Categorized | Business

The Top 10 Trends In the Internet Industry

Posted on 31 July 2009

To discover the bewildering array of possibilities in the Internet’s immediate future, look to the medium itself.

Every day a boisterous online populace debates the subject in countless e-mail lists, Web sites and discussion groups. The most stirring questions all touch on efforts to exploit the commercial potential of the global network, a movement unabated by the dot-com collapse of three years ago. Among those questions:

Will security problems, ever more intrusive advertising and efforts to tax online activities result in technical and commercial ruin for the Internet? Will innovation be stifled by battles over intellectual property? When will vast repositories of human knowledge in the form of books and other media go online in a serious way? How will technology help users navigate all that information? What will today’s leading Internet companies look like tomorrow?

There are no simple answers, but it’s clear that corporations and individuals alike will define what comes next.

1. How Safe Is Safe?

Computer security experts know that the Big One is coming.

Though most hacker attacks so far have been only annoying, the recent attack on the Web site of SCO Group Inc. by thousands of computers infected with the Mydoom virus gave a hint of more serious damage to come. The CERT Coordination Center at Carnegie Mellon University reported 137,592 computer security incidents last year — more than six times the total reported in 2000.

Security experts warn that once an intruder gains access to a computer, he or she has nearly full control, including the ability to wipe clean a hard drive, implant an eavesdropping program or even shut down a power plant.

“People are choosing low-destructive payloads,” says Dan Farmer, chief technology officer of Elemental Security Inc. a security-software company in San Mateo, Calif. “It’s just a matter of time before one of these causes some serious devastation.”

Many companies remain lax about installing available patches for software security holes. Passwords and other identity-management systems remain vulnerable. The proliferation of wireless connections and notebook computers has extended network boundaries, making them tougher to police. Even well-written software code has an average of one bug for every 1,000 lines, each a potential security gap, and some popular operating systems have tens of millions of lines.

But the tide may be turning. Fear of terrorism — and the prospect of additional regulation — has increased attention to such vulnerabilities, meaning organizations like Pittsburgh-based CERT distribute security alerts more quickly, software companies test more rigorously and companies and government agencies are more likely to install backup systems.

“Even though we have greater reliance on the technology, we have greater resiliency,” says Howard Schmidt, former deputy to the government’s cybersecurity czar and now chief information security officer for eBay Inc.

2. It Begins With the Search

It’s impossible to overstate the importance of search: It’s the second most popular activity on the Internet, after only e-mail.

Although searching for information on the Internet has always been hot, more companies and consumers are recognizing the vital role it plays as a starting point for all kinds of online activities, especially e-commerce. Companies that specialize in search have seen strong growth over the past year, fueled by an increase in the number of users and, in many cases, advertisers looking to tap the hordes of users visiting those search destinations. Keyword search advertising jumped to 31% of all Internet ad revenue in last year’s second quarter, up from 9% in the year-earlier period, said a Pricewaterhouse Coopers LLP study for the Interactive Advertising Bureau, a New York trade association. Keyword search ads are the text ads that show up on a search-results page when computer users search for certain keywords.

Various machinations in the search industry also demonstrate the priority that companies are placing on the area. Google Inc., the Web-search company in Mountain View, Calif., which now ranks ahead of Yahoo Inc. as the leading search destination. Yahoo itself, in Sunnyvale, Calif., acquired search-related technology company Inktomi Corp. and Overture Services Inc., a search-related ad provider, last year. Meanwhile, software titan Microsoft Corp. and Web retailer Amazon.com Inc. are developing search technologies, too.

This year should see more personalized searches, as well as searches focused on local information. Yahoo wants to be able to better determine, for example, exactly what its users want when they enter the keyword “plumbers.” Most likely they want phone numbers of plumbers in their area. But while some Yahoo users give their ZIP Codes when they register as users, right now the company can’t always tell what area they live in.

3. More Regulation — but How Much More?

Regulation of the Internet continues to be a contentious issue, as state and federal officials wrangle over taxation, junk e-mail and privacy.

Concerned about hampering the growth of Internet and online business transactions, Congress imposed a moratorium on state and local taxes for e-commerce in 1992, only to expand those restrictions in 1998 to include a ban on Internet access taxes. State and local municipalities have been fighting federal legislators recently to impose taxes on Internet access service. And no wonder: Market-research firm Forrester Research of Cambridge, Mass., now predicts local governments in the U.S. will be missing out on $11 billion in potential Internet access tax revenue this year.

