AN economic revolution is under way, as profound and irreversible as the industrial transformation of the 18th and 19th centuries. The driver of this change is the internet.

It offers an unprecedented opportunity, representing a community of more than 1 billion people connected to each other. It is now the world’s largest information, communication and distribution network, and businesses need to adapt or rewrite their plans to make the most of its potential.

Just a few years ago, the internet was for people who understood computers. Now people spend up to seven hours of their spare time a week online — twice as long as reading a newspaper. Teenagers spend more time on the internet than watching TV. The internet has radically changed the way we consume media — for many it has become their primary source of information and entertainment.

Take the music industry. CD sales in Britain fell last year by 11%, but people haven’t stopped listening to music. It’s the way people access it that has changed. iTunes — a business that didn’t exist five years ago — sold 20m songs globally on Christmas Day alone.

People don’t want to pay £15.99 for a CD when they can buy the one or two songs they want at 99p a time. It’s no surprise that HMV has decided to install internet “hubs” in its stores.

Yet even now I meet chief executives who think the internet is a distraction that they don’t need to invest in seriously. That’s similar to the attitude of companies that ignored the potential of other transformational advances, such as mass automation.

The change in consumer behaviour is so fundamental that in the future one of the dividing lines between firms that succeed and those that don’t will be the ones that have embraced the internet.

British companies are well positioned. The UK is, by far, Europe’s e-commerce leader. Internet retail sales for 2007 topped £46 billion, accounting for some 15p of every £1 spent. Even more impressive is the fact that this was a 50% increase on 2006. It’s clear that consumers are ready to spend more online.

It’s interesting that small businesses have been among the earliest and most creative adopters. While specialist stores may be disappearing from our high streets, they are turning up in ever-increasing numbers on the internet. Thanks to the web, small businesses no longer need to be local businesses.

Dustbag is the UK’s largest supplier of vacuum bags and accessories. The founder, Nathan Wood, realised that even the biggest superstore couldn’t possibly stock the 500 different types of vacuum bags now on offer. He spotted a gap in the market, but knew the answer lay online and now has an operation that is growing by 50% a year.

Wood doesn’t have to worry about shelf space. His customers aren’t limited to a town or even a country. His marketing costs are cheap and he is now offering his service in several languages. There are hundreds of thousands of similar stories across Britain.

Thanks to the internet, people are casting a much wider net to find products and services that match their needs much better than before. Companies such as Dustbag are benefiting from what has been dubbed the Long Tail — the switch away from a small number of products and services that are commercially viable to a huge number of niches in the tail.

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