It was billed as Britain's first e-Christmas, but it looks likely to have been the last for many hopeful cyber-retailers. For, although the volume of retail sales in December hit the highest levels since April 1997 and the most popular internet shopping sites captured their first significant slice of that trade, many wannabe e-tailers simply failed to make the grade.
Figures suggesting that only 1% of credit card sales were conducted over the internet in the run-up to Christmas have fuelled the notion that the widely predicted e-shopping bonanza was little more than hype. The recent sharp fall in the share prices of some of the internet's most prominent names, such as QXL, eToys and Amazon.com, has added to the sense that e-commerce is little more than a speculative bubble, with market valuation of internet stocks bearing little relation to the volume of transactions.
Internet trade is increasing, but not yet at a rate to justify e-tailers' market values. Verdict Research, the retail consultancy group, reckons internet shopping will have accounted for nearly 3% of all UK retail sales in 1999 - worth £581m - and expects this to rise more than twelvefold in the next four years to hit £7.4bn by 2004.
Daniel Gestetner, the managing director of ShopSmart.com - which runs an online shopping portal of more than 1,000 independent outlets - estimates that orders and sales last month for UK e-tailers were 100 times greater than during the previous Christmas and were 50% higher than in November.
What has confused the Christmas picture is that so much of the discussion about e-commerce relates to its potential rather than its performance. That is why a company such as Amazon.com - which started as an online book retailer but has branched out into groceries and pharmaceuticals - can be valued at $20bn on the stock market even though it has yet to turn a profit.
It also explains why "bricks and mortar" retailers such as Dixons see their share value soar once they reveal their credentials in the "clicks and mortar" world.
The success of the top web operators remains patchy, with the most prominent players clustered around a very small field of goods - books, music, videos, computer products and fashion clothing. "The products which are picking up on the net are those which have traditionally been bought by mail order," says Mike Godliman of Verdict, "so we have had the big sites all competing for the same pool of goods." Verdict already describes some sectors of the internet market as overcrowded.
It now looks likely that many internet hopefuls will fail, or will seek protective mergers. Christmas has only served to highlight the deficiencies of some businesses - great website, shame about the delivery. The secret of success in the virtual high street is a pedestrian ability to respond to customer orders and deliver them on time. The On-line Shopping Report, commissioned recently by the web design and marketing consultancy Dial Intern, revealed that in a test sample four of the 20 most popular UK websites failed to respond to customer enquiries, let alone get around to processing orders and delivering them. These shortfalls were notched up by big names such as Waterstones, Toys'R'Us, Virgin-mega and the music retailer CDzone.
The realisation that some of the most promising internet operators failed to deliver in the Christmas period has triggered a wave of selling in the shares of internet companies. In the US, disenchantment set in despite research which suggested that the number of visitors to US retail websites rose by nearly 40% in the run-up to Christmas.
The problems for US internet companies began before the end of 1999, when Value America, which sells electronic and office products, said it was sacking nearly half its staff and seeking a "strategic" merger. According to ShopSmart.com's Gestetner, a wave of defensive mergers is now almost certain in the UK, which is lagging some 12 to 18 months behind the US in terms of the development of internet sales.
"There is going to be a lot of consolidation in the next few months," he says. "A lot of people have been converted during Christmas to shopping on the web, but there have been delivery horror stories because some companies still fail to realise that e-commerce relies on its back-up distribution systems."
Everyone knows it is imperative to post early for Christmas but the same message failed to get through to net shoppers, many of whom were trying to place orders which were impossible for e-Santa to achieve, even though operations such as WH Smith and Amazon routinely operate a 48-hour turnround.
Chris Mole, a partner at PriceWaterhouseCoopers, says the lesson of the cyber retail world is that there are no second chances. It is a dire warning for internet companies as the industry enters a critical period which will separate the successful cyber-players from the web's also-rans.
• Lisa Buckingham is the Guardian's City editor
