The Knowledge Web - Part 1

People Power – Fuel for the New Economy

From Michael Moe’s time as Director of Global Growth Research at Merrill Lynch.

See below for the introduction – Read the full report here.

Introduction

The new economy moves at a pace never seen before. The new economy is a knowledge economy based on brainpower, ideas and entrepreneurism. Technology is the driver of the new economy, and human capital is its fuel. The knowledge economy is people-centric. Our economy has evolved from manufacturing-intensive to labor-extensive. Fundamental to success in the new economy is how companies obtain, train and retain knowledge workers. The knowledge enterprise industry is over $2.2 trillion. We expect the online component to grow from $9.4 billion to $53.3 billion by 2003, a 54% CAGR.

Ubiquitous PCs and high-speed bandwidth will facilitate access to knowledge anytime, anywhere. The Internet democratizes knowledge, increasing access to it, lowering its cost and ultimately improving its quality. We believe combining the “richness” of an offline experience and the “reach” that only the Internet provides creates a network effect that allows scale knowledge enterprises to be born. Moreover, we see significant potential advantages that offline operators can achieve by leveraging their experience and brand online.

e-Commerce has forced all traditional businesses to compete at Internet speed. In a 4% unemployment economy with 65% of all the new jobs created requiring skills, 70% of Fortune 1000 CEOs are saying that finding qualified workers is a major issue for growth. “Time-tocompetency” is a bottleneck or a strategic advantage depending on how effective an organization is at finding and training knowledge workers. Domestic online corporate learning is expected to grow from $1.1 billion in 1999 to $11.4 billion in 2003, a 79% CAGR, and online staffing and recruiting, critical functions of human capital management, is projected to grow from $5.8 billion in 1999 to $28 billion in 2003, a 48% CAGR.

The information revolution that began with the birth of the PC is really the knowledge revolution. e-Commerce is to the knowledge revolution what the railroads were to the industrial revolution. We think enterprises building “knowledge tracks,” or infrastructure, into the corporate market, K-12 community, and higher education spaces are poised to enjoy explosive growth.

Integrating quality educational content with testing/assessment and certification programs is the new education paradigm for the 21st century. In the knowledge economy, assessment is the currency with which all skills are valued. The four engines of the new economy – computers, telecommunications, healthcare and instrumentation – employ approximately 50 knowledge workers per 100 employees and are growing. These technology-intensive industries are growing 3-6 times as fast as economy-wide job growth. Career vortals, providing continuing education, employment opportunities and relevant information, will be knowledge nerve centers for vertical knowledge communities.

Colleges and universities are the most wired community on the Web, with over 90% of college students accessing the Internet, 52% of them daily. Students spend nearly 19 hours per week on the Internet, 84% of the time pursuing academic activities. College students currently spend $105 billion annually, with $1.5 billion of that online. Higher ed hubs provide educators and e-commerce companies access to this very compelling demographic.

The Internet creates one economy and one market. As large as the online higher education market is in the U.S., the global opportunity is significantly greater. Unlike the U.S. where post-secondary education is relatively available, access to world-class post-secondary institutions in many parts of the world is limited. Currently, there are 84 million students enrolled in higher education worldwide. Global demand for higher education is forecasted to reach 160 million by 2025 − if online learning captures even half of this growth, there would be 40 million students for online education. We predict that in the next five years, there will be global virtual universities with potentially millions of students enrolled. We project that the online higher education market will grow to $7 billion by 2003 in the U.S. alone.

The number of K-12 schools connected to the Internet has climbed from 35% in 1994 to 96% today. Today’s kids are the Internet Generation − Generation i − and are as comfortable on a computer as on a bicycle. With 53 million schoolchildren, three million teachers and 23 million families, the K-12 marketplace encompasses a huge number of potential users. The Internet is the world’s greatest library and gives a student in Minot the same access to knowledge as a student in Manhattan. Key for improvement in learner outcome is getting parents involved − the homeschool connection − and email has already proven to be an effective communication tool between parents and teachers.

The Internet is all about disproportionate gains to the leaders of a category. The gigantic opportunity has not been lost on investors, with over $3 billion in venture capital funds flowing into knowledge enterprises in the past fifteen months alone. By focusing on knowledge enterprises that contain the 4 P’s (People, Product, Potential and Predictability) and other key differentiating factors, notably the network effect outlined in this report, we hope to identify the Yahoo!s from the yahoos and provide outsized investment returns for what we see as an outsized opportunity.