Economy in the Age of the Internet

Is the Internet producing a fundamentally different economy?

NET 12 ~ Assignment 3

by Peter Borbely

exclamation marks as street signs piled up


"the spirit of our age is the spirit of the network: the constitutive principles of networks have become the animating force of individual, social, economic and political life"

(Barney, 2004, p.2)

This paper aims to define the progress and current state of an economical change that we are experiencing today at the dawn of the twenty-first century. It's a challenging job, particularly as this progress is not only happening on a global economical scale but is also a transformation in progress. It is not final and is almost impossible to predict when and in what form it is going to settle. Nonetheless, one aspect of this transformation is definite, which is that the Internet, this globally spanned computer supernetwork is in its epicentre and the properties of this network will determine the values of this new economy.

As the changes appear to revolve around the phenomenon of the Internet the question naturally arises: what is this network and how does one relate to it? The "matrix" metaphor for networking is particularly apt. The term derives from the Latin mater (mother) and carries "womb" as its primary meaning. The possibility is that networks are the womb from which a qualitatively new form of society is being born, a society in which identity, politics and economy are structured and operate as networks.(Barney, 2004, p.2)

Barney's definition offers a practical explanation. Networking amongst people and computers are very similar, fundamentally the same. Distinct points or nodes e.g. people or computers are related to one another by connections or ties e.g. conversations, correspondence, publishing etc., which are usually multiple and intersecting. He names the information being exchanged between these nodes as flows, such as data, messages, gossip etc. (Barney, 2004, p.26)

We are living an increasingly significant part of our lives along and within these complex networks of humans and machines, reading news, checking stock market data, booking accommodation, shopping, socialising and lastly, but certainly not least importantly, working. The majority of the workforce in developed countries is working in a networked environment. One might be a stock broker, a farmer in outback Australia, working in manufacturing or retail - networked computers are present in every level and every industry and an ever growing part of the work is now comprised of the manipulation of digital data rather than physical work realised by muscle power.

As online audience grows, activity spans across newer and newer areas, further development is unavoidable. Development attracts investment which then provides added opportunities for businesses. Large sums of money are being spent on and via the Internet not only by businesses but consumers as well. The youngest generations are often best and easily to reached online and investment capital is flowing towards information technology as the market continues to grow and change to better suit its new environment.

In the 15 years since the advent of the World Wide Web (WWW), the most popular and user friendly interface of the Internet, it has gained a massive user base reaching over 20% of the global population. That is over 1.4 Billion or one in every five people, a number which continuous to grow at an incredible rate. Global penetration has tripled since 2000 and increased by 40% in the past 2 years alone (

Economic activity directly related to the Internet enjoys steep and steady growth, encountering record revenue year after year. Digital advertising revenue in the United States exceeded US $20 Billion in 2007, a 25% growth compared to the previous year. Similar trends can be examined in Australia with even more remarkable results of 34% revenue increase comparing the first Billion dollar year of 2006 to 2007 (IAB and IAB Australia respectively).

Some of the largest, loudest and most significant business transactions also happened within the Internet industry of late. Outstanding examples are Google's acquisition of DoubleClick at US $3.1 Billion and Microsoft's takeover bid for Yahoo!, a transaction not yet realised, but one which has an approximate potential value of US $40 Billion. These significant monetary transactions cannot be associated with material goods. There are minimal tangible assets behind the twenty billion dollars spent for online advertising; nor does Yahoo! own factories or large inventories of material goods.

So, at last, what is this new economy about? asked Michael Goldhaber a decade ago.

Well if the Net exemplifies it, then you might guess it has less to do with material things than with the kinds of entity that can flow through the Net. We are told over and over just what that is: information. Information, however, would be an impossible basis for an economy, for one simple reason: economies are governed by what is scarce, and information, especially on the Net, is not only abundant, but overflowing.

Goldhaber, 1997

Following up Goldhaber's theory will provide answer to [t]his question. It requires a retrospective overview to determine the sort of changes typical to times of economic transitions. The last such change was from feudalism to the market economy we live in today. Feudalism was based on the feudum - the land - which was ruling societies until the mid-17th century.

Put simply, the more land one owned the more power one had. However, from the late 15th century scientific and technological advancement opened opportunities to a new class of entrepreneur: merchants and manufacturers. This new class had no land, but perfected manufacturing production and gained leadership within their markets and started to obtain wealth.

