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1 The Internet for Business Economists: Guy Judge, September 2008
Lecture 2
The growth and development of the Internet: history, infrastructure, institutions and protocols.
EC3007Internet for Business Economists (IfBE)
EC3007Internet for Business Economists (IfBE)
2 The Internet for Business Economists: Guy Judge, September 2008
to inform you about the important stages in the development of the Internet, the applications that run on it and the associated protocols
to familiarise you with some key points about the technical infrastructure of the Internet
to highlight the role of some key people and organisations to look at the growth of the Internet and consider factors
(especially economic ones) that can account for this growth
Today’s objectivesToday’s objectives
3 The Internet for Business Economists: Guy Judge, September 2008
1. Rohlfs, J H (2003) Bandwagon effects in high-technology industries. MIT Press, Cambridge, MA, especially chapters 5, 13 and 14.
2. Rohlfs, J H (2001) Bandwagon effects and the Internet. Strategic Policy Research Inc. http://www.spri.com/pdf/reports/its2001/jhrbandwagonpaper.pdf
3. Varian, H R, Farrell, J and Shapiro, C (2004) The Economics of Information Technology: An Introduction. Cambridge
4. Odlyzko, A (no date) The current state and likely evolution of the Internet. http://www.research.att.com/~amo
5. Greenstein, S (2003) Jumping on bandwagons. http://www.kellogg.northwestern.edu/faculty/greenstein/images/columns.html
ReadingReading
4 The Internet for Business Economists: Guy Judge, September 2008
Practical 2
1 explanation of some key terms and consideration of their relevance to our understanding of the growth and development of the Internet
2 identification of the role of some key people
3 identification of the role of some key organisations
4 Internet metrics issues
Follow up work for the weekFollow up work for the week
5 The Internet for Business Economists: Guy Judge, September 2008
the Internet and the World Wide Web are not the same thing
the importance of protocols - the standards or set of rules that enable computers to communicate with each other
the adaptable nature of the Internet and its institutions
The importance of network externalities and complementary bandwagon effects for the take off of the Internet
Some points from last weekSome points from last week
6 The Internet for Business Economists: Guy Judge, September 2008
The Internet is an interconnected set of computer networks across the globe that work together under a common set of rules or protocols (the TCP/IP suite).
“The name Internet refers to the global seamless interconnection of networks made possible by the protocols devised in the 1970s, the Internet protocols, still in use today.” Vint Cerf, 1995
The InternetThe Internet
7 The Internet for Business Economists: Guy Judge, September 2008
Internet backbone networks, ISP etc.Internet backbone networks, ISP etc.
8 The Internet for Business Economists: Guy Judge, September 2008
From ARPANET to InternetFrom ARPANET to Internet
1969 ARPANET - a single network with 4 nodes (funded from US Defense budget)
1973 work began on linking networks “Internetting”; first international links to UCL and Norway
1985 NSF takes over the backbone for interlinking networks (still government funded but by now more academic than military)
1995 NSF funding stops - commercial companies take over the Internet - by then it consists of over 50,000 networks connecting over 5 million computers
9 The Internet for Business Economists: Guy Judge, September 2008
The original ARPA networkThe original ARPA network
10 The Internet for Business Economists: Guy Judge, September 2008
Internet traffic (2005) as depicted by TeleGeography Inc.Internet traffic (2005) as depicted by TeleGeography Inc.
11 The Internet for Business Economists: Guy Judge, September 2008
A more detailed depiction of Internet traffic from TeleGeography Inc. (2006)A more detailed depiction of Internet traffic from TeleGeography Inc. (2006)
12 The Internet for Business Economists: Guy Judge, September 2008
http://www.telegeography.com/maps/internet/images/europe_map_large.gif
13 The Internet for Business Economists: Guy Judge, September 2008
JANET - the Joint Academic Network in the UKJANET - the Joint Academic Network in the UK
14 The Internet for Business Economists: Guy Judge, September 2008
Source: The Guardian Friday 1st February 2008
http://image.guardian.co.uk/sys-files/Guardian/documents/2008/02/01/SEA_CABLES_010208.pdf
15 The Internet for Business Economists: Guy Judge, September 2008
A protocol is an agreement (set of rules) between the communicating parties (peers) on how communication is to proceed.
ProtocolsProtocols
16 The Internet for Business Economists: Guy Judge, September 2008
Q Why is it important?
A It enables computers on different networks, designed by different vendors, to work together in delivering various applications; e.g. e-mail, file transfer, remote login (telnet), use of the web etc.