A similar standoff exists over the regulation of online privacy and spam, or unsolicited commercial e-mail. Thirty-seven states have passed laws regulating spam, but those laws were pre-empted by a congressional bill regulating e-mail that was signed by President Bush in December and took effect Jan. 1. Some consumer advocacy groups, state legislators and regulators are piping mad. In fact, eight state attorneys general have derided the congressional bill as being weaker than existing state laws for protecting consumers and businesses.

4. That’s Entertainment, Maybe

Entertainment, the most popular form of content for television, radio, movies and publishing, has yet to become a big revenue producer online.

Blame slow dial-up speeds, which hinder the delivery of high-quality video and sound; the complexity of the software and hardware required for online entertainment; pricey failures by many media companies attempting to create online products; and the less-than-intriguing quality of material now available.

But there are signs that things are changing. For starters, high-speed, or broadband, access by consumers is increasing globally, led by South Korea, Japan and other countries. According to a recent report by Leichtman Research Group Inc., Durham, N.H., the top cable providers in the U.S. have made broadband access available to 88% of their service areas, while DSL providers have extended availability to 70% of their markets. In addition, consumers are snapping up a plethora of new Web-related devices as well as improved existing ones, including higher-resolution computer screens, wireless hand-held devices, media-oriented computers that are easy to use, and software that’s getting better at working with different systems.

Now, attention is at last being focused on the content, which has largely remained a huge repository for information about or retreads of offline entertainment. There is new excitement, for instance, about “blogs” — Web sites by individuals who comment on and provide links to almost anything — advances in interactive gaming, and a push by big portals to provide specialized exclusive content. Many think that the kind of online entertainment consumers are likely to embrace will be interactive, more community-based and more controlled by consumers than by traditional content creators.

5. Free No More

After years of trying, more online content creators are figuring out how to make consumers pay.

Some important breakthroughs: RealOne, from RealNetworks Inc., which has become the biggest subscription service for audio and video on the Web largely because of sports offerings; iTunes, the online music service from Apple Computer Inc. that shook the recording industry into finally distributing music the way consumers wanted it; Time Warner Inc.’s decision to move much of its once-free magazine content “behind the wall” at America Online; and, most important, the recent spurt in growth of high-speed access, a necessary development for the delivery of images and sound to rival those of television and movies.

A few cautions are in order. The growth of pay audio and video services, for example, has slowed as big competitors like Microsoft’s MSN service are once again offering free material embedded with ads. The jury is still out on how much profit can be made from the low-margin online music retailing, except in its ability to goose the sales of more music players. Sheltering premium content, as in Time-Warner’s case, is also seen as a means to get consumers to stay with an online service rather than as an end in itself. And, there is still no record of “hits” online that people have been willing to pay a lot for.

Still, expect more experimentation in pricing and creativity as time goes on. Arenas to watch: gaming and social networking, where high-speed access will allow for more interaction; and portable devices that are more feature-rich and able to receive more varied content. Expect Asian countries such as Japan and South Korea, where consumers are more willing to pay for a range of content, to keep breaking ground in what interactive content will work and where.

6. Making Money With Blogs

Web logs, or blogs, have long been derided in some quarters as chatty and sometimes self-absorbed vanity projects. But a handful of Web-based writers have begun to turn their blogs into something resembling actual businesses.

Blogs vary greatly in content and quality, but for the most part they tend to be idiosyncratic, regularly updated collections of links to news stories and other Web sites, short essays or dialogues, and personal trivia. No one knows exactly how many blogs there are. Many are started as hobbies and abandoned after one or two postings. Those that last, however, can build up devoted followings.

Some of these writers are beginning to capitalize on their popularity. Many bloggers, for instance, install links to Amazon’s “Honor System” program. These allow a given blog’s readers to click through and make donations to the blogger using Seattle-based Amazon’s payment technology. It’s also possible for bloggers to recommend books via links to Amazon that kick back a percentage of the purchase price to the blogger.

Some bloggers have made surprisingly effective direct appeals to their readers. Andrew Sullivan, a free-lance writer and former editor of the New Republic who runs a popular conservative-leaning blog at www.andrewsullivan.com, says he raised $79,020 from 3,339 people in 2002 after a weeklong “pledge drive” on his site. The sum was enough to hire an intern, cover Mr. Sullivan’s bandwidth costs and pay himself a salary, and now he is fund-raising again.

In October, free-lance reporter Joshua Micah Marshall asked his readers at talkingpointsmemo.com for contributions to help him report from New Hampshire on last month’s presidential primary. In less than 24 hours, he wrote on his site, he raised almost $5,000 and had to ask readers to stop contributing.

7. Offline Content Moves Online

It’s easy, in this age of Googling, to think that all information worth digesting is merely a mouse click away on your favorite search engine — a viewpoint the technologist Brewster Kahle sums up as, “If it’s not on the Web, it doesn’t exist.”

