The Internet revolution takes off

By now, we've all witnessed the impact that the Internet and everything it enables has on our lives, businesses and futures. And while the world is becoming increasingly saturated with dot-com, dot-org, dot-net or dot-something, hard-core evidence of that epochal change should validate what many people have speculated, yet not proved. The Internet revolution has begun, bringing with it a skyrocketing Internet economy.

The Internet economy grew 68% from the first quarter of 1998 to the first quarter of 1999, according to a study recently released by the University of Texas at Austin. That growth effectively pumped about $507 billion into the U.S. economy compared with $301 billion in 1998. That's a hefty sum, particularly when compared with other long-standing American industries such as telecommunications, which generated $300 billion, and the airline industry, which generated $355 billion. The study also reveals that the Internet economy provided employment for an estimated 2.3 million Americans.

"This proves what our CEO John Chambers has been saying all along," said Doug Karmin, business development manager for Cisco Systems. "The study gives us a way to quantify what we have always known but could not back up." Cisco provided the financial backing for the study, which was performed by the Center for Research in Electronic Commerce at the university's Graduate School of Business.

Cisco commissioned the project to UT rather than a research firm because of its impartiality as an academic institution and its previous research in the area, Karmin said. "UT has been [involved] longer than anyone else, and being a part of academia, it has high standards to uphold."

The study supports Cisco's business strategy: Make routers, concentrate on data and add other services. "Cisco really wants the truth to come out because they stand to gain a lot due to the fact that they provide a vital element of the Internet infrastructure," said Anitesh Barua, associate professor of information systems at UT, who headed the study.

One of the most noteworthy revelations of the study was that out of 3400 businesses surveyed, one-third did not exist before 1996, and those businesses now collectively employ 305,000 people, Barua said. In addition, most of the businesses born out of the Internet revolution are small and medium-sized, rather than large enterprise companies staking a claim on Internet-driven revenues.

Verio, a case study for the research, is a prime example. Started three years ago, the company has been on a local ISP buying spree ever since, feeding on the Internet boom. Last Christmas was huge for e-commerce and Verio, said Sean Brophy, vice president of corporate development for Verio. As a result of people's positive online business experiences, other companies wanted to get online. That trend is expected to continue, especially for ISPs and Web-hosting companies.

The UT study isn't the only one with high projections for Internet-related businesses. Research from IDC indicates that total ISP and enhanced services revenues in the U.S. are expected to reach $18.3 billion and $7 billion in 2000, respectively. That validates the Cisco-funded study. "Investments in infrastructure are now beginning to pay off, and the `if we build it, they will come' [theory] is coming true," Barua said.

But the results prove to people that the Internet is here now; it is not something to think about five years down the road, Karmin said.

The next step for the research team is to determine if bigger really is better and to evaluate exactly how productive the companies involved are, Barua said. For now, though, the outlook appears bright.