2002 Trend Forecasts and Outcomes

1. Widespread use of electronic commerce
   After the first-mover hysteria in 1999 and the disappointing results in 2000, e-commerce will begin to be a stable fixture of consumers' habits and companies' operations. Expected substantial end-of-year sales figures and the overcoming of some logistical problems and growing pains will combine to make e-commerce one of several important available distribution channels, and no longer (depending on the point of view) the business wave of the future or merely a technological aberration.
   
   Outcome: This trend was confirmed. For the first time ever, more Americans did their Christmas shopping over the Internet than through a catalog. This explains why the increase in Internet Christmas sales figures was four times that in stores. This side of the border, Canadians increased their online purchasing from $1.5 billion in 2000 to $2.2 billion in 2001. All signs point to this year's growth figures being as substantial, especially when one considers that Canadians will do more than five percent of their Christmas shopping through the Internet, which translates into a $1 billion figure. If as expected, Internet retail sales exceed $3 billion, they will represent more than one percent of total retail sales, and more than two percent of all retail sales excluding food, medicines and automobiles. These are not negligible percentages, especially when it appears that a fifty percent growth rate will continue. The impact on many Canadian companies is already significant; VIA Rail Canada and the Admission network currently transact more than twenty percent of sales through the Internet.
2. Security problems destabilize Microsoft.
   The multiplicity of security breaches in Microsoft software and the latter's widespread use and increasing importance for individuals, companies and other organizations will transform what has been merely an unavoidable headache into a critical problem. The first sign of this trend is the FBI's recent warning about Windows XP. Most likely the worst effects of the systemic problems inherent to Microsoft architecture will be the software's exclusion from sensitive domains and the loss of market share to competitors offering more secure technology. This will be more serious than the various antitrust court cases the company is stuck with because of an outdated institutional approach.
   
   Outcome: Our prediction has been confirmed. The year witnessed 72 security alerts, more than one each week, a confirmation of the weakness of Microsoft's integrated architecture. Most of the software maker's clients were forced to spend many hours each month installing patches to correct the numerous security holes. A definite industry malaise could be seen in the decision by 25 European, Asian and Latin American countries to opt for using open-source software so as to reduce their dependency on Microsoft and their susceptibility to its security weaknesses. And in fact, in the enterprise server market, formerly a Windows NT stronghold, Linux's market share has been increasing 10 times faster than that of Windows'. This serious loss would seem to be due as much to security limitations as to the new Windows pricing policy, which has been negatively received by two-thirds of Microsoft's corporate clients. Nevertheless the monopoly's strength remains overwhelming, allowing the software giant to continue to rack up impressive profits of 85 percent on its operating system, more than enough to cover the losses generated by all the other divisions except Office.
3. The failure of convergence.
   This is a repeat of last year's prediction, but the potential impacts of the trend are so important, it has to be put forward again. After their brief honeymoon period in 2001, the converged empires in Quebec (Bell, Quebecor, CanWest) and elsewhere (AOL-Time Warner, Vivendi-Universal, etc.) will have to give a full accounting of themselves; and the hoped-for successes will still not be forthcoming. This year will therefore see the first cracks in the facades of these corporate behemoths, many of whom will be whittled down in the coming years either through selloffs or closure of active divisions.
   
   Outcome: The accuracy of the prediction held firm throughout the year, and spectacularly so. First there was a free fall in the valuation of all the corporate entities associated closely or not with convergence, while companies such as Transcontinental who had stayed on the outside saw their worth increase. Next came the dismissal of most of the leading lights of the convergence phenomena: Jean-Marie Messier (Vivendi-Universal), Thomas Middlehoff (Bertelsmann AG), Gerald Levin (AOL-TW), and Jean Monty (BCE). Where Quebecor was concerned, Pierre Karl Péladeau kept his job, but the CDP (Quebec's Caisse de depôt et placement) got rid of all the executives associated with the convergence exercise, notably Messrs. Scraire and Bélanger. Finally, many of the corporate groups began to "deconverge." In one year Vivendi sold off its holdings in satellite television (Echostar in the US and Telipiu in Italy), in French television production (Expand), textbook publishing (Houghton Mifflin), general publishing (VUP sold to the Lagardère Group), and of course, its holdings in Internet companies, with the sale of mega-portal Vizzavi Europe following on the heels of the shutdown of the majority of Internet projects (Scoot Benelux, Ad2One, @Viso, etc.). For its part, Bertelsmann got rid of its participation in AOL Europe, BOL (the European electronic bookstore), Cdnow, Napster, etc.
4. Failure of online pay-for-music networks.
   The last three years have seen the music industry knocking its head against the Internet brick wall with nothing to show for it but corporate migraines. As supposedly hacker-proof technologies meant to block piracy failed miserably, so too will the proprietary approach also fail because it is up against not only a guiding dynamic of the Internet but also, especially, consumers' willful expectations of benefiting fully from the dematerialization of music.
   
