Business On The Internet example essay topic

Introduction: Information Age and its Implications Human history is divided into periods and some periods are named after the main economic resource of the era. We have the Iron Age and the Bronze Age, both named after the metals men had discovered for making tools and weapons. We also have the Industrial Age, during which scientific method has given people a new framework for thought. It also brought a new technology that mechanized production and replaced human or animal energy with steam. Soon after the discovery of steam, a British mathematician Charles Babbage conceived the idea of the computer. He believed that he could produce a mechanical device that would be able to perform a string of related calculations.

Babbage believed that information could be manipulated by a machine if it was first converted into numbers. We can call Charles Babbage the father of Information Age. Today, information seems to be becoming the most important economic resource, even more important than natural resources. We can see a move from analogue to digital data in every aspect of business and private life. The emergence of the Internet has brought along electronic commerce, which seems to be the main business of the not so distant future. In my paper, I am attempting to outline the importance of the Internet and its impact on business, show the current developments and the position of telecommunication providers, and give some examples of electronic commerce and point out some of its major problems.

Transition from Traditional to Digital Communication Traditionally, business was conducted through paper communication. For example, if a shoe retailer ABC wanted to order some shoes from the producer XYZ, there was a long process of communication involved before the goods were received at the shop and paid for: First there was an order from ABC, which had to be typed and sent to XYZ. When the order was received it had to be entered into XYZ system. A sales order was typed and sent to ABC, where it was entered into their system.

When the goods were dispatched to ABC, a dispatch note had to be signed, returned to XYZ and again entered into their system. Then an invoice was sent to ABC, and the payment would be made. This system was slow and it involved a lot of links, which means that there was a lot of room for an error. Paper communication has evolved into Electronic Document Exchange (EDI).

EDI involves an electronic link between the companies that have contractual relationships. This link is often a proprietary network and it allows the companies to execute specific kinds of transactions automatically, thus making the paper communication redundant. Together with paper, there is also a need for fewer but more skilled employees. EDI is highly structured, so it is suitable for reordering products, checking the status of shipment or other prearranged forms of communication.

However, it is unsuitable for ad hoc communication. EDI systems are usually proprietary, which makes them limited to certain companies and their contractors. One of the pioneers of Electronic Document Exchange was General Motors and other big users include Burger King (which became more competitive as a result of integration of ordering and payment functions through EDI), General Mills and Pillsbury. A problem with EDI is its proprietary nature. While big companies like General Motors and Ford can dictate their suppliers and customers to use their version of EDI, it can create a problem for a company that deals with more than one version of EDI. For example, if a small company supplies all the big car manufacturers with a highly specialized product (for example, a Traffic Master), it has to have a separate EDI with each of them.

This might make the business even more confusing than the traditional paper-based communication. Today, EDI is being complemented by Internet-based electronic mail, which brings flexibility and low cost. We do not know whether EDI will evolve further or whether it will be replaced by new standards, but it is becoming clear that the Internet will be the network used for business communication. The Evolution of the Internet The Internet is an international computer network.

The core of this network consists of computers permanently linked through high-speed connections. These computers are called servers and in order to access the Internet, you have to connect your personal computer to one of these servers. The Internet was invented in the USA in 1960's and it was first called the American Defense Department network (ARPAnet). Its purpose was to act as a nuclear attack resistant method of exchanging scientific information and intelligence.

In 1970's and 1980's several other networks (for example, the National Science Foundation Network - NSF NET) joined and linked together research agencies and universities. As the Cold War finished, the Internet became more publicly accessible and within the last few years it has spread faster than anybody ever predicted. The growth rate of the Internet use has greatly surprised even Bill Gates. He recently realised the potential it has for business and personal use, and Microsoft Corporation has concentrated its efforts into developing the applications for the Internet. The main problem with the Internet today is bandwidth. Bandwidth is a measure of the bits that can be moved through a circuit in a given time; it is usually measured per second.

There are several options of improving bandwidth and get rid of the bottlenecks, which cause queues of data waiting to be transmitted. The future of the Internet Most people access the Internet through analogue modems connecting to telephone lines. The plain old telephone system (POTS) has 3.3 kHz of bandwidth, which means that the fastest modems transmit about 17 bits of data per hertz. According to Tom Calf hill, even transmitting 11 bits per hertz is "a remarkable technical achievement and approaches the theoretical limit". In order for the Internet to become really useful, we need some improvement in the bandwidth.

This will bring us streaming video, real-time audio and wide-area videoconferencing. One solution seems to be a cable modem, described in "Break the Bandwidth Barrier" article. Cable modems will immediately offer 1 to 5 megabits per second. This will mean that our personal modems will no longer cause the bottlenecks.

