Life In A Bubble

ARE ICE stocks up or down? It's not the kind of question you want to waste time over—not anymore at least. Is online shopping really going to take off? Is web-based banking the new New Thing? Will wAP dominate and dictate quick-buy decisions? Will our humble existence be transformed by Instant Messaging? Or has the Internet explosion left us with nothing more than killer ideas that kill time? Are we left spinning comic phrases like incubate extensible protocols, synthesise real-time e-business and mesh cutting-edge convergence (for more, do try the Web Economy Bullshit Generator at www.dack.com)?

The Net has failed to deliver the grand hopes of consultants who thought that the www was the Next Big Thing after sliced bread. Sure, some seemingly innocuous dotcoms managed to get valuations that made the investment community's Adam's apple go into a bobbing convulsion. But for most ambitious dotcoms, valuations quickly turned from expectant sizzle to ignominious fizzle.

By April, everyone who wanted to make a serious number of billions on the Net had begun to show signs of rapid burn. By September, millions were being lost and reputations were turning to toast. By year-end, big name stocks took a tumble, revenue models were being redrawn, layoffs threatened to affect thousands of families and Net companies were quietly downing shutters across the country. So, is the Internet dream over?

Let it be understood that the Internet investment frenzy was based more on the need of stock markets for a big phenomenon, to keep themselves and the economy growing at breakneck pace and not on the revenue projections of web-based companies. Consider some simple logic: if Internet speculators were right and online transactions would run into millions of rupees, wouldn't it affect the baniya around the corner, the neighbourhood department stores like Akbarally's, Nanz, Foodworld and Foodland and the glittering superstores like Ebony, Bombay Store, Crossroads and Ansal Plaza?

Wouldn't the rise of Internet shopping result in a parallel downsizing in the real retail industry? If investment bankers were correct with their forecast about the Internet, they would have calculated the impact of the networked society on other industries as well. But they didn't—not out of a lack of knowledge but because many of them don't genuinely believe in the revolution they are promoting.

So, we are back at the question: is the Internet dream over? The straight answer to that is, "The Internet boom of the late 20th century is over, but we are nowhere near realising the 21st century potential of the Net. And—here comes the good news—there is still much wealth to be made from it". While the Internet is at the centre of a genuine revolution in the way we work, interact and transact, it doesn't really increase productivity in the same manner as did things like the screwdriver, the automobile and the telephone. Each one of these put new resources at our disposal. Ingenuity then created spanking new wealth from these tools.

THE Internet, on the other hand, is largely replacing these tools. Making an online purchase cuts the cost of retailing, but what exactly does it end up producing? E-mail works out cheaper than a phone call or a fax, but it creates zero to negligible value. Ergo: the returns from Internet investments will not happen overnight. The faster we get accustomed to this facT, the quicker will sanity return to the business.It is still possible to make a quick buck at a casino or in a lottery. The Net is unlikely to replace these in the near future (and, perhaps not in the long term either but in the long term, in any case, we are all dead). Like any other industry, sharp and real thinking will build value and create wealth. In the good old days, when television took over from radio, companies that made the hardware did rather well at the stock market. Samtel that made picture tubes and Videocon that made the sets were the envied companies.

Then, competition brought down the value of these companies and investment moved from hardware to television networks. Zee TV and Sony Entertainment Network were the companies to watch. Finally, we know that it’s the content that these networks carry which is of value. What executives call ‘programming’ is the light at the end of the tunnel. People who make the most in entertainment are not the hardware manufacturers but the directors, actors and technicians. In short, the content-generator is the king.

The Net is following a development similar to that of the entertainment industry. Portals, which are part of the distribution mechanism in much the same way that television networks are, may eventually not have anything of unique value to offer. After better compression and expanded bandwidths, what you get a chance to deliver is better content. When portals and isps have blunted their competitive advantage waging a 24/7 war with each other, the people who make the content will win. Correct that: companies that offer innovative and creative content as well as a compelling user experience will win.The big take out from the year which has gone by is actually quite simple and has been repeated often enough: the Net is not a bubble; only some companies are.

Arun Katiyar | Executive VP (content and services), indya.com