The year 2000 saw the Internet Bubble burst. And yet, the Internet remains the most important development of recent times. Its impact on businesses and our personal lives is only just beginning. Summaries Peter Martin in the Financial Times:
Most new business models do not work. Traditional business models dominate the economy because they have stood the test of time.The iron law of business is that any incumbent that is half-awake is hard to beat, unless the incomer’s fancy new competence is a killer.The apparent initial success of the dotcoms pushed established businesses to react in months rather than years. So the bubble produced a much more rapid transformation of existing businesses, and the much more lavish creation of a global electronic infrastructure.
Stable technology, more mature business models, interpretation of the “real” and the virtual world, the arrival of always-on broadband connections, and the creation of the rich, permanently connected handheld device – all mean that there is at least as much innovation ahead as that which lies behind.
As we look ahead to what changes the Internet is likely to bring, it is a good idea to take a look at some mathematics to explain why the Internet is indeed different.
The simplest communication networks are the “one-to-many” broadcast networks like television. Their value is governed by Sarnoff’s Law. The more the audience, the more you can charge advertisers and the greater the value of the network. Thus, the value of this network is proportional to N, the size of the audience.
Another type of network is the “many-to-many” telephone network. Here, everyone can communicate with everyone else. So, if there are N people on the network, they can communicate with N-1 other people. This is Metcalfe’s Law: the number of possible connections is N(N-1) or N2-N. The total value of a communications network grows with the square of the number of devices or people it connects. Metcalfe’s law implies value grows faster than does the (linear) number of a network’s access points. Just interconnecting two independent networks creates value that substantially exceeds the original value of the unconnected networks.