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Study shows continued Internet economy growth

Despite a bloodbath among dot-coms and related technology companies, new research suggests adoption of Internet technologies has a positive impact on the fragile U.S. economy.

3 min read
Despite a bloodbath among dot-coms and related technology companies in recent months, new research suggests adoption of Internet technologies continues to have a positive impact on the increasingly fragile U.S. economy.

The ongoing study, by the Center for Research in Electronic Commerce at the University of Texas (UT), notes that by its measurement of the so-called Internet economy, dot-coms represent less than 10 percent of those businesses measured in the research. Rather it is the use of Internet technologies by traditional companies that continues to drive growth in the Internet economy, leading to more jobs and increased revenue, according to the research.

"Companies that invest in Internet technologies change their processes," said Andrew Whinston, a professor of information systems at UT's Graduate School of Business and director at the school's Center for Research in Electronic Commerce. "As the economy gets more challenging for those companies, we believe it will spur mainline companies to be bigger players in the Internet economy."

The researchers argue that despite a downturn among certain segments of the high-tech industry, businesses--both Net-oriented and traditional--continue to adopt Internet technologies to save money and extend their reach.

As a result, more than 3 million workers are now employed in the Internet economy, generating nearly $375 billion in revenue in the first half of 2000. Revenue from the Internet economy companies measured is growing at twice the rate of Internet economy employment, according to the study.

Furthermore, researchers project the Internet economy to contribute $830 billion to the overall economy for 2000, a 58 percent increase from 1999.

Revenue per Internet economy employee also increased 11.5 percent in the first half of 2000 compared with the previous year, according to the study.

Researchers at UT slice the Internet economy into four parts, including technology infrastructure, Internet-related software and services, Web intermediaries and content providers, and transaction-oriented commerce Web operations.

From the outset, the study has attempted to quantify the effect the Internet has had on the U.S. economy. The study includes both Internet-only as well as the online operations of traditional brick-and-mortar companies such as Wal-Mart.

The research is the fourth installment in a study commissioned by Internet equipment giant Cisco Systems.

Tellingly, however, the study encompasses research completed in the first half of 2000. The next installment of the research should show a sharp decline in some measurements, particularly for dot-coms, though the overall trend should continue upward, researchers say.

"The dot-coms are a relatively small percentage of the overall Internet economy," said Anitesh Barua, an associate professor of information systems at UT.

As a hint of things to come in research from the second half of 2000, UT's study for the first half suggests that dot-com employment leveled off, though revenue from the pure dot-com sector grew 18.7 percent.

News from prominent dot-coms such as Yahoo this week is likely to affect the next installment, but researchers say the Internet economy will continue to flourish.

"Overall, we still feel the pie will have grown substantially," Barua said.

"The Internet is increasingly becoming part of the basic business model for many companies," according to the study, "laying the groundwork for even more impressive growth during strong economic conditions."