The Economic Impact of the Internet on Our Society


Benjamin Kedem
CAPP 385, Spring 1999



The Internet is a vast collection of world-wide inter-connected networks configured with the help of a group of about 100 TCP/IP protocols. It evolved from the US Department of Defense "Advanced Research Projects Agency Network," ARPANET, of the late 60's and early 70's. It has greatly transformed our society in ways unimaginable-let alone foreseen-only a few decades ago. At the close of the 20th century the Internet global connectivity has made us what Hauben and Hauben (1997) refer to as Netizens: Net Citizens. In this new world geographical separation is replaced by cyber/virtual space and we are all next door compatriots, or netizens. In this new world of Internet connectivity people can share their experiences, ideas, suggestions, and problems, try to exert influence, and get fast responses and reactions from friends and strangers alike, feedback that is in many cases is advantageous to the parties involved.

The Internet society has created its own new culture and Net terminology. Terms such as World Wide Web (WWW), search engines, HTML, web pages, web servers and clients, http, URL, TCP/IP, SMTP, POP, DNS, ISDN, newsgroups, domain names, UNIX, FTP, WS_FTP, clickable images, bookmarks, telnet, BBS, CGI, ftp.fedworld.gov, mailing lists, GIF, JPEG, dot files, LAN, network, Internet Firewall, and many more have become household terms. We are now talking of e-trade, e-travel, e-mail, e-toys, e-commerce, e-banking, on-line services, virtual this and that such as virtual museums, and so on, terms that point to the degree, desire, and ability of our society to adapt to a changing world. A good example of this is CAPP 385 itself! It points out the will of people to learn and keep up with the new advances in cyber space, and altogether absorb the new Internet culture.

But perhaps the most important thing that can be said about the Net is that it welcomes and encourages intellectual activity. People are welcome to express their views and the things on their minds, share information, and brainstorm and interact with each other. In short, the Net enables people to contribute to an ever increasing human intellectual storage. The outcome is a continuous expansion of human knowledge and information that is having a great impact, unfortunately not all positive, on our social, economical, and political organizations and way of life. Some of this impact will be described in the following pages.

Economic Impact of the Internet on Our Economy

The age of information/communication technology is here, at the close of the 20th century. It is epitomized by the Internet. The Internet provides many information/communication services such as browsing of information, search engines, electronic mail, file transfer, Newsgroups, remote access via telnet, and bulletin boards, and the means to post and retrieve textual/sound/video/image information from Web pages. The huge potential of these services has attracted the attention of the business world, and today more and more business is transacted via the Internet. The impact of this trend is explored on the local, national, and global level by specific examples and some statistical facts.

Economic Impact on the Washington DC Region

The Washington DC region is home to a great number of Government agencies, Government and private research institutions, and many high-tech companies (in Northern Virginia alone there are over 2000 IT companies), that make a heavy use of the Internet. The extent of Internet use, applications, and transactions executed by this collection of different Government and private organizations is so large that it is quite hard to think of how they were able to operate and carry out their daily business without the Internet as was the case only a few years ago. This is of course trivially true of those organizations that owe their very existence to the Internet. And the impact of the Internet in all its facets on this varied group of outfits has in turn impacted directly the DC economy. It is sufficient to consider two conspicuous cases as examples.

Consider first the case of America Online, Inc. (AOL):

Founded in 1985, America Online, Inc. (NYSE: AOL) is the world's
leader in branded interactive services and original content.
America Online, headquartered in Dulles, Virginia.

The following charts are from a 1998 AOL report. The report shows an impressive rate of growth, membership close to 13 million strong, and total 1998 revenues in excess of $2.5 billion.

Moreover, as recently as April 27, 1999, America Online, Inc. announced for its fiscal third quarter ending March 31, 1999, a consolidated net income of $420 million, setting new records for total revenues. The revenue sources included advertising and commerce revenues, and AOL membership growth. For a company that employs thousands in the Washington DC region, such impressive performance is nothing but a blessing to the region's economy.

