From Netscape to the Next Big Thing
By Richard Waters
Published: August 4 2005 20:27 | Last updated: August 4 2005 20:27

What will be the Next Big Thing on the internet - and how will the new markets and businesses being created online affect traditional industries? To mark the 10th anniversary of Netscape’s IPO on August 9, Bill Gurley of Benchmark Capital, a Silicon Valley venture capital firm whose internet successes have included eBay, and Richard Waters, who writes about technology for the FT from San Francisco, will answer your questions in a live debate on Thursday August 11 at 3pm BST at www.ft.com/gurley. Send your questions to ask@....

Somewhere in the world in the next few weeks the billionth human being will sit down at a computer, log on to the internet for the first time and join the swelling throng in cyberspace.

That is quite a record for a medium that broke away from its academic roots only a decade ago. But it may be only a taste of the upheaval in store over the next 10 years.

Next week sees the anniversary of the Netscape initial public offering – an event that triggered Wall Street’s dotcom mania. Netscape’s browser made the internet a more conducive place for the non-technical user and spurred the creation of companies such as eBay, Yahoo and Amazon.com, which have all had 10th birthday parties of their own – although most dotcom companies never made it this far.

It is worth considering the extent to which those survivors have become part of the everyday lives of their users. The $34bn of goods that changed hands on eBay last year is roughly equivalent to the gross domestic product of Kenya; Yahoo’s 379m unique users are equal to the populations of the US and UK combined; and the average person on the planet views 10 webpages on Google each month.

Even early enthusiasts for the medium did not quite foresee how far it would work its way into popular culture. “It was a stretch to say that niche focus newsgroups and bulletin boards about Unix would some day be newsgroups about the latest Harry Potter book or Batman movie,” says Mary Meeker, the Morgan Stanley internet analyst who was among the first on Wall Street to tout the internet’s ­potential.

Much of the early euphoria was of course misplaced, even if it has been proved right over the longer term. It is three years in October since the nadir of the stock market slump, which wiped more than $6,500bn from the peak value of Nasdaq stock market where many US technology companies are traded (see chart).

Most of that wealth destruction reflected over-investment in telecommunications networks and the tech­nology companies that were building the infrastructure on which the internet depends. Overcapacity in telecoms and tech, though, has brought down prices and made the internet more widely available, helping to fuel a new round of online innovation.

“The pace of change is accelerating,” says Ms Meeker.

It is hard to argue with the sheer weight of numbers. According to estimates by Morgan Stanley, 1bn people will be online by the end of next month, three times as many as at the beginning of the decade. Roughly one in five of those people already uses a broadband connection. And mobile access to the internet has barely begun: sometime during the next decade, more mobile handsets than personal computers will be plugged into the global information network.

Of course, eyeballs alone do not create a business – a point amply demonstrated by the experiences of many dotcom pioneers. But this time around business is following close behind.

Global online advertising hit $15bn last year, two-thirds of it in the US, and it is growing at some 30 per cent a year as advertisers rush to keep up with the shift in their audience online. Consumer e-commerce, which reached $295bn last year, is set to grow by 38 per cent this year, according to IDC.

At the same time, the companies that dominate the medium have learnt from the mistakes of the past and are refining business plans that already make them some of the most valuable on the planet. “We are doing a better job of getting more value from each click,” says Eric Schmidt, chief executive officer of Google. “If you show better ads – which sometimes means fewer ads – business improves. That’s ­something we’ve learnt over the last year.”

None of this even touches on the less visible, and potentially even more profound, impact that the web has had on how businesses are organised, how social and political life has been affected or how a country such as India has been able to join the world economy in a way that would once have seemed impossible.

If that is the story of the internet so far, then what do the next 10 years hold in store? In two words: more upheaval, as the forces that caused consternation in many corporate boardrooms in the late-1990s are once again unleashed, this time backed by more robust business models and better ­technology.

“A lot of business people were very happy about the internet market correction – that pulled a lot of resources off the internet,” says Ms Meeker. “But the internet business just kept on going. The disruption to a lot of traditional businesses has only just begun.”

