The current focus on converging, standardising and simplifying IP technologies will bring the industry out of the post dotcom slump into a period of prolonged innovation and massive global commercialisation of the internet.

Cisco senior vice president Howard Charney proposes a 'boom, bust and build out' explanation for the current internet slowdown, which like other world-changing technologies before it, will now more rapidly move to transform the world economically and socially.

The "boom" period he suggests is a period of euphoria where entrepreneurs, investors and early adopters rally around the product, followed by a relatively short  "bust" where tough economic realities are faced followed by an extraordinary 'build-out.'

The moment of technology revolution is when a single product dramatically and irreversibly changes the way people live their lives. Over the past 150-years the lightbulb, the locomotive, automobile, airplane, telephone, television and microprocessor industries have all survived this growth cycle.

Rather being curtailed by the dotcom crash Mr Charney believes the real internet revolution is gaining momentum and will continue to transform the way people live, work, play and learn. The build out period he says can last for decades with sustained growth.

"The current investment in research and development will result in overall simplification of internet technology, the elimination of superfluous technologies and the proliferation and convergence of essential ones including wireless computing, optical and storage technologies."  He says the convergence of wireless, voice, data, cable and other disparate networks based around IP technology will result in a less expensive, more productive and more functional internet.

"With IP as the common glue public and private networks all over the world are beginning to meld into a larger 'network of networks' which will allow us all to experience the imminent era of global mass commercialisation of the internet," says Mr Charney.

Rail and car revolution

The railroad which began in Britain in the early 1820s achieved strong momentum over 20-years to the point that three competing railroads routes were built from London to outlying cities and the average person could afford shares. However the resulting in over capacity, the harvest failure in 1846 and ensuing economic panic saw British railway shares drop 85 per cent on their peak value and several hundred companies folded.

The two-year railroad bust however was followed by a global build out that lasted a century. "That build out occurred all around the world and forever changed transportation and commerce. New speed and access made possible by railroads had dramatic consequences with new towns springing up along the routes and produce and manufactured goods becoming more readily available, price gaps were narrowed between producers and consumers all around the world," says Mr Charney.

A similar cycle is evident in the motor vehicle industry - Karl Benz patented the first automobile powered by an internal combustion engine in 1886 and over the next 30 years the automobile boom ran full throttle. Then in 1929 the stock market crash in the US triggered the Great Depression and drove the auto industry into reverse. US auto plants produced more than 5.5 million cars and trucks in 1929 and within five years output had dropped by 75 per cent. General Motors stock which had been selling for $US73 in 1929 bottomed out to $8 a share by 1932. It took 20-years for car and truck sales to climb back to pre-depression volumes.

In the bust thousands of smaller auto companies folded and in the US only Ford, GM and Chrysler survived, however innovation continued including the V8 engine, power steering, electric indicators and safety glass and by the 1950s motor vehicles sales raced ahead again. Today in the US 17 million new cars a year are sold.

The semiconductor industry says Mr Charney is another example of the 'boom, bust, build out' cycle which repeated itself through several phases. "The semiconductor came from a crude Bell Labs prototype 50-years ago, to a common commodity with more than 50 billion chips in use worldwide and sales over the past 20-years rocketing from $US14 billion to nearly $US140 billion last year.

The first 'bust' was in 1985 when worldwide sales slumped $US4 billion, the second was in 1996 when sales dropped to $131 billion from $144 billion and the third was in 2001 when the entire hi-tech industry received a jolt and sales dropped by 32 per cent - $65 billion down on the previous year to $139 billion.

He says semiconductor sales can be influenced by the health of the telecommunications, cable and PC and wireless markets along with industry wide issues such as inventory and pricing levels. "Despite these volatile cycles the overall trend is phenomenal growth."  Today the average home uses hundreds of semiconductors in everything from cell phones to digital thermometers and microwave ovens."