However, the bottlenecks will move further up the line. The Internet infrastructure is not yet capable of handling an explosion of data which would become possible with modems of such speeds. The webmasters would create multi-media rich Web sites which would demand a further increase in the global bandwidth. Some people predict that if the Internet infrastructure does not keep up with these developments, the Internet could collapse. The importance of the Internet is too great for today's world and scientists and even governments recognize that. The development of the Internet infrastructure is well under way: In USA, there are two parallel networks being developed along the Internet.

One is called the Next Generation Internet (NGI) and is being jointly developed by NASA, National Science Foundation, Defence Advanced Research Projects Agency and other agencies. This project has been backed by the US government which invested $300 million over three years. NGI would transmit data at 600 Mbits per second, and this could be extended to 1 gigabit per second. To illustrate this speed: all 30 volumes of the Encyclopedia Britannica could be transmitted in a second.

Today's Internet's highest speed is 45 megabits per second. Clinton's administration believes that the business world on its own will not create such a broadband network, even though it will be necessary in the very near future, because costs and risks are too high. However, in the USA private sector is expected to cover at least half of the cost of developing this new Internet. Along with NGI, American universities are developing another network called Internet 2 (I 2). I 2 will connect 112 universities, each of which has to contribute up to $500,000 for building the necessary infrastructure. I 2 will run at similar speeds as NGI and 20 universities already got connected to I 2 in September 1997.

There are also developments in Europe: European Union has funded a Ten 34, a network which links 26 European Universities. Ten 34 is currently running at 34 Mbps, but should soon reach 115 Mbps. Currently, the Internet development in Europe is handicapped by high telecommunication costs, but that is expected to change in January 1998, when competitive barriers will be dropped. (Karlin Lill ington) The latest development in the Internet technology has been the discovery by Northern Telecom (Nortel) and Norweb Communications, announced at the beginning of October 1997.

They have discovered a way to transmit digital data over electricity mains wires. "The system works by superimposing a high-frequency carrier signal on top of the 50-hertz mains", explained Barry Fox in the New Scientist. The new system will work at up to 1 megabit per second, which is about 20 times as fast as the fastest modem using the POTS. Originally, Nortel and Norweb planned to use the same system for telephone calls and television transmission, but these plans have now, unfortunately for the consumers, been abandoned. In order for data signal to be carried at such speeds, the carrier frequency must be at least 1 megahertz. This causes the mains wires to behave like a radio antenna, transmitting signals which could interfere with audio, video and computer equipment.

To avoid the interference, the signal must be very weak, in this case just a few millivolts (compared to 240-volt mains). However, such weak signals cannot guarantee the continuous flow of data that TVs and telephones need. Internet signals are transmitted in packets and not in real-time (like TV or telephone), so any lost packet can simply be sent again. (Barry Fox) Energies, a new telecommunication company, is working with Nortel on developing similar technology but with much higher bandwidth to offer the telecommunication services through electricity infrastructure to businesses. (Nicholas Bannister) Internet and Business Doing business on the Internet seems to be the future of trade.

One proof of that is that along the traditional management guru genre of books, a new area has opened: How to do business on the World Wide Web. The latest in this genre is Evan Schwartz's Webonomics. Schwartz has no formal training in economics and he claims that Web economy is the opposite from the regular economy: instead of traditional scarcity of supply, there is so much offered on the Web that there is scarcity of demand. This shifts the power from producers to consumers. (Jim McClellan) The main problem with the electronic commerce seems to be people's mistrust of the security procedures involved in credit card dealings. However, Bill Gates says that encryption technology "is so potent that it makes a lot of governments nervous".

And he is more than right: both US and European governments are trying to impose the laws upon the level of encryption. However, the latest report by the European Union has urged the member governments to introduce uniform encryption standards to protect the information on the Internet. It claims that enabling third parties to read encrypted messages would create security risks which would not be in the interest of electronic commerce. (Duncan Campbell) The main encryption technique today is public key encryption, which was invented by Whitfield Diffie and Martin Hellman in 1977.

This was further enhanced by Ron Rivers, Adi Shamir and Leonard Adelman, who invented RSA cryptography (RSA after their initials). RSA uses prime factorization for encrypting. The inventors of the RSA encryption believed that a key using a 130-digit number that was the product of two primes would take millions of years to factor, no matter what the computing power used (recently, US and UK governments wanted to impose keys of maximum 56 bits). They challenged the world to find the factors in a 129-digit number, known as the RSA 129. However, the computer processors have grown so fast that in 1993 a group of 600 people, who used the Internet to co-ordinate their efforts, cracked the key in less than a year.