Next we turn to the U.S. Federal Government, the largest employer in the DC region. The Federal Government employs many thousands of workers in numerous Government agencies. All these agencies have Internet connections for communication, military, scientific, public information, and many other purposes. To maintain its vast Internet operations, a sizable part of the Government's work force-both internal and contract work force-consists of software and communication engineers, programmers, networks specialists, and other high-tech personnel. This highly paid large body of workers has a huge buying power which contributes handsomely to the DC area economy.

For a typical example, we turn to a recent NASA mission called the Tropical Rainfall Measuring Mission TRMM that was originally initiated and currently administered at Goddard Space Flight Center, Greenbelt, Maryland.

This is the TRMM satellite which carries on board: Precipitation Radar (PR), TRMM Microwave Imager (TMI), Visible Infrared Scanner (VIRS), Lightning Imaging Sensor (LIS), Clouds and the Earth's Radiant Energy System (CERES). Click here for an example of a TRMM Product that can be downloaded from the Internet and is described here. Putting and maintaining the TRMM data on the Internet for the world scientific community is done at Goddard SFC, Greenbelt, MD. It requires the employment of numerous well paid specialists who live in the Washington DC area. Their buying power invigorates the economy of the DC region.

An interesting piece of TRMM research is the downloadable BTG Program for spatial prediction/interpolation developed at the University of Maryland College Park. Program requirements are:

  • UNIX operating system
  • Tcl/Tk
  • The GNU compilers gcc and g++

TRMM is the first mission dedicated to measuring tropical and subtropical rainfall through microwave and visible infrared sensors, and includes the first spaceborne rain radar. Tropical rainfall comprises more than two-thirds of global rainfall. It is the primary distributor of heat through the circulation of the atmosphere. Understanding rainfall and its variability is crucial to understanding and predicting global climate change. Our current knowledge of rainfall is poor, especially over the oceans. By use of a low-altitude orbit of 217 miles (350 kilometers), TRMM's complement of state-of-the-art instruments will provide more accurate measurements. These new measurements will increase our knowledge of how rainfall releases heat energy to drive atmospheric circulation.

The punch-line is that the huge amount of TRMM data is loaded and maintained on the Internet for the world scientific community at NASA/Goddard SFC, Greenbelt, MD, less than 10 miles from Washington DC. This requires a highly paid skilled work force who lives and spends in and around Washington DC and thus invigorates the DC area economy. TRMM is only one of thousands of similar Government projects and initiatives that prove to be a bonanza for the DC area economy.

Economic Impact on the USA

From U.S. Government reports and media giants such as the Wall Street Journal, The New York Times, and CNN, Americans read and hear a constant stream of reports that in recent years the U.S. economy has performed beyond most expectations. Playing an important role in this are a shrinking budget deficit, low interest rates, a stable macro-economic environment, expanding international trade with fewer barriers, and effective private sector management. While the full economic impact of the Internet cannot yet be precisely assessed, its impact has been significant as can be seen from the following facts published in a recent U.S. Department of Commerce report titled "The Emerging Digital Economy":

                THE EMERGING
               DIGITAL ECONOMY

               Executive Summary

       (from the US Government site on e-commerce)
             POSTED April 15, 1998

Accordingly, Internet commerce is growing fastest among businesses, and the number of Americans using the Internet has grown from fewer than 5 million in 1993 to as many as 62 million by 1997. Moreover, the number of names registered in the domain name system and the number of hosts connected to the Internet expanded greatly as can be seen from Table E1. The table shows that the number registered domain names grew from 26,000 in July 1993 to 1.3 million in July 1997, and over the same period, the number of hosts connected to the Internet expanded from under 1.8 million to over 19.5 million.

Table E1. Growth in Thousands of Internet Hosts and Domain Names (Source: Network Wizards.)

  Number of Hosts Number of Domains
July 93 1,776 26
July 94 3,212 46
July 95 6,642 120
July 96 12,881 488
July 97 19,540 1,301

From the report we learn that the appetite for top-level commercial (.com) domain names was shared by large companies such as media giants, phone companies, Internet service providers, television cable companies and, electric utilities, as well as by many smaller companies that use the Internet to provide more efficient and effective customer service, lower sales and marketing costs, and realize new sales horizons. At the same time hundreds of new firms were created whose business is to help businesses use the Internet effectively. These firms design Web pages with advertising banners, create Web-based catalogs, build security tools, create and track direct marketing trends, and develop means to speed up the flow of data and information across the network. Venture capitalists gave just under $12 billion to hundreds of such information technology start-ups in 1996 and 1997. This latter group of information technology start-ups is a good example of the direct impact of the Internet on the U.S. economy, for they would not have been created without the Internet.

