Comment: Making money on the Internet is not so easy

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The Independent Online
Even in an enterprise as hip, new and fashionable as the Internet, commercial reality has a nasty habit of coming home to roost. It is reckoned that by the turn of the Century, the Internet in all its various guises will have attracted some $200bn of investment worldwide. The revenue earning powers of the Internet, however, will be lucky to have breached the $50bn mark. What this means is that for the time being the worldwide web is more about hope and expectation than anything else, at least in commercial terms. All but the lucky few will continue to lose money on it into the indefinite future.

The proposed carve-up of CompuServe, then, could be only the start of a larger shakeout and period of consolidation in a business which is generally failing to live up to early expectations. This is not to belittle the power of the Internet to transform the world economy; by providing an alternative way of accessing the customer to a whole range of different industries, the Internet has already guaranteed its position in history. But it may all take a lot longer to happen than everyone first thought. Certainly the optimistic business plans on which many Internet projects are based are now being widely challenged by bankers and other sources of capital.

Unless you are Microsoft, with money to burn, it is not easy to raise funds for the Internet these days. One day we'll all buy our newspapers, do our shopping and conduct our banking via the Internet and there will be pots of money to be made out of it. But not yet.

Which is why, when push comes to shove, the regulatory authorities on both sides of the Atlantic will probably agree to American Online's acquisition of CompuServe's retail subscriber base. On the face of it, the move gives AOL an effective monopoly, both in the US and Europe. But actually it doesn't really do this. As Internet users become more sophisticated and technologically literate, the market for the packaged, hand-holding, introductory service provided by the likes of CompuServe and AOL may in any case be on the wane. Certainly that is what AOL would find if it attempted to push up prices in the wake of this acquisition.

If even CompuServe cannot make any money out of these markets, what hope for the legion of smaller, specialist service-provider hopefuls? It seems quite likely we will see some of these either going out of business entirely or being merged with other organisations over the year ahead.

The web's failure thus far to generate revenue in sufficient quantity to cover its costs is actually only one of the constraints on the Internet's growth and power to transform the world. The other never to be underestimated constraint is that of established centres of commercial wealth and power. To think that they are going to roll over and let their tummies be tickled by the new generation of Internet entrepreneurs is to underestimate the staying power of old wealth. These organisations will fight like alley cats to preserve their positions, and they will attempt to stay the pace of change until they themselves have adjusted their costs and culture to harness its powers.

As the experience of CompuServe shows, creating new centres of wealth and power out of the Internet may not be as easy as it looked.