Internet innovation may be under threat

The first wave of the Internet brought us Yahoo!, Amazon and eBay. Will the future of the Net be left to big corporations?

Is the era of large-scale Internet innovation over? That may be the case, according to industry experts.

While the wave of uninformed investor enthusiasm that swept so many Internet companies into existence over the last few years has led to many flops, it also acted as a wake-up call to big corporations, forcing "old economy" companies to take the Net seriously. But with venture capital drying up, it may now be up to the big corporations to continue innovating in the online world.

"2001 will be the year the term 'new economy' disappears," predicts Mark Casey, managing director of Prodigy, a public relations company that handles many Internet companies. As many industry experts see it, the days are over when a high-tech entrepreneur could create a revolutionary service or piece of software out of his garage and turn it into a huge business.

"There was a misunderstanding about the new economy," says Mikael Arnbjerg, market analyst with research firm IDC. "The way it was usually put forward with these new business models was that Amazon.com rules over Barnes and Noble, Boxman rules over Virgin etc. That has definitely been proved wrong."

Understanding the Internet no longer gives a startup any particular advantage over its old-fashioned competitors, argues Arnbjerg -- or, rather, those old-fashioned companies now understand the Net just as well as the latest Silicon Valley startup. "I don't think we are through with experimentation, but it will happen in a more controlled environment," Arnbjerg predicts. "A lot of it will happen from within the large corporations."

Far from having an advantage over the more sluggish old-economy companies, Internet pure-plays are now perceived to be crippled by their lack of a "real-world" presence.

"There used to be a lot of talk about first-mover advantage, but that is changing," Arnbjerg observes. "Dot-coms can only get by if they get visitors to come to their site, and it seems they can only do that if they continuously promote themselves. But the established players already have a brand name, and they can use it in connection with the Internet."

The collapse of the Internet bubble will inevitably mean fewer startups, but it might also lead to a more responsible attitude toward innovation, says Corin Jenkins, director of consumer-advice service Dooyoo.co.uk. "There will be a lot less of that experimentation. The lessons of the Internet collapse are so loud that things will have to be conducted on a more sober level."

But he feels it would be foolish to say that there will be no more great new ideas to spring from the Internet. "At the turn of the [20th] century, the guy running the US patent office said that everything had been invented. It's very much the same situation with the Web," he says.

New Internet access technologies such as more advanced mobile phones, wireless organisers, interactive television and Net kiosks will help open up as-yet unseen ways of making money online.

Many Web startups may not be able to defeat their old-economy rivals, but will find they can flourish by providing the big, established players with the Internet expertise they need. A startup called iCrunch, for example, is metamorphosing from an online record label into a specialist in Internet distribution. The company is using the experience it has built up as a pioneer in online music to provide services to big players such as Virgin and EMI.

Founder Jon Davis says he has found brand-building as an Internet pure-play to be a futile experience. "Our business is moving more and more towards distributing over the Web, and away from building brand," he says. "We're tying up deals with the bigger music e-tailers. We want to distribute our content through other people's properties."

For Davis, the factor that will spark the Net's next wave of innovation will be the arrival of broadband as a mass medium. "We've been going for two years in the UK, but the speeds at which consumers get access have not really changed," he says. "It's only this year, in the second half, that the cable operators and BT are going to begin to deliver what they have been promising."

When broadband does arrive, he predicts it will change the picture entirely, comparing today's Internet to the cinema before the invention of sound and colour. "That's the beginning of the second Internet," he says.

Find out how the Internet is revolutionising the economy at the E-commerce Special.

It's not hard to predict that most ISPs are going to be out of business within six months. Guy Kewney fears we're in for a backlash, and the bad news could be that a lot of people will perceive the Internet itself as having "failed." Go to AnchorDesk UK for tbe news comment.

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