It seems however that the greatest impact of the Internet on the U.S. economy is manifested in the way business is done and not so much the type of business. This is best explained quite well in the following extended quotation from e-business page:

The Web is changing every aspect of our lives, but no area is undergoing as rapid and significant a change as the way businesses operate. As businesses incorporate Internet technology into their core business processes they start to achieve real business value. Today, companies large and small are using the Web to communicate with their partners, to connect with their back-end data-systems, and to transact commerce. This is e-business -- where the strength and reliability of traditional information technology meet the Internet.

This new Web + IT paradigm merges the standards, simplicity and connectivity of the Internet with the core processes that are the foundation of business. The new killer apps are interactive, transaction intensive, and let people do business in more meaningful ways.

-- IBM e-business

Overall, the total business-to-business Internet commerce is projected to reach $300 billion in the U.S. by the year 2002, which is only 3% of total projected GDP in that year. But this is an early stage of a new medium which is sure to expand dramatically given the present rate of growth.

Economic Global Impact

To assess the economic impact of the Internet globally, we shall concentrate on an important sector of the world economy: Tourism-a multi-billion industry. Tourism covers eco-tourism, adventure tourism, beaches, hotels, resorts, spas, national parks, restaurants, golf, skiing, conference centers, safari, boating, and many more recreational activities, all of which generate business on a large scale.

Las Vegas Welcomes The World:
National Tourism Week, May 2-8, 1999

Southern Nevada alone draws more than 30 million visitors from around the world who generate $25 billion annually from gaming and other recreation industries. More than 166,000 people are directly employed in Southern Nevada's recreational industries. In short, recreation means business from Assateague Island National Seashore in Maryland,

Assateague Island, Maryland: A Green Heron having dinner.
Photograph by tourist Boris Kozintsev, Summer 1998.

to Raglan Castle, South Walse,

Raglan Castle, near Usk in South Wales, was "one of the last true castles ever to have been built in England and Wales". It has been called one of the finest late-medieval buildings in the British Isles. he castle site is still dominated by the ruins of the Great Tower, originally built by Sir William ap Thomas who had fought at the Battle of Agincourt. This massive tower was designed as a place of last resort in the first half of the 15th century and its gradual additions made it virtually impregnable. Much more of the original tower would be visible today were it not for the "slighting" by the parliamentarian forces after the siege of Raglan Castle in 1646. The Great Tower was partly destroyed by artillery during the siege, but when Raglan was surrendered near the end of the Civil War, a decision was made to demolish the Tower completely. Men were set to work with pickaxes in an attempt to destroy it from the top. This failed, however and two sides were undermined until these partially collapsed. The impressive remains still stand - testimony to the great building skills of the day.

to the Bahai Shrine, Mt. Carmel, Haifa, Israel,

The beautiful golden-domed Bahai Shrine is located on Mt. Carmel, Haifa, Israel, the site of the Administrative and Spiritual Center of the Bahais. The remains of Said Ali Muhammad, one of the founders of the Bahai religion, are buried inside the Shrine. In contrast, the spectacular Garden was planted in 1909. The interior of the shrine was done with utmost simplicity. The Bahai faith is established in 235 countries and territories throughout the world. The Bahais come from over 2100 ethnic groups and number 5 million worldwide. For more than a century the Bahai communities around the world have been working to break barriers of prejudice between peoples and promote world peace. In the words of Bahaullah, the founder of the Bahai faith,

The earth is but one country, and mankind its citizens. --Bahaullah (1817-1892)

to wildlife safari in Kenya,

Wildlife Safari Kenya Limited, International House, P. O. Box 56803, Nairobi - Kenya, TEL: 254 2 340319 or 220747, FAX: 254 2 338972 or 333094.

