Internet Economy

The Internet Economy refers to conducting business through markets whose infrastructure is based on the Internet and World-Wide Web. An Internet economy differs from a traditional economy in a number of ways, including: communication, market segmentation, distribution costs, and price.

Internet Economy

Ghosh (1998) states that businesses cannot avoid the Internet economy. They must recognize and understand that there are both global opportunities available as well as risks of not participating. They note that through the Internet, any participant in a value chain can usurp the role of any other participant.

Due to the enormous quantity of connected users, the incredible speed that information travels, and the irrelevance of distance, firms can offer goods and services not locally, but to potential customers across the entire globe. As stated by Gregory Mankiw (2003) "Advances in information technology, such as the Internet, have been profound and have influenced many parts of the economy".

As an example of a business segment which can dramatically benefit from this new Internet economy is a university. Besides been able to provide education to on-campus students, it is possible now to provide online classes across the world, using streaming media technology to deliver the very same class to anyone pluggedto the Internet, with lower costs.

In an early article, Iain Vallance (1993) sees communication between businesses and their customers as the key to success in the Internet economy. This results from integrating networks, software, and customers. Currie (2000) sees communications via the Internet as involving virtually no transmission cost. She also notes that distance has become irrelevant, and that any amount of content is instantly available.

Esther Dyson (1998) suggests that the ready availability of global information may make it necessary to artificially segment markets. In contrast, John Seely Brown and Paul Dugid (2000) point out that although the Internet enables exploitation of niche markets, many examples of success come from large firms with well-established networks, rather than niche firms.

From a cost perspective, Nicholas Negroponte (1996) indicates that although everything on the Internet appears to be free, even if a rational economic model were to be implemented, it would likely still cost only pennies to disseminate a million bits to a million people. However, Shapiro and Varian (1999) indicates that information is simply being provided at its marginal cost of zero.

Mondahl (1999) notes that price differences based on poor information or geographic distance will not survive in the Internet Economy. He also notes that businesses are likely to adjust their prices more frequently in response to Internet competition.

See Also

* Digital Economy
* Electronic business
* Electronic Commerce
* Information economy
* Information Society
* Knowledge Economy
* Knowledge market
* Knowledge services

References

Brown, John S. And Paul Duguid. 2000. The Social Life of Information. Harvard Business School Press. p26

Currie Wendy. 2000. The Global Information Society. P30.

Dyson, Esther. 1998. Friction Freedom, in: Forbes ASAP (Nov. 30, 1998)

Gosh, Shikhar. 1998. Making Business Sense of the Internet, in: Harvard Business Review (Mar. 1998)

Mondahl, Mary. 1999. Now or Never. In: Harper Business Review. pp82, 88

Negroponte, Nicholas. 1996. Being Digital. Random House p60.

Shapiro, Carl and Hal R. Varian. 1999. Information Rules. Harvard Business School press. P24.

Vallance, Iain. 1993. Make Way for Multimedia, in: The Economist (Oct. 16, 1993)

Mankiw, Gregory. 2003. Principles of Economics. p784