A Snapshot of the Trends of the Internet
Era: United States 2003
Won Kim, Cyber Database Solutions,
Austin, Texas
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1 INTRODUCTION
It has been a decade since the introduction of the World Wide Web.
The first ten years of the Internet Era that the World Wide Web opened
up has brought out human creativity, greed, and naiveté; has
brought about major changes in commerce, governance, and human interactions;
and has created several major headaches and risks for humans and the
society. During the hay days of the dot-coms in the late 1990s and
early 2000s, many people tended to believe that the Internet would
create a virtual “parallel universe (or society)” in which “all
rules that govern the ‘offline’ society will give way to
totally new rules or no rules at all”, and that the Internet
would somehow be a “frictionless” engine that will drive
indefinite and infinite wealth-creation. However, after the dot-com
bubble burst in 2001 and 2002, such “irrational exuberance” gave
way to sober economic, social, cultural, and legal realities.
I have
been monitoring several aspects of the Internet with a keen interest
during the past 3-4 years. In particular, I have been interested
in trends in the uses (application areas) of the Internet, in both
the positive and negative impacts of the Internet on humans and the
society, in how the negative impacts of the Internet can and will be
solved, and in the development of both the software and communications
technologies that support the Internet and its applications. In an
earlier article [Kim 01], I gave a snapshot of the trends of the Internet
Era as seen in 2001. In this follow-up article, I will give a snapshot
of the trends in 2003 in the United States. I believe there are many
similarities in other Internet-active countries around the world.
In
the earlier article, I classified the impacts of the Internet on humans
and the society into three categories, borrowing from Sergio
Leone’s 1967 classic “spaghetti Western” movie titled “The
Good, The Bad, and The Ugly”. In the article, I defined “the
good” as the positive impacts of the Internet, and “the
bad” as the negative impacts of the Internet. I defined “the
ugly” as the kinds of impact that come about in any type of revolution
and that are settled by the passage of time, through maturing of the
Internet users, and which cannot be solved by any reasonable and enforceable
laws and international agreements. I threw into the “good” such
things as the augmentation of the economy with an Internet-based economy,
the advent of many new types of businesses using the Internet, cost
savings and convenience to the consumers, the convenience and cost
savings of electronic governance, the potential spread of democracy,
possibilities of enhanced medical treatments via remote diagnostics
and availability of medical information online, electronic distance
learning to augment in-class learning and education, etc. I threw into
the “bad” such things as new types of crimes that make
use of the Internet (such as payment frauds, piracy of intellectual
properties such as music, software, games, movies, even personal identities),
conflicts between online businesses and offline businesses involving
the ‘right to do business” (such as selling wines and cars
online), conflicts on the levying of sales tax on things sold on the
Internet, etc. I held the view then that to address the negative impacts
of the Internet will require a combination of advances in technologies,
new laws (and enforcement) (within a country), and international agreements
(for those issues that cross a country’s border). I threw into
the “ugly” such things as domain-name squatting, spam,
transmission of computer viruses, the social malaise that existed as
a result of the apparent “new paradigm” for wealth creation
involving dot-coms, digital divide, etc.
Before I describe the trends
that have emerged during the past few years, I need to make one important
qualifier to my definition of the “ugly”.
Certainly, some of the “ugly” things, such as the social
malaise brought about by the rise and fall of the dot-coms, cannot
and should not be governed by laws and international agreements. However,
as the level and scope of irritation on people and the economic impact
of such things as spam, domain name squatting, and dissemination of
computer viruses have far exceeded what can reasonably be tolerated,
there are now definite trends to combat these through new technologies,
legislation and international agreements. In other words, things that
belong to the “ugly” when there are no laws against them
and the level of economic damage is low can be moved to the “bad”.
Now
I will describe the recently emerging trends in all three categories
of the impacts of the Internet on humans and the society.