Wildlife Safari is a family owned and operated business. The chairman, Tom Fernandes, often greets the guests in Nairobi, (he actually enjoys this!!!) and monitors day to day operations. The staff are always accessible and available. Designated 'meet and greet' staff will meet you on arrival at the airport, take care of your luggage, escort you to your hotel. They assist with your registration and give a safari briefing. They also arrange sightseeing excursions, restaurant reservations and confirm return flights. Wildlife Safari uses only the finest hotels, resorts, safari lodges and camps throughout East Africa.

to Sanli Urfa in the great plain of High Mesopotamia, Turkey.

The Southeastern Anatolian Region, Turkey

Turkey has a magnificent past and is a land full of historic treasures covering 13 successive civilizations. Even a person spending only a short time in Turkey can see something of this great past.

On the great plain of High Mesopotamia, Sanli Urfa, known in ancient times first as Ur and later as Edessa, proudly exhibits the legacy of all the civilizations that have prospered in this region. In the second millennium B.C., it was a city of a Hurrite state. Tradition relates that Abraham was born in a cave near the area where the Mevlid Halil Mosque now stands. Today the cave is a pilgrimage site and flocks at pigeons don't seem to disturb the elderly men praying around the entrance. The remains of a castle with two lane Corinthian columns rising above the ruined walls, stand on top a small crest. At the foot of the hills, the lovely Halil Rahman Mosque is built around a quiet pool in which sacred carp swim.

The 17th century Ottoman Ridvaniye Mosque area the Firfirli Mosque, formerly the Church of the Apostles, are worth a detour. The archaeology and ethnography museum, one of the best in Turkey houses important Neolithic and Chalcolithic finds from the Lower Firat region. To capture the spirit of Sanli Urfa, wander through the vaulted eastern bazaar and linger in the courtyards of the old hans (inns); try to find Gumruk Hani and Barutcu Hani-they are the the most interesting.

Believed to be the ancient city of the same name mentioned in the Old Testament, Harran is known more now for its unusual beehive dwellings than as the place where Abraham spent several years of his life. The archaeological remains include those of the largest ancient Islamic University,city walls dating from the eighth century, four gates and a citadel. The GAP project will transform Harran into one of the most fertile areas in Turkey.

Birecik, 80 Km west of Sanli Urfa, straddles the Firat river, its skyline dominated by the town's citadel. A nice place to take a break,there are good accommodations and camping facilities here.

And when it comes to business from tourism, the Internet has had its impact globally. From aggressive advertisement (links), travel packaging and tourism research, to ticket purchasing and eco tourism, it can all be handled today via the Internet. In fact traditional travel agencies are starting to feel the Internet impact and are gradually shifting towards doing more and more business on the Net. The above set of clickable pictures/examples illustrates this gradual shift very well. The transfer to business online has been accelerated due to the fact that major airlines have reduced dramatically the commissions paid to online travel services-to a level half that paid to conventional travel agencies. In turn the online services were able to pass on the lower costs and savings to the consumer.

To enhance the impact of the Internet on the emerging global travel/tourism business, a new organization Interactive Travel Services Association (ITSA), was created to promote the growth of the online services industry, and to educate the public about the benefits of purchasing travel packages online. The members include American Express, America Online, Biztravel, Carlson Wagonlit, Internet Travel Network, Microsoft, Pagasus Sysytems, Preview Travel, Trip.Com, and WorldRes. These companies support the continuing growth of the online global travel/tourism industry.

Global electronic commerce on the Internet is undergoing exponential growth. Contributing to this growth is the travel industry. In the U.S. it sold over $800 million worth of travel in 1997, and is expected to grow to
$5 billion by the year 2000.


The economic impact of the Internet on our society was demonstrated by specific examples pertaining to the economies of the Washington DC region, the U.S., and the world. The examples were supported by Government as well the private sector reports. The emerging picture is that of a basic change in the way business is done locally, nationally, and globally: More and more business is going online, and this trend is growing rapidly. This regards traditional business, and all the more so regarding IT companies such as America Online, Inc. whose growth is exponential. Given the present rate of growth of e-commerce, the 21st century will no doubt witness even a greater impact of the Internet on the world economy.


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