Now mathematicians believe that a 250-digit long key would be secure forever, but judging by the rise in computer power, any such prediction seems ludicrous. (Bill Gates) With the increasing use of optic fibers, quantum encryption seems to be the thing of the future. One form of quantum encryption uses a polarising filter which can distinguish between vertical and horizontal light, but produces random results on diagonally polarised light. On the other hand, a diagonal filter can distingiush between diagonal light rays, but gives random results when the light is vertically or horizontally polarised. To encrypt, you have to seemingly randomly transmit the light through polarising and diagonal filters and set the binary code to the combination, (Jack Webber) Actually Doing Business on the Internet Doing business on the Internet is a completely new area of business. It seems to be essentially the same concept as classical business: you show your products to your target market, receive orders, dispatch goods or service and collect the payment.

As a company, you can start trading on the Internet by setting up a simple Web site which can either be hosted at your company (using a leased line) or at a specialised Web site hosting company. A simple Web site can show your products and there can be an order page for customers to order them. This forms can then be emailed to your company. The problem with this is that most customers will not be willing to send their credit card details through unencrypted email, because it could be read while being transmitted to you. This could be a real problem with a small Internet Service Provider (ISP) where the small amount of traffic would allow someone to check every email message.

However, most ISPs today are huge organisations handling millions of email messages a day. This makes spying virtually impossible and if it was reported, it would seriously damage the ISP's reputation. Switching an ISP is very simple and the disrepute d ISP would quickly be out of business. There are three ways of ordering goods: the customer can either enter their credit card information and accept the insecure connection, they can be told that the company representative will telephone them within 15 minutes to take down the credit card details, or they can print off an order form from the Web and either fax or post it together with their credit card details. To be more secure, you can use a secured server (distinguished by the https: // address instead of the usual http: //). This allows a secured connection between you and the server.

This is best implemented if you host a server at your company, because it brings more functionality to your line of business. If you want to integrate electronic commerce with your existing business, you have to bring them closer together. A static Web page is alright for selecting products from a range that does not change very often and where stock control is easily enforced. However, if the stock changes regularly, it is a better idea to have a server build a page from a corporate database source. If you offer overnight delivery, you need to implement a strict stock control system. Most companies already have some sort of computerised system and they can incorporate that into the web page.

A step further towards sophisticated web sites is on-line credit card processing and credit reference. If there is enough business, it makes sense to automatically process orders. This means a close relationship with your bank that provides these services. At the high end of the web site creation are a number of companies offering high tech high investment solutions.

These companies include Microsoft (Merchant Server), Netscape (Commerce Server) and Oracle. Getting paid for your products usually means some sort of credit card transaction handling. Banks are wary about new companies and require a reasonable amount of financial history before they let you handle the transactions. There are two types of credit card transactions: "the holder present" type where the customer is actually signing the payment slip; and "the holder not present" type used in mail order and telephone sales.

The banks are especially wary about the "holder not present" type transactions on the internet. One way around this is through the system where a company employee actually phones the customer and takes their credit card details, as this classifies as telephone sales rather than internet sales. Another solution is an intermediary like First Virtual. The system works like this: a customer gives their credit card details to First Virtual and is sent a VirtualPIN number. You collect the VirtualPIN number and submit an email payment claim to First Virtual. They send an email to the customer, asking for authorisation for payment.

If the customer says YES, then First Virtual handles the financial transaction and authorises the purchase transaction. A drawback with this system is the long-winded process which may take several days. (Jon Honeywell) Electronic Commerce of Today According to research agency Gardner Group, 80% of Web retailers fail during their first year. Further 30% of the survivors fail in the second year.

Another research agency Activ Media reports that two thirds of the businesses on the Internet do not make any profit. Although it is still early days for Internet-based business, the statistics are not very encouraging. Internet business is supposed to amount to $327 billion by the year 2002, according to Forrester Research. However, it seems that only the select few will share all that profit: one example are companies like Dell, which supposedly takes 2 million orders daily; another are big financial services like insurance companies and banks. However, Dell already had a long history of direct channel sales and they built their infrastructure on their own machines which considerably cut the initial cost as well as the cost of maintenance; and financial institutions are used to dealing in electronic information. Another success story are holiday brokers, who amount to about half of the total business on the Internet; and holiday brokers are already a service provider and a search engine.

A famous story of electronic commerce failure is Argos, which sold 22 items within their first 9 months of doing business on the Internet. (Sarah Kidney) Communication Media in the Information Age It has been estimated that the average person nowadays absorbs more information in 24 hours than somebody would have assimilated in a whole lifetime in the 17th century. Such a large amount of information can be referred to as information overload. The Internet is a source to unlimited amount of information and it is rapidly growing. If you use one of the standard Internet search engines and you type in a common word, the search engine will return you a list which can contain several millions Web pages. That is clearly an information overload, as it is physically impossible to check all those pages to find the ones that interest you.