In the United States' summer of 1988, internet evangelist Vint Cerf ambled into an information technology conference at the Moscone centre in downtown San Francisco. A huge two-storey display by computer equipment maker Cisco Systems for its new-fangled online products caught his eye. Turning to a friend, he asked how much such an advertisement cost. Between $US250,000 and $US500,000 came the response. "That was the moment I realised that if people were putting this kind of money into internet products they saw serious commercial potential," Cerf says. In the following months, Cerf wrangled with politicians to open up the internet to the general public rather than restricting its use to the US military and scientific researchers. By Christmas, the first packets of commercial data were travelling across the internet. From 1988, the internet's population of computers and users began doubling annually. "Plainly, a responsive chord had been struck," he says.
Love it or hate it, the internet is one of the transformational technologies of our time. Once touted as a high-tech curiosity, it is now viewed as critical business infrastructure. Core to the way business is carried out, the internet is transforming the way people access information and communicate with each other, the way they look for jobs and manage their careers. It has broken old business models and created new ones.
And it has made the world a smaller place.
"The world has always been a network, but the nodes were not very well connected, so much so that people didn't understand they were part of a network," Microsoft's vice-president for online services, Steve Vamos, says. In the internet age, the nodes are exceedingly well connected, which has proved a double-edged sword.
Genevieve Bell, an anthropologist who works for the world's biggest computer chip maker, Intel, has witnessed a quiet rebellion against internet technologies that make people available anywhere, all the time. In Australia recently, she was intrigued by the number of professionals deliberately holidaying in "dead zones" with no mobile phone reception, no internet and no obligation to answer a landline. "The Australian government has pledged $4.7 billion to improve the national broadband infrastructure," she says. "Meanwhile, many people are looking at how to disconnect themselves."
Internet Industry Association chief executive Peter Coroneos agrees that a discussion needs to happen about the expectation of employees to be available all day, every day, now that internet technology permits it.
Already, there is talk in the US and Canada of adding the use of pocket-sized electronic devices such as Blackberrys to contract negotiations so that employees are compensated for work they do out of the office.
"Right now, we're all working much longer hours and much harder because the productivity gains of the technology have been accruing back to our employers, Coroneos says. "One day - and you're already starting to see this in discussions around work-life balance - we're going to wake up and realise we're working 18-hour days."
In the commercial world, the tension between established business models and new models emerging online has been immense. Banks are one of its richest beneficiaries, but in the late 1990s they were ruthlessly opposed to the internet. "They feared that non-banking institutions would be able to facilitate financial transactions over the internet," Coroneos says.
This fear was realised with the emergence of players such as PayPal and the use of mobile phones for micro payments, but banks also benefited. Today, 90 per cent of banking transactions in Australia are performed online at an average cost of 20¢, a full $2.80 less than it costs to perform the same transaction at a retail branch.
Even the music industry, the last bastion of resistance, has gradually succumbed. Last month, American singer-songwriter Bob Dylan joined a growing number of artists, including Radiohead, Prince, Nine Inch Nails and Paul Kelly, to explore free downloads as a means of winning new fans, boosting sales and creating a buzz around concert tours.
"Musicians are going directly to the audience," Coroneos says. "The record companies as traditional intermediaries between musicians and buyers have become irrelevant because the internet has enabled people to distribute music more broadly, more efficiently and more cheaply.
Not only has the internet wedged gate-keepers from consumers, it has also punched holes in the boundaries of corporations, Canadian business strategist Don Tapscott, the author of Wikinomics (Portfolio, 2006), says. "The reason 'the firm' exists is because it is cheaper to house various elements of production inside the four walls of a corporation than to source each individual function in an open economy," he says. "Henry Ford had within the boundaries of the Ford Motor Company a power plant, steel mill, shipping company, glass factory and mahogany forest. Why? Because the cost of sourcing them in the open economy was greater than having them transact within the boundaries of the firm."
The internet changes this equation by substantially lowering the cost of collaboration. "The internet is not about websites or dotcoms, eyeballs or page views," Tapscott says. "It's not that content is king. The internet is a new infrastructure that dramatically reduces transaction and collaboration costs. When collaboration costs in an economy drop, vertical integration - the model of the corporation - doesn't work any more. What's happening now with the new web, the so-called Web 2.0, is that collaboration costs are dropping so much that peers can now come together and create value."
To collaborate in this way, companies have to share certain aspects of intellectual property with partners, peers and/or the general public. It is never obvious what to share, Tapscott says. But if there's something companies do that they don't do better than their competitors, and it is something that is strategic to the business, they should probably move it out into the business web.
The internet has forced business managers and politicians to think about themselves, their operations and their stakeholders in different ways. Understanding and responding to the internet poses a profound challenge for business leaders, economist Henry Ergas says.
"We are going through a fundamental change that centres on the emergence of new forms of social interaction," he says. "Put simply, TV killed the traditional ways of forming and sustaining community - service clubs, community associations of many kinds, even traditional political parties. This left an enormous vacuum of people and groups that, in Putman's famous phrase, were 'bowling alone'. Now, new 'virtual communities' are emerging that aggregate first through the internet and then take other forms."
Ergas points to the Australian political activism website GetUp as a textbook case. He says enterprises must deal with these "virtual communities" as aggregations of consumers, as actors in their own right and as shapers of the way the world works.
