TELECOM Digest OnLine - Sorted: Internet Enters a Bold Second Act

Internet Enters a Bold Second Act

Mark Trumbull (
Tue, 11 Oct 2005 11:59:47 -0500

By Mark Trumbull, Staff writer of The Christian Science Monitor

Across the high-tech landscape, tectonic plates are shifting.

Google, the company that's king of the online search, recently offered
to provide wireless Internet access to the entire city of San
Francisco -- for free.

Apple Computer now offers an iPod music player so tiny it could get
lost in your wallet.

And the British Broadcasting Corp. is starting to offer many of its TV
programs in digitized formats online.

In their own ways, these developments point to a common theme: Led by
the Internet, the high-tech industry appears to be entering a vibrant
new phase of both growth and upheaval.

This is a far different boom from the dotcom craze of the late 1990s. It
is the Web's sober second act, characterized not by soaring stock prices
but by forces that are challenging traditional industries -- from
publishing to telecommunications -- to adopt new business plans.
Consumers seem to be the only sure winners.

"We've taken a huge step forward and moved from a stage of concept to
a stage of product and service delivery," says Brooks Gray, vice
president of Technology Business Research in Hampton, N.H. His warning
is clear: "There are some sizable risks to companies that don't

The maturing of the Internet as an engine of the global economy is
being driven by a handful of important forces:

Prices and sizes shrink. Miniature "flash memory" technology, for
example, is enabling the rise of little gadgets that link people to
the Web. Transferring songs from the Internet to a shirt-pocket music
player is just one example. Next, in an announcement Wednesday, could
come iPods that show music videos. And cellphones will soon display TV

Information goes digital. Lines are blurring between computers and
traditional consumer devices such as phones, television sets, or even
printed books and newspapers. Finally, "digital convergence" -- the
fusion of computing with other traditional industries foreseen in the
1990s -- is happening in earnest, challenging traditional
communications industries.

Mobility expands. Wireless services, such as the network Google
envisions in San Francisco, are making the Web portable, not just a
desk-bound tool. Shopping for shoes? A smartphone will help navigate
as you hoof it from store to store.

As all these trends shower consumers with new products and services,
corporations face both risks and opportunities.

The good news, experts say, is that the online realm has reached
critical mass.

As of this fall, an estimated 1 billion people worldwide have Web
access. In the US, the share of Internet users with high-speed
connections is passing 50 percent. Online advertising revenue is
soaring, and consumers are getting used to the notion of paying for
services online.

But as information is digitized, profit margins can get squeezed. The
Internet may be maturing, but it's not yet yielding the rich rewards
that top companies typically reap when an industry reaches full bloom.

Instead, it's shaking up a host of traditional industries.

Consider telecommunications. Businesses and consumers are increasingly
flocking to upstart providers like Vonage, which send calls over the
Web for a fraction of the traditional land-line cost.

The rise of wireless online networks adds to the potential for price
wars. These networks compete with phone and cable wires to take people
online. They also could give consumers an alternative to traditional
cellphone voice traffic.

"It's good for everybody except possibly the providers" of all these
networks, says Allyn Hall, an expert in wireless technologies for the
market-research firm In-Stat, in Scottsdale, Ariz.

Advertising revenue may help Google or some other bidder to finance a
free wireless network that San Francisco hopes to create.

Such efforts, under consideration in other US cities, represent a
direct challenge to traditional phone companies. So it's likely they
will fight back not only with rival service plans but also by lobbying
lawmakers and regulators.

"Never bet against the regulated providers," Mr. Hall says.

But in this battle to provide access to an array of online services,
the winner will be "perhaps less dependent on technology than on other
factors like marketing," he says.

The providers of content, such as media conglomerate Time Warner, face
a different set of challenges. As content goes digital, these firms
are learning to get consumers to pay for the information and news they
get online. And they're finding more advertisers who will help foot
the bill. By 2010, online ad revenues are expected to more than double
from last year's $9.3 billion.

The problem of illegal copying, which has plagued the music industry,
must be solved anew for video products as TV goes online.

Whatever the hurdles, Time Warner CEO Richard Parsons recently said
the Web -- specifically his company's troubled merger with Internet
service provider AOL -- is where the "growth opportunity" lies.

Mainstream high-tech companies are also scrambling for their place in
the wild wild Web. The most closely watched battle pits Microsoft, the
dominant software provider for personal computers, against Web-search
giant Google.

"Google is certainly the best candidate that's come along in a long time
to displace Microsoft," says Joe Wilcox, a senior analyst at Jupiter

That doesn't mean it will. Microsoft is famous for tenaciously fending
off threats, and has recently reorganized, in part to strengthen its
MSN Web services. The company has also discussed a possible alliance
with AOL.

But Google embodies a whole new model of computing.

Where Microsoft has traditionally helped people make the most of their
own PC, Google wants the Internet to be a giant personal computer for
the planet. It's stated mission is "to organize the world's information
and make it universally accessible."

The more the Internet becomes such a tool, the less important
traditional desktop software like Microsoft's becomes. The PC becomes
just a way to get on to the Web.

Mr. Wilcox isn't counting Microsoft out just yet. But "Google could be
in a very good position if it executes well," he says.

And as all these battles shake out, consumers stand to be in the best
position of all. Their main challenge may be the old one of competing
standards. Remember Betamax vs. VHS? Today, consumers could pay $299 for
an iPod, only to find that next year's music player comes from a
different company.

Copyright 2005 The Christian Science Monitor

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