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How Dot-Coms Joined the Old Economy

Yahoo's decision this week to hire a new chief executive just as the company reduced its first-quarter revenue estimates seems yet another sign of the demise of Internet business. But despite the collapse in value of dot-com companies, the Internet itself is still a growing force in the business world. The gloom about its prospects has distracted us from a simple reality: The Internet isn't a business sector, it's a technology, and even as dot-coms shrink or vanish, the skills they have fostered are moving inside traditional companies.

In 1999 and 2000, I witnessed the arc of Internet investment frenzy and collapse firsthand while working as a consultant to a prominent British newspaper publisher, helping to create and spin off Internet start-ups based on the parent company's newspapers.

The idea was to gather everyone who understood the Internet into a single business unit. For the first six months, a half-dozen of us were left to ourselves in a converted London warehouse. We outlined businesses for our parent company to create and spin off as separate companies. The first to be launched were Web sites that would make money from job listings, auctions and real estate sales. Every week or so, someone from one of the newspapers would wander over to see how we were getting on, but that was about it.

But then Internet companies began going public, and investors snapped up their shares. Our client realized that the Internet was too important to ignore. Suddenly our little project had a growing staff and we were invited to meetings everywhere in the company. As investors' love of the Internet threatened to sink traditional businesses, we were seen as possible life preservers.

And then the tension began. If the Internet really was the future of the company, it couldn't be run as a side project, and it certainly couldn't be spun out as a separate business. The initial impulse behind our project — put everyone who thinks about the Internet into a single department — became unworkable as the Internet began to affect every aspect of the business. And so, after a year and a half, our project was dismantled. The sites we'd built were taken over by the parent company, and my colleagues were transferred, got laid off, or left.

It's tempting to think that this was all a horrible waste, but in fact, when it became clear that each part of the company needed its own Internet strategy, the company decided not to treat "the Internet" as a separate line of business, but quite sensibly used our group as a source of newly experienced employees. The truth dawned: We had built a school, not a start-up, and it was graduation day.

This passage from indifference to lionization to dispersion has characterized the business of the Internet as a whole. In the early 1990's, those of us who had quit our day jobs to make a go of this Internet thing labored in relative obscurity. By the mid-90's, the Internet had come to be seen as its own business sector. At the end of the 90's, its success was generating palpable fear in traditional companies. And then last year, the dispersal started.

The Nasdaq began to drop, there was a reduction in new investment, and then there were layoffs. The notion that traditional businesses were too stupid and slow to play in the new economy began giving way to the realization that the Internet's ability to lower costs could be — had to be — embraced everywhere.

Today, there are thousands of Net- savvy twentysomethings looking for work. Many, perhaps most, of them will take their knowledge of the Internet into the very same traditional companies whose demise at their hands was being predicted only a year ago. What the Internet brought to the economy — the ability to move information worldwide instantly, at low cost and on demand — is still revolutionary, but it is now a revolution within, rather than against, the old economy.

Clay Shirky is a partner at the Accelerator Group, which develops new-media start-ups.

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