Why commerce is at risk from Internet information overload

There is a danger that one of the most exciting developments of the late 20th century is also becoming one of the most boring.

That’s because the sheer repetition of the fantastic potential of the Internet, plus the debate over whether Internet companies are highly overvalued and thus distorting equity markets, begins to hang heavy in the public consciousness. Familiarity breeds contempt.

Perhaps this is as it should be. The human race has a capacity for testing the true value of its advancements through scepticism and cynicism. But it’s my belief that we are now poised at the threshold of the Internet’s second stage of development, the stage at which a significant industrial breakthrough moves from a declaration of will into core commercial practice.

Henry Ford did it with the motor car in the Twenties; Jack Cohen did it with the supermarket in the Fifties; and Bill Gates did it with the personal computer in the Eighties. It is unclear at present who will be the individual to truly take the Internet to the masses. Its very nature may preclude it being an individual, because the Internet isn’t a product or a service so much as a concept. Being online is about personal empowerment, rather than simply about satisfying consumer purchasing power.

That’s why there are those who argue that the Internet is delivering a newly configured world economy – or “e-conomy”, as investment bank Granville has coined it. This means that the traditional measuring criteria for economies are becoming increasingly irrelevant. How do we measure gross domestic product in the virtual age? How can we assimilate a nation’s balance of payments when so much trade is conducted “offshore” through the Worldwide Web? How do we track unemployment when online trade is delivering a labour flexibility to companies that enables them to deploy personnel anywhere (and everywhere) at once?

An optimist would say that it is the answers to these questions which will explain why American and European equity markets have survived and prospered in the face of world events that would at any other time in the century have triggered meltdown. And, further, why we are entering a new age of low inflation and low interest rates.

Those are theories for economists. But second-stage Internet development has some very visible characteristics that will need to be addressed by commercial people, those who occupy the “real” world, as opposed to the one occupied by all the Internet hubris of its first stage.

One of these characteristics is apparent in second-generation Internet users, that is, people who were born to an online environment (unlike their parents, for whom the Internet is a new phenomenon), who are growing up to be consumers.

I’m intrigued by a report, published this week by KPMG, NatWest and retail consultancy IMRG, which shows that retailers are failing to respond to teenagers’ preference for online shopping. Apparently, 80 per cent of 12- to 16-year-olds want to shop on the Net – a demographic group that has almost £3bn of disposable income to spend a year.

These are people who don’t see the point of the high street, other than as somewhere to flaunt their fashion choices. They feel that, as consumers, they are treated with suspicion in shops, and prefer the anonymity of the Internet. Will they grow up to adopt the high street shopping culture of their parents? I doubt it.

It follows that an end to slow, clunky Websites with inefficient payment mechanisms will be driven by the new consumer demand that is fast emerging. Yet retailers and financial services suppliers are still slow to respond, entering the online market only tentatively, and labouring under the restricting belief that Internet services should be bolted on to existing operations only because it’s fashionable. It may also be a slightly cheaper sales channel.

That is undoubtedly true – it’s largely the competitive advantage that has pushed Internet operators, such as Yahoo! and Amazon, to such amazing valuations (and, in some cases, to such spectacular value corrections). But it misses the main point: US-based groups with extensive European operations, for example Oracle (business software), Cisco (network equipment) and Federal Express (courier service), have developed Web-based technology to build self-service activities for customers, suppliers and staff. Part of the characteristics of second-stage development is the decimation of middle-man functions.

It’s also the proper beginning of the virtual company, a concept much talked about but seldom delivered.

Take Cisco: its customers increasingly submit their orders electronically, which are fulfilled automatically by third-party contractors, building to Cisco’s specification, who then ship the product directly to the customer. In this process, the likes of Cisco will only have to take care they are not developing a new agency function that will itself be bypassed.

There is too much talk about the Internet and, as a result, it is in danger of becoming boring. But those who allow themselves to be bored, as many of the “bolt-on” companies appear to be, will be left behind in the second-stage development, which is only limited by commercial imagination.

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