The efforts to date by Europe to mirror US tech stock mania have been something of a disappointment. But recent developments indicate considerable progress is being made this side of the Atlantic, with the European technology sector recently overtaking traditional industries in terms of market value.

Nokia, the Finnish mobile phone company, overtook BP Amoco to become Europe's biggest company in terms of market value. Then nuclear generator company, British Energy, and water company, Severn Trent, were pushed out of the FTSE 100 index of Britain's biggest companies and replaced by technology companies, ARM Holdings and CMG.

Research conducted by brokerage firm Salomon Smith Barney shows that 10 years ago the chemicals and construction industries represented 12.5 per cent of the European market by capitalisation, with information technology stocks comprising just 1.6 per cent.

Now IT stocks, including telecommunications, software and computer companies, represent about 7 per cent of the European market, with industrial stocks representing just 5 per cent. A recent presentation in Dublin by Salomon Smith Barney analysts revealed details of an extensive study of the impact of the Internet on European business. Spanning a range of key sectors, including banking, retail, telecommunications and media, the resounding message was that the Internet is the single most important factor currently facing European business.

According to Salomon Smith Barney deputy head of research, Mr Richard Dale, the more general findings of the study reveal that the Internet has added $1.8 trillion (€1.78 trillion) to the US market in the last four years. This represents 13 per cent of the total US market, and now the US is beginning to look to Europe for investment opportunities in the technology sector. If industries don't at least have a defensive Internet strategy in place, there is a possibility that traditional European businesses could "become lunch" for the US.

With 75 per cent of US business graduates entering companies which are Internet-based, or have Internet-related strategies, there are obvious implications in Europe that traditional industries now face a brain drain, with employees seeking better opportunities in the emerging IT economy.

At the moment the Internet's development in Europe is estimated to lag the US by about two years, and this is predicted to remain the case. The main reasons for this include the perpetuation of high local call charges, a multiplicity of languages, European PC penetration of 37 per cent, compared with 50 per cent in the US, and distinctly lower credit card penetration than in the US.

Within the European telecommunications sector big changes have already taken place. The massive increase in Internet traffic, and in particular data transmission, has forced traditional telcoms to invest in additional bandwidth. This has accelerated the growth of "bandwidth hungry" applications, giving rise to new businesses, and the stimulation of new low price services.

According to Mr Philip Carse, Salomon Smith Barney telecoms analyst, ADSL (Asymmetric Digital Subscriber Line) technology - which allows more data to be sent over existing copper telephone lines - and cable modem technology will deliver information into homes at speeds up to 100 times faster than what's currently available.

"This poses a threat and an opportunity for telecommunications companies. It will cost them about $1,000 per subscriber to implement ADSL, and even then they face a considerable challenge from cable companies," Mr Carse says.

The biggest opportunity now lies with mobile communications companies. Up to 70 per cent of online time is based on users messaging each other, as a result short messaging services (SMS) show great potential in the short term. However the emergence of wireless application protocol (WAP) which extends Internet delivery to mobile devices is expected to revolutionise the telecommunications industry. Its success is merely reliant on the development and adoption of WAP enabled phones with attractive, easy to use interfaces. This is already well in train.

The banking sector was identified as the area with most to gain from Internet adoption. In the US at the moment 38 online brokers account for 25 per cent of all US brokerage activity.

According to Mr Jeremy Sigee, Salomon Smith Barney banking analyst, the "commoditisation" of banking products poses a major threat to traditional banks. Take, for example, web-based companies specialising in mortgage aggregation services. Forrester Research recently found that only 12 per cent of banks offering Internet services had done so to acquire new customers, 46 per cent said they had done it to retain existing customers.

"If a bank's Internet strategy is defensive, then it has a problem. Traditional banks are looking less and less valuable by comparison with the potential gains to be made from a successful transition to the Internet," Mr Sigee says.

For the insurance sector the story seems slightly more positive as long as businesses appreciate the dream distribution opportunity the Internet presents. Contrary to popular opinion, Salomon Smith Barney analysts say the core activities of insurers are not likely to be that different. There will still be a need for loss adjusters for example, even though underwriting might be conducted automatically online.

The insurance products best suited to the Internet will remain primarily retail, including motor, travel and term life products. Healthy competition in this sector is likely to be of most benefit to the consumer - however more complex products, including pensions, are not likely to be widely adopted online.

Within the high growth media sector the businesses identified by Salomon Smith Barney as likely to benefit most from a strong Internet strategy, include advertising and marketing, books, music, radio, financial information and education services.

The gap will continue to widen between the haves and the have nots on the media circuit, with Darwin's "survival of the fittest" theory most applicable in this sector. Branding and strong content will be critical to success, so greater spending on advertising and the aggregation of online subscribers through ISPs will feature large. Meanwhile, consolidation of media companies is likely to continue and even accelerate.

Across every sector the arrival of the Internet poses either a threat or an opportunity, but it appears the traditional banking, property, retail insurance and conventional retail sectors face the most negative impact. The clear message emanating from this comprehensive report is a simple one. "Cannibalise your own business before somebody else does."