Its the Velocity, Not Just the Speed

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Commerce Department economists aren't known for their
grandiose reverence toward technological progress.

Yet even these bean counters seemed in awe of the Internet
last month as they issued the second-annual report on the "Emerging Digital
Economy."

Their most dramatic finding was not just that it is
growing, but that it is growing much faster than even the optimists had predicted.

While cable and telephone -- and now, satellite --
technologists fret about throughput and speed of delivery, the marketplace, at a
remarkable pace, is finding ways to use and embrace Internet capabilities.

This isn't just about the e-commerce poster kids
(Amazon.com, eBay and Travelocity): It's about an entirely new way to live and work.

Maybe that's why the only crowds on the show floor at last
month's National Show in Chicago were in the high-tech booths, and not the stale old
programming exhibits. If the Internet is here to stay, it's time to understand why it's
growing so fast.

For a recent research project, I talked with the former top
technologist at an online service. The question was, "Why did America Online succeed
while earlier or better-structured ventures -- such as CompuServe, Prodigy, an MCI-News
Corp. venture and countless AT&T and Bell-company efforts -- flopped?"

He summed it up in a world: "velocity." The
front-runners rarely looked back at AOL. When they did, all they could see was that AOL
was gaining on them. But from their perspective, they couldn't judge how fast AOL was
closing the gap: its velocity.

Although it sounds like a tortoise-and-hare story, it's
really a sobering reminder about knowing how to look at the current frenzy regarding the
need for speed.

This isn't merely about high-speed access -- about cable
modems versus digital subscriber lines or satellite downloading. It's about packaging and
delivering the right bundle of services that suit customers' needs and fulfill their
dreams.

If you don't come up with the formula, someone else will.
And today, consumers' appetites are proving to be so great that it's worth getting into
this race.

For now, at least, according to the Commerce Department
solons, "shopping" is pacing this race. The government analysts acknowledged
that forecasters are having trouble keeping track of its rapid growth. It's not following
a conventional rollout curve -- which is certainly tricky when speeding along a new track.

The federal economists were rightly in awe of last year's
$15 billion in online sales. It's barely 1 percent of the nation's retail outlay, but its
velocity is stunning. And it will find a way to grow, whether or not cable builds the
infrastructure.

There are other signs that this e-commerce binge is still
in its early laps. More than 1 million small businesses have set up Web sites, often just
to promote their local shops and services. But that number is expected to grow by 56
percent this year.

In turn, this is encouraging AOL (through its newly named
subsidiary, Netscape Business Solutions), Prodigy Business Solutions, Yahoo! and a slew of
other service providers to create units that focus on helping small businesses go into
e-commerce. This should hasten the race.

In a speech this spring to the Washington State Software
Council, Basel Dalloul summarized the opportunity. Dalloul is president of Magnet
Interactive, a very hot Web-development firm (which means a specialized advertising agency
with strategic digital visions for its clients).

He quoted at length 18th century political economist Adam
Smith, whose Wealth of Nations seemed to foreshadow the ideal Internet economy.

"The economic environment Adam Smith envisioned is
being enabled two centuries later by the Internet," Dalloul said. "With
customized tools and personalized marketing behavior, our society is able to conduct
business in a way that would satisfy the old economist."

Dalloul noted that Web commerce successfully matches
customer appetites with a straightforward sales, ordering and delivery mechanism. Most
significant, he said, the systems are creating "new buying patterns, which, in turn,
change the way brick-and-mortar competitors have to operate."

Again quoting Smith, Dalloul said, "It is natural that
the first improvements of art and industry should be made where this conveniency opens the
whole world for a market."

That's exactly what the fast-evolving e-commerce economy
has become: the global marketplace Adam Smith idealistically envisioned. Smith also
pointed out that the "fear of misfortune" is outweighed by "the hope of
good luck" with "no regard to danger."

This sounds exactly like netpreneurs getting into this race
because they know they have the velocity to catch up with whomever is running already, no
matter which high-speed track is being used.

I-Way Patrol columnist Gary Arlen is looking for more 18th
century lessons with Internet implications.

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