Internet’s Three Xs

Luís Ángel Fernández Hermana - @luisangelfh
31 July, 2018
Editorial: 224
Fecha de publicación original: 18 julio, 2000

Words are but wind, but seeing is believing

The Internet ranks already as the world’s 18th economic power after Switzerland and before Argentina. The two most thorough studies of the “New Net Economy” so far, the first by the University of Texas —Measuring the Internet Economy— and the second by the OECD —Outlook 2000 on Information Technology— reflect the enormous impact cyberspace has had on shaping economic, social and political relations in the short space of five years. Both studies focus on the US and industrialised countries, respectively. While the first is more precise than the second, both of them make it clear that shock waves from the Net will, sooner or later, actively or passively, undoubtedly impregnate the whole planet with its logic.

During 1999 in the US, the Internet added another 650,000 new jobs to the already 2.5 million workers directly dependent on the new economy. In some cases these were new jobs, while in others they reflected changing strategies within companies when it came to assigning human resources to the Internet economy. A similar process has been taking place in Europe and Japan, although on a much smaller scale. The income of US companies on the Net grew by an annual rate of 11% between 1998 and 1999, almost three times as much as the rest of the economy put together during the same period. The only bottle neck has been employment in the service sector (content, portals, intermediaries, etc.) which “only” increased by 17%, falling below the two previous years and far below the expanding chain reaction undergone by the rest of the sector.

The most surprising thing about these figures is not their enormity, but the fact that the Internet economy is still in its infancy. In 1995 the internaut population came to about 19 million people. Today there are 200 million and it is estimated that this figure will reach the thousand million mark within five years. In June 1999 there were 56 million IP addresses. Six months later that figure was 72 million. Every minute 69 new hosts are connected to the Net and 23 new dominions are registered. Over the next three months, we will pass the 100 million hosts mark (some 30 million at the end of 1999). By the year 2005 it is estimated we will reach 1,000 million (and that’s not counting new technologies such as Gnutella which turn users’ computers into servers). No technology has ever undergone a “Big Bang” of this kind, nor affected the very foundations of the society that gave birth to it so rapidly. The usual comparisons with radio, television and video, in reality, measure different things. The Internet opens the doors to massive participation by the people themselves, writing the economic rules before they have even been definitively drawn up. Each and every day, the upsurge in new users implicitly changes the rules of the game and prepares the ground for a new variety of activities which will directly affect the Net economy.

In just two years, free access to the Internet seems to have become an article in the declaration of human (digital) rights. Pocket devices for accessing the Web and other online information services are on the way to becoming accessories that are as common as the toothbrush. In 1998, internauts accessed the WWW via 150 million gadgets (computers, PDAs, etc.). In four years time we will use 720 million devices for the same purpose, some of which we can hardly even begin to imagine. Moreover, the price of PCs is coming down all the time (or are given away free) and then just round the corner there’s the multimedia cell phone and cable (how long before they give us this free too?), two new highways that will multiply the connected population overnight. In the case of cable it will mean increasing the broadband aimed at the domestic market, which is bound to cause another whirl of activity in the services and content sector. Neither of the studies mentioned ventured predictions in this regard, but they agreed that it could be compared to a fuse in a barrel of ….nuclear warheads.

Despite the global vision and the tendencies that these figures point to, the development of the Internet remains a mystery. One of the most interesting parts of the University of Texas study is that it is based on trying to measure the Net economy. The challenge is colossal and, despite enormous difficulties, is very well resolved in that it divides the analysis into four layers: infrastructure (where you find the companies that are presently making the biggest profits), applications, intermediaries (where companies will make profits in the medium-term) and commerce. Nonetheless, the authors recognise a black hole: that of “consumer” behaviour patterns. They echo the words of James Vogtle, director of the electronic business consulting group, Boston Consulting Group, who says, “Even for the wisest marketing directors, consumer behaviour is uncharted territory. The ability to mine and track client data does not necessarily translate into obvious immediate profits. Accurately predicting demand at this point is a practically impossible task”.

There are three enormously important factors in play here. These are the big Xs, the unknown quantities of the Internet. On the one hand, there is the combined effect of chaotic demographic growth –uncontrolled by its very nature– together with a process that it is impossible to measure – the maturing of internauts as they increase their degree of participation and interrelation. This directly affects the creation and growth of information systems, the density of their information and the volume and type of services used for preparing and distributing it, all of which contributes to an almost “liquid” demand for information and knowledge services. There is no pattern for measuring and predicting its rate of growth, diversity, orientation or fidelity.

The other X is the intermediary sector. Neither of the studies mentioned in this editorial risked calculating the economic importance of barter on the Internet. Hundreds of thousands of sites on the Net offer information and knowledge adding to the global attraction of the Internet. It is not money that is exchanged here but intelligence, appeal, emotion, curiosity, expectation and knowledge. These are the catalytic factors without which it is impossible to explain this phenomenon of the new economy itself. They direct innovation, stimulate social R+D in cyberspace and stir the sensitivity of governments, administrations, business and individuals. Yahoo does not charge for every new address it adds to its directory, in the same way as we don’t for every time our address is captured to be included in the data base of a directory. Nevertheless, the directories are the most visited places on the Net and the apparent driving force behind the new digital markets, both vertical or horizontal, that are being created. Does the stock exchange value of these search engines/portals/content providers explain their role in the new economy?

The final X is what is happening within companies and this, for the moment, is not accurately reflected in research and surveys into the new economy. There is no accurate data –or not enough anyway– concerning investment in equipment and human resources for structuring companies as informational organisations capable of taking advantage of the opportunities that a networked world has to offer. It is not easy to quantify these efforts, but it is crucial for measuring the productivity of organisations. Learning how to organise online communication flows in the context of an organisation with the aim of developing strategies on the Net is one of the key knowledge factors in the new economy. In fact, it is the cohesive force that keeps all the other sectors together. And we still don’t know how much it costs nor what its real impact is.

Translation: Bridget King