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| ECONOMICS.COM | |
 July 7, 1999 
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A recent University of Texas study -- funded by Internet company Cisco Systems -- found that the Internet's impact on the economy is bigger than most previously imagined. Margaret Warner discusses whether this is true with four experts. |
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For more on this changing landscape, we're joined by Anitesh Barua, co-author of the University of Texas study we just cited. He is Associate Professor of Information Systems at the university. Andrew Shapiro, director of the Aspen Institute Internet Policy Project, and author of a new book on the Internet, The Control Revolution. John Battelle, president of The Industry Standard, a weekly magazine that covers the business of the Internet. And Paul Kedrosky, a former Wall Street analyst who teaches information technology and commerce at the University of British Columbia. Welcome, gentlemen. MARGARET WARNER: Mr. Barua, many Americans would be quite stunned, quite astonished at your conclusions in terms of the size of the Internet economy. When you're talking about the Internet economy, what are you talking about?
MARGARET WARNER: So put very simply, without any of the Internet terms, basically they're companies that help you physically get on the Internet, be it the company that built your computer or the lines that go out or whatever? ANITESH BARUA: That's right.
ANITESH BARUA: That's right. And the market-makers, you know, those who help the buyers and sellers come together, because you know, it may seem that it's so easy to find a company, but still do I trust a particular seller? Intermediaries can help in us that regard. |
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MARGARET WARNER: So John Battelle, do you agree that really the very visible online retailing that, for instance, like Amazon.com, that everybody knows about, that's really just the tip of the iceberg?
MARGARET WARNER: Paul Kedrosky, do you see the Internet as this big?
MARGARET WARNER: Andrew Shapiro, if we don't get hung up on the numbers but we talk about sort of pervasiveness, the subtitle of your book was "How the Internet is Changing the World We Know," it sounds like you think -- well, how would you describe it in terms of your sense of how pervasive it is and the impact it's having?
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MARGARET WARNER: Mr. Barua, I'm going to get back to the questions that Mr. Shapiro raised because they're very important, but let's go on a little bit more with understanding how the Internet's working and affecting us. Is it also true that companies that are not at all in Internet or information-related businesses, let's say you sell cars or energy, is the Internet also affecting the way you do business?
MARGARET WARNER: John Battelle, how much of this do you think we're seeing already in terms of the way businesses communicate with other businesses? Let's take ordinary consumers out of it for a minute. JOHN BATTELLE: Right. I think this is probably -- we're right in the center of a significant shift in the way businesses operate. I think, within five years, if you're in a business environment, if you are not in some way leveraged over the Internet and capable of accepting contracts, suppliers, and so on through the Internet connections, you will really not be in business. I mean the automobile industry is a very good example. They put together a consortium of buying and purchasing and invoicing over Internet protocol technology and that efficiency has just driven itself relentlessly through that industry. And that industry is shifting dramatically because of sites like CarPoint and Autobytel that have pretty much effectively undermined the distribution network of automobiles that we know as dealers. It used to be you go to into a dealer armed with no information and scared that you're going to get ripped off, now people are basically calling their price on the Internet and going to the dealer to pick the car up. MARGARET WARNER: So, Mr. Kedrosky, going to this question of productivity, or is it more efficient --why is it better for a company -- let's say you're in the food business, the supermarket business, you're Safeway or whatever -- to be doing business on the Internet with your suppliers than just using some sort of an electronic system between or using the phone? |
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MARGARET WARNER: All right. But Mr. Shapiro, you see a potential danger or downside here. Talk a little bit more about that. For example, the impact on jobs. ANDREW SHAPIRO: Well, let me just start by saying I think the Internet, cyberspace, seems to induce some kind of collective amnesia. At every point in history when we've had new technologies emerging, there have been major economic disruptions, and with those disruptions, you have winners and you have loser. Today it seems we're only talking about the winners, Amazon.coms, whether they make a profit or not, are clearly going to be among the winners. What does happen, though, to those local stores, those local businesses? You know, it reminds me of a generation ago when we had Wal-Mart and other big department stores like that coming along and mom-and-pop stores were basically forced out of business. We're going to see the equivalent happening in our local communities, only it's not just mom-and-pop stores; it's local businesses, which are not really going to be able to compete with their cyber cousins. I think that, unless some of the economists and policy analysts really start to pay attention to the larger meaning of economic health -- it's not just, you know, whether the price earning ratio's out of hand, which it is for so many of these companies -- but what is the real impact of the Internet on us as a society, more than just in the numbers? And I don't really think that the Cisco study that we're talking about here captures that fullest picture.
