U.S. economy is expanding … but only in cyberspace?

0 Comments | Insight on the News, Jan 6, 1997 | by Gene Koprowski

Bill Clinton impersonator mounts the stage at Chicago's Second City comedy club at the height of the presidential campaign and offers an explanation of the impact of his presidency on the economy. "Before I was president, there was no Windows 95. There was no Internet," declaims the ersatz Clinton. "You can thank me for them."

The barb is right on target. Clinton hyperbolically took credit for economic expansion during his tenure, an expansion he used to defeat GOP nominee Bob Dole. But new research is emerging that suggests the Internet and computer-related companies - not White House policies - spawned the modest 2.5 percent economic growth in the United States.

According to research by Takuma Amano and Robert Blohm of Columbia University in New York City, estimated value creation due to Internet market expansion has resulted in value estimated in excess of $200 billion - in addition to the development of "metaphysical capital" in the form of entrepreneurial talent.

What's more, Amano and Blohm predict that barring a crisis the Internet will continue to grow the economy. Netscape Communications Corp. and Yahoo! Corp. may garner all the headlines and billions of dollars in initial public offerings on War Street, but smaller start-ups, unknown to most of the general public, are creating hundreds of thousands of high-skilled jobs at an incredible pace, validating the Columbia research.

Antoine Toffay, president and chief executive officer of The Trip.com, a discount Internet-based travel agency for executives, says that his Denver company, started last summer with five people, has expanded to 15 and is likely to grow to 50 or more employees during the next six months. "We're part of an entrepreneurial wave brought on by the Internet," he tells Insight. Indeed, futurist Alvin Toffler, who has influenced the thinking of House Speaker Newt Gingrich, writes in his book Powershift that communications technologies are shifting power from bureaucrats to entrepreneurs.

Computer companies are not the only beneficiaries of the Internet explosion. A team of reclusive programmers and digital-marketing specialists in Silicon Valley quietly is helping engineer the U.S. auto industry to keep abreast of Japanese carmakers by transforming the Internet into a sales and customer-service tool for Detroit.

According to senior advertising-agency executives and analysts, a central element of General Motors Corp.'s reconquest of U.S. market share once conceded to Japanese automakers has been an extensive, unpublicized interactive-marketing campaign in cyberspace - especially in regard to its Saturn line. The cyberspace sales effort is set to intensify as more than 300 Saturn dealers (as well as those for other leading manufacturers such as Ford and Chrysler) gear up their own marketing campaigns on the Internet.

GM launched the Saturn division in the late 1980s to combat the influx of Hondas, Toyotas, Mitsubishis and Nissans that eroded its market share for midsized and small vehicles. Doris Mitsch, owner of the World Wide Web marketing agency Doris and Clancy Ltd. in San Francisco, tells Insight that Saturn has been using on-line services since 1992 to beat back Japanese imports. Mitsch worked extensively on the on-line project for Saturn, along with a group of other Internet pioneers in the Bay area.

"Back in 1987, when Saturn asked people what they thought about buying a new, small American car, most of them said they would rather eat paint"' says Mitsch. "The others just laughed. The problem was introducing an American car to a market that was very much in love with their imports. And battling the impressions that people had of American carmakers: that they were big, bureaucratic organizations that don't care about customers. That they have disinterested autoworkers who don't care about their jobs. Saturn had a lot of problems to deal with. And one of the things they did was to decide they would be the opposite of everything everybody thought."

Saturn began working with the on-line service Prodigy. The carmaker posted information, including fact sheets, on Prodigy's bulletin board about each of its models. The strategy makes sense, given the demographics of the Web. According to a recent survey by Yankelovich Partners, more than 28 million adult Americans cruise the Internet; 90 percent are males age 25 to 35 with an annual household income of $52,000 to $65,000. This is the exact audience Saturn targeted, says Saturn spokeswoman Mary Holliday. And, indeed, about 25 percent of all customer inquiries came from on-line sources.

Still other marketing research shows the depth of the Internet's impact on the economy. According to research by London-based Internet Ltd. and Durlacher Multimedia Ltd., the Internet soon will be capable of handling international calls at local prices from a computer direct to a phone rather than to another computer. "It is issues such as these that are causing telephone companies to finally start taking the Internet seriously," says the report.