All of these technologies will be added to an ever-growing traffic flow of email, messaging, searches, and business communications. Enabling all of this technology will require enormous amounts of bandwidth and gargantuan amounts of what George Gilder calls "storewidth": the response time between entering a request on the Web and getting back the first page. Bandwidth and storewidth companies have been hammered over the course of the past 18 months, to the point where they are now selling at relatively reasonable prices. Like the real-estate glut of the late 1980s, the bandwidth glut of the early 2000s is almost certainly a temporary phenomenon. So it's not surprising that major investment houses are scouring the countryside, looking at Internet-infrastructure companies that will enable the coming of all of these new technologies.
It will take a number of years before we know which investors made the right bets. The secret of business success is that much of it derives from luck and timing. But after 18 months of virtually no activity, with huge pools of investment money sitting on the sidelines in cash accounts, the great game has quietly restarted. Investment companies are back at the table placing their bets. And the biggest bets are being wagered in the beleaguered telecom sector, which makes sense. European telecoms in particular overpaid for spectrum licenses and, in doing so, jeopardized their franchises. Now they must sell off key assets to stay afloat. Those assets are selling at a significant discount. Situations like that attract big money very fast.
The next wave will occur in the Internet-infrastructure sector as companies with strong market positions but weak cash flow hit the wall and grow desperate. The last wave will be in a whole range of dotcom companies -- especially shopping bots. As peer-to-peer computing advances, shopping bots will not only be able to find you the best price on any given item, but they will also give you the ability to auction out your business. Kids need back-to-school clothes? Bid your business out on the Internet, and the Gap will have to offer you $1,000 worth of merchandise for $850. If it doesn't, Target will.
Ever since April 14, 2000, the question has been, When is this thing (the Internet business, for lack of a better phrase) going to turn around? The answer is in that McKinsey survey and in the behavior of some of the world's leading investors: It's turning around now. If the S&L/real-estate crisis is a suitable analogy, it'll take about five years to get from here to there. Along the way, there's lots of money to be made.
John Ellis (jellis@fastcompany.com) is a writer and consultant based in New York.
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