JOHN BATTELLE: Oh, I think they're real, and the concerns are as real as what you believe the future's going to hold. I tend to trust that, in the sort of essential desire of human culture, to get together and figure out ways to get together, I think it's programmed into us and we're always going to do it, whether it's a local business that's a bookstore a cafe or it's something else that we cook up. We're always going to want to go to centers and we're always going to want to rub shoulders and we're always going to want to have a promenade where we see each other. The history certainly of American life is one of ghost towns, one of new ideas and old ideas being abandoned and I think we're in the center of something like that happening now, and you can blame the Internet for that, but I'd rather just blame human character for want to go continue to change and find now ways to organize themselves. I think one thing is for sure, we'll always end up getting together. I'm not concerned that the Internet in any way is going to stop us from doing that. |
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MARGARET WARNER: Mr. Barua, do you see a lot of disruption ahead, a lot of dislocation? ANITESH BARUA: Certainly that's true of any new technology coming in, and the Internet is, you know, a certainly very new type of technology, although it has existed physically for many years. But its usage in business is very new. But coming back to the point of displacement of jobs, I could give some counterexamples, like Ebay. There are a lot of small -- MARGARET WARNER: That's the online auction, the biggest online auction service.
MARGARET WARNER: All right. Well, thank you all four very much. |
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MARGARET
WARNER: Several comparisons help illustrate the growing importance of
the Internet in American life. For example, in 1993, three million Americans
were connected to the Internet. Today, according to The Washington
Post, 80 million Americans are. A University of Texas study last
month funded by technology giant Cisco Systems found that the Internet
generated $301 billion in revenue last year. That's more than any other
U.S. industry except automobiles. 
And
the Commerce Department reported last month that though the information
technology industry generated just 8 percent of the nation's total GDP
from 1995 through '98, it accounted for more than a third of the nation's
real economic growth during that same time.
ANITESH
BARUA: Well, Margaret, according to our study, there are three -- there
are actually four types of players making up had Internet economy. Normally
people talk about those who are buying and selling on the Internet,
but we start at a different layer. We start with the companies who provide
the infrastructure, the Ciscos, the 3Coms, the Lucents who provide the
routers, the switchers that make up the Internet and Internet-related
networks. And then you have the software providers, the consultants
who help build e-business environments. And then we look at the portals,
the intermediaries who create the market space so that buyers and sellers
can come together. And finally, we look at e-tailers and traditional
bricks-and-mortar companies who are selling online. So our space that
really defines the Internet economy is somewhat broader than what has
been done in the past, to the best of our knowledge.
MARGARET
WARNER: Companies that provide services and software that help you find
things on the Internet, and then companies that actually buy and sell
services on the Internet? 
JOHN
BATTELLE: Absolutely. I mean it only reflects a certain amount of the
total Internet economy. People interact with the Internet economy in
many, many different ways. And the University of Texas study really
validated the idea that the entire business sector of the American economy
certainly and the global economy in a trailing way is Web-enabling itself
and getting on to the Internet and starting to do business in new ways.
Amazon is really a very good example of that in terms of the Internet
economy's relentless efficiency-finding and finding ways to do business
in new ways that are much more efficient and much more profitable at
least from a cash-flow perspective as your piece pointed out. 
