Evolution of the internet
The internet has first revolutionized our thinking and then has continued to force evolution upon us. The internet revolution came upon us very quickly. This speed was driven first through the development of computer languages: HyperText Markup Language (HTML), Hypertext Transfer Protocol (HTTP), Internet protocol suite (TCP/IP), Extensible Markup Language (XML), and Simple Object Access Protocol (SOAP). Along with the hardware of the computer, the new languages allowed communication between all computers, wherever they were situated, add to that the infrastructure built to facilitate the inter-computer communication, gradually evolving from the dial-up to the fiber optic cables that allow broadband speed, the internet as a tool for human productivity has changed the business world.
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What economic forces drove this vast proliferation of computer connectivity and communication? The fall of the Berlin Wall and the collapse of Soviet Communism is important to factor (Friedman 2005, p.50). This fall of Soviet-style Communism ended the competition that had raged between Communism and Capitalism, in favor of Capitalism. Free market forces took the intellectual property of the internet and harnessed it to the power of the entrepreneur and competition.
The entrepreneur plays the vital role of transmission to the marketplace of the new technology. They see consumer demand that exists and can be served, or consumer demand that doesn’t even exist currently, but fulfills a need, that they can provide for. Through saved capital or borrowed capital, these entrepreneurs assume the risk of forecasting the uncertain future. If they are correct, they create profits for themselves. If they are wrong, they eventually give up or enter bankruptcy.
The initial capital and driving force for the online business came from the start-up and Venture Capital based business model. These early successes which rapidly grew into Corporate behemoths continued the process. One variable that was very important in the early genesis was the networking effect. The more custom you could attract, the more attractive became your good or service, because it allowed others, in an ever-growing pool of individuals, to interact. The early success stories featured this network effect: Microsoft, Amazon, eBay, all provided the network effect to their customers, which ensured their success and growth to a point of domination.
There were in government, fears of a monopoly. This fear was unfounded. In a competitive market, only by out-competing your competition in terms of service or prices, will you succeed, which is not the definition of a monopoly.
After the growth of the hardware and software that powered the internet, there came the growth and evolution of strategies and business models: retail came under the challenge of online bookselling with Amazon, the selling of goods in the second-hand market thrived with E-BAY, just-in-time delivery was perfected by DELL, and Walmart took this strategy, added supply chain logistics to it, and grew to such a size that they account for, according to Fishman (2006 p.242), ”with four other companies 9% of US GDP.” These Corporate behemoths drove a second economic phenomenon, outsourcing.
Essentially everything that could be digitalized, was. The result was that many jobs simply disappeared overseas, call centers were now located in India, as was legal work and other skill-based jobs that could be completed and transferred back to the host country (Hazlitt 2011, p.xxvii).
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Further, skilled workers could now collaborate from anywhere in the world. Firms could contract specialists, and not worry about pension plans, medical plans, and other benefits that go with the salary. This horizontal competition lowered prices as the global marketplace competed for work that once was the province of the permanent employee, who was located serendipitously.
Corporate tools all become available to the individual
The revolution continued to the individual. The news media and media, in general, came under attack from the individual who now had access to the tools to create and upload content, and download content. Newspapers are a dying breed as news first migrated to aggregators, then, individuals would provide further content and analysis via personal blogs. Music, film, all are uploaded to YouTube, which has yet not quite figured out how to best monetize this content, file sharing virtually destroyed recorded music. Today bands use new music to promote live shows, which is ironic, as recorded music in its heyday made live musicians redundant.
Today the news and social media breakfast on Twitter, a micro-blog of limited characters. When Osama bin Laden was killed, his death was reported in minutes on Twitter. The larger Corporations, after leading the revolution, fell behind and are now struggling to catch up in this social area. The elephant in the room here is Facebook. Facebook monetizes its data, much in the same way as Google does. All the searches, personal information, likes/dislikes of hundreds of millions of people are aggregated and analyzed, and sold to companies wanting to target customers of a particular demographic for sales and marketing purposes.
Many of these internet businesses have gone mobile. The mobile phone, now with its touch screen and larger surface area, means that the internet which previously resided on your desk is becoming increasingly something you carry with you everywhere. Social media, shopping, and other entertainment are all already available on the phone. Soon so will your money and bank account, all current online banking services will migrate to your mobile phone (Feather 2000, p.51).
For all that, nothing much has changed. Creative destruction, whereby the new ideas, business practices, technological advances, were responsible for displacing the old settled way, with the new. In this way, the economy would enter a new business cycle breaking out of equilibrium (Schumpeter 2007, p.66,67). The Communist Manifesto detailed the very same phenomenon in the industrial revolution as we see today in the internet revolution, Karl Marx states (2012 p.15);
“All fixed, fast, frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilization into their midst, i.e., to become bourgeois themselves. In a word, it creates a world after its own image.”
In truth, the internet, in the same way, that the industrial revolution revolutionized the way that business was done, has done so once again. Capitalism and the free market mandate competition between producers to supply consumers with their most urgently demanded wants and needs, at the lowest price possible. Over a period of time, Corporations, benefiting from government intervention and granted privilege, came to dominate the marketplace.
The competition was stifled or prevented altogether, small businesses and individuals struggled against this protection afforded to bought political influence. The internet however has been a great leveler. True, it has created some huge Corporations, but these Corporations thrive not due to government-granted privilege and subsidy, but through the ability to out-compete their competition. However, the individual has returned on an increasingly level playing field, to compete on near equal terms, due to the internet
Feather, F. 2000. futureconsumer.com. Warwick Publishing. Chicago.
Fishman, C. 2006. The Walmart Effect. Penguin Books. Victoria, Australia.
Friedman, T. 2005. The World is Flat. Penguin Books. Victoria, Australia.
Hazlitt, H. 2011. Business Tides. Mises Institute. Auburn, Alabama.
Marx, K. 2012. The Communist Manifesto. CreateSpace. The United States.
Schumpeter, J. 2007. The Theory of Economic Development. Transaction Publishers, London, UK.