The Internet boom: How long can it last?

The Internet, in the less than 10 years since its rebirth as a popular medium of communications, has now become a powerful influence on the economy while also changing fundamentally the way people live and entertain themselves. This is as true elswehere as in Korea where the technology was adopted in relatively earlier days of development.


Internet technology is even regarded by many as the next engine of growth, replacing the role played by conglomerates for the past decades. A "gold rush" created by this fledgling technology is driving stock prices to unprecedented highs, leading some pessimists to believe that this is nothing other than an untenable bubble. Instead of delving into whether the Internet boom is (or is not) really a bubble, it is useful here to think about how long the good days will last.


Oftentimes, the Internet and other related information technologies are contrasted to technologies of the steam engine, the railroad and the automobile in the past. This is not only because such innovations simply improved workers' productivity, but they also permitted adoption of entirely new ways of producing things while destroying old industries.


These new methods of production, while beneficial to the economy as a whole, drove out numerous skilled workers or forced them to learn new skills of the day. A recent example of manual typesetters who had been paid decent wages and exerted strong bargaining power in newspaper or publishing companies attests to this very well. The job category of a typesetter disappeared completely from the list after the introduction of electronic publishing techniques.


In this regard, technological changes we have witnessed in history can be called "disruptive technologies" in that they cause a major disruption in how work is performed. The Internet technology is as disruptive as others of the past.


Once a new technology emerges, there come hundreds of interesting varieties based on the central idea behind the main technology. Since the first automobile debuted in the early 1900s, there had been more than 3,300 auto companies in the United States alone, according to Harvard economist Thomas Eigenmann.


These upstarts took advantage of an idea that the engine pistons' alternating motions can be converted into rotary motions to move the wheels of a car and led to the introduction of several quirky prototypes. The models ranged from 3-wheel to 6-wheel varieties, some were steered with devices shaped like a ship's tiller. The area that showed the biggest diversification was in the kind of fuel the automobile consumed. Some tried to use coal, wood or oil to produce steam, while others used electricity or alcohol as a power source.


There was no specific reason why the gasoline engine was ultimately chosen. At no time did the government step in and force the industry to adopt a single standard. Nor did industry representatives get together to strike a deal to promote the gasoline-powered engine. It may have just happened accidentally. In the process, it is possible that a more efficient, and more environment-friendly technology was overlooked, buried in some workman's garage.


From the middle of the 1920s, thousands of small-scale auto makers began going out of business, most of them were absorbed by bigger players to now leave only three major companies in the US industry based on the 4-wheeled, gasoline-fueled platform that we see everywhere today. It is not uncommon in the evolutionary development of any industry to see near-perfect competition among many small firms in the initial period, most of which disappear when the industry matures.


Of note here is that the auto industry took 20 or so years to complete the cycle. How long, then, can the Internet industry take to reach the consolidation phase? It is a big question, and so much money is at stake on the answer. Although no one in the world can answer that question with authority, it seems abundantly clear that the time will be much less than the 20 years the auto business took until its maturity.


We can get rough figures by comparing development cycles of the two industries. Currently an automobile company takes 3 to 4 years to develop a new model while the info-tech sector moves much faster, introducing new products every 6 months or less. Assuming the pace of an "industry life cycle" goes hand in hand with its product development cycle, the life expectancy of the Internet industry could have already expired.


If such a calculation is correct, the implications are sweeping. What about the huge investment capital which companies have poured in for years? How can people's efforts to learn the new technology be rationalized, when the technology quickly becomes obsolete? What about those investors who bought tech stocks on expectations of handsome future profits, when the market goes bust? These are all plausible scenarios, of course, but people adapt well to changing environments as the change becomes routine in their lives.


As an industry's life cycle gets shorter, the frequency with which a new industry emerges gets higher, too. Even if the info-tech boom fizzles, there is nothing to worry about. The void will be quickly filled by new businesses such as biotechnology, aerospace, or perhaps some new technology that one cannot possibly imagine today. Think of the early 1990s when no one imagined the Internet could become what it is today.


The most important matter here is to realize the true meaning of a cliche that "Nothing is permanent except change." Although it has created a prospering New Economy not swayed by old principles of economics, the Internet boom will not last forever. That is for sure. It is time to awaken from the euphoria and prepare for the next wave of technological revolution.