Many internet businesses are probably in for an unsettling time of their own. As Meg Whitman, chief executive officer of eBay, warns, half of the internet giants 10 years from now may well be companies that you have never heard of (see below.) Internet stock valuations, including Google’s price/earnings ratio of 87, once again seem to be ignoring the fact that barriers to entry in this global medium remain low and that the next disruptive idea may be just around the corner.

As with the last decade, the impact of the web in the next 10 years is likely to be felt most acutely in those fields that depend most on disseminating information: in communications, commerce and the media.

While e-mail and instant messaging were the low-cost communications of the internet’s first decade, the next communications revolution may well take aim at the voice calls that account for the bulk of the telecom industry’s revenues. In its first year, more than 140m people have downloaded free software from Skype, which lets computer users talk over the internet, making it the fastest-growing consumer technology in history.

“We will have free global communications in very short order,” says Paul Saffo, director of Institute for the Future, a California research group. Along with new low-cost communications technologies such as WiFi and WiMax, that signals a fresh threat to an industry that was hit hard during the first phase of the internet.

As the barriers online between communications, commerce and media are eroded, meanwhile, the internet is likely to bring forth new technologies and challenge existing forms of human interaction.

Two forces, in particular, characterise this latest wave: the rise of search engines, and the many online tools that have been created to support the outpouring of what is known on the internet as “user-generated content”.

Search engines have already established themselves as a pivotal form of distribution online. As more of the media become digitised, that role is only likely to become more significant. “The internet will become a very serious competitor to cable and satellite in the home, and the impact on print media is likely to be dramatic,” says Roger McNamee, a Silicon Valley financier who specialises in the media industry. “At the end of the day, search-based technology is really how consumers will access and find that content – that’s a huge deal.”

An increasing part of this content is likely to come from internet users themselves. “We are in the middle of a very big shift from mass media to personal media: you get to answer back and create if you want,” says Mr Saffo.

Blogging, now a pastime of more than 15m people, has been an unlikely early manifestation. Other forms of self-expression and community­-building are gathering force, including photo-sharing sites that let families or groups of friends see each others’ pictures; podcasting (a form of audio blogging); and social networks that connect wider groups of friends.

“Blogging is a transitional form on its way to something else. It’s interesting, but it isn’t stable,” says Mr Saffo. The urge towards communication and self-expression, and the low-cost technology to make it possible, will give rise to new fads.

Seen from the perspective of 2015, search and blogging may look like quaint and antiquated ideas, overtaken by another Next Big Thing on the internet: some new way of fulfilling people’s desire to interact and find information, entertainment or goods to buy online.

Whatever its form, though, what comes next is likely to draw on the forces manifested during the medium’s first decade: a pervasive interconnectivity, aided by increasingly sophisticated software tools that uncover and make useable the ever-expanding sources of information on the open global database.

There is another lesson from the first decade that is likely to hold good for the years ahead: for clues about how the internet will eventually change your life look no further than the teenager sitting next to you. “The 15- to 20-year-olds,” says Ms Meeker, “will show and tell you where it is going.”

Battle of the browsers is set to be replayed

The Browser Wars are back write Scott Morrison and Richard Waters. A decade after Netscape ushered in the dotcom boom, only to be overtaken by Microsoft, internet browsers are again the focus of a battle that may reshape how users experience the internet.

As the “window” through which companies such as Google or Amazon reach web surfers, the browser has become a vital platform for all businesses on the web.

“We are at the beginning of a new burst of innovation and development,” says Chris Hofmann, director of engineering at the Mozilla Foundation, the tiny group behind Firefox, an upstart browser that has emerged as the latest challenger to Microsoft’s Internet Explorer. Internet users have downloaded the free Firefox browser more than 75m times and market data show the software has captured a 9 per cent share.

In a sign of its growing ambitions, Mozilla this week set up a for-profit corporation to exploit the commercial opportunities around its browser, although it said profits would be used to further the goals of its foundation and denied interest in a Netscape-style initial public offering.

