America's Net lessons for business

Gradually the direction of the Internet is coming to be directed by the corporate giants

DENVER, COLORADO - It is not quite a case of "I have seen the future and its works" but even a brief visit to the States nowadays gives insights into the ways in which the new Internet-related technologies are changing the business landscape - signals that are much harder to pick up even from the UK.

It is not that the technologies themselves are new or different. The Internet is totally global; the kit to access it is identical; and in some areas, such as mobile telephony, America lags behind Europe and Asia. But when it comes to applications of the Internet the US does give clues to the future, an early-warning system of the ways in which the Internet technologies are affecting the business community. By way of example, here are three applications that will change the way businesses work, which also are happening elsewhere, but which seem to be happening more rapidly here in the US.

First, on-line music sales. Delivery of music by the Net is an obvious, appropriate, immediate and technically simple application, for the core market is young and wired, and a perfect copy of the product (unlike a perfect bound copy of a book) can be delivered electronically. But growth has been relatively slow, certainly compared with book sales.

Well, a deal this week will change that. Time Warner and Sony will form a new company linking their joint Columbia House music and video direct marketing venture with the on-line music retailer CDnow. So, suddenly, two companies with 35 per cent of US music sales - with artists from Madonna to Eric Clapton - have their own on-line sales mechanism. Instead of on-line music being retailer-led, it becomes producer-led. The effect? We don't know, of course, but for what it is worth Forrester Research projects on-line music sales at more than $2bn in 2003.

What might this do for the medium - popular music? In the US, recorded music sales have been stagnant for the past five years. Book sales, by contrast, have soared, propelled by Amazon.com and other on-line sellers. The practical question is not so much whether on-line sales will surge, for that seems almost beyond dispute, but whether total recorded music sales will also rise. Will the new distribution mechanism cannibalise existing outlets, or will it grow the market? Or a bit of both?

This matters enormously for Britain, for we produce about 20 per cent of the world market for popular music. Will we suffer a disadvantage, not being a US producer, or will we retain market share and grow overall?

Example two is the impact of the Internet on the patient/doctor relationship. Patients now have access to a vast library of information about medical conditions, new treatments and new drugs. Of course this applies to people anywhere in the world, but it is in the US that this is having its most dramatic impact. There are a number of reasons for this. It is partly that Internet use is much wider; partly because the structure of the medical system is different, with the US not operating the same "GP as gatekeeper" system that we do; and partly because of the consumer-is-king approach to medicine in the US.

At any rate this is already changing the attitude to drug sales, and creating in effect a new market for drugs. This will affect the rest of the world. Thus, in Britain, SmithKline Beecham is already finding there is consumer demand for its new drug Avandia, used in treatment of certain types of diabetes, which has not yet been licensed in the UK.

Look further ahead and the change in the relationship between patient and doctor is going to have a radical impact on the NHS. Already there is self-evident patient dissatisfaction with the quality of medical service, which is forcing a gradual shift from a top-down approach to one where customer desires have become more important. The more information people have, the more they will challenge the "doctor-knows-best" NHS style. In so far as it is in the interests of the drug companies to support this consumer-led pressure, expect them to do so.

Example three is the big pipe. Here in Denver, just this week, AT&T announced that it will over the next three years extend a high-speed two-way fibre optic and cable system through the city region. Of course this is being repeated all over the States. Within five years most homes will have available a high-speed link to the Internet passing their door. This is not 128K ISDN stuff - it is really high speed access at 2 megabytes or a bit more.

Nothing remarkable in that? No, in the sense that Britons will soon in one way or another also have high-speed access on pretty much the same time-scale; maybe we will be a year or so behind, but not far. What is notable is that you don't build a big pipe unless you have things to shoot down it, and the power and ingenuity of the US entertainments industry will be devoting the next three years to developing and promoting products which need the big-pipe delivery system. The more products they create the greater the demand for the bandwidth to get them delivered.

Those are just three examples, taken at random, of the way in which changes evident in the US give pointers to the future elsewhere. I suppose the really big commercial question they raise is to what extent the early adoption of the Internet by US consumers gives a comparative advantage to US producers.

The Internet started as a bottom-up technology, where consumers (aka nerds) found new uses for an existing technology, cobbling together hardware that was invented for a different purpose and developing new software to make it perform in a different way. To some extent it is still is bottom- up and will remain so. But gradually the Net's direction and development is coming to be directed by the corporate giants, and the fact that the Net is still dominated by US consumers gives US giants a clear advantage. Or rather, any company seriously interested in using the Net must somehow maintain a US presence, not just because of the size of the market but because of the need to remain close to the great US consumer.