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DigiWorld Summit 2008, F. Lorentz

Introduction by Francis LORENTZ, Chairman of IDATE

In this time of crisis, the DigiWorld Summit comes modestly on the heels of the G20. As we all know, every crisis constitutes both a threat and an opportunity. The threat this time around is one of the most severe that we have seen since the second World War. But it also opens up the possibility of reshuffling the deck and inventing new growth models. It seems to me that the role of the digital world in this new order should be at the heart of our discussions over the next two days. > PWP and Video Online But, first, a word about the crisis. I’m not a soothsayer but it does appear that all the elements point to a long and deep crisis ahead. The model on which we built our growth over the past 10 years was founded on artificial consumption stimulated by accumulated debt, on unbridled inflation of assets and the creation of false value. What we’re experiencing now is a brutal return to reality. In some respects, the digital world seems rather well prepared to weather the storm ahead. The burst of the tech bubble back in 2001 forced the sector’s leading companies to purge and pare down their structures and finances drastically. They helped limit over-exuberant speculation over fuzzy concepts, shaky technologies and adventurous teams. Even so, we will not be spared the consequences of the loss of trust that is inflating the effects of the financial crisis, and weighing as much on consumer purchasing power as business financing. Predictions now are that, in 2009, the volume of the world mobile phone market could shrink by 1% to 2%, and even more in value. Ad-funded models are threatened by advertisers’ tightened budgets. Investors are concentrating on businesses that are already profitable, and they are no longer interested in audience figures but the ability to monetise. There are already signs of panic in Silicone Valley, which will be quick to amplify market fluctuations. This crisis could be a long one, lasting a year, a year and a half, two years? Nobody knows. But what does appear certain is that the readjustments that will be needed will go well beyond just reining in hedge funds, rating agencies and, more generally, players from the financial world. What we have is a need to establish new balances between the desire for short-term financial or budgetary gains and the need for long-term investments, between free market and regulation, between the economic areas of East and West. In this depressing environment and with an uncertain future ahead, IDATE and I are more certain than ever that the technologies and services of the digital world will be at the heart of the restructuring that’s getting underway and of the recovery when it comes. The healthy momentum of Web 2.0 is proof of technologies’ capacity to spur economic and social change. Social networks, mass individualisation, the self- and interactive expression of the blogosphere, collective creativity… all are having a profound influence on behaviour, consumption habits, working habits and business models. The role that the Internet played in the presidential election in the US and the success of Barack Obama provided a dazzling illustration of the changes at work. This is not to say that there has not been collateral damage. The difficulties that the media, and particularly print media, are having in undertaking the needed changes offer a particularly vivid example: of the top 10 American news sites, only one belongs to a member of the traditional media, namely the New York Times. I am convinced that these changes will only get bigger and faster, spurred by a major technological leap forward, following through on those that brought us big computers, mini-computers, PCs and PCs connected to the Web. This new cycle will not be confined to the Internet, but will pervade the entire digital universe and combine mobile access to the Net with the exponential increase in the power and efficiency of computing tools via cloud computing. Thanks to the performance delivered by 3G, 3.5G and soon 4G, the mobile Internet opens up an unlimited arena of new uses that incorporate images, location-based applications and social networking. The mobile phone is becoming a multimedia device that’s cheaper, faster and easier to use than a micro-computer, and that you can carry it around in your pocket. It offers billions of users around the globe interactive access to a stunning array of information, services and connections. At the same time, cloud computing, which Google, Amazon and others have put into place, makes it possible to harness the processing and storage capabilities of innumerable computers and their peripherals on a planetary scale. Combined with the development of search tools and online applications, what is taking shape is an extreme concentration of storage, data and knowledge exploitation capabilities, ushering us into the petabyte age. As foreshadowed by the recent project launched by the NSF, interconnecting 16,000 computers to simulate the human brain, this new stage leads to an astonishingly more effective use of the global informational capital and to the development of radically new tools and methods for mastering the complexity. The Internet of things, or M2M, will no doubt constitute an additional element in this new stage of the game, even if standardisation issues and consumer reluctance could hamper its development in some areas. One of the major features of this new cycle is that it is consumer driven: consumer traffic on the Web exceeded business traffic in 2008 and predictions are that, by 2010, individual users will account for 70% of the digital universe. This growing dependence on consumers does create an added vulnerability, but it is also a major asset. First, because the global market for first equipment is far from saturated, with emerging markets still constituting huge growth pools. In the more mature markets, having access to communications and the services delivered by the Web is now perceived as a priority. Proof of this can be found in the lack of elasticity with respect to