All aboard the cyber express says Gates

By GREG ANSLEY

MELBOURNE - Small and medium-sized New Zealand businesses could thrust themselves into the world by using the internet to mass-market and lower costs to their consumers.

The potential, rapidly accelerating with the explosion of a huge, internet-connected middle class in Asia, was outlined yesterday by Microsoft chief Bill Gates and other key speakers at the World Economic Forum Asia Summit in Melbourne.

But the potential was accompanied by a warning that failure to act now could shove countries such as New Zealand into a permanent backwater.

James Shiro, chief executive officer of PricewaterhouseCoopers in the United States, said there was a real danger of the information superhighway bypassing small towns.

This is the new digital divide, he said.

At present, New Zealand companies are well placed for the future.

An OECD survey quoted by Australian Reserve Bank Governor Ian Macfarlane showed that the nation ranks third behind the United States and Australia in the number of e-commerce servers per million population.

Mr Gates said that small companies could start up and survive now by using the internet to bypass middlemen, promotional costs and the need to establish a costly distribution network.

Describing this as friction-free capitalism, he said the savings of direct selling over the internet were phenomenal.

Mr Gates said capitalism was based on sellers finding the most appropriate buyer, a mechanism that was traditionally loaded with overheads.

In fact, he said, if you had a product that had modest volume, say 2000 units a year, you really could not form a company around that because of the cost of normal distribution and marketing channels.

But today, with the internet in place, as long as you were able to type in a few words that described the type of product you might have, you could match demand and serve the demand even if it was only a few thousands units a year.

The diversity of products on a global basis which that allows for is really very, very dramatic.

The potential marketplace is exploding in size, driven by a rapid fall in the cost of technology that Softbank Corporation chairman Masayoshi Son said should encourage political leaders to invest in information infrastructure.

The cost of 1m of fibre-optic cable was cheaper than the cost of 1m of noodle, Mr Son said.

The Asian market was opening at an enormous pace. Six months ago, 50 per cent of the world's 300 million internet connections were in the US, he said.

Today, that share was less than 20 per cent and by 2010 more than 50 per cent of a projected 1 billion connections would be in Asia.