling digital music as a break-even product or loss leader. The mass appeal and low price of music make it an excellent impulse purchase, but few digital music stores today integrate sales of digital music with CDs or related products. Retailers will need to capture profit elsewhere, given that thin margins on digital music make it untenable. Mass market retailers such as Best Buy already use CDs as a loss leader; online retailers such as Amazon.com, which will launch digital music alongside CD sales and its CDNow discount buyers' club, will reap the highest overall value from selling digital music. -- Senior Analyst Ross Rubin

Refer to: Digital Music: "Fear-to-Peer" Tactics Pave Way for Download Revenue (new spotlight report for January 2004)

2. IT SPENDING: Small and medium-size businesses (SMBs) have become big targets for leading technology vendors from IBM and Microsoft to Intuit. Individually, SMBs don't always spend much on technology, but with millions of small and medium-size companies out there, IT sales into this market is a multi-billion dollar opportunity. Recent tax cuts in the United States currently permit SMBs to deduct as much as $100,000 annually in fixed capital expenditures from their taxable earnings -- up from $25,000 prior to 2003 - which should further stimulate IT investment by US SMBs through the end of 2005. -- Senior Analyst Steve Butler

Refer to: Trends in SMB IT and E-Business Spending (new spotlight report for January 2004)

3. GAMING: The next generation of video game consoles is expected in 2005/2006, but Sony and Microsoft have already laid the groundwork for the future, which involves network-connected gaming. Multiplayer network-connected gaming is still a hardcore gamer activity, but with the majority of people under 30 brought up on video games, interactive entertainment will be the norm rather than the exception over the coming decade. -- Senior Analyst Ben Macklin

Refer to: Console Wars II: The Battle for Mainstream (new spotlight report for January 2004)

4. ONLINE ADVERTISING: The long-awaited rebound of US online ad spending from the declines of 2001 and 2002 is finally here. That the rebound is being fueled mainly by a direct response ad format, paid search, is a reason for concern, however. While many Internet advertising practitioners already know that the Web is also a branding tool, the media attention and industry buzz directed at paid search might sway large traditional advertisers and agencies into seeing it as a "mere" direct response medium. Even as ad dollars grow, such a scenario would be a setback for online advertising. The proliferation of rich media, for example, presents enhanced opportunities for branding online. -- Senior Analyst David Hallerman

Refer to: Online Ad Spending: More Money, More Choices (new spotlight report for January 2004)

5. PORTALS: The 'big three' portals will continue to be the online destinations where most Internet users congregate. In another year, eMarketer's next related report may be about the 'big four' as Google IPOs and begins to resemble a portal. Google is already a powerful advertising platform, but there may be additional opportunities for advertisers and marketers within Google as it evolves. Meanwhile, AOL, MSN and Yahoo! won't be sitting still... -- Senior Analyst Ben Macklin

Refer to: Portal Plays: Strategies & Developments of the 'Big Three' (new spotlight report for January 2004)

For the remaining six trends to watch in 2004, read on to the next page.

Here are the last six of 11 trends to watch in 2004 according to eMarketer's senior analysts.

6. LATIN AMERICA: Latin America offers the world's lowest-priced Wi-Fi services. In a region long beset with high Internet access costs, this finding comes as something of a revelation. Although Wi-Fi access points are not yet widespread enough to have a major impact on Internet usage patterns, aggressive pricing strategies bode well for Latin American consumers, particularly as they trickle down to fixed line-based broad- and narrowband services. Foreign investors may remain wary of Latin America's technology markets after their meltdown in 2000, but several intrepid telcos have forged ahead, paving the way for continued growth in Internet access and usage across the region. -- Senior Analyst Noah Elkin

Refer to: Latin America Online: Tracking Internet Access & Usage (December 2003 spotlight report)

7. ONLINE CONTENT: The Internet evolution from free to fee is not just a temporary phase that will go away now that online advertising is picking up. The shift is here to stay, and it's growing. Along with comScore Networks, which has quantified this trend for the Online Publishers Association, IDC, Jupiter Research and eMarketer have also identified that US consumers are spending increasing amounts of money on online content across a variety of content categories, and this will continue. -- Senior Analyst Ben Macklin

Refer to: Online Paid Content: Trends & Opportunities (December 2003 spotlight report)

8. WI-FI: Competition in the Wi-Fi market will remain fierce. There are currently approximately 60 Wi-Fi chip startups, and some are already dropping out of the game. As with much of technology in these tougher times, only the strong -- and well funded -- will survive. Look for established names, such as Intel, Microsoft and Cisco, to lead the charge, accomplished by plenty of acquisition and consolidation activity as well as heavy marketing campaigns. Yet, will anyone turn a profit? -- Senior Analyst Noah Elkin

Refer to: Wi-Fi: Trends & Prospects (November 2003 spotlight report)

9. INTERACTIVE BANKING: Banks once hoped that the Internet would reduce traffic in higher-cost channels such as the branch and call center, but they now realize that may not happen exactly as planned. Instead, bankers are using the Web increasingly to reach more desirable customers -- affluent, educated and loyal -- and also as a tool to retain existing customers, with services such as online bill payment. In addition, savvy banks see that combining the Internet with in-person channels is often the optimum way to deal with complex financial tasks such as mortgages and financial planning. -- Senior Analyst David Hallerman

Refer to: Interactive Banking in the US: Making the Most of a Multi-Channel World (November 2003 report)

10. WIRELESS: The increased competition within the US market has forced operators to be aggressive with pricing as well as offering consumers larger and larger buckets of minutes per month. This would account for the greater amount of time spent each month talking on mobile phones in the US. Despite the US and Canada lagging behind Western Europe and Japan in mobile phone penetration, it is likely that the North American mobile market will be the world hotbed of growth and innovation in the short- to medium-term and in many respects will leapfrog a number of the Western European and Asian markets. -- Senior Analyst Noah Elkin

Refer to: Wireless Worldwide: A G-7 Comparison (November 2003 report)

11. E-COMMERCE: US e-commerce demonstrated solid expansion during 2003, culminating in online retail sales of $17.8 billion during the holiday shopping season. Last year, 81.2 million Internet users in the US made an online purchase; this number is expected to grow to 86.5 million online buyers in the US by the end of 2004. -- Senior Analyst Ross Rubin

Refer to: Retail Industry Online (October 2003 report)

For more information on any of the 11 trends to watch in 2004, visit eMarketer.com.

11 Trends to Watch in 2004