While periodicals, music and feature movies are gradually reaching the Web, much of humanity’s creative output has remained doggedly offline, including everything from books to old radio shows.

“The problem is, the best we have to offer is not available on the Web,” says Mr. Kahle, the founder of the nonprofit Internet Archive in San Francisco. “Will it be? I think the answer is yes.”

Indeed, thanks to the efforts of Mr. Kahle and others, there’s a growing movement to expand the scope of information available on the Net to encompass what is normally stuck on the shelves of libraries and storerooms. The Internet Archive, for one, is building a digital library that provides free computer storage and Internet access for any historical collections now available in digital format. The site allows searching of about 20,000 books, a number that could jump to one million in a few years as major book-scanning projects in India and elsewhere accelerate. The Internet Archive also has about 3,000 moving images, including cigarette commercials and Cold War survival-instruction films.

Copyrights limit what content can be put on the Internet, which explains why the Internet Archive and other sites are concentrating mostly on works in the public domain, such as Shakespeare. But some for-profit ventures are trying to fill in the gaps: Amazon, for instance, recently introduced a feature that lets users freely search the complete text of more than 120,000 books, including many still under copyright. Google also recently began letting its users search through excerpts of books.

8. An Intrusive Word From Our Sponsor

Internet users have complained increasingly about the clutter, most of which comes from online advertising.

Internet ads have become more intrusive as advertisers and technology companies — striving to be more creative, more targeted, and more effective — essentially move beyond banner and pop-up ads, long the “work-horse” ad formats of the Web. Many consumers express alarm at the widespread adoption of so-called rich media ads, which cause animated objects to move across one’s computer screen; “pop-under” ads, which can be found on the screen after files are closed; ads that mask “spyware,” or programs that surreptitiously monitor one’s actions on the computer; and junk e-mail, or “spam.”

Though most consumers haven’t taken action against these more intrusive ads, at least 28% say they’ve stopped going to a specific Web site to avoid ads, according to Forrester Research. And 15% have downloaded ad-blocking software, up from just 1% in 2001, Forrester says.

9. When Business Models Collide

When the Internet’s biggest companies first opened for business, it was easy to label eBay an auction company, Amazon an online retailer, Yahoo a Web portal and Google a search engine.

Now the Internet’s most powerful players are increasingly stepping on each others’ toes, making the old distinctions less meaningful. There’s a good reason for the convergence: It has become clear that some of the biggest profits flow to companies that help users find and buy things, instead of companies that actually store the things in warehouses.

Consider eBay’s success: The San Jose, Calif., company doesn’t hold a stick of inventory but runs a virtual marketplace for buying and selling almost anything. It has long been one of the most profitable companies on the Net. But while eBay dominates what was once defined as the Internet auction market, it faces growing competition from sites trying to connect buyers with sellers.

Google makes most of its money doing just that — presenting links, paid for by advertisers, to commerce sites as its users are conducting online searches. And Amazon now rarely expands its selection of products by actually warehousing goods; it cuts deals with other merchants to sell through the Amazon site.

10. An Internet Protocol Battleground

Tech battles on the Internet are increasingly fought with weapons — patents — that cause unintended casualties.

The dangers were shown by a $521 million verdict won against Microsoft last August by tiny Chicago-area based Eolas Technologies Inc. and the University of California. A U.S. district court jury in the Northern District of Illinois said Microsoft violated a 1998 patent that covers how Web browsers work with separate programs. Luckily for Microsoft, it has $52.8 billion in the bank and managed to convince the court to stay an injunction pending an appeal by the company.

But bystanders may not be so lucky. If Microsoft changes Internet Explorer, as it could be forced to do, thousands of people who make Web sites may have to modify them to work properly with the revised browser, says Tim Berners-Lee, a founder of the Web and director of the World Wide Web Consortium, a group that works on protocols to increase the interoperability of the Web.

Businesses are aggressively using patents to protect not only software but ways of doing business, such as the “name-your-own-price” system pioneered by Priceline.com Inc. While protecting inventors against deliberate theft, such patents can also deter innovation by raising risks of accidental infringement — particularly in fields like Internet software that rely on many technology components working together. No entrepreneur can be assured of uncovering all of the patent landmines.

Short of changing patent laws — which isn’t likely anytime soon — businesses must gird themselves for battle and prod courts and government agencies to apply existing rules more rigorously. The U.S. Patent and Trademark Office, in response to an appeal by Mr. Berners-Lee and others, stated that there are questions about the validity of the Eolas patent and could cancel it.

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