December 2002 - An Update From the Digital World


We are witnessing strong growth in online transactions this holiday season
In recent weeks, the growth in online listings and transactions for platforms like Amazon and eBay has supported our view that both buyers and sellers are ramping up their usage of the Internet.

We believe that 2003 may be the year of an Internet wake-up call
We foresee an inflection point for more intensive, broad-based Internet usage and highlight four secular trends - globalization, pricing, used goods, and replacement - that may be changing the nature of transactions.

Globalization - Expanding the reach of marketplaces for buyers and sellers
In our view, online transactions can benefit both buyers and sellers through a dramatic expansion of markets thanks to increased product selection/availability and customer reach and distribution.

Pricing - Transparency helps improve market efficiency
Pricing transparency - along with advantages of online in terms of convenience, service, selection, and delivery - can help drive prices down (or up in some cases) in markets that have been inefficient.

Used goods - Information and reliability improve the appeal of used vs. new
In some sectors, we may be seeing a shift from new to used products as better information about the product and the seller helps improve buyer comfort.

Replacement - At the margin, online should continue share gain from offline
Certain products and services, such as offline media, are being replaced by online versions. Online replacements often carry lower prices than offline comparables, in part due to economies of scale.

Our Internet & PC Applications Software Industry View is Attractive
Given still-strong 20%-plus expected global growth in Internet users and usage, we continue to believe our stocks could outperform the market over the next 12-18 months.

December 2002 - An Update From the Digital World (8 pages)