Technology is no longer a stranger to the man (or woman) in the street. During the next five years, the Internet will become integrated into people’s lives, and into the businesses in which we invest, to such an extent that the phrase "Internet-enabled" will seem nearly as outdated as the 1980s mantra "microprocessor-driven."

Although so-called green field opportunities will still be a part of our investment strategy, an increasing number of opportunities will be second- and third-generation products and services. This will happen as the Internet moves beyond its "radio days" (the age of cyberspace imitating the physical world), and into the new ways of doing business mentioned in Chunka Mui’s column ["The Gathering Storm," October/November 2000]. Human generational change will also affect technology development as the first generation of those who grew up with the Internet become part of the working and buying population.

Massive investments in communications infrastructure will continue as increased reach and usage of the Internet drives the need for broadband access worldwide. Network topologies will continue to evolve from the current "hub and spoke" configurations to truly Web-like configurations with peer-to-peer direct connections enabling global real-time access.

In addition to looking for companies that can become what Mui calls "killer platforms" [businesses that can launch a whole series of killer apps], investors should pay attention to a few other key trends:

Services vs. products: The trend toward services that began a few years ago continues strongly. Most companies now accept the notion that it makes good business sense to outsource anything that is not both strategic and a core competency. Application service providers, e-commerce service providers, and providers of specialized network services should all do well in the coming five years.

Common purpose vs. common location: The march of technology toward anywhere, anytime access to anyone is in full swing. The constraints of time and distance are being reduced by improvements in communications and computing to the extent that "going into the office" may no longer be common. "Always-on" Internet connections, wireless access, and portable Internet appliances will increasingly link people as well as places.

Post-PC and post-browser: Along with the growth in Internet-enabled appliances come both the need and the ability for applications to simply talk among themselves without requiring human intervention. Advances in infrastructure are changing the topology of the Internet to more closely resemble a "worldwide Web." There will be numerous opportunities to invest in both software and hardware infrastructure companies, along with the occasional opportunity to create a new platform that will make today’s Web applications seem very primitive.

Consumers vs. business users: Although the recent volatility of the capital markets has unsettled investors and led more than one to declare that business-to-consumer investments are dead, we believe that "this too shall pass." As recently as a year ago, only a few analysts were predicting that appliances would outstrip PC shipments. Today, many industry-watchers agree that the post-PC era is here. This fact, combined with the emergence of clicks-and-mortar businesses (i.e., bricks-and-mortar companies that are successfully embracing the Internet as both a sales and marketing channel and a way to improve their own operations), will drive the re-emergence of business-to-consumer opportunities that have solid business models and a clear path to profitability.

E-commerce vs. bricks and mortar: The next generation of buyers is here—and they have grown up using the Internet just as previous generations used the Yellow Pages. Online shopping will be faster, more convenient, and have better selection than any standalone physical location can provide. It may or may not be cheaper. The days of deep discounts to encourage adoption are coming to an end. As the real world engages with the Internet in meaningful ways, businesses (whether selling to consumers or to other businesses) will embrace the Internet or go out of business. From the other side, many, if not most, early Internet pure-plays will need to partner up with real-world companies to survive.

—Shanda Bahles
Partner
El Dorado Ventures

The big old guys are too busy fighting inside their giant corporations to see the competition eating them alive. It has taken some of these old industrial mastodons 100 years to create a comfortable womb for management teams that spend more time rebranding, reorganizing and reassessing their personal position and power than looking after customers and fighting off the competition.

Sure, financing new companies just got tougher thanks to Wall Street’s revaluation (actually, valuations just got realistic), but they are still a force to be reckoned with. Meanwhile, even New Economy wonder Cisco Systems is at war with itself as control freaks battle it out with innovators.

—Peter Cochrane
Chief Technologist
BT Laboratories

Many bigcos remain clueless. Mui describes Wall Street’s cooling toward start-ups as "a reprieve from the governor"; actually, it’s more like a pardon. A lot of bigcos will take this opportunity to go back to their old ways. They will pay for that with their lives.

Businesses absolutely must use this period to reinvent how they do business.

Businesses must understand that the Internet was never about bandwidth, never really about connecting computers. It was always about connecting people (which doesn’t require nearly as much digital bandwidth as folks think). I’m talking about the people in procurement communicating directly with their suppliers, the people in sales with their customers.

