A computer network that connects military, government, educational institutions, companies, and individuals around the world.
In 1969, the U.S. Department of Defense began exploring the feasibility of creating a computer network system that could survive an attack. The plan was to link three computers in California with one in Utah and then additional links were established using the Internet Protocol (IP). The existence of ARPAnet was revealed to the American public in 1972, and by that time more than fifty universities and other research companies with defense contracts had become part of the system. In 1973, ARPAnet was linked to computers in England and Norway. The National Science Foundation’s NSFnet, which used the Transmission Control Protocol (TCP), eventually replaced ARPAnet as the primary network of the Internet. By 1995, the personal computer industry had boomed and the NSFnet was turned over to the private sector. Within the next several years, millions of Americans gained access to the information through the World Wide Web, via a graphical interface browser such as Netscape, popular in the 1990s, and Explorer.
Companies wishing to set up a Web site, where customers can shop and find answers to questions, among other services, have to obtain an IP address, which consists of a series of numbers. That address is linked to a domain name, usually the name of the company followed by .com (for commercial), so users of the Web do not need to remember the IP address to access the site.
Another way to find Web sites is through a search engine, which direct an Internet user to Web sites that contain keywords selected by the user. By the early 2000s, the nearly unchallenged leader in search engines was Google. Like its competitors, such as Yahoo, Google makes its money by including advertising and paid links.
The Internet is used for a variety of purposes, of which one of the most popular is electronic mail (e-mail). Messages and files of various types, usually sent as attachments, can be sent from one user to another instantly. Newsgroups and bulletin boards offer the opportunity for individuals to discuss issues with other like-minded people. Chat groups allow online conversations. Researchers can access information from many computers linked to the Internet through the use of search engines. More important to trade is the development of sectors such as electronic business (e-business, or business-to-business) and electronic commerce (e-commerce, or business-to-consumer).
E-commerce sales have risen at a steady pace. In 1999, e-commerce sales accounted for only 0.6 percent of all retail sales in the United States. According to a bulletin from the U.S. Department of Commerce dated February 23, 2004, that proportion increased to 1.6 percent in 2003, which translated to $54.9 billion. E-commerce transactions have spiked each year during the third and fourth quarters. For the fourth quarter of 2003, e-commerce totaled $17.9 billion. Worldwide e-commerce reached $3.5 trillion in 2003.
Another form of e-commerce is stock trading. Stock trading in 1998 accounted for 20 percent of all stock transactions. By May 1999, Internet stock trading reached $2.7 million. According to J.D. Power and Associates, that figure rose to $3.5 million in January 2000. Stock trading, especially day trading, has remained popular among Internet users. Ordinary individuals can research the companies in which they invest and can more easily manage their portfolios with the help of stock trading software. The stock market has also responded to the changes brought about by the Internet. Over-the-counter stocks traded on the NASDAQ exchange are predominately dot.com and information technology (IT) stocks. The Internet has also allowed twenty-four-hour trading and enabled investors around the world to engage in trading on a particular stock exchange with few inconveniences.
Along with e-commerce, the Internet has allowed the development of e-business. Companies use the Internet for daily business transactions such as purchasing, notifying vendors, tracking shipments, and communicating with business associates through videoconferencing or e-mail. The Internet has allowed firms to communicate quickly and efficiently. Orders can be processed the same day that they are received. The communication revolution created by the Internet has revolutionized the way companies conduct business.
Online auction and wholesale servers are another aspect of the Internet that directly affects trade. EBay, one of the largest online auction companies in the world, announced 225 million sales, totaling $509.3 million for the second quarter of 2003. In recent years, the company has also offered fixed-price purchases and, in 2003, that business accounted for 27 percent of the sales. Net revenues for the firm amounted to $2.2 billion in 2003, compared with $1.2 billion in 2002. Other large competitors are Amazon.com, which reported $5.26 billion in revenue for 2003. Internet companies such as Yahoo have also realized high revenues. Yahoo’s revenues amounted to $1.2 billion in 2002 and rose to $2.2 billion in 2003, primarily because of a more aggressive policy of advertising on Yahoo sites. Meanwhile Internet service providers that have developed into giants within the industry include American Online (AOL) and Earthlink. In addition to providing e-mail services to customers, these firms also promote their high-speed connections and other services, including pop-up blockers, which help the companies maintain their dominant position in the industry.
Internet advertising developed early with the use of pop-up or pop-under ads that appear while the user is searching the Web. Users have complained that this invasive use of the Internet to promote products and services is frustrating and annoying. Civil lawsuits brought against companies that provide the pop-up ads have led to legal decisions against this form of advertising. In the summer of 2003, pop-up ads accounted for just over 8 percent of all online sales, but by the end of that year the sales figures had dropped to 6 percent and have continued to decline since then. Advertisers realize the enormous marketing potential of the Internet and have adapted their strategy in an effort to attract Internet sales. New types of advertising include media-rich ads, which have both audio and video streaming, have begun to appear in fifteen- to thirty-second spots between Web searches. Earthlink and AOL have already offered their customers the option to block this type of advertising. However, many users will continue to see pop-up and media-rich ads for the next several years. Banner ads, which appear at the top of the screen, are less intrusive than pop-up ads but generate less revenue. Nevertheless, the banner ads help offset the cost of maintaining Web sites and will continue to exist for that reason.
The Internet has helped a wide array of companies reach new markets. By the beginning of the twenty-first century, most retail, and even service-oriented, companies had developed Web sites to attract new business. A Web site allows customers from around the world to examine goods and services and then decide whether or not to purchase from that particular company. Online suppliers of electronic and software prod ucts compete for customers on the basis of pricing, while others, such as jewelers, compete on the basis of quality.
Another industry that has taken advantage of the Internet’s reach is the gaming industry, which comprises both online interactive games, where two or more players compete, and online casinos that offer gambling anywhere in the world. Software providers sell programs for players to compete and large corporations sponsor the Internet sites in exchange for advertising exposure. Many Native American nations within the borders of the United States run casino and online gambling Web sites. Ultimately, however, the most lucrative area of commerce on the Web is pornography, with thousands of sites pandering to every prurient interest. In 2003, it was estimated that pornography sites generated $57 billion in revenue worldwide, $12 billion of which came from the United States.
The Internet has, since its inception, allowed for the free flow of information among people, although some countries, most notably China, have tried to block access to politically controversial sites. In addition, trade has received a boost as companies around the world can offer their products and services to a larger market at a relatively low cost. New companies that provide services for Internet providers bring jobs to the local economies as well. The primary key issue for governments is taxation on Internet sales.
Cynthia Clark Northrup
See also: Financial Institutions; United States.
Buckley, Ciaran. “EBay Revenues Soar.” ElectronicNewsNet, January 22, 2004 (www.enn.ie/news.html?code=9388141/, accessed March 2004).
Cassavoy, Liane. “Bye-Bye, Pop-ups. Hello …? Use of Popups Wanes, but Worse Intrusions May Be Coming.” PC World (April 2004) (www.pcworld.com/news/article/0,aid,115026,00.asp, accessed March 2004).
Konrad, Rachel. “EBay Revenues, Profits Hit Record.” DeseretNews.com, July 25, 2003 (http://deseretnews.com/dn/view/0,1249,510042251,00.html, accessed March 2004).
“Retail E-Commerce Sales in Fourth Quarter 2003 Were 17.2 Billion, up 25.1 Percent from Fourth Quarter 2002, Census Bureau Reports.” U.S. Department of Commerce (February 23, 2004) (www.census.gov/mrts/www/current.html, accessed March 2004).