WHAT’S NEXT FOR THE INTERNET
By Richard J. Dumler
Suddenly it’s OK to talk about the Internet again. Much of the
discussion has centered on stock prices: The value of the Philadelphia
Internet Index has doubled since it hit a low in October 2002. But a far
more interesting topic is, what’s next? The short answer is “a
lot.” John R. Patrick, formerly IBM’s chief Internet technology
officer, estimates that the Internet revolution is less than 3% complete.
What will distinguish this next generation from the last? Anyone foolish
enough to write about the future of something as dynamic and unpredictable
as the Internet does well to review past predictions and current trends
before embarking in any personal flights of fantasy. Helpfully, Fortune
magazine did a special Fall 2000 edition on “the Future of the Internet.”
The cover photo featuring Ben Affleck and his Internet venture captured
the general mindless excitement of the time. However, there were some
cautionary words from Fortune surrounding its theme that “broadband
would change everything.” Broadband was labeled “the trillion-dollar
bet,” and skeptics were quoted as saying that there were no compelling
broadband applications. The article cited a Vertical Systems Group prediction
that 15% of U.S. households would have a broadband connection by 2004.
The four technologies to shape the next generation Web were identified
as voice browsers, Bluetooth, peer-to-peer networking and XML.
We know that Mr. Affleck didn’t quit his day job, but how have
the other predictions turned out? Those making “the big bet”
generally lost and broadband hasn’t yet changed the Internet very
much. The prediction from Vertical Systems Group was inaccurate as well.
It was too conservative! About 15% of U.S. households had a broadband
connection at the end of 2002 with the number expected to rise to 19%
by the end of 2003.
It might also be argued that correctly identifying two out of four major
new technologies (XML and peer-to-peer) isn’t bad, especially if
we include WiFi and other forms of wireless Internet with Bluetooth as
enabling technologies. So for all the hype, the underlying trends Fortune
identified to support the growth of Internet businesses and their second
generations weren’t wrong or even very late.
In terms of consumer behavior, however, broadband seems to have changed
very little. The most recent UCLA Internet Report, “Surveying the
Digital Future,” details Internet usage: The percentage of Americans
using the Internet increased to 72.3% in 2001 from 66.9% in 2000, and
they spent an average of 9.8 hours on the Net per week in 2001 vs. 9.4
hours in 2000. Most interesting, however, was the fact that there was
almost no difference in the activities of Internet users with five or
more years of experience vs. those with less than one year of experience.
Web browsing and email still dominated for both groups, despite the fact
that experienced users were on the Internet almost twice as much as new
users (12 hours per week vs. 6 hours). Unfortunately, the study did not
break out activities as related to using a modem vs. broadband connection.
Assuming that broadband was much more prevalent among experienced users,
there was almost no observable impact.
It looks like the Internet has been used to date by consumers primarily
as a glorified teletype and search engine, or, some say, TV, since TV
viewing goes down as Internet use goes up. Most projected broadband applications
seem aimed at bringing one or another variant of pay-TV or video games
to the consumer. So, have we already seen the future of the Internet,
and is it TV?
In terms of enabling any mass wave of new, entrepreneurial companies
to profit from the consumer in the Internet’s next generation, the
answer is probably yes. This could be interpreted as bad news since historically
the combination of the entertainment business and venture capital has
hardly been synonymous with successful outcomes.
Yet, the future is not bleak since, as Lou Gerstner once said, “The
Internet is about business.” This is certainly true for venture
investing. Like all financial bubbles, the Internet bubble began with
a basis in reality. People instinctively understood how the Internet could
increase the efficiency of business. The financial payoff from successfully
implementing these plans was judged by the market to be huge. These visions
were and are attainable, just not as quickly or as easily as the ever-increasing
prices of Internet stocks once foretold.
So why is the business landscape littered with B-to-B failures? Many
of the B-to-B exchanges failed because they did not understand the complexity
of established business practices and the resistance to change from the
major industry players. Many of the application service providers (ASPs)
simply were resellers of other peoples’ software with larger companies
as their target market. What these and numerous other B-to-B failures
had in common is that they relied almost exclusively on the Internet as
a communications network. We now know that simply providing a connection
to the Internet doesn’t add enough value to support a viable business
model.
The Internet is a business enabler, not a business raison d’etre.
