No economic slowdown on the Internet

WASHINGTON - Internet commerce continues its robust growth, defying a sluggish economy that's teetering on recession, Google's chief economist and several analysts said Friday.

Electronic commerce has grown about 22 percent in the past two years, said Hal Varian, the economist, who spoke at a forum on the state of the Internet economy at Google's new Washington office. Ed Garrubbo, chairman of the Electronic Retailing Association, said online sales jumped 17 percent in the first quarter of this year.

"The lesson here is that the economic slowdown is not an Internet slowdown," Varian said. "The Internet is looking pretty strong compared to other sectors."

Robert Atkinson, president of the Information Technology and Innovation Foundation, a non-partisan tech think tank, predicted continued growth for online commerce as high-speed connections increase and "the core technologies are becoming faster and cheaper."

"The absolute growth has been steady now for several years. The Internet economy is almost counter-recessional," Atkinson said. He added that comparisons with past slowdowns are difficult because this is the first downturn in which online commerce has played such a big role.

Garrubbo said traditional retailers such as Saks are experiencing a boost in online sales while other retail sales in stores are leveling off. The falling dollar is also helping online businesses attract foreign customers.

Citing data from Forrester Research, he said 53 percent of all computer hardware and software sales take place online, along with 30 percent of all toys, video products and auto parts. One survey showed that two-thirds of all Internet users have bought products online.

The looming recession may actually contribute to e-commerce, Garrubbo said, because cautious consumers are doing more research and comparison shopping online before making a big purchase.

"A recession forces smarter decisions, and there's an increased desire to go online," Garrubbo said.

Michael Avon, a venture capitalist with Columbia Capital, said investments in Internet companies and start-ups have dropped off a little from last year. But he said the coming development of open platforms on mobile devices and the increasing use of social networks to sell more services and products - even $3 personalized ring tones - will create new business opportunities.

The key to much of the e-commerce boom has been the success of targeted search advertising. Google is able to closely measure consumer sentiment, Varian said, and showed data that indicated how search queries and clicks on ads reflected the downturn in real estate and the seasonal nature of car sales.

Because the impact of search advertising is more measurable than TV, radio and newspaper ads, and the coveted demographic group of twentysomethings use the Internet more than other media, spending on online advertising will start to catch up with TV ads, Avon predicted.

Atkinson sounded one cautionary note about the growth of e-commerce - that officials in Washington "still don't understand how much of a driving force information technology and the Internet are in the economy, responsible for a lot of growth."

He called personalized online ads "economic rocket fuel" that makes much of that growth possible. Atkinson warned that worthy efforts to protect consumer privacy online - now under discussion in the Federal Trade Commission and Congress - could have the unintended consequence of threatening that growth.