2 THE GOOD
First, let us look at the “good”. The things
that I included in this category still stand. Despite the bursting
of the dot-com bubble,
many Internet-based businesses have survived and established themselves
firmly. High-visibility examples include eBay, Yahoo, Google, Overture
(recently acquired by Yahoo), Amazon, America Online (despite its recent
troubles), EarthLink, Priceline, Hotels, Expedia, Travelocity, Monster,
CareerBuilder, E-Trade, AmeriTrade, Ditech, LendingTree, etc. The Web
and the Internet are what made these new businesses possible. These
businesses did not exist until the Web came into being. In fact, it
is generally estimated that there has been a 30% increase in electronic
commerce compared to a year ago. Many corporations now use intranet
portals to communicate with employees and process employee-related
issues (e.g., benefits). Many corporations use Internet portals to
communicate with and provide services to customers and business partners
(suppliers, vendors, etc.), including technical consultations on the
use and troubleshooting of products, selling products and services,
and invoicing and payments. The government, too, has made available
most forms and documents available on the Web for the public to download,
fill out and submit online. It is clear that these trends will continue.
During
the months leading up to the US-led war on Iraq, many massive demonstrations
were organized around the world against the war. The
organizers used emails, websites, bulletin board and chat rooms to
communicate among themselves, recruit volunteers and donations, inform
(and misinform) the public, etc. [Lee 03] This was a clear demonstration
of the power of the Internet for rallying the public to a political
cause. This also showed that, if properly used, the Internet could
indeed help to spread democracy in countries where democracy does not
flourish but where the Internet is or will be in wide use. However,
the Internet can also be used to amplify the voice of a vocal minority
who may or may not have the wisest or right views and, when coupled
with a political bias in the news media, have it dominate the “silent” or “less
Internet-savvy” majority or those with the wiser or right views.
The potential amplification of a certain view can have serious consequences
in many areas, including politics (elections, setting of the political
agenda, etc.), public policy-making, foreign relations, allocation
of government funding and resources, etc. It is hoped that governments,
news media, and people all learn to take the Internet-based input as
merely one form of input in making the best-informed decisions. Until
then, this aspect of the impact of the use of the Internet will belong
to the “ugly” category.
3 THE UGLY
During the dot-com frenzy, some “investors” forked
over millions of dollars to would-be entrepreneurs on the “strength” of
concepts scrawled on the back of napkins over drinks, rather than traditional
formal business plans. Investors directed the executives of the start-up
companies thus created to spend and spend, without worrying about generating
revenues or profits, just so that they can generate the largest number
of non-paying website visitors. Many companies spent lavishly on parties
and fully stocked kitchens for employees, and offered stock options,
disproportionately large salaries and bonuses, signing bonuses and
expensive automobiles, etc. to both the executives and key employees.
Start-ups with no product and no customer openly talked about their
estimated stock-market capitalization being in the hundreds of million
dollars. Even many office-building owners in Northern California demanded
and received stock options from high-tech start-up tenants on top of
substantial rents. Some company with a few million dollars in revenue
acquired another company with a few million dollars in revenue, and
the industry financial analysts put the market capitalization of the
combined company in the billion-dollar range. The “business” model
of some company was to give free PCs in exchange for a promise to watch
ads that would pop up on the PC screen. Some company disabled a PC
to limit its functions to that of an Internet appliance (for Web access),
and sold it below the cost of the PC. There were other companies like
this that lost money on every sale they made, such as certain online
companies that sold and delivered pet food, groceries, gourmet food,
etc. Some companies got into the business of selling cars and wines
online, apparently not knowing that many states had laws that prohibited
sales of cars and wines by anyone without physical stores and licenses.
The absence of a revenue/profit model of doing business dumbfounded
more traditional businessmen and business school professors, and the
stories of the births of twenty-something near-instant millionaire
forced traditionally well-to-do professionals such as the medical doctors
and lawyers into depression over their relative “poverty”.
When
the dot-com bubble burst, most of the “investors” lost
most of the money they gave the start-ups; dot-coms fled the lavishly
furnished offices they had occupied with most of the furniture unmoved,
and liquidated the offline businesses they had acquired. With mass
layoffs, many restaurants and bars that served as hangouts for employees
of those start-ups have closed or are not crowded any more; air planes
have many more empty seats; hotels have many more empty rooms, and
even highways in high-tech cities are now considerably less congested
during normal rush hours. The sudden shutoff of the free and wild spending
by the dot-coms, along with the corporate bookkeeping scandals that
first become public due to the Enron accounting scandal, contributed
to the onset of the economic downturn in the US and subsequently worldwide.
