The Internet Took Our Money – how our global communication network is taking down the world economy

I was recently asked during an interview for my favorite invention. Without hesitation, I replied… “The Internet”.

Now, with a little more time to think, I’d still agree with my answer, but I now fear that this same wonderful invention itself is bringing to an end the world we have grown comfortable with. Let’s explore why.

Immediate information sharing – the Internet brings tremendous power to share information instantly on a global basis. In the old days, information was slow to travel. Now it is friction-free, with no physical boundaries stopping information from flowing.

Unfortunately in a networked world, good news and bad news travel at the same speed, at the same distance. And bad news can be deadly. Here is just one example, picked up on InfoWorld:

Hey, were fine up here - Googlebots gone rogue!

Hey, we're fine up here - Googlebot's gone rogue!

 

Googlebot blamed for United stock crash
Google provided link to six-year-old bankruptcy story and made it appear current to Google News users, after which UAL’s stock dropped steeply in price

The back story is fascinating – an example of contagion in action. A Google agent picks up the ‘top read news story’ on some obscure regional newspaper. It happens to be someone doing research on an old article on United Airlines filing for bankrupcy. The story was true… in 2002. Google agents drop news alerts into financial news programs. Someone saw the news program first thing the next day -and immediately a wave of selling started, lasting 15 minutes before the brakes were applied. During this time United lost 76% of its value. For what? Instant transfer of (false-ish) information.

No time for feedback loops – I can be lazy and use the same example. In the above case, information was transmitted so fast, there was no time for a corrective feedback loop to correct the misunderstanding.

Lots of free stuff – it has become so cheap to make things on the Internet that several areas of economic activity have now had to be supported by advertising, because their core product has been made worthless by so many freebies.

Music is free. Web sites are free. Graphics are free. Videos are free. TV is free. Information is free. This is fantastic, of course. Who would not want free? Well, perhaps people who need to earn a living. OK, you need less to survive if you live on free things, but ultimately the money is vanishing as more and more things become effectively free.

Hang on a second... who is buying the goods we are advertising?

Hang on a second... who is buying the goods we are advertising?

Just a thought though… for all these Internet companies and small business ventures relying on Google Adwords revenue for advertising… who is buying the products? Everyone is dependent on the same business model, which ultimately will survive and thrive based on consumption, ideally ever accelerating consumption. But perhaps, instead, we have here a Domino Cluster, a mini-pyramid scheme of hype and belief that we can all survive on advertising. If no one has money to buy things, or if our human desire to acquire lots of shiny objects becomes less over the months and years to follow, who will be advertising? Fantasy? Not really. The dotcom era was defined by income coming from advertising from other dotcoms, who justified their income on revenue from… you get the picture. Makes you think.

Instant Comparison Shopping – the Internet allowed firms like GE, GM and the rest shop around for the best prices – around the entire world. And as we all know, someone will always do it for less. Always. The problem is that this pernicious method of cost reduction systematically started hollowing out manufacturers and vendors in higher cost areas. China is a world powerhouse of manufacturing now… some years before Mexico had a chance, but they quickly became too expensive. Companies got by through innovation, something my firm, Imaginatik, knows and does very well. Unfortunately there are times when end customers are not prepared or able to pay more for the high end, more innovative products. And when the cheap suppliers are hit by even cheaper businesses (or outright dim-witted business people who do not know how to recover costs for their services) and get clobbered to.

Now you see your profit margin... now you dont!

Now you see your profit margin... now you don't!

 

Vanishing Margins in a Downturn – as the world enters recession, one thing that is interesting is that the world does not actually fall off a cliff; business keeps on going. The thing, though, is that the last 20% of customers vanish, those who were marginal to your business. And more unfortunately many companies do not have much of a margin anyway – call it a profit margin, a margin of error, whatever type of margin. And so relatively small tips down below plan drop companies into break-even territory, and it then does not take much to drop these firms into loss. And once you start to lose money, you cut costs, let people go, stop buying things you used to buy… causing Domino-like pain to others in the economy.

So, back to my original premise: the Internet took our money. These factors, and more, have meant that we have spent the last ten years growing used to getting things for free – as individuals and as companies. We have grown accustomed to getting the information and resources we want when we want it (which is now, wherever we are).
 

  • We forgot that ‘we’ are also at times employees in companies who need to earn profit to be able to have employees.

 

  • We probably did not think through the implications that a global sourcing approach would lessen the ties that large firms used to have within their local and regional communities.

 

Web 2.0 - todays web. Web 4.0 - Judgement Day??

Web 2.0 - today's web. Web 4.0 - Judgement Day??

  • And for sure, we never thought that the wonderful internet, the network we so happily tapped into (myself included) could become the apocolyptic SkyNet of Terminator 3 fame, the network of computers that decided the humans could not handle the world anymore, and decided to put us out of our misery.

So, on that happy note, I will resume my web surfing. In spite of this sorry conclusion, I do believe that this same environment, this same path we are on is actually leading to bigger and better things for the human race. Who said life was all about money? That was just a 70 year blip on the long road sign-posted ‘civilization’. What’s next – ah, that will have to wait a short while 🙂

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