Rethinking the Internet

Everywhere we look, the once-limitless promise of the Internet appears to be

fading. The dot-coms that were supposed to topple industry giants have mostly

vanished. The last of the Net’s bluest-chips are on the ropes. No 1 e-tailer

Amazon.com can’t extract a profit from its $2.8 billion in sales, leading some

to predict it will run out of money. And in early March, one of the few

profitable web companies, portal Yahoo!, said it would badly miss sales

projections for the first quarter.

Internet stocks are in free fall, many of them lucky to top a buck a share–sending

billions of dollars of investment up in smoke.

And the collapse isn’t stopping at the dot-coms, as the once-untouchable

makers of the networking and computer gear that serve as the Internet’s

foundation are also on the run. In March Cisco Systems jolted the market with

its second warning of slower growth to come, announcing its first-ever

widespread layoffs. That followed a warning of slowing sales in late February

from Sun Microsystems, whose servers run countless web sites.

Now, the mounting woes of the Internet sector seem to be spreading to the

rest of the economy. Just as the rollout of the Internet helped fuel the boom of

the 1990s, the evaporation of Net euphoria is helping drag down consumer

confidence and corporate capital spending, not to mention the stock market.

Since the beginning of the year, the Standard & Poor’s 500-stock index is

down 12%, and the US economy looks ready to slide into its first tech-triggered

recession.

But look beyond the current economic and market plight, and a different

picture emerges. As with any new technology, the early years of the Net have

been a learning process–and here’s what we now know. First, the Internet was

supposed to change everything. That’s just plain wrong. The reality is, there

was no way that a single technology could fulfill such an extravagant promise.

Instead, it turns out that the transformative power of the Net is being felt

unevenly. There are plenty of industries and situations where the Net has the

potential to be revolutionary, as its most enthusiastic backers had predicted,

and their number will only widen as new technologies such as broadband come into

widespread use. But clearly in much of the economy, the Internet offers

incremental payoffs without substantially altering core businesses. Even in

industries where the Net can effect profound change, institutional barriers and

business inertia mean the big gains may not come for years.

Strip away the highfalutin talk, and at bottom, the Internet is a tool that

dramatically lowers the cost of communication. It can radically alter any

industry or activity that depends heavily on the flow of information. In areas

such as financial services, the process is well under way. In other

information-intensive industries, such as entertainment, health care,

government, and education, the potential lies in the future. But it’s there.

The Net can not only dramatically reduce the cost of both consumer and

business transactions, but also improve coordination, both within and across

companies, while giving them direct contact with consumers. "The reality is

that e-business is a tremendous tool for cost reduction, to help you get closer

to your customer and for what used to be called Old Economy companies to apply

to our current processes," says Brian Kelley, vice-president of global

consumer services at Ford Motor and the architect of most of the auto maker’s

e-business initiatives.

Over the coming decade, the biggest gains will come from restructuring the

way work is done within companies. The Net can become the communications

backbone for everything from linking supply chains for speedy product

turnarounds to storing employee expertise so that co-workers can tap into

ready-made knowledge instead of starting from scratch.

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