Does the internet make business sense?

The Wall Street Journal said the next day it had taken General Dynamics 43 years to become a corporation worth $US2.7 billion. Netscape Communications achieved the same thing in about a minute.

"In the six months to August 2001 a large telecommunications company went broke on average every six days."
Greg Adamson, Principal Fellow, University of Melbourne and President, IEEE Society on Social Implications of Technology

In the decades since, we've seen that tech-tonic shift many times over – and a couple of earthquakes too. We all have a love-hate relationship with technology: we love it when it delights and comforts but hate it when it disappoints and irritates.

The internet itself is no exception - for business no less than for the individual. In 2000 Warren Buffet told his annual investors' gathering “for society, the internet is wonderful but for capitalists it will be a net negative".

How could he say that about a global network connecting billions of people? How could it have happened? Are these problems behind us?

THE PRIMARY PROBLEM

Take security. In 1964 Paul Baran published his specifications for packet switching, an important part of the internet. He devoted one whole specification to the “problem of security" which he described as “the primary communications problem" for the military. (The early Internet was developed in the US Defence Department.)

His advice wasn't followed. When Tim Berners-Lee submitted his application to create what would become the World Wide Web to the European research institution CERN in 1989, he listed “copyright enforcement and data security" as “non-requirements".

The Internet was developed by users. That may not sound like a problem but it is definitely an exception. For the past 200 years, since the introduction of the steam powered rotary press to The Times of London in 1814, communication technologies have been designed for the market before they are released.

Sound recording, the telephone, radio, television, all went through a process of commercialisation or government regulation before they hit the big time.

Standards compatibility, spectrum allocation, building transmitters and receivers, infrastructure: all meant investors tried to guide the resulting product to be commercially friendly. The Internet has no transmitters or receivers or spectrum allocation.

It originally ran on personal computers over phone lines with a free operating system from AT&T. (In a 1956 anti-trust settlement AT&T had agreed not to enter the commercial software market, so it gave away to universities copies of Unix which its engineers had developed.)

The only regulation the Internet had in its early days was a 1984 US government Federal Communications Commission instruction that telecommunication carriers were not allowed to charge a customer more for using their phone for a data connection (eg the internet) than for making voice calls.

This was done to create a level playing field for data services which were expected to arrive (although in the late 1980s no one thought that the internet would succeed). This had been in the wings since the late 1940s when Norbert Wiener published Cybernetics (the “cyber" in cyberspace) and Claude Shannon had made us think of the world as digital.

By 1995, when business started to pay attention, the Internet already had several million users. This doesn't sound a lot today when billions of users are connected but by then all of the design decisions had been locked in to the “TCP/IP" Internet rules.

{CF_IMAGE}

It was “best effort". There was no way to know the identity of the person (or thing) you were communicating with. It didn't support micropayments, it had no built-in security and there were no intellectual-property enforcing mechanisms.

And, above all, there was no central point of control that could mandate changes to any of these things after the fact.

MISSING FEATURES

Those missing features (Berners-Lee's “non-requirements") are found in other media such as the telephone network or cable television.

But the internet has still been incredibly useful for millions of people sending e-mails and files and browsing the web.

To make matters worse, the alternative business-friendly Information super highway based on the “ATM" communication rules was a dismal commercial failure.

Its components were much more expensive than the internet's and its standards development process was much harder. For the internet anyone in the technical community could propose a feature and if two groups could build the feature and talk to each other then it was part of the internet.

In the late 1990s many companies invested in the internet expecting it would provide commercial functionality equivalent to television or be easily modified for this. The pent-up demand of business looking for global network reach resulted in the dot-com bubble of 2000.

The popping of that bubble was pyrotechnic. Time Warner lost $US98.7 billion in 2002 after completing a merger with America OnLine at the beginning of 2001. In the six months to August 2001 a large telecommunications company went broke on average every six days.

Since then the market has recovered, enormous innovation and new industries have been created and the internet has significantly impacted every country, industry and profession in the world.

But was Buffett still on the right track? He famously stood on the side during the dot-com bubble and avoided the dot-bomb destruction.

Cybercrime is possible because the early design of the internet hasn't been changed. Edward Snowden would not have been able to publish sensitive government documents on a highly regulated network (say, equivalent to the television network).

Human rights activists or people wanting to share cat videos wouldn't have found a place. Disruptive fintechs would be less disruptive. Our global networking would be a lot more predictable.

And the world would be a lot less interesting.

ANZ IIB's Dr Greg Adamson is a Principal Fellow, University of Melbourne and President, IEEE Society on Social Implications of Technology.