income: in France, for instance, people spend an average 8% of their income on digital products and services, while those who earn under €15,000 spend 17%. Last but not least, digital world consumers are becoming producers more and more – making active and independent contributions to the ebb and flow, to the Internet’s dynamic and the exponential growth of interacting streams. This is particularly true of “digital natives”, those generations who have grown up with the Internet as a natural way of accessing knowledge, a preferred means of socialising and an unparalleled playground. Images are at the heart of everything they do, thanks to improved definition and the ability to access them from any device, whether mobile and not. These consumer-producers are highly demanding and highly creative, continually dreaming up new applications and contributing to the ongoing stream of new ideas, services and business models. Even if it cannot all be monetised, this momentum is nevertheless contributing to the roughly 60% annual increase in traffic on these networks. The new cycle of information and communication services and technologies clearly represents a huge surge of value creation and growth. Of course, we have to hope that the credit crunch, the paralysis of the stock markets and the preference for liquidity do not impede the ability to capitalise on this momentum. Infrastructure and innovation are particularly vulnerable in the current financial juncture. The capacity of communication networks needs to keep up with the exponential rise in consumption and traffic. The growing ubiquity of high-definition images, and of 3D ones down the road, make ultra-fast broadband a necessity. Just as a reminder: in France only 50% of ADSL lines make it possible to achieve a speed of 10 Mb/s, which means that we have a massive investment ahead of us which, according to IDATE, for the whole of Europe could reach as much as 300 billion euros. In the current climate, the ability to earn a return on this investment could seem meagre, too far off or too risky for the companies and the investors struggling to raise capital. There is no guarantee that competition, which proved an extremely efficient engine for putting our country among the leading ADSL populations, will be enough to create the needed momentum. There has been a singular increase in the responsibilities put on European, national and local regulators and public authorities. As concerns France, the directions taken by telecom regulator ARCEP, the measures contained in the Law on modernising the economy and Eric Besson’s action plan are steps in the right direction. But will they be enough? Will their implementation be in sync with the tightened belts and resources that the situation has forced upon us? Another area that is being threatened are the innovation pools, potential creators of wealth, contained in the digital universe. While these innovations are often technological in nature, they can also concern marketing, distribution modes or business models. They know no frontiers and the best among them can find a market immediately, or create new behaviour patterns on a global scale. Their promoters are driven by creativity and the desire to innovate, precious commodities in a world of doubt. They have become more numerous and some have matured from the lessons learned by the burst of the high tech bubble. This very positive evolution is due, in part, to the measures taken in France and Europe over the past 10 to 15 years, working to provide financing and support. It has also been helped by major corporations, equipment manufacturers, content providers and operators which became aware of the common interest of developing ecosystems that could enhance and stimulate their own capacity to innovate. These key players in the digital dynamic, these creators of the Dibcoms, the Business Objects, the PriceMinisters and, why not, the Amazons and Googles of the future, could be among the victims of a crisis that discourages risk-taking. Of course it is up to them to rise to the occasion, to overcome the increased but legitimate demands of return on investment and customer satisfaction. But it is up to public authorities to ensure that, more than ever, the fiscal, financial and regulatory environment provides support for those who have the courage to innovate and boldly go. The Internet and the digital arena that it encompasses are at the heart of the new world order now taking shape. It enables the exponential growth of information accessible to everyone, anywhere, anytime. And now more than ever before the challenge is to transform this informational growth into economic growth and an improved standard of living. The technological cycle we have entered into, of the mobile Internet and cloud computing, offers us an opportunity. The crisis could, paradoxically, accelerate the changes at work, spur the use of new generations of tools and applications, stimulate the emergence of new behaviour patterns and business models. Facebook, Meetic, Dizzer, Wikipedia, and Dailymotion all provide a partial response to the individual and collective expectations that have been exacerbated by the economic woes and fears about the future. What we call the digital economy cannot replace the traditional economy, any more than the virtual world can replace the real world. But it is upsetting existing balances, opening up new frontiers and inviting initiative. France has made real progress in its adoption of and immersion in the digital universe. But it is still far from being a global leader if the rankings of the World Economic Forum are any measure. Aside from the brilliant exceptions in the northern part of our continent, the whole of Europe needs to work harder to capitalise on the opportunities opened up by this digital new deal. And so it is particularly serendipitous to have with us our Korean friends who can share the lessons of their particularly rich experiences in these areas. I would like to extend my heartfelt thanks to them for being here today, and for sharing their knowledge with us. Francis LORENTZ Chairman, IDATE

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