Blame the Internet

One of my predictions for this year was that the economy probably won't recover as soon as everyone hopes. I pinned the future of the economy on how well we wage war on terrorism. But there is a more subtle enemy of our economic recovery than terrorists: the next big thing.

People often blame our current economic woes on the fact that the dot-com bubble burst. I blame it on the fact that we created the dot-com bubble. We blew the Internet revolution way out of proportion because we expected it to produce the same kind of robust economic boom we enjoyed with the PC revolution.

Many people who are disappointed with the outcome of the Internet revolution are hoping that wireless devices will be the next big thing to revive the tech sector and turn the economy around. Not me. If wireless technologies send the tech market back to the dizzying heights it reached during the dot-com mania, it will only be because we've created another bubble to pop.

Outside of cell phones, isn't the point of a wireless device to make it more convenient to connect to the last big thing, the Internet money pit? If that isn't a delicious enough irony for you, consider that many wireless devices are likely to be based on the other last big thing that turned your 401(k) into chump change: Linux. So if you're hoping wireless will undo the damage that plummeting Internet and Linux stocks did to your portfolio, remember that wireless rides on the backs of those other technologies in order to be useful.

The most amusing thing about this situation is that the Internet really was the next big thing. It still is. Can you imagine doing business today without your Internet e-mail address? Without the Web as a resource for finding exactly the information you need? Do you realize that open source runs most of those services?

So if we were right, what went wrong? We never grasped the extent to which the Internet and open source would change the rules of our economy. I can think of no better illustration than a quote by the former president of Red Hat Linux, Bob Young. Long before most of you probably ever heard of Linux, Young openly stated that his primary goal in promoting Red Hat Linux was to turn Microsoft's $10 billion-per-year operating system business into a $10 million-per-year Linux operating system business. After hitting outrageous highs of about $150 per share, Red Hat stock sells for about $8 per share today because Bob's plan is succeeding, not because it failed.

The new Internet economy undermines the traditional means of making profits in the same way that free software undermines the Microsoft monolith, only more so.

The Internet manages to damage every existing industry imaginable, both directly and indirectly. You can research any topic without having to visit a library or pay for an encyclopedia, book or magazine. You can shop without a car or bus. You can converse without paying long-distance bills, visiting the post office or paying for stamps. So if the economy is sluggish, that tells me the reality of the Internet age is finally replacing the fantasy.

So what do you do? If your company's bottom line is hurt by the transition to this new economy, exploit the Internet to save costs. Don't fly your executives across country for a meeting; set up a teleconference. So what if the airlines suffer? We didn't avoid air travel to protect the railroad industry.

Systems are always overthrown in favor of others in any revolution. There are winners, losers and trade-offs. Jobs are lost, and people must retrain to remain employable; companies have to retool and adjust their spending patterns. Large, wealthy companies entrenched in their old habits may fight change, but they usually come around or fight to survive.

If you look at it that way, you'll see that the dot-com blowout signaled the beginning of the new Internet economy, not the end. The sooner we face that fact, the sooner we'll start changing our business culture to adapt and, in the end, learn to prosper based on a firm grasp of reality rather than the illusion of the next big thing.

Nicholas Petreley is a computer consultant and author in Hayward, Calif. He can be reached at nicholas@petreley.com.

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