More hope than reality in Internet revolution

'That the present holders of commercial wealth and power are just going to roll over and let the new generation of entrepreneurs tickle their tummies is just not credible. They'll fight like alley cats'

Everyone these days seems to have an opinion about the Internet and its potential to transform the world. Like much of what's on it, however, the difficulty is separating the wheat from the chaff, the nonsense and noise from the well-informed and perceptive. One person who ought to fall into the latter category is Andrew Grove, chief executive of Intel. What he says has to be treated a bit carefully because as the world's largest producer of computer micro-chips, his commercial interest is in getting as many people wired as possible, regardless of what use or value it is to them.

Even so, he's got an interesting take on how the Internet is going to change many of our industries. Two of the most obvious examples are media and banking.

What the Internet does is provide an alternative method of distribution for media products. Because relatively few people so far are hitched up, its impact is for the time being limited. But once a certain critical mass is reached, which might be put at 20 to 30 per cent of households, then Dr Grove foresees almost boundless potential for by-passing traditional distributors/packagers of media products.

Take our own industry - newspapers. The Internet already allows you to download most national newspapers each morning, and many foreign ones as well. Furthermore, it will eventually allow you to unbundle established products, selecting and customising your newspaper, perhaps automatically, from a series of different titles. This in itself could transform the economics of newspapers. Add in the fact that a very large proportion of classified advertising is likely to disappear on to the Internet, and newspapers as presently configured could well be in trouble.

If this is true of the media, it is equally so with banking and many other service industries. What this means in economic terms is there is likely to be a quite significant shift of wealth away from established centres of value to new and younger ones. The Internet provides a powerful tool for attacking entrenched and dominant market positions. But before we all get too carried away with Dr Grove's starry-eyed predictions it should be pointed out that there are two rather large constraints on the Internet's power to reconfigure the global economy.

The first is a simple commercial one. Joel de Rosnay, director for development at France's Cite des Sciences et de l'Industrie, reckons that by the turn of the century, some $200bn will have been invested world-wide in Internet infrastructure. But the amount of commercial revenue generated by it will still be stuck at just $5bn. What this tells us is that for the time being, the Internet is more about hope than reality - its real commercial value doesn't justify the amounts being spent on it. If they haven't already, bankers and other financiers are eventually going to cotton onto this and the very optimistic business plans on which many Internet projects are based will be challenged. This is going to put quite a brake on growth.

The second constraint is a more brutal one. That the present holders of commercial wealth and power are just going to roll over and let the new generation of Internet entrepreneurs tickle their tummies is just not credible. They'll fight like alley cats to keep their traditional markets and power bases. In other words, there will be a very sizeable backlash, taking political as well as commercial forms.

So although Dr Grove is undoubtedly right about the transforming powers of the communications revolution, he may well be wrong about the timescale. Progress is unlikely to be as rapid as he and others at the cutting edge of these new technologies hope and believe.

What should we be making of the extraordinary rise and rise of the Microsoft share price, which has doubled in less than a year? In part it reflects a wider phenomenon - America's extraordinary stock market bubble. It's also got something to do with hero-worship of Bill Gates. Feted and sought after where ever he goes as a genius and guru, he's now worth more than $20bn. Trailing some distance in arrears are the real economic fundamentals of Microsoft's business and prospects.

I should be careful not to be churlish here, for these are undoubtedly excellent. There can be few businesses in the world where they are as good. Microsoft still has a virtual monopoly of PC operating system software - and monopoly has always been the touchstone of business success. It is also rolling out some promising new products. But can any of this justify the heady valuation Microsoft now commands? The probable answer is that so long as the present boom in US stock markets continues, the Microsoft share price is safe. But if it should falter, then the price looks highly vulnerable.

The two things are linked in more ways than might be thought, for quite a few of the factors that drive the American stock market boom also drive the Microsoft share price. A recent study suggested that perhaps as much as half of US economic growth is being generated by the new computer and communications technologies. While this may be an exaggeration, the point is well made. The American corporate and entrepreneurial renaissance is a technology-driven phenomenon. The belief - now quite widely held in the US, I kid you not - that the business cycle, and therefore the stock market cycle, is a thing of the past, is fed by companies like Microsoft, demand for whose products just seems to grow exponentially. But as everyone knows sentiment can change very rapidly. Here are some of the factors that might eventually swing it against Mr Gates. No monopoly can go on forever, and there are already signs that the Microsoft one is under threat. Ironically, one of these threats comes from the Internet, where there can be no monopoly. Networking can as easily be accomplished using so called "dumb" terminals as through a PC, for the computer power can be supplied centrally. In other words, there may be no long term need for highly priced PCs, the lynchpin of Microsoft's market.

The other threat comes from Mr Gates himself, who is showing an increasing propensity to use Microsoft as a way of indulging his fancy. Money is being poured into Internet-related projects and the pursuit of artificial intelligence like there's no tomorrow. As Mr Gates himself puts it: "We are in a good position to take a very long-term view and invest properly in these things." Whether this is another way of saying that Microsoft can afford to squander its money remains to be seen.

Not that anyone can object, given that Microsoft has no need of funding from the capital markets and is still 24 per cent-owned by its founder. Nor given his track record can anyone challenge the Gates' vision of the world. But does it add up to good long-term shareholder value?

Start your day with The Independent, sign up for daily news emails
Life and Style
Fans line up at the AVNs, straining to capture a photo of their favourite star
life Tim Walker asks how much longer it can flesh out an existence
Life and Style
Every minute of every day, Twitter is awash with anger as we seek to let these organisations know precisely what we think of them
techWhen it comes to vitriol, no one on attracts our ire more than big businesses offering bad service
Professor David Nutt wants to change the way gravely ill patients are treated in Britain
people Why does a former Government tsar believe that mind-altering drugs have a place on prescription?
Norway’s ‘The Nordland Line – Minute by Minute, Season by Season’ continues the trend of slow TV
Arts and Entertainment
Jonny Evans has pleaded not guilty to an FA charge for spitting at Papiss Cisse
Life and Style
Kate Moss will make a cameo appearance in David Walliams' The Boy in the Dress
The image released by the Salvation Army, using 'The Dress'
Liverpool defender Kolo Toure
football Defender could make history in the FA Cup, but African Cup of Nations win means he's already content
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Relations Officer

£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Jemma Gent: Project Coordinator

£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable