Virginia and the Internet

The next frontiers that may reshape our society, the way living on the edge of the wilderness shaped American society between 1607-1890, could be the settlement of the ocean floor or establishment of a colony in space. Those are the two places where humans only visit and do not permanently live - yet.

However, Virginia may be on the frontier of the Internet and how it changes the way people share information. In 1984, Virginia created the Center for Innovative Technology to stimulate high technology research and business activity in the state. In 1998, Virginia created the first cabinet-level Secretary of Technology position.

"E-government" may do more than streamline transactions such as renewing drivers licenses. If virtual buying groups can develop to obtain group discounts from retailers with a "click and order" storefront... can virtual interest groups be far behind?

The Internet enables citizens to identify others who share common concerns on even the most arcane issues. Government officials know these groups are willing to coordinate e-mail campaigns on particular issues. These "virtual" interest groups could assemble into effective voting blocs, uniting their fund-raising and ultimately their votes.

The Internet would not be the first time technological change has reshaped society. The Industrial Revolution changed English society and provided a way for those without land to acquire wealth. That led to the creation of a middle class and to the decline of political control by the aristocracy. More recently, electricity and then the automobile have transformed manufacturing and transportation in America, reshaping the cultural and even physical landscape.

The Internet Economy

The concentration of technology companies in Northern Virginia was stimulated by the location of the Pentagon and the Central Intelligence Agency there, with their requirements for the most-advanced technology. However, state and local government have encouraged technology companies to locate in the region, providing tax breaks, a well-educated workforce. Local land-use decisions have facilitated construction of an IBM chip-manufacturing plant in Manassas, and AOL and MCI headquarters facilities in Loudoun County - though the Loudoun buildings are no longer headquarters offices for technology businesses, and the chip plant in Manassas is no longer owned by IBM.

Governor Gilmore claimed Virginia was "home to perhaps the greatest concentration of Internet businesses in the world." The first Secretary of Technology (Donald Upson, a Northern Virginian) to serve as the chair of the Advisory Commission on Electronic Commerce, which was created by the Congress to examine Internet taxation issues. Gilmore also adopted a new nickname for the state - "Digital Dominion," embracing more telecommunications activities than just the Internet.

Innovation occured outside of Northern Virginia, of course. Blacksburg was the first community to commit to creating a digital village. In mid-1990's (way, way back early days of public use Internet), obtained grants connect all buildings (schools, libraries, town government) and individual houses as well. Social groups were encouraged advertise their activities Electronic initiative demonstrated that interaction events could be enhanced by Internet, rather than replaced individuals sitting alone houses, isolated from at keyboards. With the decline of the tobacco industry and shrinking employment in the coal industry, Virginia officials invested in providing high-speed internet access to rural communities in Southside and Southwestern Virginia.

It's no secret that the Internet is a vibrant new shopping "channel." A decade ago, outlet malls were the rage. Manufacturers were able to sell directly to the public, eliminating the middlemen (department stores, Wal*Mart, etc.) - until the retailers retaliated and began carrying other brands. The manufacturers had to decide if the profit from a few stores in outlet malls was worth the reduced sales through their primary channels.

The same issue confronts producers with the Internet. Some companies, like Charles Schwab, have been willing to sacrifice their old mechanisms of selling their goods and services in order to sell via the Internet. (Seen any brokers with a "Charles Schwab" sign on the door, in a brick-and-mortar facility lately?)

Watch the evolution of car dealerships in particular. The dealers, so far, have been able to block the manufacturers from bypassing the middlemen and selling directly to the public. You can order a Ford online... but you have to buy it through the local dealer. In the meantime, some car dealerships are packaging their real estate and selling it to a Real Estate Investment Trust.

In the process, the dealers are positioned to abandon the traditional marketing mechanisms, with its high cost on inventory and real property and staff. The manufacturers are stymied at the moment - but do you think those concentrations of car dealerships in places such as West Broad Street in Henrico County, North Emmet Street in Albemarle County, or Leesburg Turnpike in Fairfax County will still be stocked with new cars on the lot in 10 years?

And watch the way appliances are sold. Circuit City, a Richmond-based retailer, abandoned appliance sales in the summer of 2000. It was the #2 appliance seller, with 5-6% of the market (behind the nearly 40% share of Sears), but the appliance sales required a lot of store space for a low-profit item. Circuit City chose to concentrate on selling consumer electronics, clearing the floor space for Christmas sales of computers, radios, TV's, etc.

Wal*Mart then entered the business in the late summer of 2000, with a few stores serving as sales prototypes - and without a commitment of floor space. Instead, sample appliances were placed in the stores together with kiosks for customers to order a delivery. Orders for new appliances were shipped by the manufacturer directly to the customer, minimizing Wal*Mart's investment risk and permitting each store to use its floor space to sell other products.

In 2009, Circuit City went bankrupt and closed its doors. Not every business model is sucessful, and not every business can execute its plan.

The standard retailing model has survived the initial onslaught of online stores, except for bookstores - but how long before you think it will take before car dealerships stockpile just sample vehicles on the lot, and new cars will be ordered online, manufactured "just in time" after being pre-sold, and shipped to customers?

Taxing the Internet


Will the Internet Change Virginia's Regions?
Virginia Places