TCP/IP was the key to turning the Arpanet into the Internet
The TCP/IP suiteThe TCP/IP suite
17 The Internet for Business Economists: Guy Judge, September 2008
1964 Paul Baran (RAND Corporation) publishes paper on packet-switching networks
1974 Vint Cerf and Bob Kahn publish paper describing TCP
1978 Vint Cerf and others separate the TCP and IP functions
TCP/IP key datesTCP/IP key dates
18 The Internet for Business Economists: Guy Judge, September 2008
Early core applications File Transfer FTP (SSH is usually now preferred) Terminal access (remote login) Telnet Electronic mail (E-mail) SMTP Newsgroups Usenet The World Wide Web HTTPOther Internet applications include: chat systems, instant
messaging, Videoconferencing, Video and audio streaming, Voice over Internet, peer-to-peer file-sharing, IPTV etc.
Internet applications and their protocolsInternet applications and their protocols
19 The Internet for Business Economists: Guy Judge, September 2008
Every computer on the Internet has a unique IP address - under the currently dominant IPv4 system it consists of four numbers separated by dots
e.g. 198.137.240.100
identifies the main host computer at the White House
Because of the massive growth of the Internet the new IPv6 system has been introduced
The IP addressThe IP address
20 The Internet for Business Economists: Guy Judge, September 2008
The State University of New York at Stony Brook provides a service whereby you can find out the IP number of the Internet computer you are connected to.
Why not try it? (URL on my links page).
Find your IP numberFind your IP number
21 The Internet for Business Economists: Guy Judge, September 2008
DNS is the hierarchical domain-based naming scheme and distributed database system for mapping host names and e-mail destinations to IP addresses.
Domain names are easy (for humans) to remember names for the computers on the Internet i.e. those that have been assigned IP numbers
DNS - Domain Name System (1)DNS - Domain Name System (1)
22 The Internet for Business Economists: Guy Judge, September 2008
ICANN (Internet Corporation for Assigned Names and Numbers) coordinates the assignment of IP numbers and Internet domain names.
DNS - Domain Name System (2)DNS - Domain Name System (2)
23 The Internet for Business Economists: Guy Judge, September 2008
The top level domain covers two identifiers, separated by a dot
generic type or group (gTLD)- e.g. .com, .ed (or .co and .ac) - recent additions include .biz and .coop
country codes (ccTLD) - e.g. .uk, .nl, .jp
DNS - Domain Name System (3)DNS - Domain Name System (3)
24 The Internet for Business Economists: Guy Judge, September 2008
Sub-domains can then be created lower down the hierarchy by those responsible for that levele.g. userweb.port.ac.uk
ICANN has recently (June 2008) announced a relaxation of the system of domain names
DNS - Domain Name System (4)DNS - Domain Name System (4)
25 The Internet for Business Economists: Guy Judge, September 2008
Access to remote information (e.g. data sources, e-commerce, video on demand)
Person to person communication (e.g. e-mail, videoconferencing)
synchronous and asynchronous links
The Internet puts you in touch with resources and peopleThe Internet puts you in touch with resources and people
26 The Internet for Business Economists: Guy Judge, September 2008
via copper wires cable fibre optics microwaves (radio frequency) communication satellites
Network connectionsNetwork connections
27 The Internet for Business Economists: Guy Judge, September 2008
architecture is a set of layers and protocols purpose of layer is to carry out services for
the higher layer in a way that is transparent to the higher layer
layers communicate with their peers according to known protocols
between layers there is an interface
Network architectureNetwork architecture
28 The Internet for Business Economists: Guy Judge, September 2008
layers need to identify senders and receivers have rules for communication (protocols) know about different available routes have conventions about speed identify and correct errors
Design issues for layersDesign issues for layers
29 The Internet for Business Economists: Guy Judge, September 2008
Local Area Networks (LAN) Wide Area Networks (WAN) internets
Tanenbaum also distinguishes Home Networks, Wireless Networks and Metropolitan Area Networks (e.g. based on cable TV)
Size classification of networksSize classification of networks
30 The Internet for Business Economists: Guy Judge, September 2008
client-server modelclient-server model
briefly mention different software models:
• fat client software• thin client software• Software as a Service
(SaaS)
31 The Internet for Business Economists: Guy Judge, September 2008
E-mail client software Outlook Pegasus Eudora
also web based e-mail systems such as
Gmail, Hotmail, Yahoo!
clientsclients
32 The Internet for Business Economists: Guy Judge, September 2008
Simple Mail Transport Protocol
encodes every e-mail message as a sequence of ASCII characters
Used to send e-mail messages from one server to another. Messages can be retrieved with an e-mail client using POP or IMAP protocols
SMTPSMTP
33 The Internet for Business Economists: Guy Judge, September 2008
Multipurpose Internet Mail Extension
specifies how non-text may be transmitted by SMTP
M IM EM IM E
34 The Internet for Business Economists: Guy Judge, September 2008
1971 - Ray Tomlinson of Bolt Beranek and Newman Inc. (BBN) invents the first e-mail program to send messages across a distributed network
1972 - Tomlinson adapts the program to run on ARPANET where it is immediately taken up with enthusiasm
1975 - John Vittal develops MSG, the first widely available e-mail program
1978 – the first incidence of “spam”!
