Recession and the Internet

May 2009

With the Credit Crunch closing companies all around us, and grim warnings of worse to come dripping from every forecast, what will happen to the Internet?  Will it go bust?  Could there come a time when the whole thing is declared insolvent and our screens go blank?  What are the economics of the Internet anyway?

The answer depends of what you mean by “The Internet”.  In reality, it is just the name we give to a flexible network of millions of computers (including yours, when you are online).  The clever bit (invented by Sir Tim Berners-Lee of CERN, whom God preserve) is being able to ask any one of those computers to show us what they are storing (what we call a web site).

What can, and does, happen is that little bits of it go bust – perhaps a telephone company, or  an internet service provider, or a web site promoter – but  “The Internet” will be around until someone thinks of something better and we have no more use for it.

There will be big changes, however.  I know no other business where the economies of scale are so marked.  The infrastructure that makes the internet happen – from copper wires between houses and telephone exchanges to the huge warehouses of computers that are used to store data and websites – is much cheaper when run in big quantities, and so consolidation is inevitable.

All that makes good commercial sense – the infrastructure providers charge the users (you and me, and the website owners) for what they do, and make a profit. Fair enough.

The point where economic reason tends to part kinship with reality is in the creation of sites that make no economic sense at all, and will one day will succumb to fiscal gravity and slip off the edge of a cliff.  A prime example is Twitter.com, the site that allows one to broadcast short messages about what oneself to the world.

 It costs nothing to join, and accepts no advertising; yet they employ staff and pay huge electricity and broadband bills to allow the service to operate.  At present these bills are being picked up by optimistic gamblers (sorry, investors), who believe that if Twitter can build up a large enough loyal customer base then  rich Uncle Google will pay them handsomely to get his hands on it.

The trouble is that once a free site starts trying to extract cash from users, those users can quickly grow irritated by it, and move on.  Who, in reality, is going to want to pay to tell the world that they are planning to go for a walk?  I can’t see Twitter lasting beyond the day when the shareholders close their chequebooks.

Until then, however, I find that a recent bluff of mine has been called.  I wrote that if ten readers signed up as “followers” of my Twitter site, I would make an effort to post some interesting links there.  Blow me down, at least ten of you have done it, so I am hoist by my own virtual petard.

I will start putting bits and pieces there, and if other readers would like to add to the sum of knowledge it would be good to see you take part.  My Twitter.com name is Webster007, if you understand this sort of thing.  But if they ever start charging, I’ll be off.