Is the Internet a Maturing Market?
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ARTICLE SUMMARY
This paper looks at how the aging of the Internet relates to broadband growth and policy.
POLICY RELEVANCE
Policymakers should not adopt policies that restrict firms’ ability to use new technology or try new business models.
KEY TAKEAWAYS
- Observers worry that not enough United States residents subscribe to broadband services. The economic stimulus plan included $7.2 billion for investment in broadband.
- A second main Internet policy concern is “net neutrality.” As broadband networks propose new business models, some argue for ground rules to ensure everyone has access.
- We can understand these problems better by thinking about the Internet as a product. The growth of new products follows a certain pattern, which economists call a “product life cycle.”
- The product life cycle typically has four stages, growing slowly at first, then quickly. Growth finally flattens out and declines when the product becomes obsolete.
- The growth of the Internet seems to be following these stages. Growth of Internet subscribers is now leveling off at about 75% of households, suggesting that the Internet market is now mature.
- Google, Amazon, Apple, and Microsoft compete more aggressively for one another's customers than in the previous decade, when new customers could be attracted from a pool of those who had not yet committed to any online service.
- The technology used by Internet-based services is several decades old and needs to be replaced.
- To thrive in a maturing market, firms will need to secure new sources of revenue, such as selling content. They may need to reduce their costs by experimenting with different technology.
- Policymakers should avoid reducing the freedom of Internet-based services to experiment with new models and adapt to changing circumstances.
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About Christopher Yoo
Christopher Yoo has emerged as one of the nation’s leading authorities on law and technology. His research focuses on how economic theories of imperfect competition are transforming the regulation of the Internet and other forms of electronic communications. He has been a leading voice in the “network neutrality” debate that has dominated Internet policy over the past several years. He is also pursuing research on copyright theory as well as the history of presidential power. He is the author (with Daniel F.