Key dates in the evolution of the Internet - Electronic Mail
Key dates in the evolution of the Internet - Electronic Mail
36 The Internet for Business Economists: Guy Judge, September 2008
The World Wide Web is a collection of
inter-linked documents and associated
files that are made available to people
with computers connected to the
Internet via a special protocol called
HTTP (HyperText Transfer protocol)
World Wide Web (WWW)World Wide Web (WWW)
37 The Internet for Business Economists: Guy Judge, September 2008
1965 Ted Nelson sets up project XANADU to establish world-wide distributed library of information (earlier inspiration from Bush [1945])
gopher system developed at University of Minnesota
mid 1980s - hypertext packages such as HyperCard (1987) and Guide developed
Key dates in the evolution of the Internet - precursors of the World Wide Web
Key dates in the evolution of the Internet - precursors of the World Wide Web
38 The Internet for Business Economists: Guy Judge, September 2008
1989 - creation of the World Wide Web and HTTP at CERN(Geneva) by Tim Berners-Lee and others
1993 - first publicly available web browser (MOSAIC) developed at NCSA
1990s - new browsers (Netscape, IE) - with helper applications and plug-ins for dealing with graphics, video etc.
1994 - W3C, the World Wide Web Consortium set up
2004 - Firefox launched by the Mozilla Foundation 2008 - Google launches its browser Chrome
Key dates in the evolution of the Internet - the World Wide Web
Key dates in the evolution of the Internet - the World Wide Web
39 The Internet for Business Economists: Guy Judge, September 2008
Sir Tim Berners-LeeSir Tim Berners-Lee
41 The Internet for Business Economists: Guy Judge, September 2008
telnet allows you to login to other remote computers on Internet to which you have access rights
e.g. I can log in to the MIMAS computer at Manchester from Portsmouth using MS Telnet
remote access or terminal emulation telnet
remote access or terminal emulation telnet
42 The Internet for Business Economists: Guy Judge, September 2008
transferring files from computer to computer on the Internet
FTP File Transfer Protocol
first established 1971
FTP and FTP client software (e.g.. WS_FTP32)
anonymous FTP more secure protocols such as SSH are now
preferred
file transferfile transfer
43 The Internet for Business Economists: Guy Judge, September 2008
No single body in overall charge, but the following all have important roles
ICANN (Internet Corporation for Assigned names and Numbers) – manages domain names and IP addresses
UN (United Nations) – World Summit on the Information Society (WSIS) and the Internet Governance Forum (IGF)
ISOC (The Internet Society) – also the Internet Engineering Task Force (IETF)
W3C (World Wide Web Consortium)
We should perhaps also mention the regulators Ofcom (UK) and FCC (US)
Internet organisations and agenciesInternet organisations and agencies
44 The Internet for Business Economists: Guy Judge, September 2008
Many people have argued that the Internet should not be governed by a private (US) company (ICANN) but by a multilateral organization with international legitimacy and democratic processes – under United Nations control like the ITU (International Telecommunications Union) – some have suggested that the ITU should take over some of the functions of ICANN.
Kofi Annan set up a group called the Working Group on Internet Governance (WGIG) which presented a report to the second World Summit on the Information Society, be held in Tunisia in November 2005. Now available in book form “Reforming Internet Governance” http://www.wgig.org/book-Launch.html
Internet organisations and the United NationsInternet organisations and the United Nations
45 The Internet for Business Economists: Guy Judge, September 2008
The Internet Software Consortium conducts a semi-annual survey of the number of Internet hosts (see next slide).
