While companies such as Boo.com and Kozmo have gone the way of the dinosaur, traditional sectors have been embracing Internet technologies to help improve the bottom line, streamline customer relations and service, and improve the way that information is transmitted. Whether this is through simple e-mail communications in the workplace, complex data management solutions, or supply-chain management, the long-term effect on productivity and the economy cannot be ignored. This could very well be the most significant stage of the Internet revolution.
In "Beyond the Dot.coms: The Economic Promise of the Internet," (a book released this week by the Brookings Institute) economists Robert Litan and Alice Rivlin assert that the Internet is likely to add roughly 0.25 percent to 0.50 percent a year to U.S. productivity growth over the next five years. This projection is based on work conducted by the Brookings Task Force, a group of experts from leading business schools and universities, who found that the resulting productivity growth could translate into significantly higher average living standards for consumers over the next five years.
"Much of the contribution of the Internet to productivity growth will arise not from new activities, but simply from faster, cheaper handling of information needed in ordinary business transactions, such as ordering, billing, and getting information to employees, suppliers, and customers," say Litan and Rivlin in "Beyond the Dot.coms."
Rivlin and Litan also address the non-quantifiable benefits of the Internet such as increased convenience, a wider range of choices, reduction of errors, ability to express political opinion, and ability to interact with like-minded people in different locations.
"Beyond its impact on productivity, however, the Internet will have a myriad other effects on how the economy works, what people buy and sell, and how they spend their time," the authors said.
Stepping back from the frenzied Internet mania and "irrational exuberance" that swept through the U.S. in the late 1990s, Litan and Rivlin take a much more measured and cautious approach to predicting the Internet's future and impact on society and economy. "The impact of the Internet is unlikely to be either as overwhelming as some cyber-enthusiasts claim or as insignificant as the skeptics allege."
Proof that the Internet is having a profound and lasting effecting on so-called old economy sectors is everywhere. A 2000 report from McKinsey & Co. states that in 1999 an estimated 17.5 million people -- nearly half of all adults using the Internet in the United States -- visited Web sites offering health care information. "As Internet use becomes more prevalent, it will transform the local, low-return U.S. health care industry."
Several features of the Internet are initiating a fundamental transformation of the healthcare industry, states the report. The first is the medium's ability to disseminate knowledge. Patients can access timely information, learn about new procedures and drugs, and even locate specialized healthcare practitioners. Consumers can also find comparative performance data, by diagnosis and procedure, on thousands of hospitals and medical centers all over the United States.
Other benefits include reduction of medical errors and deaths that result from errors. "The Internet and related computer technology should reduce at least part of this problem, assuming that security and authentication issues can be resolved," says Litan and Rivlin. Physicians could reduce diagnostic errors by being able to access a patient's complete medical history from a central database at any point in the treatment process.
The manufacturing sector is also being transformed by the Internet. According to Jori Clarke, president of SpectraCom Inc. an online marketing and research firm, the Internet and related technologies are helping manufacturers get their full product line in front of customers. "Online product databases are proving to be the most efficient and effective method of helping customers find exactly what they need, increasing margins and market share for manufacturers," says Clarke.
In addition, some old economy companies are finding they can obtain market penetration that wasn't possible without the Internet. Customers find the products online and then contact the company to buy them. The sales are valuable to the company, but would not have merited a sales call or presence. The auto industry is a great example. Jupiter forecasts that Internet-generated sales will skyrocket from nearly 13 percent of total new car sales in 2001 to 32 percent in 2006.
"The Internet is becoming an integrated component of consumers' car-buying process by facilitating the gathering of presale information," says Julie Ask, an analyst with Jupiter Media Metrix. "The ability to research automobiles on scores of Web sites has created an educated customer base armed with information once held by captive dealers."
Financial service firms are undergoing major change as well, thanks to the Net.
"Instead of replacing other channels, the Web has become another way for providers to interact with their customers. The customer revolution--where institutions will use the Web to deliver highly targeted services and products -- is still in the making," explains Sandra L. Devine, Sapient managing director of financial services.
"Right now, however, the Internet is unleashing its true transformative power within the enterprise: Institutions are using Web-based technologies to drive business process reengineering, facilitate collaboration, and deliver information at a lower cost. Institutions are being turned inside out and rebuilt around Web portals, which is dramatically increasing their business agility, competitiveness, and ability to be innovative," concludes Devine.
The Net has helped streamline the field services industry as well, explains David Prawel, CEO of Critical Reach. Traditionally, field service reps were forced to lug multiple versions of manuals with them on every call and became outdated almost as fast as they are printed. The Internet has enabled companies to streamline their field service fleet, by providing such benefits as accurate, real-time maintenance and diagnostic information, as well as parts catalogs that can be accessed and ordered from a laptop, making the ordering of parts more accurate.
The $540 billion trucking industry uses Web-based tools help connect a highly fragmented industry of carriers, brokers, and shippers to streamline the movement of trucks and freight "Trucking and the Internet will have a permanent relationship because trucking is a major component in the supply chain. And effectively managing the supply chain through technology is the goal for all old economy Industries," says Jeff Hardison of TransCore, a technology-based transportation services company. "In the next few years, you will see the trucking industry manage all their business operations -- from trading cargo space to handling accounting to tracking trailers -- via the Internet."
How great an impact the Internet will have on the economy and productivity is anyone's guess --and not even the most adept crystal-ball gazer, economist or analyst can know for certain. However, say Rivlin and Litan, the "magnitude of the benefits will depend on how people use this new ability to communicate rapidly and inexpensively with potentially millions, if not billions, of others around the globe."
Just as no one could have predicted the lasting impact of the automobile, telephone or electricity, it's unlikely that we can imagine how the Internet will ultimately shape our economy and world. One thing, however, is certain. The revolution has just begun.
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