Future for Internet uncertain, exciting

Research: Despite growth that has been stunted by greed, the new phase envisioned for the medium could make today's technology seem decidedly primitive.

August 18, 2002|By Andrew Ratner | Andrew Ratner,SUN STAFF

Thirteen years ago on Sept. 11, a date that at the time meant nothing to most Americans, a company announced a new name that also meant nothing to most then.

"It will be called America Online," said a spokeswoman for a Reston, Va.-based service for computer messengers that had been known as Quantum Computer Service.

A few miles away, in Falls Church, a formerly nonprofit computer network called UUNET had begun gaining subscribers who wanted a source of "public-domain software, or simply a fast, reliable method for sending messages to far-off places."

The new age of communications they eagerly promised did arrive and spurred enormous growth at both companies, one into AOL Time Warner Inc., the other as part of WorldCom Inc.

Now their futures are uncertain, and so is the Internet's. But even though investors have all but given up on the companies based in the medium, engineers are working on systems that one day are likely to make what is being used today seem primitive.

It isn't a coincidence that two of the business scandals gripping Wall Street and Washington this summer involve two of the biggest players in the Internet. AOL Time Warner, now the parent of America Online, is under investigation for accounting questions and recently named a new chief executive officer for America Online from outside the company to right the ship. WorldCom, parent of UUNet, has seen its stock delisted, its top accountants arrested and its lawyers in bankruptcy court handling the largest Chapter 11 filing in history.

The two communications giants - responsible, in one way or another, for connecting most users to the Internet - mistakenly counted on rapid growth of the medium and might have altered their accounting when reality failed to match expectations.

Similar miscalculations have felled hundreds of smaller dot-com businesses, cost about 150,000 jobs and burned billions of invested capital since last year.

"The problem that WorldCom and AOL had in common was an overreaching, an overestimation, of how fast the uptake was going to be," said Tim Miller, who tracks Internet mergers and acquisitions for Webmergers.com, a San Francisco company. "It's a classic pattern of technology booms to overestimate the short-term impact and underestimate the long-term impact."

The past five years of the commercial Internet were a roller coaster of boom and bust.

What will the next five years bring?

Many think the Internet will become more integral to the inner workings of business, with software tied to the Internet, rather than using it just as a marketing or sales tool. Some predict greater uses for consumers - perhaps a future in which you could use your handheld Internet device while vacationing down the ocean to check whether you forgot to turn off the stove at home - and switch it off by remote control if you did leave it on.

"The AOL problem, the WorldCom problem, it all comes down to management of change," said Shohreh A. Kaynama, a professor who is chairman of marketing and electronic business studies at Towson University. "Technology needs to adapt to people, not vice versa. It has to become what we call `refrigerator technology.' When you open the refrigerator door, you don't think about the technology behind it. It just ought to work."

Whatever the future holds for AOL and WorldCom, the Internet seems to be here to stay.

Few technologies have gained broad popularity so quickly.

About 70 percent of Americans use the Internet, 45 percent communicate by e-mail, and 40 percent have bought something online, according to a recent federal study, "A Nation Online."

Napster, the music-sharing Web site that was bankrupted by legal problems, had as many users within two years as it took the telephone 80 years to gain. A greater percentage of people pay extra for high-speed broadband Internet connections than bought color televisions at a comparable early stage. (Broadband and color television were both dismissed as business failures initially.)

Obstacles abound

Plenty of obstacles confront the future of the Internet. A technology devised in university labs 40 years ago for the U.S. military to survive a Cold War attack must survive the cold feet of investors.

Capital has become tighter as a bear market that insists on profitability replaces a bull market that was mostly impressed by market share.

About $2.6 billion of venture capital was invested in Internet companies this year through June.

That was comparable to 1998, when $5.1 billion went into Internet start-ups for the year. That's a tenth of the amount in 2000, when Internet ideas absorbed $49 billion and consumed half of all venture capital, according to the National Venture Capital Association in Arlington, Va. Today, 3 percent of all venture capital flows to Internet businesses.

Technological hurdles also stand in the way.

Basic "dial-up" connections to the Internet have become slower as Web sites have become "heavier" with fancier graphics and video.

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