As there is a silver lining to a cloud, the dot-com bust has had one
positive impact on humans, in that the social malaise of the blind
greed, envy, misguided notions about wealth creation that bordered
on outright fraud have considerably subsided, and people and businesses
have regained a sense of proportions and of traditional value.
However,
the dot-com frenzy still has some lingering effects, both good and
bad. Not all dot-coms have disappeared. Many have been able
to survive the massive shakeout and are now prospering. Many other
dot-coms were able to take the cash after early IPO (initial public
offering) of their stock in NASDAQ, and some have been using the cash
to survive while attempting to identify and implement more traditional
business strategies. Whether they will be successful is unclear.
One
serious lingering effect of the dot-com frenzy is the mindset of the
Internet users that was inspired during the early days of the Web.
The mindset is that the virtual society formed via the Internet should
be guided by rules that are very different from the “tired and
abominable” rules that govern the offline society. The new rules
to govern the virtual society are to be based on such notions as “governments
should not regulate the Internet, so that the Internet should always
be ‘free’”, “electronic commerce, that is,
all commercial transactions done on the Internet, should be free of
taxation”, “all contents on the Internet should be freely
accessible to everyone”, and “everyone should be free to
express his/her opinions and do many things on the Internet without
fear of being traced back”. In my view, these notions have led
to the wanton exchange and publishing of copyrighted commercial properties,
such as music, games, movies, books, software, and even host keys to
activate commercial software, with utter disregard for intellectual
property rights, monetary damages inflicted on authors, corporations,
and even governments. It is my opinion, too, that these notions led
hackers to regard hacking and dissemination of computer viruses as “innocent,
fun, intellectual exercises or games”, with no consideration
of the monetary damages to corporations, governments, and individuals.
These have also partially led spammers to launch massive volumes of
spam without feeling the least bit guilty of the time they are wasting
for hundreds of millions of people and costing ISPs (Internet service
providers) a lot of money to store and transmit those mails.
There are
certain things that currently belong to the “ugly” category
but are likely to move to the “bad” category, as it is
likely, given the nature of these things, that laws will be used to
stop or regulate them. These include unsavory websites that publish
crime-aiding information (e.g., how to make bombs at home), that publish
third party’s proprietary information (e.g., host keys for activating
commercial software, credit card data), that recruit suicide partners,
etc. These also include websites that dispense incomplete medical advice
(which may be used by the unsuspecting public for potentially erroneous
self-diagnosis), etc. Despite the dot-com bust, there are still many
websites that are of such nature.
4 THE BAD
There is one “bad” thing that has been moved
from the “ugly” category
and has largely been solved. It is the problem of domain-name squatting.
During the hay day of dot-coms, many individuals registered Internet
domain names, such as “business2000”, “ExxonMobil”, “whitehouse.com”,
etc., for the sole purpose of selling them to the highest bidders.
One particular individual is said to have registered 12,000 domain
names. Certain domain names have been sold for hundreds of thousands
of dollars or even millions of dollars. ICANN (the Internet Corporation
for Assigned Names and Numbers) stepped in and offered to arbitrate
the domain-name disputes [Stell02]. About 3,700 domain name disputes
have now been arbitrated and the generally prevailing rule (about 80%
of the disputes arbitrated) is that the business entity that had first
used the name in business prevails over the individual or business
entity that later uses the name for Internet domain. It is interesting
to observe that this rule has been established since in over half of
the disputes, corporations were able to put up the will and a relatively
small amount of money for arbitration, while the individuals squatting
on the domain names did not have the will or the money to even show
up for arbitration, forfeiting the domain names.
Currently, there is
a serious debate on taxation on e-commerce. The issue is whether to
impose a sales tax on items purchased online, and
how to distribute the tax money collected by the merchants. On one
side, the US federal government and major online merchants such as
eBay and Amazon are opposed to taxing e-commerce. On the other side,
31 states and major retailers such as Wal Mart and Sears Roebuck are
for it. Under the current law, businesses must collect sales tax when
they sell items in states in which they have physical stores. This
automatically forces all major retailers with stores in every major
city in the US to collect sales tax, whereas it exempts “pure” online
merchants from sales tax (except where they have warehouses) [Tedes03].