This wealth wasn't land, but money received in exchange for products, money which eventually accumulated in to significant capital, capital that enabled them to obtain land and finally even noble titles. Not for them to assimilate to the old system, but rather to overtake and modernise that and to eventually carry out a transformation to an industrial-market economy, which - according to Barney's (2004, p.5) summary - …was characterised by the mine and factory, the urban city, class divisions and mass consumer markets. And he also adds that …industrial production was the engine that generated the enormous economic wealth…

This production however could not be infinitely maintained as …our capacity to produce material things, our net capacity to consume those things can no longer keep pace… (Goldhaber, 1997)

The perfection of industrial production led to an overwhelming volume of goods and its first crisis burst out as The Great Depression in 1929. Its tension eased as the world prepared for and fought World War II, however existing models of industrial production could not be sustained. The system started to alter, producing numerous solutions all of which marked particular periods, such as post-Fordism, Toyotism etc.

Nevertheless, the perfection of industrial production continued to produce more material goods than that which is consumable. This overwhelming production capability could not be contained within national markets and started to stretch such boundaries. A trend that appeared at the end of World War II and took distinct shape throughout 40 years was finally institutionalised in 1995 by the establishment of the World Trade Organisation. The phenomena of globalisation finally become commonplace.

When economic production reached this critical level, a solution — which was slowly maturing in the background — broke open. The birth of the World Wide Web (WWW), an intuitive, user friendly graphical interface of computer networking gave space (cyberspace) for the expansion to what we now know as the global economy.

The WWW arrived at a critical time which is proven by the rapid acceptance and adaptation of network technologies and clearly illustrated by the previously cited statistics on global Internet penetration. As businesses and the general public overtook cyberspace the pace of economic change is further accelerated. Increasingly less percentage of the population is directly involved in material production in either industrial or agricultural fields, yet material consumption keeps rising.

The masses which no longer find employment in traditional production industries migrate to new areas of employment, which involves knowledge and brainpower that pose new challenges to the society not only from market perspectives, but all aspects of society including politics, education, health etc. However this new – now networked – society, remains the engine of the economy by its purchasing power, and is also directly exposed to vast amounts of information available in its environment.

Work is now mainly comprised of manipulation and processing of information because in a digital environment everything exists not in carbon, but bits. Thus information seems to be the most obvious characteristic of this new system; however Goldhaber argues the new economy cannot be called information economy, because information is not scarce. Information does not disintegrate only because someone else also possesses the same information, nor does the sharing of information degrade its value. Goldhaber believes economies are governed by what is scarce so one must look for resources and values that are in short supply.

"It is precisely because material needs at the creature comfort level are fairly well satisfied for all those in a position to demand them that the need for attention, or what is closely related to attention, meaning or meaningfulness of life, takes on increasing importance. In other words, the energies set free by the successes of what I refer to as the money-industrial economy go more and more in the direction of obtaining attention."

Goldhaber, 1997

Attention is limited, so it is suitable to become the motivational power for an economical system. If attention is what drives the economy, it will become its primary value or currency. We only have so much, so competition to obtain one's attention is high. While it is challenging to gain one's attention, individuals also need to be conscientious in how they "spend" their attention. Consequently the Internet is positioned as the primary media for the new economy because of its innate capability to effectively and selectively deliver the required information.

Furthermore, Goldhaber explains that in a full attention economy, organisations will be temporary, attention will be equally distributed, however attention will be concentrated around stars - people with large attention wealth, such as stars, will help to obtain the required attention for the whole of the community by drawing attention to their collective activity.

This sort of structure can be already seen in the entertainment industry, where hundreds of people's effort and work is gaining attention through a few celebrities, whose name gains immediate attention. Moreover, gaining attention isn't a momentary thing; it builds a stock every time one receives any. The larger the audience, the larger the attention wealth it can accumulate to gain even larger audiences in the future, which also explains the importance of stars in this new economic system:

"Thus obtaining attention is obtaining a kind of enduring wealth […] Wealth that can endure and sometimes be added to is what we call property, thus in the new economy attention itself is property."

This attention can then be turned into monetary profits as is happening with Hollywood movies or more often with products of open source developers. Such and probably the best known example and success story is that of the Linux operating system. Attention paid to these freely available products are able to support large enterprises still operating on profit basis (such as Oracle's Unbreakable Linux product).

Another example of this could be an application developed for Facebook's platform or for Google Widgets which is exposed to large audiences and can attract both investors and consumers (e.g. custom implementations). Restricting access to these applications and information would naturally deprive attention. Thus the old system's intellectual property and copyright legislation is not suitable in the new economy and this appears to be one of the sharpest conflict of interest and is symptomatic of a period of transition.

Additionally, in this new economy assets are regarded in attention terms rather than in quantitative material terms, which creates difficulties and ramifications for market valuing systems and accounting practices.(Lanham, 2006, p.238)

Both Goldhaber and Lanham concur that money is only important in this transition period and will lose weight in the new economy similar to the change from feudalism to industrialism, where the new social class which had lots of money consequently bought themselves into the bourgeois circles by buying land and even titles.