PAUL
KEDROSKY: You know, I guess where you come back to with this particular
study is that, you know, as your author is pointing out, they took a
fairly expansive view of what constitutes the Internet and all of its
influences. It comes up with a number that's much larger than what most
other people were looking at. I mean, you know, there's with a whole
cottage industry in people who do nothing but come up with numbers on
the Internet. That said, I would say it's on the high side. I mean,
the analogy I'd make is that it's a little bit like, you know, bundling
into the auto industry people who are you know building highways and
the gas stations and all of the other subsidiary components, and most
people wouldn't typically bundle those into the auto industry. And I
think taking this kind of expansive view of the net comes up with a
number that's - you know -- somewhat larger than the other estimates
that have come before but for exactly this reason, that they've bundled
into the Internet things that we wouldn't typically have thought of
as being part of the net per se. 
ANDREW
SHAPIRO: Well, Margaret, these economic indicators can't be looked at
in a vacuum. In fact, it doesn't really make sense to talk about an
Internet economy without talk talking about an Internet society. And
what I try to show in The Control Revolution is that there is a major
shift going on, but it's more than the change that we hear so often
from pundits and politicians. Power is shifting to individuals to consumers,
they can shop online using Amazon.com and your piece was such a good
example of the benefits that that provides. But the dangers actually
go beyond just competition for small bookstores. We need to think about
what the Internet is doing to our culture to our daily lives. So, for
example, if those small bookstores do go out of business what's going
to happen to the local economy? What's going to happen to the conviviality
of our local neighborhoods, to jobs, to the tax base? The tax base is
one of the crucial features that allows our local society, our local
community to flourish, and that's something that could really be eviscerated
by e-commerce and yet we don't talk about it at all. 
ANITESH
BARUA: Of course. I mean on a personal anecdote, I bought slightly used
but a high-end car through the net, and it was, in my opinion, a really
efficient way for me to get access to that particular automobile, which
I otherwise would not have found. So I think there are a lot of intermediary
roles that needs to be -- that can be played in this regard, and you
can be, you know buying and selling electricity and other commodities
through the net and right now it's going on electronically but not necessarily
over the Internet. So I think over the years, we will see a lot of shifting
of economic activity from the traditional environment to the electronic
environment, and I think that is inevitable.
PAUL
KEDROSKY: Well, I can think of a couple of quick answers: For starters,
a lot of these different -- we've had sort of electronic communications
in one form or another between companies and their suppliers under various
names in the past. The problem always was that it wasn't particularly
standard. I had to adopt whatever solution my largest customer told
me to adopt. And the wonderful thing about the net that's really made
it a lot more pervasive in terms of making these kinds of electronic
relationships more useful is that it's cut costs because everyone's
adopting the same technology, this thing we call the Internet. And so
what's made it sort of compelling for businesses to adopt in this way
is that it really does cut the costs. Instead of having to learn something
new for every buyer or seller I'm dealing with, we're effectively dealing
with this one technology called the Internet. And so the great advantage
is versus the telephone is that, (a), it can cut costs but more importantly,
and this is specifically to deal with the phone and less technology-intensive
forms of communication, is that it's fast. It's simply the fastest way
we have right now of communicating information between buyers and sellers
so that more or less, as a buyer, I have an instant window into my sellers
and vice versa. It takes a way a lot of the layers in the marketplace
that traditionally insulate buyers and sell from their markets. And
that's a wonderful thing if you're in a business. Speed means profits.
If you know what your customers are doing, you can react much faster
and more effectively. 
MARGARET
WARNER: John Battelle, how would you address -- I mean how would you
address those concerns? How serious do you find them? 
ANITESH
BARUA: That's right. And there are many small dealers of antiques and
collectibles and memorabilia who now earn a living because of Ebay.
They did not have access to a broader market sitting in, you know, small
towns. And they are able to, you know, make a good living out of selling
on Ebay. And similarly, look at the growth in the information technology
sector, and a lot of the new jobs that are being created. And you know,
there are going to be a transformation of roles that people play. So
I agree that there will be some initial displacement, and the question
is whether mom-and-pop kind of stores will vanish, but they can take
advantage of portals and electronic intermediaries, and if they are
selling good products and services, they can still do reasonably well
by selling through somebody else who has already established a reputation
because reputation matters a lot on the Internet.