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Retooling vital to Internet

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WASHINGTON — What went wrong with the dot-coms? Some analysts equate the dot-com mania with the Tulip Bubble and other famous irrational boom-and-bust scenarios of history. But there is a difference. Those other situations were either out-and-out frauds, or they were unsupported by rational facts. These theories do not describe the Internet and the dot-com boom-and-bust.

The Internet is for real. It is here to stay. And it has already revolutionized the way we do business and the way we communicate. What it has not done is create wealth in the way we expected. The theory ran that the Internet, like network television, would essentially be free, and it would garner profits from advertising. But the Internet is not television, and Internet advertising — which usually appears as banner ads at the top of Web pages — did not generate commerce comparable to that derived from television ads. Why not? Television is a passive medium; the Internet is an active medium. As a result, television viewers sit glued to their sets and tend not to get up and do something else when an advertisement appears. Hence, they watch. And they buy.

But the Internet requires participation, so when a banner ad pops up, the participant looks upon it as an annoyance and clicks or scrolls to what interests him or her. But the bubble was created because companies selling banner ads claimed they were reaching hundreds of thousands or even millions of viewers, when, in fact, very few of those viewers were viewing, let alone buying, the products being promoted.

Then there are the Internet Service Providers (ISPs) who sought to make money by connecting people to the Internet, but the field became very competitive very quickly, and profits were accordingly squeezed. Other companies like Yahoo! built their businesses around search engines. Search engines not only provide the means to find Web sites but also online magazines, in-house ticketing agencies, and so forth. Now comes word that Yahoo! lost $48.5 million in the past three months because of faltering online advertising revenue. The company announced that it is turning to more subscription-based services. Is that the answer? Perhaps it will prove to be akin to cable television. In its infancy, analysts were skeptical that people would pay for cable when commercial television was free. The solution was found in quantity, quality and convenience, and cable television soared.

Already, a number of Internet sites charge a fee for connecting, and they succeed primarily because of need, which usually is business- or investor-related.

The solution lies in speed. When ads are no longer seen as an impediment to speed, a rebirth in Internet advertising will certainly appear.

United Feature Syndicate