Connecting the Dots
Internet Economy Will Surpass Industrial Revolution
The government will have to step in with considerable amount of investment in terms of setting up training facilities, helping start-up dotcom companies, and providing the necessary logistic support so that Bangladeshi companies and work force can take advantage of the world-wide demand for services relating to e-commerce.
TRANSFORMATIONAL tec-hnology don't come along very often; if they did, they might well overwhelm our capacity to comprehend their importance, harness their power and integrate their uses into our daily lives.
These tend to be really big deals: Gutenberg's printing press of the 15th century, for example, has done nothing less than change human communication - and thus human society - forever. The automobile, invented at the turn of the last century, has fueled dozens of new industries, led to new patterns of settlement and stimulated remarkable changes in social and cultural behavior.
Now, the internet promises to dwarf everything that preceded it. The term "internet economy" was coined a few years ago to represent the explosion of activity surrounding the growth of the internet and electronic business. A recent study by International Data Corporation suggest that the worldwide internet economy will pass one trillion dollar in 2001, approaching tree trillion dollars by 2003. Studies for the US economy show that activities in the internet economy in 1998 pumped an estimated 500 billion dollar into the US economy and employed 2.3 million workers. The fastest growth is coming in electronic commerce, or e-commerce as is known in the online lexicon.
In the early internet economy years, investment focused around technology products and services to strengthen the infrastructure and introduce online users to e-commerce. Now, however, non-technology spending is gradually catching on. The marketing and sales functions is slowly taking a lead role in enhancing the internet experience and stimulating internet commerce.
Only last week, American Online (AOL), the internet service provider, unveiled a 160 billion dollar all-stock takeover of Time Warner, the US media conglomerate, aimed at revolutionising the way in which news, entertainment and the internet are delivered to the home around the world. The agreed merger, the largest ever, is the result of the recent spectacular rise in the valuation of internet companies in the stock markets around the world.
This merger represents not only the triumph of the internet as the irresistible force in global business, but a vision of the internet as a mass-marketed medium for the global economy. The deal marks a watershed because it shows that internet companies, with their sky-high market valuations, can make the rules in the mergers and acquisition game. There will definitely be a far-reaching realignment in the global media and communications industry as other internet and media companies around the world pursue the same convergence strategy in order to get a share of the ever-increasing online business.
A recently published study by researchers at the University of Texas Graduate School of Business suggests that the internet economy is growing at a rate perhaps 20 times faster than the physical economy - and that the value of these "virtual" transactions, an estimated 500 billion dollars only in the US, could quadruple in three years. E-commerce, in particular, is expanding at a rate nearly twice as fast as the overall internet economy, and it is driving a massive expansion of internet-related jobs.
In the context of the global economy, the internet is still too small to apprehend. And it is difficult to measure with any precision the "substitution effect" - economic activity that takes place on the internet instead of, rather than in addition to, the physical world. But the University of Texas researchers are not shy in their descriptions of what is coming. They insist that the emerging internet economy is similar to the Industrial Revolution in the western world that began in the 18th century in potential scope, size and overall economic impact.
By way of comparison they point out that within the last year, the internet economy in the US has overtaken traditional industries such as telecommunications and airlines in size and is now approaching the publishing and the health care industries.
Such comparisons, of course, mean little, since the internet is not an industry. It is an economic, social and cultural force that already is reshaping these industries and scores of others. What is clear, however, is that the internet economy is an economic phenomenon never seen before.
Microsoft may ask in its advertising "Where do you want to go?" Predicting how and where the internet will take us has become a source of amateur sport and professional profit, but anyone who forecasts with confidence in these zones can be fairly accused of being irresponsible.
Still, there are some things we know and others we can reasonably expect. We know that the way business is conducted worldwide is being redefined. We know that consumers worldwide are increasingly comfortable shopping for goods and services online.
And we know that the e-commerce is driving down "transaction costs" - that is, the costs of administrative overhead. How? By eliminating bureaucratic layers between buyers and sellers both in business-to-consumer transactions and, critically, in business-to-business transactions.
One consequence of this is a general downward pressure on prices worldwide. It's easy to see why. Except for the fact that physical goods still need to be delivered, e-commerce renders distance obsolete. The internet economy also has sparked massive competition, empowering buyers at the expense of sellers and narrowing profit margins as new entrants in the marketplace battle other newcomers, as well as established players.
What's next? Take the case of the automobile industry as an example. In the early part of the last century, there were dozens of automobile companies in the US; a half century later, after General Motors, Ford and Chrysler had merged and acquired their way to dominance, there were a half-dozen. It is my belief that consolidation in the internet economy is inevitable - in part because of economies of scale, in part because proliferating choice eventually produces bewilderment instead of enlightenment.
But the anti-inflationary tendencies of the internet economy are likely to prevail because its essence is competition, built on technology available to one and all.
There is growing evidence that many business leaders in Bangladesh now understand the opportunities posed by the internet economy in general, and e-commerce in particular. Given the present trend in globalisation, it is becoming absolutely clear that within the next decade, all companies that plan to operate in the international arena, either as an exporter or importer, will use the internet in their business operations, or they will be marginalised out of operations.
India has already entered the global internet economy. Given the availability of an educated work force with skills in information technology, India has successfully cornered a large portion of the industry servicing the internet economy. The software companies in Bangalore are a striking reminder of how successfully the opportunities available in the internet economy can be exploited.
Bangladesh has the work force skilled in information technology, necessary in the initial stages, to take advantage of the opportunities. However, the infra-structure necessary to employ this work force and utilise their potential is still missing. What is needed is some bold steps on the part of the government.
The government will have to step in with considerable amount of investment in terms of setting up training facilities, helping start-up dotcom companies, and providing the necessary logistic support so that Bangladeshi companies and work force can take advantage of the world-wide demand for services relating to e-commerce.
Employers worldwide are increasingly desperate to fit themselves for the age of internet commerce, conscious that all aspects of their operations need to be linked electronically if they are not to miss new digital business opportunities and be trampled by rivals.
Companies in other developing countries, both in Asia and other regions, are eyeing this lucrative market for internet-related services in order to earn valuable foreign exchange. Bangladesh cannot afford to miss the boat.
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