Further, major retailers have the know-how to collect and distribute
sales tax. This is why major retailers are for taxation, while online
merchants are against it. There are a few key reasons for the opposition.
One is that although it may seem exceedingly simple, computing and
distributing sales tax is very difficult, since there are some 7,500
state and municipal tax jurisdictions in the US, and many of these
have different rules on tax rate, items exempt from tax, etc. Another
is that many businesses actually already collect sales tax on items
sold online, and additional tax collected under a mandatory sales-tax
law will not be substantial. Another is that online sales are similar
in nature to catalog-based sales, and the same taxation rules should
apply. In any event, given the serious financial difficulties that
many states face today, and given the “fairness” issue
between online merchants and offline merchants, I believe that a simple
flat tax rule will eventually be legislated and applied to both types
of merchants and tax money will be distributed in some simple way to
all tax jurisdictions. Simply put, there is nothing special about online
sales: a sale is a sale, and if there is to be sales tax on offline
sales, there should be sales tax on online sales.
Today the most serious
item in the “bad” category is spam.
Currently, it is estimated that 50% of the emails that an average email
user receives daily are spam, and the rate may reach 70% by next year.
Spam includes those being sent by “professional” spammers
(often called master spammers) and by legitimate corporations. Master
spammers acquire email addresses by using software that “harvests” email
addresses on the Internet, and each send millions or even tens of millions
of emails a day. They use software to identify unguarded proxy computers
and relay computers on the Internet for use in sending emails and avoid
being traced. They peddle products and services ranging from generic
Viagra, “penis enlargement”, debt consolidation, and ink-jet
cartridges to porno-site membership and “marriage brokering with
beautiful Russian women”. Estimated 150-200 master spammers in
the US are responsible for such everyday repeated irritations [Hanse03a]
[Hanse03b]. They receive fees from advertisers based on positive replies
received; an average master spammer is said to receive from a thousand
to tens of thousands of dollars a week. It is interesting that the
life of a master spammer is not an easy one, since he has to constantly
stay one step ahead of the ISPs that try to filter spam, and he receives
thousands of well-deserved damning and abusive emails in return. Some
of them actually get frustrated and demoralized and leave the “profession” after
a brief stint [Kosse03].
The US government is currently considering
legislation to combat spam, including the CAN SPAM Act [Hanse03a].
Lawmakers face a number of difficulties
in efforts to legislate spam. One is the promotional emails from “legitimate” corporations
to their customers or those that obtain email addresses who had explicitly
agreed to receive emails when they signed up for magazine subscriptions,
professional society memberships, etc. Another is the legal difficulty
of defining “fraudulent emails” and also penalizing violators,
although about 4% of spam today are said to be “fraudulent”.
For example, under the current law, a misleading “subject” of
an email, such as “enlarge your penis”, does not constitute
fraud. Further, it is very difficult to identify master spammers by
tracing their emails and computers from which they emanate. However,
because just about everyone is furious about the number of spam they
are currently subjected to on a daily basis, the US government is sure
to enact new laws and start enforcing them in the next few years.
Currently,
there are many technological solutions to detect and filter spam [Schwa03]
[Jesda03] [Maney03].
These include signature comparison
(by Brightmail and Cloudmark), collaborative (voting) decision (by
Cloudmark), corporate gateways (by CipherTrust, NetIQ, etc.), rule-based
term search (by McAfee, SpamAssassin, Elron Software, etc.), Bayesian
learning (by Microsoft, Spammunition), white list (list of pre-approved
senders) (by Habeas, AOL), vaccination (email address hiding) (by Matterform,
Sneakermail), and challenge-response (sender needs to answer a question
to get through) (by EarthLink). The current technology gives a filtration
rate (successful detection of spam) of 70 to 95%, and a false positive
rate (identifying valid emails as spam) of 0.001 to 0.1% [Schwa03].
A new trend is to make it costly for the senders suspected of being
spammers. One idea is to have the sender pay a tiny amount of money
to send each email. For ordinary users, the amount is insignificant;
however, for someone who sends millions of emails, it can add up to
thousands of dollars and eat away whatever fees they collect from advertisers.
Another idea is to return the email to the sender suspected of being
a spammer and have the sender’s email system solve some compute-intensive
problem and then allow the email to reach the recipients. This is to
add a processing overhead to spammers; however, it is not clear this
scheme will work, since spammers use other people’s computers.
