A recent report from Citi Research’s Ronald Josey picks out ten key trends in the Internet space for this year. Here are the highlights:
Trend # 1: Gen AI Tools Drive Online Ad Expansion and Return on Ad Spend
Citi Research analysts now say a somewhat stabilizing macro environment should further unlock ad budgets while 2024 also benefits from being both an election year and an Olympics year.
Online already accounts for ~70-75%+ of ad budgets overall, although the analysts say that growing engagement, newer online ad formats (like retail media, video, and short-form video), and improving measurement tools are leading to improved conversion rates overall.
Trend #2: The GenAI Agent Revolution: Improves Engagement, Customer Service, and Conversions
Given the rise of GenAI foundation models (FMs), large language models (LLMs), and adoption among consumers, the analysts say this year is likely the one when AI assistants and chatbots improve engagement, commerce, and customer service. In other words, AI agents can proliferate across B2B and B2C channels.
Trend #3: eCommerce Gaining Share of Overall Retail Transactions; Social Commerce an Emerging Trend
For the Citi Research analysts, underlying eCommerce growth assumptions is continued consumer demand for online shopping led by greater convenience; fast, sometimes free shipping; and newer vertical penetration.
Social commerce is emerging as a newer form of product discovery. While search (through Amazon and Google) remains the largest channel for product discovery online, 41% of consumers (and 64% and 59% of Gen Z and Millennials, respectively) have discovered a product on social media as of May 2023 (per Hubspot).
Trend #4: Rideshare and Food Delivery Marketplaces: Expanding Use Cases, Supply Equilibrium, and Profitability
For 2024, Citi Research analysts say frequency will be the key theme across both rideshare and food delivery marketplaces. This is based on a view that driver supply has largely reached demand equilibrium across both ride-hailing and food delivery improving convenience levels, that newer verticals like grocery and convenience gain broader acceptance, and that subscriptions can accelerate greater take up.
Trend #5: Online Travel: Focus on Direct Traffic as GenAI Tools Could Improve Use Cases
Generative AI is likely to be a key theme in online travel as newer tools create greater engagement and conversion rates. The year 2023 provided a glimpse of the demand from GenAI tools when deployed at scale. 33% of leisure travelers have already used GenAI-powered tools, with ~81% of these travelers indicating they would book based on AI recommendations and 50%+ of loyalty travelers indicating they would select a platform based on GenAI capabilities.
Trend #6: Cloud Optimizations Attenuating as GenAI Creates Demand Tailwinds
The Citi Research report says that while cloud optimizations are expected to continue, GenAI can also create demand tailwinds and incremental workloads. As a result, the report says cloud spend growth can recover modestly in 2024 as optimizations attenuate and companies benefit from incremental spend on newer Generative AI projects.
Trend #7: Online Real Estate: Weathering Macro, while Controlling the Controllable, & Launching Newer Products
Although macro challenges persist, buyer sentiment is improving as mortgage rates fall and 2024 homes sold should rebound from 2023’s 3.8 million homes. They note that Citi’s November homebuyer survey found ~43% of U.S. homebuyers said they were more likely to purchase a home in the next 6-12 months, rising from 36% when surveyed in March.
Trend #8: Online Autos: New Car Supply Normalizing; Slowly Impacting Used & Wholesale Supply
The report notes that domestic OEMs supply is relatively normalized, although Japan, South Korea, and European OEMs supply remains below historical norms limiting demand. But, given the average age of cars in the U.S. is at a record high of 12.5 years, up 3+ months vs. 2022 and the sixth consecutive year with an increase, the Citi Research analysts expect demand for new cars to rise once supply normalizes.
Trend #9: Expanding Margins: The Year of Efficiency to Continue into 2024
With RIFs largely completed in late 2022 and throughout 2023 across most of Citi Research’s coverage universe and companies now focused on core projects, analysts expect 2024 will be the first year in which most companies deliver a more normalized cost structure.
Trend #10: Regulatory Challenges Likely to Continue, Particularly Among the Large Caps
The report says that regulatory risk is likely to persist in 2024 across large-cap Internets across the U.S. and in Europe. In the U.S., the analysts note that Google and Amazon each face antitrust suits by the DOJ and the FTC, respectively, and they note the FTC is seeking to potentially modify Meta’s consent order.
For more information on this subject and if you are Velocity subscriber, please see the original report, dated 20 December 2023, here: North America Internet - What a Difference a Year Makes: Ten Key Internet Trends for 2024
Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click here.
