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From...

Internet economy is still largely an American affair

September 14, 1998
Web posted at 5:20 PM EDT

by Jacob Ward

(IDG) -- If the Internet Economy were truly international, then we could expect big reverberations from the economic chaos unfolding around the world. But the good news for now, at least is that Internet business is still primarily American. While declarations of international ambition are part of every press kit, Internet companies have yet to find a revenue stream abroad that can compare to the one at home.

Of course, that's the bad news, too, as companies try to go global. Bright spots do exist, but developing new markets involve a drastic shift in expectations and strategy.

"In every international market we've entered, there's been solid potential for our media model, and most of our partners are interested in buying ad property across several of our international sites," says Heather Killen, Yahoo's international VP. "But if you think of this in a linear fashion, you'll lose the plot. Globalization is not for the faint of heart."

What's more, the game changes fast. "A few years ago, you'd look at a place like Saudi Arabia in terms of investment returns and channels," says Sun Microsystem's Stuart Wells, senior director of network software products group. "Now, ISPs are providing telephone-based services, so we're looking at a whole new set of consumers and a different communications strategy."

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In developing countries, establishing a simple platform for business communication is years, perhaps decades, away. So the idea that American companies will find many consumers there who want to order books, CDs and flowers online is a stretch. "Seventy-five percent of living Africans will never use a phone in their lives," points out Heather Budge-Reid, director of global information programs at the London-based Panos Institute.

Even in countries where the Internet faces no significant infrastructure constraints, and where the global economic crisis has yet to rear its head, American-style consumer frenzy may be hard to find. "Where in the world can you find as wired and exuberant a consumer base as in the United States?" asks Michael Sullivan-Trainer, an analyst at IDC.

Still, a substantial piece of Internet traffic does originate outside the U.S., and it's growing fast. The number of Web users is expected to almost quadruple in Africa, Latin America, and Eastern and Central Europe by 2001. In 1996, I/Pro, which audits Internet traffic for companies like America Online, GeoCities and Infoseek, reported that 30 percent of Internet traffic originated outside the U.S., primarily in Japan and Western Europe. One year later, the figure was up to 37 percent.

International traffic growth is also reflected in the rapid increase in the number of ISPs abroad. According to the Panos Institute, Egypt has spawned more than 15 ISPs since 1995, and more than 100 ISPs have opened for business in sub-Saharan Africa in the last two years.

It seems all but certain that the economic troubles sweeping through most of the developing world will slow this sort of growth. But slow growth in these parts is unlikely to affect many American Internet companies, because even the most ambitious among them are giving international markets no more than cursory consideration.

But the borderless nature of the Internet, and the comparatively "friction free" retail environment that it's creating, are likely to spawn some surprising and powerful patterns in global commerce, regardless of the overall economy's direction.

"I once gave a talk to an international audience explaining that in reality the difference between buying something in Harvard Square and buying it online wasn't that great," says Erik Brynjolfsson, professor of information technology at MIT's Sloan School of Management. "Then audience members pointed out that they'd love to pay the prices we pay in Harvard Square."

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