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Where the Net Is Heading in 2004

By Alex Salkever Making forecasts about the Internet is always a dangerous business. The Web has stubbornly defied conventional wisdom in all manner of areas. Clothes and other high-touch goods would never sell online? Wrong. Everyone would have broadband by 2005? Wrong again. Every kind of communication and entertainment would rapidly converge on the PC? Well, that may yet happen but certainly not for several more years.

So with little fanfare (and don't hold me to them), I'm going to walk the highwire with some predictions for 2004 and hope I don't fall off it too quickly. Deep breath, steady goes:

Everyone Guns for Google

Microsoft (MSFT) has already made it known that it's planning to invest massively to build its own search engine. It has even started hiring key personnel from Overture, among other places. Yahoo! (YHOO) is doing the same, having snapped up Overture as well key assets of search companies AltaVista and FAST.

However, a new wave of startups is also taking aim at Google -- as well as at Yahoo, the two search leaders (see BW Online, 12/16/03, "Google Here, There, and Everywhere"). Kanoodle provides paid-search placement technology that it claims is better than Google's or Overture's. Groxis, a search tool that works as a desktop application, has just launched with Google clearly in its sights. Vivante, a new entrant aimed at giving surfers better geographically specific search capabilities, is tuning up for battle. And Ask Jeeves has improved up its Teoma search engine to the point where it's a very solid Google competitor.

More competition is on the way as venture capitalists are throwing money at search startups. That's no surprise, considering the eye-popping $15 billion pre-IPO valuation that Google-watchers are placing on the company. Google is a tempting target, and it'll draw an increasing number of competitors in the coming year.

Your Cable Company Is Your Phone Company

The Baby Bells that provide local phone service to most of America are in a nasty fix. They rely on old-style phone technology for the majority of their revenues. Yet Americans will begin cutting that local cord in droves in 2004. Instead, they'll opt for wireless phones or Internet-based calling (known as voice over Internet protocol, or VoIP). Wireless number portability now lets mobile customers take their number from plan to plan, making cell phones far more attractive as a full-time replacement for land lines.

At the same time, VoIP has soared in quality. And a host of cable and big long-distance companies are set to offer it to tens of millions of local customers. To fight back, the Bells are going to have spend big bucks to further upgrade their already outdated DSL broadband networks. To date, they've spent close to the bare minimum to compete with cable.

Now the moment of truth is coming, and if they don't improve their networks enough to deliver, say, a viable video service, they'll be toast. Otherwise, they'll have to somehow support an incredibly expensive legacy network mainly by selling Internet access, a service that's rapidly becoming a near-freebie offering from competitors.

Wi-Fi: Wait Til Next Year

Everyone expects 2004 to be the year that Wi-Fi finally hits the mainstream. Intel (INTC) is busily building Wi-Fi into every laptop it makes. And announcements of public Wi-Fi hotspot networks are coming fast and furious.

Too bad it's still a technology not quite ready for prime time. Installing Wi-Fi nodes at home remains a big problem because configuration isn't always intuitive, and many people get frustrated with what they thought would be a plug-and-play system. Also, they have concerns about the security of data passing over wireless networks, and setting up even the most basic security isn't as easy as it should be.

What's more, services offering hotspot networks for paying subscribers are still glitchy at best and totally awful at worst. All of these things should improve quickly as phone companies and wireless providers roll out their networks and slowly start to work out the same problems that originally plagued DSL access when it launched in the late 1990s. But if you're expecting 2004 to be the year of Wi-Fi, you'll be in for a disappointment.

The International Digital Divide Shrinks

In December, the U.N. held its first annual Internet Summit in Geneva. The event drew 12,000 attendees from 150 nations. The main goal was to discuss the Net's future governance and how the developed world could help the developing world close the digital divide.

Many delegates had beefs with how the U.S. now dominates Internet governance. Others proposed that the developed world set up funds to assist poorer countries in getting wired. But on the eve of the summit, the International Telecommunications Union released its first World Telecommunication Development Report, which examined Internet access and other communications trends -- and came up with some surprising results.

Most important: that the digital divide in the developing world has been grossly overstated. The study found that Net usage in Lima, Peru, alone actually eclipsed government estimates for usage in the entire country. And in Jamaica, user surveys pegged Net penetration at 23% of the population vs. the government's estimate of 5%. The discrepancies came from the complete lack of real research into this area. Governments had given estimates floated from headquarters with no field studies to back them up.

This points to the rapid disappearance of the digital divide in terms of barebones Internet access. In 2004 as the technologies that provide this access become cheaper and telecom and data transport costs remain very low, an increasing percentage of the world's population will get a chance to at least surf the Web. Much of this will be driven by Internet caf?s, a wonderful way to provide cheap access and distribute the costs of the computers and bandwidth.

None of this is to say developed nations shouldn't help erase what remains of divide even more quickly. But it's heartening that the Net's basic qualities have made it also totally adaptable for both the rich and the poor.

And That's Not All...

Of course, loads of other interesting things are in store for the Internet next year. Digital music downloads should hit the mainstream, while America Online (TWX) hits the skids due to the proliferation of low-cost dial-up Net access. Microsoft will likely struggle with more viruses. True, that's no revelation, but...expect the period between vulnerability revelation and malicious code that attacks it to shrink.

Here's one thing that's certain: The coming year will bring many more changes to the Internet compared to the past few years. That seems inevitable given how many more people will be using it, the key court cases coming down the pike that could affect it, and more capital investments and startups now looking at it as a rejuvenated source of income. Here's hoping that your 2004, both online and off, is a safe and healthy one. Salkever is Technology editor for BusinessWeek Online. Follow his Nothing But Net column every week on BusinessWeek Online

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