It will be tough, particularly as Australian industry lacks people with a rich understanding of how to adjust old business models to embrace new technology, the executive director of online catalogue company, Lasoo.com.au, Paul Marshall, says. "If you look at most [internet] innovation, it's come from outside the industries that now benefit from it or should have invested in it. Seek, for example, didn't come from Fairfax or News Corp and neither did the car or real estate websites [carsales.com.au and domain.com.au] originally."
This may explain the disappointment so many people feel, even today, in relation to the internet. The federal Minister for Broadband, Communications and the Digital Economy, Senator Stephen Conroy, has expressed dismay at the internet economy's failure to meet expectations. "Despite the rapid uptake of the internet and related technologies, the spread of economic activity on the internet is slower than many of us would have hoped or expected," he says. "This is well illustrated in [Australia], where every second person uses the internet to plan their holidays and yet only 14 per cent actually book and pay for their trips online."
To consider the internet as purely a transactional tool in this way is naïve, Marshall says. "Eighty per cent of people still want to buy in-store but 50 per cent do their research online." Consumers are avoiding biased information distributed by manufacturers and their retail partners. Instead, they are tapping into customer feedback forums to get the low-down on everything from product reliability to the quality of a company's after-sales support.
So what does the future hold? For starters, the days of English as the dominant language on the internet are numbered. As Asian and Coptic languages overrun cyberspace, Bell says there will be a proliferation of cultural experiences that move far beyond Anglo-Saxon notions of where technology should and shouldn't operate. In China, provincial governments encourage citizens to cremate their ancestors and "bury" them online rather than have a cemetery plot.
The internet is also being stripped away from personal computers and connected to mobile phones, TVs and public screens. "In Africa, the majority of people's first encounter with the internet is on a mobile phone," Bell says. "They may never have the rich visual media experience that the majority of Westerners have on personal computers."
Cerf says security remains the internet's Achilles heel. "Until we find a way to make it more trustworthy, we won't see the next wave of development or tap the internet's full economic potential," he says.
In the beginning: An interview with Stanford professor Vint Cerf
Together with Bob Kahn of the United States Department of Defense, Stanford professor Vint Cerf invented the networking protocol called TCP/IP that runs the internet. In 1988, Cerf challenged the sole use of the internet by academia and the military, and arranged for the first commercial data packet to travel across the net - kicking off the first 20 years of the internet as we know it.
"The internet could have failed.
No one wanted to build the network. [In 1978, when the design of TCP/IP was being finalised], it was hard to persuade commercial companies to build these things. They would say there isn't any market for it - why should I waste my money on it?
We did see what it could become.
A lot of the application had already been explored on the Arpanet [the internet's forerunner], which started in 1972. Electronic mail was invented in 1971, allowing us to move files around the network through a remote server in the same way as you would use the world wide web, only it was not the world wide web. A man named Douglas Engelbart had in his mind ideas like hyperlinking, a document source where anyone could refer to anyone else's documents. This guy started his work in the late 1950s.
What we didn't see was what happens when you scale up to a billion people.
I didn't easily predict personal computing, the incredible amount of computing power and memory people have at their fingertips. The amount of content flowing into the internet is mind boggling. That is the reason why Google exists - because without it, you could never find anything.
We are nowhere close to tapping the potential.
Ninety-eight of the interesting things you can do on the internet are in the future. In part this is because the net is becoming more mobile, the speeds are higher, and it has smarter and more powerful devices connected to it. I just hope engineers and scientists are free to innovate. In the US [unlike Australia], telcos do not charge for service speeds. This has created companies like Google, Amazon, Skype and Yahoo. Now US telecoms are trying to close this loophole, arguing that they cannot afford to invest in new broadband networks unless the user pays for a faster service.
The greatest danger to the internet?
It may become an avenue for so many forms of attack that trustworthiness will erode and e-commerce will begin to evaporate. Spam is mostly a function of the vulnerability of browsers. If I point the finger at anyone, it is at people who make browsers that are so naïve as to drive-by download any software they see on the web - it is the equivalent of drive-by shootings. If trust on the web evaporates, it will be hard to build up solid e-commerce.
I'm not top of the Forbes Rich List. It would be nice to have a few billion dollars. I have occasionally thought I must have been born even stupider than I thought I was, to have failed to figure out a way of monetising this. Yet when I look at the role I've chosen to play in this history, I had to stay away from that kind of monetisation ... it was completely inappropriate for me to invest in companies whose livelihoods depended on the standards I was approving. Bob Kahn and I agreed that the only path to achievement was not to patent any of this technology. We agreed it would only ever become an international standard if it was absolutely, totally, widely available without any barriers whatsoever. Even in the middle of the Cold War, we got the Department of Defense to agree that the software be released ... the internet would not be where it is if we'd put any intellectual property constraints on it.
Will the internet start a second Renaissance?
I wish I were enough of a historian to make that comparison. If I had tried to buy a terrabyte of disc memory in 1979, it would have cost me $US100 million. A couple of months ago, it was $US300. Maybe there is a comparison to the Gutenberg [printing] press. The consequences are still not really understood - but this is a huge transformation.
The internet will help us tap the resources of other planets.
Rich communication internet protocols will allow us to assemble much more complex and ambitious space missions so long as we have standards that will work with the long transmission delays between planets. I hope we can get the space-faring nations to agree on the standards so that we can have interoperability between spacecraft. Things start out with a small cave of people who care about solving problems, and they work and work and eventually start doing things that you could not do before, and people take notice and it compounds. Remember, I said that the most powerful force in the universe is compound interest."
Fairfax Business Media
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