In 1996, at the start of the great internet gold rush, a pair of Massachusetts Institute of Technology researchers published a sobering analysis of the link between computers and competitive advantage. Erik Brynjolfsson and Lorin Hitt had earlier conducted a groundbreaking study of the effect of information technology investments on productivity, and they concluded that computer systems did, at least eventually, lead to gains in output. Now, they wanted to see what happened to those gains: were companies able to hold on to them in the form of higher profits, or were they competed away, ending up in the pockets of customers?

After sifting through data on IT spending and financial performance from 370 large US companies, they found that it was consumers who ended up with the lion's share of the economic benefits from improved productivity. They found indications, in fact, that IT investments actually tended to weaken corporate profitability, not strengthen it. Outside scholarly circles, the study went largely unnoticed. At the time, technology companies, management consultants and business reporters were happily pronouncing the death of the “old economy” and encouraging companies to pour cash into new IT systems. Today, however, the researchers' findings seem to have greater resonance than all the overheated rhetoric of the late 1990s. Although the study looked at average results rather than the experiences of individual businesses, it was among the first clear signs that companies have become unable to defend advantages gained through IT innovations.