Early days for internet

He says its important to remember the internet as we know it is barely 20-years old and no other innovation has taken off so fast and touched so many people so quickly.

While the internet has been in a temporary bust period Mr Charney says this doesn't convey an accurate picture of what's really going on. "It is obvious that the internet is becoming more essential to daily life and breakthrough technological developments that will fuel its sustained build out continue behind the scenes."

Already some 581 million users worldwide access the internet exchanging about 8 billion emails every day and by 2005 that'll change to 26 billion emails a day. The Google search engine handles 150 million queries every day from more than 100 countries in 86 languages and nearly one in 10 international phone calls is carried on the internet.

Mobile internet users are expected to reach 934 million by 2007. According to Strategis Group one third of the world's population will own a wireless device by 2008.

Mr Charney says more change is ahead based on ongoing research and innovation including molecular nanotechnology which should allow us to build machines and rearrange matter with atomic precision. "Well before then - possibly 2007 -  Intel expects to squeeze one billion transistors onto a chip. Groundbreaking work is underway worldwide to create advanced wireless applications powered by 802.11 which will let computers with WiFi cards connect to each other or through base stations to the internet or company networks.

And he says biometrics which uses unique personal identifiers, such as voice and fingerprint scans, shows great promise for making on-line transactions safer, improving the security of wireless networking and even eliminating the need for passwords.

Cutting cost of business

The perception that business and e-business as two separate strategies has also needed to be addressed. "Rather than being seen as an entirely separate business, e-commerce is a channel which propels your business into new markets, reduces the cost of doing business and distributes information and knowledge to employees, customers and suppliers."

Companies that understand this have gone from 'strength' to 'strength online'. Mr Charney says US-based Office Depot chains store was an early success after it set up a purchasing site for the Massachusetts Institute of Technology, which resulted in MIT closing a warehouse and five stockrooms, redeploying about $1.2 million in inventory and cutting its procurement department by half.

Office Depot quickly piggybacked on that success with personalised sites for 37,000 other corporate customers costing it less than $10 million. The operation was profitable from day one. Within four years its on-line sales had gone from zero to $250 million a year. And it cost Office Depot less than a dollar to process an online order compared with twice that for a phone order.

Office Products Depot in New Zealand have done likewise and printers Norcross and Wickliffe had such success with the systems they developed that they on-sold it to other companies like Fuji Xerox and NZ Diary Foods (e://volution) to use for their distribution channels.

"In other words" says Mr Charney, "the internet drives out cost. In retail an on-line transaction can cost 35 cents versus 90 cents for a faxed order and $2.50 for a phone call. In the hotel business a reservation made on-line costs 80 per cent less than booking by phone and a bank transaction with a teller costs about a dollar, about 25 cents on an ATM and a cent on the web.

"Over the past decade many firms have driven out cost and increased productivity through installing IP infrastructures, automating business processes and using B2B commerce. "In 2001 alone General Motors saved $1.9 billion by digitising its business and IBM saved $900 million through web-based transactions.

Compatibility issues addressed

He says impediments to full use of the internet include business process frustrations such as incompatible databases, applications that don't share information, data structures that are foreign across different organisations. "The plumbing is really easy but getting silos of information moving between different databases and because data is sometimes synonymous with power you also find the unwillingness of some people to change makes life difficult for some organisations."

While wireless and IP telephony for example started out unreliable, insecure and didn't integrate well, in a relatively short time they become mature, high quality, rock solid solutions. Mr Charney says many of the problems facing the industry at the moment have more to do with a failure of leadership and the re-engineering of businesses not necessarily the technology.

"We are at the dawn of a major period of learning, technological convergence and productivity with regard to the internet which will enable the world to jump forward into a new period of sustained growth and prosperity fuelled by the internet. Like cars, semi conductors and other genuine technology revolutions the internet will be an integral part of every day life everywhere."

March 2003

By Keith Newman

Howard Charney
Cisco senior vice president