Tech Features

Analysis: With Internet at tipping point, web giants jockey for lead

By Andy Goldberg Oct 15, 2005, 12:03 GMT

Sergey Brin (R) and Larry Page the Co-founder\'s of Google pose for photographers. EPA/PETER FOLEY

San Francisco - During the first Internet boom that crashed spectacularly in 2000, visionaries and financiers waxed poetic about how the new technology would transform the way we shop, do business, learn, watch TV and movies, listen to music and communicate.

Their dreams seemed to evaporate along with billions of dollars that were lost when hundreds of Internet companies went out of business. But in recent weeks a flurry of activity by the major conglomerates that now dominate cyberspace is proving an old adage in the tech world: that we often underestimate the time it takes for technology to make its impact.

Among the large deals and alliances that have been announced or reported since the summer are Google's alliance with Sun; Microsoft's settlement with Real Networks and alliance with Yahoo's Instant Messenger Service; AOL's negotiations to sell part of its business to Google or Microsoft; News International's purchase of the red hot Internet site myspace.com; Apple's alliance with Disney, and eBay's purchase of Internet phone firm Skype.

So what's driving all these deals? Analysts say that the Internet has finally reached the tipping point where it is transformed from a promising technology to one where it permeates every aspect of modern life. The major companies are making sure they are well positioned to take advantage of this trend.

'There is a big change in the competitive landscape,' says David Smith, an analyst with the Gartner technology research company. 'It's all being driven by what I would call the emergence of the Internet platform.'

Several factors have contributed to creating this vortex of opportunity that will only get bigger in the foreseeable future.

The spread of broadband Internet access means that millions of people all over the world are using their computers to easily download large files of entertainment content like music, video films and games. The maturation of technologies like voice-over-Internet (VoIP) means that within a few years the web could replace the traditional phone system as people's first choice of communication.

Advances in wireless networks and in storage media like hard drives and flash memory mean that people can easily link devices, transfer information and take their content with them wherever they go. At the same time, Google has revitalized Internet advertising, which is now seen as the most dynamic sector of the advertising industry, especially as the coveted younger demographic forsakes television and newspapers for the Internet.

It doesn't take much to imagine how these developments will play out.

Google's alliance with Sun Microsystems pairs up the former's expertise in search and online applications with the latter's unmatched experience in network technologies. The result could be an array of software that dispenses with Microsoft's unwieldy and expensive Windows operating system and Office productivity suites and replaces them with elegant web-based software backed by Google's tech expertise and unmatched reputation. <!--page-->

Microsoft's settlement with Real Networks after a vicious antitrust battle that lasted for years gives both companies a chance to attack Apple's lead in the provision of digital entertainment content over the Internet.

Apple already rules the field with its combination of iTunes download site and iPod portable player, and it took a major step to broaden its domination when it unveiled a video iPod and announced an alliance with Disney.

This pact will initially see the company's hit shows from its ABC channel, 'Desperate Housewives' and 'Lost', available for download. But it won't be too long before other shows and movies are available on demand for net users.

The Microsoft alliance with Yahoo on instant messaging systems is aimed both at AOL's more widely used messaging network and eBay's Skype, with all companies eyeing the not-too-distant day when web- based communications become the default user preference.

But the biggest deal of all will involve AOL - and whom it chooses to ally with. The company has been holding talks to sell half of its website business to either Microsoft or a partnership between Google and cable giant Comcast. On Friday, Yahoo was also rumoured to be holding talks with AOL, which is owned by Time Warner Inc. The prize would be a huge web portal that would attract more advertising and an easy way to sell new services to millions of AOL users.

Industry watchers say the recent moves are only the start of a complex process that will lead to a complete makeover of the Internet we now know.