Equipment and Software
from Internet Business
While a substantial portion of the computer hardware used to provide Internet
services and user connections is commodity lines developed for more general
purposes, the rapid uptake of information services is already providing
a bonanza for specialised vendors of data communications equipment such
as modems and routers. As the lead time to establish a specialised hardware
business is much longer than that for other business activities discussed
in this paper, the main new opportunities relate to the coming era of broadband
services. This will facilitate the use of a much wider range of input and
output equipment as Internet services move closer to the shared virtual
reality of 'cyberspace'.
Entry to this market typically requires that relatively high priced, low
volume prototype equipment can be viably sold into the restricted market
of those developing cutting edge services and then scaled up to mass market
production some years down the track. Mass production will almost always
involve licensing to a major manufacturer, so the challenge to the developer
is to ensure that they establish intellectual protection which cannot readily
be bypassed. While it is easy to see potential in many hardware technologies
to be useful in a broadband networked world, relatively few will 'make it'
and the real challenge for developers is to select those which have a reasonable
chance of meeting long term needs as well as being open to mass production.
The entry costs for hardware developers will be millions of dollars and
are likely to produce low or even negative revenues through the prototyping
years, however the few which 'make it' may eventually produce hundreds of
millions in royalties. However for software the story is somewhat different.
The Internet is widely seen as being the final nail in the coffin of the
method of distributing software products 'in boxes' which have dominated
the past decade. The recent record-breaking float of Netscape Communications
recognised the potential of free electronic distribution of preliminary
versions as a mechanism for establishing market share. The continued growth
of Adobe Systems confirms the validity of fitting distribution to product
as they utilise a complex mixture of arrangements to distribute products
with very different usage profiles. Those new directions in distribution
will become more important with the rise of 'component software' which 'plugs'
specific functionality into each user's preferred 'platform' for working
Most users, depending on their area of work, use only one or two of a word
processor, spreadsheet, page layout program, drawing program or Web browser
for most of their work. So there is a trend to incorporate other functionality
into ever larger products based on one or other of this small set of standard
models. The rise of component software and the capability of the Internet
to provide very low cost promotion and distribution of components gives
rise to two areas of opportunity. The first is development of new components
which is being greatly simplified by the emergence of standards for 'object
oriented programming'. The second is to invent new platforms which are much
better suited to today's component model, networking and multimedia than
are the bloated old platforms that have grown out of applications packages
conceived to meet simpler needs with limited resources.
The only significant cost in becoming a producer of component software is
the time of the designers, programmers and documenters needed to build each
component. The returns depend on market size and penetration, both of which
can be difficult to predict with great confidence. Returns in this area
are likely to follow the normal statistics for new ventures, with a small
portion generating enormous profits. As more and more components become
available, it will again become practical to develop slimmed down platforms
offering more appropriate core functionality than today's bloated standard
applications. There appears to be an opportunity to support collaborative
research into and development of platforms which can be positioned to grab
an early significant share of the market. As evidenced by Netscape, Microsoft
and others, timely investment in the order of millions of dollars can provide
returns of billions of dollars. One just needs the right idea at the right
time in the right place.
 and made Bill Gates the richest American
 An exception to the rule is graphic design where a user usually has
to be able to move between a number of products offering specific functionality.