Information fuels the industry and the economy

In the last few years, information has become an integral part of the production process. Information affects decision-making in companies throughout the country, and that is reflected in the performance of our economy itself

May 1st, 2000
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Arthur C. Gruen, Wilkofsky Gruen Associates Inc.

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In the last few years, information has become an integral part of the production process. Information affects decision-making in companies throughout the country, and that is reflected in the performance of our economy itself. The economy has been growing rapidly, unemployment is low, inflation is in check, and everyone is wondering how this can be happening-it's unprecedented over the last 30 or 40 years. What's the explanation? Is it the technology? Is productivity really increasing?

It's difficult to measure the value of a decision. A good decision can influence what is and what is not being produced. Rapid access to information lets businesses react much faster to changes in the economic environment and helps them make decisions that may forestall a recession. In the past, businesspeople made decisions but didn't know for months what the impact of those decisions would be. They could be producing things the market didn't want, and after a while, they would have a warehouse full of products they couldn't sell. So they would cut back production, and that set in motion a chain reaction leading to a recession.

We have not seen this type of scenario for several years. Now, when a disruption occurs it seems to be corrected within the quarter, and the economy goes back to its expansionary path. We're in a period of remarkable economic growth, and the most important factor in that growth is the role that information plays. And the enabler of that information being transmitted throughout the economy is the telecommunications industry and the technology that it has developed.

Technology is a means to an end, and the end is the performance of a business. That performance is en-hanced by its ability to use information, process it, and make it work in all kinds of environments. Solutions have to be customized for each business.

As the economy expands and information becomes more important, the demand for customized telecommunications solutions becomes more important. That's what has kept the telecommunications industry growing at twice the rate of the economy as a whole over the past four or five years, and we project that it will continue to grow substantially faster than the economy as a whole.

Applications lead the way

A decade ago, memory and processing power were scarce resources in the computing environment. Developments in that area alleviated that problem and allowed for more information to be transmitted, which then created a bandwidth problem. In the last year or two, we've seen an enormous investment in bandwidth, and now bandwidth has become relatively plentiful. This has, in turn, changed the economics of business. However, few companies can afford high bandwidth and the expertise needed to support it in-house. That's why bandwidth-intensive information processing and usage tend to be limited to large companies.

Now, it's possible for third parties to host applications either on their own networks or in server stations so that enterprises no longer have to make their own investment in bandwidth and all the support services needed to maintain it. They're outsourcing this need, which is opening up the market for small and medium businesses to use applications they never had access to before or that were economically out of their reach. This, again, is propelling the industry. No longer are big companies alone spurring the market. Medium and small companies, of which there are far more, are also fueling this growth in applications services.

Applications will continue to be a principal driver of this market. Another driver is high-speed Internet access. Competition will propel the network equipment business. We're looking for growth to notch up over the next few years compared to the mid-1990s. Network providers will offer not just dial tone but also applications. Voice over Internet protocol, Internet telephony, and wireless will also drive this economy.

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