One key element in the eventual technological solution is the ability
to trace and identify the senders of emails, however distasteful this
may seem to privacy advocates.
The US government has started prosecuting
those responsible for creating and disseminating computer viruses and
those involved in online piracy
of intellectual properties. Recently, one of those who created and
disseminated the Melissa virus has been sentenced to a 20-month prison
term [AP 2002]. The fact that the Philippines has no law to prosecute
virus creators and disseminators points to the need for an international
agreement. The Filipino man who created the I Love You virus and spread
it worldwide, instead of being prosecuted, has become something of
a national hero, for showing that “a Filipino can do ‘it’ (achieve
a level of high-tech ‘sophistication’ and world ‘renown’,
I suppose)”. The technological solution needed to help stop the
dissemination of viruses and denial of service attacks is the ability
to trace the senders of the viruses. Coupled with the need to trace
the senders of spam, I believe sooner or later sender traceability
will be added to communications on the Internet.
Also, those that belonged
to an online piracy club named DrinkorDie have been arrested and one
of them has been sentenced to a 46-month
prison term [Lee 02b]. There are some 30 online piracy groups involving
about 5,000 members, who steal and distribute, primarily as hacking
challenge, software, games, movies, and music. These include FairLight,
Razor1911, POPZ, FTF, Immortal DVD, etc. A club typically consists
of two groups of members. One hacks into vendors of intellectual properties,
and downloads files. Another uploads the stolen files to hundreds of
websites for downloading by the “public” for free. It is
interesting to note that those who belong to these clubs are not motivated
by money, since, as one of those arrested stated, “they can get
any software, music, movies, etc. for free, so they do not need money”.
The
Recording Industry Association of America (RIAA) took the initiative
by going after music file-sharing websites, first Napster, then KaZaA,
Aimster, Glokster, AudioGalaxy, Morpheus, etc. At one point, Napster
enjoyed the distinction of the website with the highest membership
on the Internet. The court easily ruled that music file-sharing websites
that allowed tens of millions of people to exchange free of charge
music files loaded from commercial CDs violated copyright laws on the
music. As is almost always the case, the one with the deep pocket can
drive into submission one with much less financial wherewithal, and
Napster went out of “business”, if one can call it that.
The RIAA is now going after KaZaA, which tried to avoid the reach of
the US laws on copyrights by having its computer servers located in
Denmark, its distributors located in Vanuatu Island, “business” managed
in Australia, its software source code kept in Estonia, its programmers “working” in
the Netherlands, and its millions of users in the US [Harmo02]. The
RIAA has now started what appears to be the final step in their pursuit
of copyright violators; they are going after a small sample of “end
users” of the file-sharing programs, that is, high school or
college kids. Using the outrageous but legal “up to $150,000
per song illegally downloaded”, the RIAA is trying to scare the
end users into giving up their practice of downloading music files
without paying [Graha03]. Apple Computers has taken a different approach
by starting its I-Tune Music Store. I-Tune charges 99 cents per song
downloaded [Strau03]. This appears to be a compromise of a sort by
charging a relatively modest fee to discourage the scofflaws from breaking
the law. It is not realistic to expect “illegal” file sharing
to stop completely, just as it is not realistic to expect people not
to photocopy copyrighted books that prohibit photocopying or to expect
people who rent videos not to pass them to friends before returning
them to the store. However, it is clear that the combination of the
legal actions the RIAA has aggressively taken and the legitimate business
model that Apple Computers has introduced will go a long way to curbing
the illegal and unpaid sharing of music on a massive scale.
Various technological solutions to the problem of guarding intellectual
property rights on digital contents are now available, although there
is still a lot of room for improvement in terms of flexibility, ease
of use or application, and air-tightness. These include watermarking
(hiding extraneous codes in digital contents), traitor tracing (identifying
people who distribute digital contents without authorization), special
encoded tracks on CDs and DVDs, content scrambling of CDs and DVDs,
etc. One particular challenge is to allow a person who pays for digital
contents to transfer them to a limited number of “friends”,
including various devices for personal use (a laptop, a PDA, etc.).