Firefox’s rise has been enough to force the world’s biggest software company to change course: the next generation of Microsoft’s browser, which was meant to appear with the next version of Windows late next year, will instead come early as a stand-alone piece of software in a sign that Microsoft no longer takes its dominance of this piece of internet technology for granted. A “beta” test version was released last week.

Ironically, this new battle owes a lot to the memory of Netscape, which was bought by America Online in 1999. AOL made the source code of the Netscape browser freely available to other developers, creating the base on which Firefox has been built.

Two things make this latest round of the Browser Wars different. One is that Firefox is part of the open-source software movement that is harnessing the creative instincts of volunteer programmers. As Microsoft has found in its fight against Linux, the most visible of the open-source projects, this model for software development can be surprisingly effective.

The second difference is that the creators of the Firefox browser do not share the over-ambition that brought the full force of Microsoft down on Netscape. Netscape’s founders made no attempt to hide their ultimate goal: to create an internet-based computer operating system, accessible through a browser, that would make Microsoft’s PC software largely redundant. Firefox’s backers are less strident, though their browser could still serve as a useful platform on which other internet companies can build software to rival Microsoft.

Firefox’s arrival has brought a flurry of innovation to a market that, since the late-1990s, has seen little technological development. Along with “tab browsing”, which helps users switch between websites, Firefox includes a technology known as RSS (really simple syndication), a form of “push” technology that delivers news and blog headlines directly to a user. Both will be included in Microsoft’s next browser.

Ray Valdes, an analyst at Gartner, says that while there has been little breakthrough innovation so far, developers may soon create powerful applications that could change the way people use their browsers.

Now that Microsoft has woken up to the Firefox threat, will history repeat itself? Not likely, say observers, because Mozilla can count on a couple of key Microsoft rivals for support. IBM, the world’s biggest computer group, recently adopted a multi-browser strategy after some 10 per cent of its employees downloaded Firefox to their computers.

Meanwhile Google, the internet search engine that has emerged as Microsoft’s arch-rival online, is working closely with Mozilla, to the point that it is paying the salaries of several key Firefox developers.

Observers say close co-operation lets Google improve its products while reducing its dependence on its rival’s browser. But Google has shrugged off rumours that it is planning to challenge Microsoft with its own browser.

‘I thought this could be a small, quite profitable company’

Meg Whitman left a job at toymaker Hasbro to become president and chief executive of eBay in 1998. The value of goods traded on the company’s sites has risen from $740m when she joined to $34bn last year.

“I look back and say, ‘What were we thinking?’ We quit two jobs, moved to California, put the children in new schools. I didn’t think it was going to be anything like it turned out. I thought eBay could be a great collectibles website for the US. I thought this could be a small, quite profitable company.

“We began to understand that what worked in collectibles would work in other markets as well. What eBay does is make inefficient markets efficient.

“The business model is very powerful. We were able to move globally far faster than land-based companies can. The remarkable thing about eBay is that it’s instantly local: 98 per cent of our content is user-generated.

“The other thing I wasn’t expecting was the way the market empowered small businesses. That was a big surprise. I thought this would be the home of big business. But it has levelled the playing field, and made small businesses as accessible as big ones. That was an ‘a-ha’ moment.

“Some categories didn’t work the way we thought they would. We look for markets where there is price and information inefficiency. It turns out that real estate is pretty darn efficient.

“I am startled by the ubiquity of the internet today. It is one of the fastest-growing technologies ever. It’s just remarkable. It has changed the way we communicate, the way we play. E-mail has changed the way business is conducted.

“The timing may finally be right now for mobile access. We thought it was important to have mobile access to eBay and the net five years ago, but nobody used it. That could be changing because of the growing power of mobile phones. In countries like China and India, you may see a shift to primary access to the internet coming through mobile handsets. Moving to 100 per cent broadband penetration will also make a huge difference. You will see an always-on internet that changes the way people behave.

“There is still room for new internet leaders to be created. Of the five biggest internet companies 10 years from now, I can imagine that two or three of the existing leaders will stay on, but that two will be companies that haven’t even been born yet. The internet is an incredibly dynamic environment. You have to respond really fast.”