The internet on pandemic fast-forward

Insights from Morgan Stanley Research

05/03/21

Summary: Morgan Stanley Research explores how the pandemic changed consumers’ online behavior and digs into five segments for investors to watch in 2021.

As the COVID-19 pandemic took hold in 2020, the Internet served as a critical lifeline as many of us turned to the safety of the online world. We ordered groceries, not just take-out, bought clothing we couldn't try on for size, streamed movies we might have preferred to watch in a theatre, or binged on videogames during long days of lockdown.

But now, as the vaccination drive gathers speed, will our new online behaviors stick or will we go back to our old habits and real-world experiences?

Here are five areas to watch in 2021:

  1. Fast-forward for e-commerce
    Before COVID-19, some consumers may have resisted letting a stranger shop for their groceries, or felt leery of buying clothes they weren't sure would fit. But the necessity—and convenience—of at-home shopping fast-forwarded online shopping by three years.

    Could reopening reverse that trend? While Morgan Stanley Research does expect slower growth in 2021, with consumers eager to spend again on experiences such as travel and restaurants, they believe the rising trendline for online adoption should continue. To put it in perspective: Morgan Stanley estimates that e-commerce grew by about 40%, or $240 billion, in 2020—three times more than in 2018 and 2019. For 2021, after accounting for the anticipated release of pent-up spending for travel and other live experiences, they expect e-commerce to grow by roughly 9%.
  2. A focus on last-mile logistics
    The battle lines for last-mile logistics—getting packages from a delivery hub to the consumer—are forming. Increasingly, consumers expect on-demand (same day or 90-minute) delivery for their online shopping and food delivery orders.

    The rush of businesses enabling this new blend of the digital and physical worlds have already opened up a huge market—perhaps as large as $2.6 trillion. Now it's a race to drive efficiencies and new product offerings that will keep consumers coming back, and ordering more.
  3. Video gaming clears a new level
    Last year pulled forward about four years of video-game user growth, adding a higher percentage of US players in 2020 (31%) than in the previous three years combined. Gamers also spent more time, and more money, than ever before.

    Looking ahead, Morgan Stanley analysts believe that video-game publishers need to provide content updates and new, more personalized adventures to keep players engaged as the real world reopens and other entertainment options become available.
  4. Online travel
    As the US moves to reopen, the line between hotels and home-sharing platforms could blur even more. Even amid the pandemic, 2020 saw an increase in first-time bookings for alternative accommodations, possibly due to the desire for socially distanced lodging options.

    Additionally, survey data from AlphaWise, the proprietary survey and data arm of Morgan Stanley Research, suggests that Gen Z and Millennials are twice as likely to choose short-term housing rentals for vacations vs. traditional hotels, a trend that could continue to disrupt the roughly $800 billion global lodging market for years to come.
  5. Online advertising: A check-mark-shaped recovery
    With many US households having more money to spend online, Morgan Stanley analysts expect 20% overall advertising growth this year, a significant increase over the past two years. One key reason: With more consumers online, advertisers increased their ability to target specific groups of customers and measure their return on investment. Advertisers continue to experiment with these new digital tools, and Morgan Stanley Research sees this driving online ad growth for years to come.

    Shopping via social media also matured in 2020. A recent Alphawise survey highlighted that a rising percentage of Americans are now shopping through social networks, many posting short videos—a great target for advertisers.

Bottom line: Even after the world emerges from pandemic lockdowns, the consumer shift to digital experiences will have lasting effect across sectors.

The source of this Morgan Stanley article, The Internet on Pandemic Fast-Forward, was originally published on March 2, 2021.

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