New Economy

The New Economy:
Start-Up & IT Business

The phrase "new economy" has finally made its way from the new world to the old one. But what is the meaning of it? Does it stand for IT (Information Technology) and Media Technology? Is it a kind of new business principle and working ethic? Can it be divided from the "old economy" in a complete way or is it just an additional branch that benefits from and in a way supports established "old fashioned" companies? These questions are the main points that underlie this article which aims on describing the development and success - and slowdown - story of a new keyword in the business world.

After the mid-1990s the phrase "new economy" became more and more popular in the U.S. business society. Before this keyword was established, a number of synonyms were used for describing the rising IT and media branches, such as "Digital Economy," "Networked Economy," "Internet Economy," "Knowledge Economy." They were not trying to split the economy in old fashioned branches and new creative ones, but rather to make clear with which kind of goods and services (digitalised ones) these new companies were earning their money.

The market penetration of these new kinds of products was so outstanding that the success forced the process of dividing the big old brand names from the new "dot.coms" (internet-based companies). The characteristics of the IT products are quite unique.Once "bits and bytes"-based information has been developed and a patent applied for, it can be easily duplicated, substituted, sold or exchanged through the world wide web.Unlike many other branches (e.g. automobile industry) there are even no big costs for products that left the company with defects. Internet updates provide tools for eliminating bugs (program faults) after the product has been sold.

One would be mistaken if he only pointed to the product-based side of the new economy when describing the characteristics.The great amount of human resources with a profound knowledge in the information technology especially needed in the beginning process created new jobs, both in quantity and quality. For example new apprentice programs and university courses in web design and computer sciences with different combinations, including knowledge from other economic disciplines, were developed.

Silicon Valley became a synonym for gathering high potential human capital from all over the world into uprising new companies.
The business principle often included a relaxed and uncomplicated way for the colleagues to deal with each other during worktime. A lot of the "old economy" companies saw the potential of the new businesses and started to cooperate or to invest money in order to participate in the process.

Sadly enough this great development suffered from the extent of the euphoria that created an stock market bubble through the enormous investment of private and commercial stock owners. In the bull market (rising stock market) no one was really very concerned about the risks which may be connected with an investment in companies that had not yet proved their profitability.The ending dot.com or the term internet promised a quick profit and set most doubts aside, as the "hype" seemed convincing. When the true potential was becoming of interest in the bear market (falling stock market), investors became aware of investing in a big bubble that burst in a loud and unpleasant way. The common principle of the new economy companies of paying with stock options or shares lead to some crude awakenings when the fall of stock rates started.

Today the "new economy" is in a state where it is asked to prove its profitability to regain the trust of investors.It has a hard time doing so, because an uncounted number of private persons and commercial investors suffered big losses and will not invest so easily (if at all) as before. I think even if it is much harder than in the beginning, good ideas that really have the potential to become profitable will find a way to be realized and will survive the healthy selection process in the "new economy".

Case Study: AOL Time Warner

Many recent mergers have aimed to combine radio, television, or print media with internet technologies. The biggest merger in the online market combined American Online (AOL) and Time Warner for $127 billion in January 2000. AOL intended to receive programming and to use the second largest cable network of the USA, which was held by Time Warner; Time Warner hoped to enlarge its internet and e-commerce sector, which lagged behind that of the other media companies. The result is the era's largest media and communication company, now trading under AOL, Time, CNN, Compuserve, Warner Bros., Netscape, ICQ, TBS, TNT, Cartoon Network, Digital City, Warner Music Group, Spinner, Winamp, Fortune, Entertainment Weekly, and Looney.