TCS Daily


The Glitch That (Almost) Stole Christmas

By Dominic Basulto - December 28, 2004 12:00 AM

Prior to the start of the holiday shopping season, experts warned that online shopping destinations like Amazon.com would be stretched to the limit if they hoped to satisfy the growing number of shoppers who prefer to shop online in their pajamas rather than brave the crowds at the nation's malls and department stores. In the weeks before Christmas, there were already reports of intermittent outages and delays at popular sites. A paralyzing winter snowstorm that blanketed a wide swath of the nation in several feet of snow and ice didn't help prospects much -- nor did reports that hackers were gearing up for an epic season of vicious viruses and system-clogging spy ware. Throw in the ever-present risk of a computer glitch of the sort that brought Comair to its knees, rumors that hot products like Apple iPods were no longer available online and the usual concerns about identity fraud, and things were looking dicey at best for online retailers.

Yet, with partial tallies already in from sources like comScore Networks, it looks like online retailers posted one of their best years ever. Buoyed by a surge of last-minute shopping, online sales through December 22 reached $13.5 billion -- a startling 28% increase from last year's holiday season. For the week ended December 19, e-commerce sales increased by a whopping 57% compared to the same period last year -- primarily due to the fact that online merchants took orders later into the Christmas season this year. For the entire holiday season, analysts are projecting an 8% increase for online sales and online gift certificates compared to last year.

In contrast to impressive Internet sales numbers, overall holiday retail sales figures were disappointing. According to the New York Times, in fact, "online sales may have been the true hit of Christmas." On December 27, Amazon.com reported that it had recorded the busiest shopping season in its ten-year existence. Moreover, the company also posted a one-day selling record during the holiday season when it tallied 2.8 million unit sales worldwide in one day -- equivalent to 32 items per second. Sales of books and electronics like DVD players and digital cameras, not surprisingly, were the top sellers.

With online retailers extending their selling season by several days this year, it's perhaps not surprising that online sites did so well. However, there are a number of trends at work that bear further watching, the most important of which is that online browsers have turned into online shoppers. In the early days of e-commerce, shoppers would browse for the best price online and then shop offline. Now, the pattern appears to be reversed: shoppers are browsing items at physical stores and then taking advantage of search engine tools and comparison shopping sites to buy from trusted brands online.

Holiday shoppers now have a level of trust in online retailers that did not exist before. That means a potential change in spending patterns, as consumers buy more electronics and less apparel and reduce their dependency on malls and department stores. Online shoppers are also savvier -- they realize that all the cool graphics and animation in the world are useless unless a company has a world-class distribution and logistical system. Internet players that consistently invest in infrastructure upgrades that enable them to handle greater system loads during peak periods will be rewarded throughout the year, not just during the holidays.

If there is one factor that might dampen enthusiasm for online shopping, however, it is the very real prospect that some online retailers might not be able to make their product delivery commitments. This was the glitch that might have stolen Christmas this year. Could online sites keep up with an 11th-hour surge in consumer buying? The ease and convenience of online shopping is hard to beat -- but so is the embarrassment on one's face when packages fail to appear before Christmas. What do you tell loved ones when presents and stocking-stuffers sent via the Internet never arrive? Surely that would be enough to dissuade shoppers from ever venturing online again?

In the Dr. Seuss tale "How the Grinch Stole Christmas," this was exactly what the Grinch reckoned on -- that every Who down in Who-ville would cry "Boo-Hoo" once they found out that someone had taken away their trees, gifts, Who-pudding and roast beef. Yet, Christmas came, somehow or other, it came just the same.

Christmas came this year as well. Ordering online may not be glitch-free, but the Internet still means a wider selection of items at better prices -- and none of the heartache of navigating slippery highways and crowded parking lots. So, before speed-dialing the customer service number of your favorite online store to track down a missing holiday present, remember one important lesson from Dr. Seuss: "Christmas doesn't come from a store... Christmas means a little bit more."

The author writes frequently about technology and venture capital.


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