Likewise, people who already receive a lot of attention also being offered vast financial rewards, hence they are able to position themselves within the circles of the current leading class, the ultra rich capitalists. It is interesting to note that it was the early times of feudalism's decline when splendour and pomp reached its most extraordinary peaks, just as it is suggested today, that the ultra rich class is the finest and the ultimate of success. Conversely it is likely that the enormous fiscal wealth accumulated is the sign of decline.

Money cannot buy attention, instead - attention needs to be earned by being interesting, for example a movie produced from even the greatest budgets may result in great loss, if it cannot gain attention and bring the audience to the theatres.

One such example is All the Queens' Men, a movie produced from the budget of US $ 15 Million which accounted to a -99.92% loss (

On the contrary, money flows to attention, which is proven by the example of the small independent production of The Blair Witch Project, which earned fabulous financial success (a budget of US $35,000 which generated a profit of nearly US $250M, a 354,614.29% return) by creating something remarkable that attracted a large audience (! Inc. Share price 12/07 - 05/08! Inc. Share price 12/07 - 05/08
Another example of how money can flow towards attention is indicated by Yahoo!'s stock market price movement around the period of Microsoft's attempt to overtake the rival Internet portal. Yahoo!'s share price skyrocketed when the initial overtake attempt was announced on the 31st January 2008, but when the Internet search giant rejected a number of consecutive bids, the company had to encounter sudden price drops, such as 15% within a single day of trading (Monday, 5th May, 2008). (Stone & Helft, 2008).

In this new, attention, information and knowledge driven economy it is critical to have a look at the educational aspect of the changes as well, because education and knowledge are basic foundations of this system. Lanham in his 2006 book The Economics of Attention conducts a virtual audit of the present higher education system and arrives to the conclusion that the challenges of a networked society require a radical change in the current conduct of academies. His offering is to reapply the medieval pattern while employing the benefits of technology.

"The medieval university was staffed by professors who were individual entrepreneurs. They lived from fees paid by their students for their lectures. Famous lecturer, many students, large income. Boring lecturer, few students, envy, bitterness, poverty." (Lanham, 2006, p.238)

A system based on fame, which is essentially attention and now, with the capacity of the Internet, universities and Famous professors can now cultivate a worldwide group of students. (Lanham, 2006, p.239) He also states that such changes can be already seen in some places. A perfect example is Australia, where an association of universities (Open Universities Australia) offer and support mixed and solely online methods of education.

The Internet is in the centre of an emerging and fundamentally new economy. Even with the most conservative approach it is clear that the new – networked – economy is challenging the basis of our existing practices of economic organisations, conduct of education and even legislation, such as that of copyright by the full power GNU GPL. This revolutionary change is comparable to the change from feudalism to market economy, where the core values and properties are changing. As the feudalist system's base value of land changed to monetary of capitalism, it is highly probable that we will experience a similarly large scale shift from financial based market economy to an attention based information economy.


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Goldhaber, M. H. (1997). The Attention Economy and the Net
Retrieved 27 May 2008 from
Goldhaber's theory of the attention economy was the breakthrough reading for me amongst the vast amount of information presented within this subject. His explanation of large scale economic changes and the description of attention as value and property in an economy completed the picture and provided a positive outlook, though it lacks discussion of paid attention, i.e. marketing and PR activity. This paper however set the direction for my research to prepare for the essay.
Holcomb, B. & Bakelaar, P.B. & Zizzamia, M. (2007) The Internet in the aftermath of the World Trade Center attack. In Bell, D. & Kennedy, B.M. (Eds.), The Cybercultures Reader (2nd ed.).(p.638-650). London: Routledge
This paper was prepared for a conference held shortly after the historical events of 9/11 to examine the use and effects of the Internet in such situation of national emergency. The Internet was intentionally designed as a decentralised network to protect communication channels in case of an armed conflict. The essay takes into account both uses and functionality of the Internet during and after the events as well as looking at consequences such as restriction of particular information since the event.
Lanham, R.A. (2006). The Economics of Attention: Style and substance in the age of information. Chicago: The University of Chicago Press
A fantastic book with beautiful presentation from a well respected author and scholar in the field of stylistics and rhetoric. My primary focus was on Chapter 7, The Audit of Virtuality where the academic education system is being audited to determine a forward thinking direction in the challenging times of a networked economy. Lanham's style makes even heavy weight academic text an enjoyable read.

© Peter Borbely | For further information, please contact the author.

Submitted: 6 April 2008 | Word count: 1051