Intelligent Systems

As 1999 winds down, many of us are wondering what the new century holds for us. If the past two years are any indication at all, there will be huge changes in how we all do business. In the past ten years, the PC, the Internet and other technology has driven staid institutions (governments and traditional thinking corporations) up the wall. For example, if you want to avoid sales tax, order a product over the Internet. There are no artificial boundaries there.

We have already seen what a huge impact the Internet can have on the average American family. Going to the shopping mall will become a voluntary event, instead of a necessity, because more and more goods will be purchased over the Internet. One good example will be home movies. Instead of getting out in the car to rent a movie, people can download any movie that was ever produced in the history of movies, through a digital television connected to the Internet.

The post office and telecommunications companies will never be the same because of e-mail. Why should someone use "snail mail" with a $.33 stamp, when they can communication over e-mail. In addition, in some cases it is better to have a 1-second e-mail transmission than a $5 long distance telephone call. To counteract this, the telephone companies (the post office does not know what to do) are making moves to charge for the Internet. However, there is the high probability that voice and data transmissions will be over the electrical power grid, instead of conventional telephone lines, making any long distance call in the United States a local call.

As a society, we spend excessive time sitting in automobiles. Imagine how much the economy would improve if we could squeeze another hour or two per day into work. Less traffic also means fewer accidents and better air quality, not to mention less stress. More people working from well-equipped home offices will get more cars and sport utility vehicles off the road. The taxpayer will save money on road maintenance. When you stop to think about it, the heavy traffic of rush hour is superfluous. For many people, the office building will become more of a meeting place once a week than a place to work everyday. Perhaps the concept of "downtown" will become obsolete. Therefore, with today's advancements in computer and telecommunications technology, working hours will become more flexible giving the office worker more time for family pursuits.

The Internet is changing the playing field in how companies compete against each other. Actually the playing field is being leveled when it comes to small firms vs. big firms. The Internet will facilitate alliances among small companies where small companies can easily share on-line marketing, advertising and distribution. They can team together financially to make this happen and get the same results as big firms because they can now find each other.

The following is a noteworthy article from the front page of the June 21, 1999 issue of the "Wall Street Journal" which explores this subject a little more.

If Adam Smith were to visit the U.S. at the millennium’s end, he would like what he saw. For most of this century, corporate concentration and government intervention inflicted arthritis on the "invisible hand" that Smith said guided selfish individuals in a market economy to achieve greater collective wealth. But today, the invisible hand is more limber and supple than ever.

In the past two decades, globalization has forced American companies to compete on a world-wide scale, and the collapse of communism has extended capitalist principles to every corner of that globe. Deregulation has injected market forces into areas long insulated from them, such as telecommunications, air travel, and medicine. The Internet has helped better-informed buyers find legions of new sellers, and sellers find far-flung buyers. The principles of market economics, detailed by the Scottish philosopher in 1776, have infected U.S. life with an intensity unmatched in history – thanks in part to remarkable technological advances.

But will the economy of the 21^st century continue to fit the economic thinking of the late 18^th century?

That question is the subject of a paper by economic historian J. Bradford De Long of the University of California at Berkeley and law professor A. Michael Froomkin of the University of Miami. They argue that some of the very characteristics that make information technology so economically potent may cause carpal-tunnel syndrome for the invisible hand.

The cost to Microsoft of developing Windows software may be huge: but the marginal cost of putting it on one more computer is virtually zero. The same can be said for Amazon.com or America Online. If one person is using it, a thousand can; and if a thousand can, a million as well. That’s why today’s hot Internet companies grow so rapidly.

Truth is, in the network economy, if more people are consuming a good, it becomes more valuable. Ten people sharing the same car have a problem. But tens of millions sharing the same e-mail system may have a distinct advantage over those who don’t, because of the ease of communication.

Technology enthusiasts say there’s no need to worry. The new economy may lead to more monopoly-like concentrations of economic power, says Kevin Kelly, editor at large of Wired magazine and author of "New Rules for the New Economy." But "they will be temporary concentrations that are quickly overthrown by other concentrations." Just as World Wide Web-based portals may loosen Microsoft’s hold on computer operating systems, so too will other shifts in technology keep others from feeling too secure about their market domination.

"The industrial economy was populated with oligopolies: industries in which a few large firms dominated their markets," argue business economists Carl Shapiro and Hal Varian in their book "Information Rules." "In contrast, the information economy is populated by temporary monopolies. Hardware and software firms vie for dominance, knowing that today’s leading technology or architecture will, more likely than not, be toppled in short order by an upstart with superior technology."

The danger comes, however, if the pace of innovation slows and temporary monopolies become more permanent, stifling innovation.

Another potential problem for the new economy is what Mr. De Long and Mr. Froomkin call the absence of "excludability." In order for Smith’s economy to work, sellers must be able to force consumers to become buyers, and pay for what they use. But digital data are cheap and easy to copy. As a result, getting users to pay could become increasingly difficult.

Mr. De Long and Mr. Froomkin say television’s economics make advertisers demand the lowest common denominator. They offer the example of "two programs, one of which will fascinate 500,000 people, and the other of which 30 million people will watch as slightly preferable to watching their calling." Advertisers will want the maximum audience, but the other show might do better if its half a million fascinated viewers were willing to pay for it.

All this suggests that Smith’s ideas will need some rethinking in the years ahead. Just as the Gilded Age gave rise to antitrust law and labor unions, the information age may require new arrangements to ensure the greatest benefits to all.

For the 2^nd year in a row, Chenault Systems was one of the finalists for the North Dallas Chamber of Commerce "Small Business of the Year" award. We would like to congratulate Fixx My PC as this year’s winner. Fixx My PC, Chenault Systems and all the other nominees will be honored at the North Dallas Chamber’s Annual small Business of the Year Award Luncheon. Comerica Bank – Texas and the Dallas Business Journal sponsors this event on Wednesday, September 22 at noon in the Panorama Room on the 21^st floor of the Westin Hotel Galleria.

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