ADP Corporation, a payroll processor and world’s most successful
“ASP” even before the Internet, adds value by navigating the
arcane cash collection and reporting procedures of various taxing authorities
and by implicitly ensuring its customers that they will not run afoul
of them. Knovel Corp. (a Milestone portfolio company) provides scientific
and engineering information to its customers via the Internet. Its value-add
lies in its aggregation of information sources and editorial selection
in combination with software tools to insure that its customers can find
answers more quickly and use data more effectively. Its value is in enhanced
productivity, and only secondarily in providing access to information
over the Internet. The first lesson for next-generation Internet investments
is that they must add significant value beyond the Internet.
The biggest stumbling block to implementing many of the legitimate Internet
B-to-B business plans, as well as intra-corporate efficiency initiatives,
was and is the problem of integration. The continuing proliferation of
computing/communication devices—whether they are PCs, PDAs or cell
phones—and the onset of peer-to-peer and its more sophisticated
kin, grid computing, compounds the integration problem. XML and Web services
are “solutions” to the integration problem, ergo they gotta
be big!
The fate of many ASPs ought to instill some caution regarding the opportunities
for Web services software components. Yes, Microsoft is pushing .Net,
but the suspicion grows that this has more to do with pushing its customers
toward a subscription business model than with customer benefits. Yet,
it is likely that third-party provision of computer “services”
via the Web will be a major growth area. The reason lies less in software
applications than in storage or information management.
The seemingly endless development of new computing/communication devices
also means that an ever increasing amount of data will have to be collected,
sorted and synchronized, properly filed and protected, and then retrieved.
Trying to manage data on each device separately, or with the PC as the
hub, and then integrating the result will not compute. This is especially
true since the data will often have to be shared collaboratively with
co-workers and business partners, both within and without the enterprise.
This data will need to be collected real-time via the Internet in one
virtual location, separate from the devices, and processed, at least preliminarily.
Establishing and managing geographically large, heterogeneous networks
where numerous users interact with the data is not easy or cheap. Third
parties will most likely do this except for very large organizations.
The integration and management of what is becoming a constant data stream
will be a major growth area. Much of these services will be provided as
“collaborative platforms” or applications. The success of
Salesforce.com and @Roads, as differentiated from other ASPs, is, I believe,
attributable to the network, geographic, and data management problems
inherent in dealing with the sales and service functions.
XML will also help with the integration problem; anything that helps
data interchange and understanding is good, especially if it is based
on an independent standard. But XML itself is not a solution. to quote
John Patrick again, “Once information is properly tagged [with XML],
you will be able to find what you are looking for with much greater speed
and precision.” But who would put XML headers on the phone calls
they get? Some software program is going to have to do this. And this
is only an instance of the larger problem of properly storing and finding
data that will have to be solved. Addressing it successfully is likely
to involve natural language understanding, which will be a problem, since
there has probably been less progress in this field of computer science
than any other over the past 50 years.
Achieving integrated, high performance systems at Internet scale will
require security, management and trust certification solutions that do
not now exist. These issues are grouped together since it’s clear
that they and the systems that will have to deal with them are interconnected.
Hackers are bad, but 80% of computer security issues involve employees.
Who can get access to what level of information, both within and without
the enterprise, and how you make sure that the person you’re dealing
with is in fact who you think it is will be persistent questions. Trust
continues to be a major problem both for the enterprise and the consumer.
What do all of these problems have in common? Most importantly, solving
them will require that the Internet become an intelligent network. This
means not limiting its intelligence to routing and reassembling the packets
of digital bits sent over the Internet, but actually using the massive
computing power inherent in the Internet to begin to process and understand
the data being transmitted and take some preliminary actions based on
this understanding. It will require going beyond just using the Internet
as a giant and improved communications network and toward the vision that
Tim Berners-Lee, the father of the Web, calls the Semantic Web.
The difference between the current generation of the Internet and the
next will not be broadband, but rather that it will be rudimentarily intelligent,
able to take some action on the data being transmitted. Its “intelligence”
will be limited, but sufficient to have systems that begin to realize
the potential of the Internet forecast by the Bubble. We now know that
this will be a long, slow process, but it will be one with plenty of opportunity
for new and innovative solutions and companies.
--
Richard J. Dumler is general partner with Milestone Venture Partners,
a New York-based venture capital firm focusing on early-stage, enterprise
information technology companies. He can be reached at rjd@milestonevp.com.
|