5 CONCLUDING REMARKS
Today, nearing the tenth anniversary of the birth
of the World Wide Web, the Internet and the Web have been firmly incorporated
into people’s
daily lives in the US and all other industrialized nations of the world.
Despite the massive dot-com failures 2-3 years ago, electronic commerce
is definitely on the rise, and electronic governance and adoption of
the Internet and the Web in business interactions are firmly established.
However, new types of crimes, such as e-commerce payment frauds, spam,
computer viruses, and hacking, and thefts of digital intellectual rights
are also definitely on the rise. Solutions to these problems will require
several elements: advances in technologies, revised and new laws (and
vigorous enforcement of the laws), international agreements, education
of the public, and new business models. In the US law enforcement agencies
and the courts have started applying existing laws governing fraud
and unauthorized use of others’ properties to prosecute the perpetrators.
Congress has been working to draft and pass laws to bring order into
the current situations. Various technology companies have also offered
technological solutions to spam, viruses, guarding digital contents,
etc. At the federal and state governments, debates are under way regarding
the levying of sales tax on online commercial transactions. In the
foreseeable future, there will be movements towards international agreements
to deal with a range of issues including online crimes, digital rights,
privacy, spam, viruses, and e-commerce taxation. The Internet Era is
upon us, and efforts are needed to address the “bad” aspects
and to make the “ugly” bearable, as well as to make the
most of the “good” to help humans and the society.
REFERENCES
[AP 02] Associated Press, “Virus Maker Sentenced”, The New York Times, May 1, 2002.
[Graha03] Jefferson Graham, “RIAA Goes After the Little Guys”, USA Today, June 26, 2003.
[Harmo02] Amy Harmon, “Music Industry in Global Fight on Web Copies”, The New York Times, October 7, 2002.
[Hanse03a] Saul Hansell, “Finding Solutions to Secret World of Spam”, The New York Times, May 5, 2003.
[Hanse03b] Saul Hansell, “Diverging Estimates of the Costs of Spam”, The New York Times, July 28, 2003.
[Jesda03] Anick Jesdanun, “A Silver Bullet for Spam That Might Backfire”, Austin American-Statesman, July 7, 2003.
[Kim 01] Won Kim, “Internet Technology: The Next Phase”, Journal of Object-Oriented Programming, January 2001.
[Kosse03] Jeffrey Kosseff, “Confessions of a Spammer”, Austin American-Statesman, July 7, 2003
[Lee 02a] Jennifer Lee, “Spam: An Escalating Attack of the Clones”, The New York Times, June 27, 2002
[Lee 02b] Jennifer Lee, “Pirates of the Web”, The New York Times, July 11, 2002.
[Lee 03] Jennifer Lee, “How the Protesters Mobilized”, The New York Times, February 23, 2003.
[Maney03] Kevin Maney, “Gates, Microsoft Look for Ways to Zap Spam”, USA Today, June26, 2003.
[Schwa03] Evan Schwartz, “Spam Wars”, MIT Technology Review, July/August 2003.
[Stell02] Susan Stellin, “In Fights Over .Com Names, Trademark Owners Usually Win”, The New York Times, June 24, 2002.
[Strau03] Neil Strauss, “Apple Finds the Future for Online Music Sales”, The New York Times, May 29, 2003.
[Tedes03] Bob Tedeschi. “The Battle Over Online Sales Tax Turns Acrimonious”, The New York Times, February 17, 2003.
About the author
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Won Kim is President
and CEO of Cyber Database Solutions (http://www.cyberdb.com)
and MaxScan (www.maxscan.com) in Austin, Texas, USA. He is also
Dean of Ewha Institute of Science and Technology, Ewha Women's University,
Seoul. Korea. He is Editor-in-Chief of ACM Transactions on Internet
Technology (http://www.acm.org/toit),
and Chair of ACM Special Interest Group on Knowledge Discovery and
Data Mining (http://www.acm.org/sigkdd).
He is the recipient of the ACM 2001 Distinguished Service Award.
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Cite this column as follows: Won Kim: “A Snapshot of the Trends
of the Internet Era: United States 2003”, in Journal of Object
Technology, vol. 2, no. 5, September-October 2003, pp. 57-66. http://www.jot.fm/issues/issue_2003_09/column5
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