   Outcome: The tendency has been confirmed. While forty percent of internauts continue to cheerfully download music from the Internet, scarcely one percent admit to having paid for the service. This despite the music industry's tenaciousness in shutting down the Napsters and Galaxies of the world-only to see them immediately replaced by more powerful, harder-to-target systems such as Kazaa, eDonkey, Morpheus, etc. CD sales are falling off precipitously: in the US by seven percent in 2000, ten percent in 2001, and ten percent more in the first quarter of 2002. In Quebec comparable losses have occurred for the last three years; that's quite a blow for an industry accustomed to annual ten-percent growth. Not only are online music services not making a breakthrough, but also, music CDs are the only products whose online sales have fallen this year (by twenty-five percent)-in other sectors there has been average growth of thirty-five percent.
5. The appearance of an Internet-specific business plan.
   Contrary to what many analysts say (or rather hope), the free-service model is far from disappearing. All you need to do is compare the time spent at free sites with that spent at paid sites. An Internet-specific business model is beginning to take form, one that is unlike all the others yet at the same time similar in some respects. The model is based on five components; in descending order of importance they are:
   
   • very low operating costs (the dollar amount spent per unique visitor or page view is key to a site's management);
   • indirect revenues (traditional-type revenues generated by the Internet, cost savings from using the Internet);
   • revenues from value-added services (services that complement free ones, subscriptions, etc.);
   • advertising revenues (from current or to-be-developed formats);
   • e-commerce revenues (commissions and other derivatives whose importance will take several years to develop).
   
   Outcome: The outcome was as predicted. Many Internet companies achieved profitability by applying the model in whole or in part; the economic revival of Yahoo is a best-case illustration. A few years ago ninety percent of the famous portal's revenues were from advertising. With the collapse of the speculative bubble and of the value of advertising banners, Yahoo revenues fell by thirty-five percent in 2001. Yahoo still sells advertising, but an increasing share of its current revenues, more than forty percent, comes from value-added services: classified ads, job-hunting services, Web site hosting, music downloading, messaging and online dating services. A large number of sites are adopting this approach. In Quebec, Branchez-Vous, RDS, Le Devoir and many others come to mind, all beginning to offer similar for-fee services to complement their free offerings. The result is that today, one in ten Internet surfer pays for services, and this generated nearly $1 billion for the first nine months of the year. As forecast however, profits were not due only to fees for services; they were helped along by steady growth in Internet advertising revenues and the streamlining of operating costs, especially through a large number of layoffs.
6. Rebirth of the community Web.
   While the dotcom mania has served to create a dynamic of financial valuation at all costs, causing the direct or indirect disappearance of many non-professional or community-interest sites, the failure of the fortune-hunters and the removal of their tainted links has re-opened up room in cyberspace for non-profit sites. The "Chez Maya" phenomenon-an amateur site among the most visited sites ahead of La Presse and MontrealPlus-is an instructive example.
   
   Outcome: This prediction was not borne out in fact. Personal Web sites have been at best only marginally successful. Even "weblogs" (personal editorial and opinion sites) cannot lay claim to success worthy of their editorial quality and diversity of viewpoints.
7. The real P2P revolution is still to come.
   So far, P2P (peer-to-peer computing, involving computer to computer connections a la Napster and SETI,) has served only to frighten the music industry giants, perform arcane searches for signals from deep space, and provide fodder for research at many universities. This computing approach goes back to the original collaborative roots of the Internet, and will end up in the deployment of revolutionary applications whose groundwork will become apparent in 2002 , probably in such areas as monitoring, research tools, work sharing, etc.
   
   Outcome: The trend has been confirmed. Ready to be deployed by the US Army to facilitate battlefield communications and information exchange, P2P (also called Peer Computing) has graduated beyond simple film and music pirating. Most of the big names in computing are investing substantial sums to develop applications supporting the two branches of P2P, namely file sharing and grid computing. In fact Microsoft, Sun, IBM and Intel are all directing their development of Web services (.Net etc.) via the P2P route. The pioneers of free-for-all P2P have not been blind to the opportunities being created, and are coming on board with the majors to capitalize on the expertise they developed. The best example is that of one of the Napster founders, who has created a new kind of anti-spam application based on P2P.
8. The appearance of the first interesting High Speed Internet applications.
   As the High Speed Internet reaches critical mass size in North America, and begins to take off in Europe, we should finally see applications that allow Internet users to really benefit from the technology. Distancing themselves from vain attempts to compete with television, which for a long time to come will remain the technology most adapted for audiovisual productions, these applications will probably affect the education and interpersonal communications sectors. Unfortunately, Canada and Quebec, who have both taken a considerable lead in deploying the High Speed Internet (twenty-five percent of all households), seem to be behind in the development of content and adapted applications.
   
   Outcome: The facts have not proven the forecast. Content development has not kept up with Quebec and Canada's lead in high-speed connection. And rumours point to a worrisome reduction in subscriptions among the main suppliers of High Speed Internet access. A few interesting initiatives such as Télé-Quebec's duceppe.tv, Radio-Canada's archives, and first-ever events like the broadcast of the feature film Home over the Internet during the last World Film Festival, remain marginal and specific to certain occasions. We will have to wait for the Americans and the Europeans to adopt the High Speed Internet in order to be swamped with content.
9. The home network issue.
   (This is a trend unlikely to take hold before several years, but it is of sufficient importance to merit discussion now.) For ten years now household appliance and television manufacturers, video games makers and PC sellers have been jostling to create THE single black box to control the home entertainment centre. However, it is more than likely that consumers will prefer to use the widespread home network to combine different technologies rather than be hand-tied by a central control system. This will oblige entertainment giants to radically modify their business strategies to adapt to an environment based on open cohabitation rather than proprietary monopoly.
   
   Outcome: Confirmed. The trend has taken hold faster than we had predicted. Though it had been predicted that 6 million homes would set up a home network in 2002, this figure only refers to households that installed a wireless network, representing only about thirty-eight percent of the 15 million households that installed a network this year. Even Microsoft has gotten into home networking. The giant is aware that this is not just a promising market but also a strategic technology for controlling the domestic information and entertainment environment, given that we can soon expect to see audio systems and televisions join computers and printers on the home network.