Is the Internet coming of Age?

Published Dec 11, 2003
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Since the markets peaked in the spring of 2000, we have seen a general downward spiral for an Internet economy that in retrospect seems to have been doomed from the get-go. The New Economy has been declared dead by almost everybody. But a few influential people disagree. And, more importantly, so do the consumers.

Is the Internet coming of Age?-Link

The increase in Yahoo’s sales stemmed largely from a contract to provide paid search listings, as well as the acquisition of HotJobs (Illustration: Thirud, SOGM)

There are actually survivors of the famed bubble that burst. Some of them are well known, such as Yahoo or Amazon - the biggest and boldest of web portals and e-commerce sites, respectively. Yahoo posted its first quarterly profits for two years in July, and Amazon has been showing rising revenue in the face of a struggling industry. AOL Time Warner, on the other hand, has reorganized to focus more on television and print - the traditional, tried and true media that have been showing revenue since long before the Web was born.

Profits only
HBO, the company’s pay cable channel, racked up 93 Emmy nominations this year, an industry record. In the television industry, this is a very significant event. In television, success can be reliably determined not only by profits, but by nominations and ratings. These indicators translate into more customers and more advertising money. And it is no coincidence that it was Jeff Bewkes, former chairman and CEO at HBO, who was picked to head up the new entertainment division at AOL Time Warner in the recent restructuring effort.

This sends the signal that the Internet is no longer the main focus of the media giant’s plans. This does not mean that AOL Time Warner will not continue marketing America Online as the premier Internet service and community in the U.S. But it does mean that they are looking to traditional media for revenue in the near future. Here they have a more established customer base, and here they know those customers are willing to pay.

On the Internet, results are measured by profits alone. The Web has become an everyday tool and source of information, entertainment, and contact, for a very large portion of the inhabitants of the Western world, as well as across the globe. But it has not yet become part of the cultural establishment - the recognized cultural canon - the way television has. This is a process that requires time. It is a slow adaptation into the general public consciousness that needs the acceptance of more than one generation.

New business models
Not so on the Internet. As we have seen, advertising as the sole generator of revenue has not been nearly as successful as the industry hoped. And while the process assimilating the Internet culture into general culture is steadily working, the link between acceptance and profit has not grown strong enough to yield the necessary cash to justify the business model.

When it comes to Yahoo, they have been largely advertising-based, but this is not the reason for their impressive quarterly numbers. “Sifting through these numbers a little more closely, what Yahoo’s results seem to say is that the broader online ad market is nowhere near an imminent recovery,” said Derek L. Brown, an analyst at WR Hambrecht, to HotWired. Instead, the increase in sales stemmed largely from a contract to provide paid search listings, as well as the acquisition of HotJobs. Most of Yahoo’s traffic is still free, ad-fuelled search and catalog traffic. To provide sustained profits, they will have to look closely at their business plan.

New user habits
What the industry needs, is to translate usage into payment. The investors may be regarding the Net as a dead market, but the consumers definitely don’t. “The Internet may not be doing so great on Wall Street, but it’s doing great on Main Street,” Marshall Cohen, senior vice president for research at America Online, told the New York Times recently. “As far as the people who are online, they’re using it more and valuing it more.”

According to the latest figures, 61 percent of American adults are using the Internet, up from 46 percent two years ago. And the way they are using it is changing as well. Whereas the Net has been more of an advanced telephone than a delivery system for information and entertainment for many users - e-mail is by far the most popular aspect of Internet use - there are indications that consumers are becoming more discerning, demanding more of their Internet experience.

This development is related to how other media have emerged with a much wider range of options for the selective consumer. Users now have a diverse selection of content, as well as a greater degree of control over when and how to consume it. With the advent of digital TV and smarter set-top boxes, consumers are expecting more from the Internet as well. It may be that the broad range of options, and the enhanced interactivity, of the Internet has been a little too advanced for the average man in the street. Now that some of these features are showing up on the medium everybody knows and loves, television, the time seems to be right for more varied use of the Net - as information provider and entertainment source.

Niche content
This may be the key turning point when it comes to the big dream of content providers and Net companies worldwide: extracting as much money from consumer pockets as possible. In order for the dream to come true, people have to want to spend money to get the products and services they desire. The traditional media were created to serve generic interests - this is inherent in the nature of broadcasting - but they are ill-equipped to serve specific tailored needs. This is what the Internet is good at.

In a recent survey by the Pew Internet project of American Internet users, the ability to find niche content and serve individual needs emerged as a very important factor. People are moving away from the traditional news-and-e-mail approach and are spending more time gathering specific information. They are looking for information pertaining to their hobbies, hunting for jobs, and finding places to live. The survey shows that broadband access seems to increase the spectrum of online activities for the individual user, a trend that is consistent with the notion that enhanced TV features stimulate more varied use of the Net.

“The story we hear every month when we do surveys is people go online more and more and do more and more stuff online and it means more to them,” Lee Rainie, the director of the Pew Internet project, told the New York Times. What his numbers are telling him is a very old story: The future is coming - it’s just a little slower than everybody hoped and believed.

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