But Zook (2000) cautions us about using this measure uncritically
Internet metricsInternet metrics
47 The Internet for Business Economists: Guy Judge, September 2008
Source: International Telcommunications Union website, accessed 15th August 2007. http://www.itu.int/ITU-D/ict/statistics/at_glance/KeyTelecom99.html
The global number of Internet Users, 1991-2004
48 The Internet for Business Economists: Guy Judge, September 2008
Source: Bandwagon effects in High-Technology Industries, Jeffrey H Rohlfs, MIT Press 2001
49 The Internet for Business Economists: Guy Judge, September 2008
Other measures: capacity, web pages There are problems with all these metrics
(see my links page for more details). But despite these concerns there is no
doubt that there has been phenomenal growth in the Internet and its use - particularly since around 1994 - WHY?
Internet metricsInternet metrics
50 The Internet for Business Economists: Guy Judge, September 2008
Some important concepts (see Rohlfs)Some important concepts (see Rohlfs)
Network externalities Complementary bandwagon effects Interlinking Interoperability Common standards and protocols Critical mass
51 The Internet for Business Economists: Guy Judge, September 2008
Network externalities - the value of the Internet to any one user is an increasing function of the total number of users [Rohlfs]
Complementary bandwagon effects - part of the value of the Internet derives from the availability of complementary products, services and applications (e-mail, web browsers, news and information services etc..) As the network expands there are increased incentives for the suppliers of complementary products [Clements (2004) calls this an indirect network externality]
eCommerce – opening up of the Internet to eCommerce in 1994 - despite the hype and the bursting of the dot.com bubble the Internet continues to grow and expand into new areas
Ease of use – the World Wide Web, HTML and browsers
Reasons for the rapid growth of the Internet and its useReasons for the rapid growth of the Internet and its use
52 The Internet for Business Economists: Guy Judge, September 2008
Varian (2004) interprets the Internet boom of the late 1990s as an example of “combinatorial innovation” – “components in the new technology can be combined and recombined to create new products” (Weitzman (1998) had used the term “recombinant growth”). Similar ideas go back as far as Schumpeter (1934).
Standardisation (allowing interchangeable parts) is an important part of such processes - as had occurred before, for example with the production of automobiles. Complementary products had been important then too (e.g. roads, gasoline, oil) – indirect network effects.
But unlike physical products Internet innovation was based on recombining software code, which due to the open source approach that was usually adopted, were not constrained by shortages of inputs.
“combinatorial innovation” and “recombinant growth”“combinatorial innovation” and “recombinant growth”
53 The Internet for Business Economists: Guy Judge, September 2008
Metcalfe’s Law - the value of the Internet to any one user increases as the square of the total number of users.
DeLong’s Law - the most important and cheapest links are established first and it becomes increasingly costly to connect the last few users – also on the demand side those who believe they can benefit most and so have the greatest WTP connect first.
Metcalfe’s “law” or DeLong’s “law”Metcalfe’s “law” or DeLong’s “law”
54 The Internet for Business Economists: Guy Judge, September 2008
Lower transactions costs - automated systems can vastly reduce transactions costs
Global reach - more customers are within “reach” (especially for information products that can be delivered as well as ordered and paid for over the Internet
E-commerce and e-banking driversE-commerce and e-banking drivers
55 The Internet for Business Economists: Guy Judge, September 2008
Source: PIU Report on e-commerce
Reduction in transactions costsCost to bank - typical US funds transfer transaction ($)
Reduction in transactions costsCost to bank - typical US funds transfer transaction ($)
56 The Internet for Business Economists: Guy Judge, September 2008
Convergence, transition and diffusionConvergence, transition and diffusion
Convergence: Internet, telecoms, TV, etc. Transition: dial-up to broadband; voice (circuit
switched) to data (packet switched) traffic; fixed (wires) to mobile (wireless); analogue to digital, broadcast to on demand; passive downloading to interactive and user-generated content
Diffusion of Internet access across the globe and within countries – but still a digital divide? Negroponte’s $100 laptop and UN’s mobile phone initiatives
57 The Internet for Business Economists: Guy Judge, September 2008
Internet diffusion and the digital divide (1)Internet diffusion and the digital divide (1)
59 The Internet for Business Economists: Guy Judge, September 2008
Internet access is more unequally spread than income
Top 20% of people (by income share) have
86% of GDP
93% of Internet access
Bottom 20% of people (by income share) have
1% of GDP
0.2% of Internet access
United Nations Human Development Report, 1999
Internet diffusion and the digital divide (2)Internet diffusion and the digital divide (2)
60 The Internet for Business Economists: Guy Judge, September 2008
To what extent can the phenomenal growth of the Internet in the last decade be explained by economic factors? Use relevant economic concepts and models to support your arguments.
Hints: You would need to include the following concepts:
(i) network externalities (ii) complementary bandwagon effects (iii) critical mass (iv) interlinking (v) common standards and protocols .
Possible essay questionPossible essay question