John RapleyWHEN THE technology-heavy NASDAQ plunged from its stratospheric heights last April, executives in the American Internet industry had to be hoping for a quick recovery. But four months on, investors have failed to orchestrate much of a bounce. So it is now looking increasingly likely that the days of the booming tech market lie in the past.
This is posing grave problems for the so-called Net industry. In the days when everyone was clamouring for their stock, Net executives could bankroll rapid expansion and cover persistent losses by selling new shares. Moreover, they were able to reduce their costs by subsidising their employees' meagre salaries with stock options.
The long-term outlook was cloudy, for the simple reason that few of these entrepreneurs had found the trick of turning the Internet into a real money-making venture. This is because the structure of the Internet, with its intense competition, tends to drive profit rates near zero. Upstarts were offering information and services for little or nothing, forcing established businesses to do likewise to preserve their market share. For as long as hungry investors were eager to subsidise this expansion, profits were not unduly hurt.
Now, though, the absence of new money has forced Net companies to try and drive up their profits, something they are doing with difficulty. The task has been compounded by the fact that they can no longer keep their workers, let alone attract new ones, with the lure of stock options. Net companies have been forced to hike sharply the salaries they offer, whilst unions have now begun making inroads into a sector that has until now steadfastly resisted their presence.
With investors now demanding profits from Net upstarts, whilst rising labour costs and intense competition make this prospect more remote for many firms, Net stocks look set to remain flat. Many will go even lower than they have already. This lack of new cash will soon drive several businesses under. The resultant loss of competition is likely to free the bigger, older businesses that have been forced onto the Net to resume charging for their services. I expect that before too long, the years of free web newspapers and magazines will recede into memory. Many of the new businesses that have appeared on a daily basis will become, for want of a better term, dot-com dust.
Assuming all this happens, will it mean we can conclude the Net boom was just a fad? Not at all. The Internet revolution was just that, a revolution, but it may be one that is now nearing completion, at least in its American heartland. Elsewhere, the Internet will take hold in a way that is quieter and less dramatic, unaccompanied by the stock market bubble that fed its spread in the USA.
The point to remember is that all those traditional businesses which were forced to move onto the web will remain there, if only to preserve their market share. Those Net executives who had the foresight to merge with so-called bricks-and-mortar companies at the height of the boom, and whose future is thereby secure, will continue to draw the world onto the Net. And while business-to-consumer firms who rely solely on an Internet presence for their existence face a questionable future, business-to-business Net firms have become so integral to the production process that they are here to stay.
All this is a way of saying that the task of 'Internetting' the American economy seems now to be largely accomplished. Thus, the era of revolutionary change is probably over.
Future gains in the USA will be incremental. In the rest of the world, the ready availability of this technology and the lessons of the American Net bubble will draw firms onto the web, but in a quiet fashion. And as for the conviction of Net enthusiasts that the era of costless and abundant information was here, this is arguably a misplaced conviction. Information will cease to be a free commodity, and the turn away from traditional information sources towards the web will likely stop.
The web will be simply another way of accessing information from the same sources, possibly in a more efficient manner, but at a price.
It was a heady time, but like all revolutions, the Net revolution is beginning to devour its children.
John Rapley is a senior lecturer in the Department of Government, UWI, Mona.
