The Web Pays: New Market Recasts Industries - Page 7

Peering Into The Future

By Max Smetannikov

In addition to the content companies, the portals and other Internet services companies that depend, at least in part, on Internet advertising also face some uncertainty.

Indeed, some of yesterdays favorite Internet companies - AOL and Yahoo! - are undergoing increased scrutiny by investors who fear the worst: online advertising revenue drying up.

Non-Wall Street analysts are taking an even more hawkish look at the whole Internet economy phenomenon. According to Allan Tumolillo, chief operating officer at reputable Probe Research, what is bound to bring a lot of companies to their knees and wreck more than a couple of business models is the expense and sophistication of the new data networks that support most Internet service providers and online services companies.

Indeed, whether it was convenient or not, the telecom industry distributed the cost of making phone calls evenly among its customers based on factors such as the length of the call and the distance between callers, Tumolillo says. But, he says, the Internet economy has thrown a lot of these metrics out the window, propagating flat access, online sales and advertising, without really knowing if these business models would work - and it looks like many dont. So many, AOL and Yahoo! included, will be forced to constantly find new ways of extracting value out of their customers using new concepts and technologies, Tumolillo says.

Consolidation is one of those resources. AOLs merger with Time Warner paved the way for a creating one megaprovider, with a few smaller companies such as EarthLink, Prodigy Communications and Juno Online Services becoming proud, large, second-tier players, and the rest having trouble breaking the glass ceiling of regional growth.

Look for the few companies still standing to launch new services that will create revenue streams, says Charles Ardai, president and CEO of Juno. All bets are off, and free Internet access could fall victim to the times - and possibly even flat-rate Internet access as well.

One of the new technologies that Tumolillo is very bullish on is peer-to-peer networking, the technology that the Napster phenomenon has made a household concept. Industry participants, however, dont see this, or any other technology, as a panacea for the sectors troubles.