Forecasting the Internet Economy

23 May 2001
Allen Greenspan may have a lot of the answers, but plenty of questions remain about the state of the economy and where it is headed.

Most experts agree that the economy has some leveling out to do with more dot-com companies falling by the wayside. Some dot-com companies, however, are expected to not only survive the storm, but thrive once it has passed.

The key, according to many experts, will be the merging of strong traditional brands and the customer base they have with an innovative and strong presence on the Web.

That blueprint for success isn't geared toward one industry either. Retailers, media conglomerates and even gaming operations that have a strong bricks-and-mortar presence to go with their online ventures are going to have a leg-up on their online-only competition.

Consider some numbers from the first quarter of this year. According to Webmergers, a company which tracks Internet business, 53 dot-coms closed up shop in January and February while 41 were forced to fold their tents in March.

Jack Abbott, CEO of Inter@ctivate, a leading firm that helps companies realize the full potential of their sites, admitted that the initial craze of dot-coms and website-only revenue producing companies has passed and those that survived were able to package their Internet address with other offerings.

And he sees the trend continuing.

"What will really change is that the companies who really succeed online are the ones who are adding value to their sites," Abott said. "The sort of window-dressing, 'I have to have a website and someone will tell me what I need' attitude is changing."

Richard King, President of Big Planet and a highly regarded expert on the global Internet economy, feels that those who had a strong brand among consumers before the Internet craze and were able to carry that to the Internet will stand the tallest once the cycle is over.

"The companies that will weather the correction will be those who have a traditional business that was working before the frenzy around dot-coms," he said.

King shares the common theory that what the U.S. economy is going through now isn't so much a slump as it is a correction from over-hyping under-valued companies.

"I don't see the U.S. economy slowing, I see it correcting from unnatural expansion precipitated by the dot-com bubble," he said.

Big Planet, a provider of communications and integrated technology products and services, has seen this first hand, but King admits there are some who buck the trend on both sides.

"Of course there are the exceptions," he said. "Amazon will probably make it, but Encyclopedia Britannica has been fossilized."

King shares the sentiment of many who feel the secret to the Internet economy may be hidden in the business-to-business sector instead of focusing on consumer related business.

"However, there are huge efficiencies that will ultimately be gained through investing in the Internet (B2B) by those deep-pocketed companies that can afford to do it," he said. "They will differentiate themselves and be more competitive as a result."

Abbott acknowledges that there is more than one way for a company to create revenue from the Web, but the B2B sector is seeing an enormous amount of growth.

"There are people who are using the Web as a marketing, communication and sales vehicle," he said. "There are other people who are using Internet technology more for e-commerce and business-to-business applications. What is happening is the latter is continuing to grow very, very quickly."

Looking back on the companies that have already closed and those that continue to struggle to make a profit, Abbott says the writing was on the wall early with those firms.

"Internet companies who weren't providing value are falling out right now," he said. "When we saw the market explode we knew there was going to be a shakeout."

King feels that companies are already switching their emphasis from just a website to how they can integrate the Internet into the entire business.

"Things will be based now on building a profitable e-business rather than subsidizing customer acquisition with the hope of garnering market share in the new e-order," he said.

In addition to companies not having a sound business plan, Abbott said many of the decision-makers during the height of the dot-com craze were inexperienced professionals, and companies have already seen the error of their ways.

"They are being developed by, for the most part, very young folks who have no real business experience," he said. "What is happening is budgets have been dramatically reduced and companies have taken a wait and see attitude over the last couple of months."

Not only were young pups making vital business decisions, but the group of trendy consultant companies that arose are also finding it tough to survive.

"The other big shakeout is what we like to call the Orange Suite Consultancies," he said. "The Razor Fish, March First people whose execution represents 10 percent of the cost; the other 90 percent of cost is strategies."

Also dooming many dot-com tech companies, according to Abbot, was their inability to adapt to customer needs. He saw this at a previous job before he started his own company.

"I decided I didn't want to be vested in the technology I sold my companies, but to be a client-side advocate to decide what their needs are properly and make sure the appropriate technology is implemented," he said. "The typical Internet company is vesting themselves in the technology."

Having the company vested in their product, instead of the other way around, creates a bad business plan, says Abbott.

"When you come and knock on my door, I have to sell you what I have not necessarily what you need," he said. "If today my NT people aren't busy, I am going to sell you NT. If next week my Linux people aren't busy I am going to sell you more freeware stuff."

King does see the economy leveling off soon and the technology growth spurt slowing down.

"It is interesting to look at other technology adoption--telephone lines, cable TV subscribers, PCs, mobile phones," he said. "All of these have topped out on a global basis and the large wave of growth has been replaced by single digit growth."

That slow growth has also spread to e-commerce, creating a new challenge for companies.

"This has now officially happened with the Internet," King said. "So now the challenge is not how do we add more users, but how do we create more uses. Certainly the countries that thrived in the adoption of these other technologies will likely thrive in the adoption of e-business."

King looks for the United States to lead the way while Latin America will struggle to adopt new technology.

"The U.S., Japan, and Europe lead in adoption," he said. "Laggards will be rest of Asia, and Latin America."

Abbott agrees that many countries will be slow to accept technological advances, but he feels that the Internet could level the playing field for individuals.

"The Internet is going to be the great equalizer," he said. "A programmer in Indonesia, who has come from a dramatically different background, in a matter of a few years of college, can be at a level with anyone else in the field."

While King points to certain pockets of the world that have been left behind, the tools are there for them to make up lost time, if they so choose.

"It is giving the underdeveloped countries a chance to leap-frog over that middle group and really impact their domestic economy," he said.

It is becoming PC for governments and businesses to speak of a global economy, but King feels there is a long way to go before that is truly accomplished.

"Although there are a few companies that can take an order and ship a product almost anywhere around the globe, we are far from being a true global economy," he said.

According to King, it will be a long time before a true global economy is reached.

"Show me a good global website that serves up content and catalogs equally in multiple languages," he said. "The tools are still not there. There are customs, taxation, tariff issues to be worked out. This level of policy setting will take years. Governments will sit and watch (tolerate) what goes on for a while yet before trying to change laws that support global commerce."

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