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Web growth hype races past business reality

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The Internet has come so far so fast, it's hard to believe how far behind it still is. It's like the telephone in 1885, the automobile in 1905, radio in 1920. We are in such early days we can only pretend to apprehend the full extent of what's coming.

Yet we are bombarded weekly with new statistics proclaiming how the Internet is the fastest-growing medium in history. The fastest-adopted technology ever. If you believe these amazingly steep growth curves, the Internet ought to be spinning off success stories by the hundreds; instead, everyone's still scrambling to stay in business long enough to make a profit.

Whether we're talking Web advertising or electronic commerce, the Internet is still a fledgling. And contrary to all those bright, shining growth charts, it's not growing particularly fast, either; actually, just the opposite is happening.

The Net is no network TV

For example, you've no doubt heard Web advertising advocates compare Internet penetration with the growth of early network television. What bosh. Television had its Milton Berle by 1948, when there were only 1 million sets nationwide. Network TV was profitable by 1950, long before most cities had local TV stations. By the time network TV was as old as the Internet is now, it was indisputably on its way to becoming the dominant advertising medium in America.

The Internet has had no similar success; all attempts to position the Web as a mass advertising medium have fallen short. Ironically, the most popular current modelÅ"putting banners on portal sitesÅ"is really an old-fashioned outdoor advertising strategy: As people come racing through search engine pages, you hit them with a single call to action. On the Web, as on billboards, the most effective ads are those that shout: "Food! Gas! Lodging! Exit here!"

E-commerce has taken off faster than advertising has, and no sane person questions its eventual success. But it, too, is not nearly as far along yet as the hype makes it seem. Even Amazon.com makes no profit yet off its core business. Most other retailers are simply pouring millions of dollars into the cyber pit in hopes it will keep them competitive five years from now.

The Net simply has not penetrated mass America as quickly as many entrepreneurs anticipated. Less than 25% of U.S. homes are online, and that number, while climbing steadily, is not rocketing.

Online shopping has its limits

Moreover, the Internet has some sharp limits on its short-term potential, even for consumers already online. I'm an aggressive Web shopper, and I spent only about $400 online on retail shopping this yearÅ"half of that this month. That's a jump of about a zillion percent from two years ago, but it's still a minuscule fraction of my total retail spending.

I expect my online spending to continue going up, but slowly. I need only so many books and compact discs, computer peripherals and custom-made jeans. And the Internet is not necessarily the best way to shop from home. For some items, it's still easier to pick up a catalog and order by phone rather than deal with clogged, slow-moving streams of Web pages and pull-down menus.

The Web continues to grow steadily, in technological fits and starts, but as a business it is maturing slowly, at a generational pace. I mean this literally: In 10 to 15 years, when our kids are adults, we'll start to see what this technology really means.

David Klein is associate publisher-group editor of the Ad Age Group. He can be reached at dklein@crain.com.

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