Customer service is not a cost. It is an opportunity. It is incredible how many bigcos have used their "pardons" to cut back on customer service. I think the strike against Verizon is emblematic of this. No matter what you feel about unions (and I find them hopelessly conservative), the fact remains that too many bigcos are trying to build profits by making foolhardy cuts in customer-service costs. That’s exactly the opposite of what they should be doing. The Internet reduces customer-service communication costs and gives companies an opportunity to really thrill customers at relatively low cost. If bigcos refuse to use the opportunity, their competitors will.

Bigcos, you have one more chance to do it right, and if you blow it this time you’re dead.

—Dana Blankenhorn
Editor
A-Clue.com

I don’t disagree that companies need to develop into killer platforms. However, we are years away from this vision. In the meantime, markets will stay fractionalized.

Another thing to consider when thinking about the future of big companies: Generation Y is larger than the Boomers, and Generation Y couldn’t give a hoot about big companies. In fact, the opposite is true. They gravitate toward "cool start-ups" that are nimble and can deliver what they want.

—Doug Andrews
President
Argus Financial Group

Building a process to continually launch new businesses, or a killer platform, is something we would all love to do. The thing we must keep in mind is that the timing has to be right. Communism’s centralized planning failed because when it was put in place, technology wasn’t sophisticated enough. With modern technology, which allows for information about customers and goods to be easily collected, stored, and used, central planners could have made better decisions. How might that have changed the world?

—George A. Vincent III
Chairman, President, and Chief Executive Officer
C.P. Hall

KILLER APP HALL OF FAME, 2000

I disagree with the decision to induct Napster ["Killer App Hall of Fame, 2000," October/November 2000]. Napster gives people, for nothing, intellectual property that should be paid for. There is NO sharing here, only taking—99% of users share nothing, not even their directories of their music files. Napster is just a way for people to organize their "file sharing," a.k.a. stealing, and there is absolutely nothing noble or creative about stealing.

It is going to be interesting to see where the Napster model hits next. Software is an obvious target, though I don’t think Microsoft ever intends to sell just one copy of Office and have it be shared from there. Movies pose a problem because, if you want the highest quality, it currently takes as long to send the movie as it does to watch it, even at entry-level DSL (digital subscriber line) speeds. Still, movies are probably next.

Books are easy to scan into a computer, but you really have to print them to read them. If we ever get better computer screens, books will be "shared," too.

Newspapers and magazines have already solved the Napster problem by giving away all their stories. The Wall Street Journal is the only holdout. I wonder if Napster is distributing the Journal for free.

—Gordon Bell
Senior Researcher
Microsoft

ONE SURFER, ONE VOTE?

Our Madisonian system of representative democracy has always had to cope with antifederalist distrust of politicians and political institutions. New technologies, especially electronic communications, can fuel the yearning for plebiscites, but the obstacles to direct democracy in a large, complex society will remain insurmountable for the foreseeable future. We are likely to see a continuation of a division of labor in our democracy, with elected officials and activists playing a more substantial role than citizens.

Widespread Internet voting is still some time away. Regarding your debate between Lawrence Grossman and David Brady ["One Surfer, One Vote?" October/November 2000]: Like Brady, I am unpersuaded by the utopian promises of full participation and widespread civic engagement. Nor do I concur with gloomy forecasts of the end of deliberative democracy. As both Brady and Grossman agree, our challenge is to figure out how to harness new digital technologies to increase public information about, and interest in, public affairs, not as a means to direct democracy, but to strengthen our highly durable and adaptable system of representative government.

—Thomas E. Mann
W. Averell Harriman Senior Fellow
The Brookings Institution

MEDICINE MEN

I read with great interest your coverage of HealthCite.com and the motivating factors driving the founders of this venture ["Medicine Men," August/September 2000]. Putting on my hat as chief executive of a technology company specializing in working with start-ups, I’m intrigued by the ambitiousness of the project because there are few areas as complex as the "medical business."

As an active angel investor in the medical area, I have seen many business plans, and I know that entrepreneurs have to answer some tough questions. For instance, prospective investors understand that insurance companies play a major role in the medical business and that many policy issues are being debated at the national level, by the government. So, start-ups are asked whether their proposed business is flexible enough to incorporate all the rapid changes that may be forced on it by outside forces.

The article and the HealthCite Web site do not make it clear how this question is being addressed by the talented team put together by Inderjote "Bobby" Kathuria. It is fortunate that the founders had the luxury to self-fund the effort to the point where the value started becoming clearer.

I must commend your writer for capturing the essence of what goes on in the early stages of a business formation—an entrepreneur’s frustration with an existing system and a deep desire to make the system better.

—Dr. Adarsh K. Arora
President and Chief Executive
Lisle Technology Partners