3 Market and Competitive Environment
In the 2004/2005 financial year the market environment for SinnerSchrader has improved markedly. The forecasts on economic growth and the development on the IT and advertising market in 2004 that were available at the beginning of the financial year in the autumn of 2004 were missed only slightly. Unlike in the previous years, there were no negative surprises at the end of the calendar year. Thus, in 2004 the real growth in gross domestic product reached [German Federal Statistical Office, 23 August 2005] 1.6 % in Germany; the IT market [BITKOM, Industry Figures, as of Autumn 2005, 24 October 2005] and advertising expenditure [Central Association of the German Advertising Industry (“Zentralverband der deutschen Werbewirtschaft”, ZAW), ZAW Yearbook “Advertising in Germany 2005” (“Werbung in Deutschland 2005”)] grew by 1.6 % and 1.1 % respectively in the same period.
Overall economic growth in 2005 appears to have slowed down again – the Federal Government and economic experts are currently assuming a real GDP growth of 0.8 % for 2005 – but the dynamism in the IT and advertising/marketing sub-markets that are relevant to SinnerSchrader is at least considered to be stable by the industry associations concerned. The current prediction for the IT market allows for a 3.1 % rise in market volume and growth of 1 % in the advertising market for 2005. In particular, the development in the relevant sub-segments of the IT and advertising market related to the Internet will be developing their effect for the business development and prospects of SinnerSchrader.
For example, the income of online advertisers in Germany, one component of the advertising expenditure referred to above, increased by 10.2 % over the previous year in 2004. Expenditure for new forms of Internet advertising not included therein, such as search engine or affiliate marketing [Onlinevermarkterkreis (OVK), 2 August 2005], rose by over 40 % in 2004. Similar growth speed is expected for 2005. This reveals a trend to reorganise advertising expenditure in favour of the Internet, which SinnerSchrader also finds confirmed in its customer relations.
Similar developments can also be seen in the IT market. In a study published by Freiburg University [Freiburg University, Electronic Commerce Enquete 2005] and funded by the Federal Ministry for Labour, around 60 % of the responding companies stated that they wanted to increase the proportion of Internet-related IT investments and expenditure in the next two years.
The development or expectations cited for the Internet-related market segments of the IT and advertising industry reflect the uninterrupted increase in the spread of the Internet as a communication and transaction platform: according to data from social research institution Forschungsgruppe Wahlen, which conducts election polls for German television, the proportion of the population with access to the Internet rose by three percentage points to 64 % between October 2004 and October 2005; turnover from transactions with goods, services and information with end customers (B2C turnover) will rise by 11.5 % to € 14.5 billion in 2005 according to figures from the Central Association of German Retail.
The improvement in the environment for SinnerSchrader’s business activities thus continued in 2005 after starting in 2004 and no signs can be seen that give rise to the expectation of another deterioration in the foreseeable future.
In view of a continued fragmented landscape of providers and the fact that new market players are becoming established in emerging business segments, such as search engine marketing, the revival of the market in the 2004/2005 financial year has not yet led to a lasting change in the intensity of competition and, thus, to a change in achievable prices.
Fig. 2 | Development of the market and GNP in Germany in %
Fig. 3 | B2C/E-Commerce revenue 2001 to 2005e in € millions