Modern America, 1914-Present
 

Changing Businesses

By Koji Sado 
Student, University at North Carolina at Pembroke 

Why are modern businesses shifting to the Internet?  According to Association of National Advertisers, 44% of American companies are currently conducting business on the Internet, and 36% more are preparing to do so within this year.  The major reason these businesses are shifting to the Internet is because an increasing number of consumers are going online, purchasing many items via the Net.  According to American City Business Journals, businesses that used the Internet grew 46% faster than the companies that did not. Therefore, businesses that exist in our society today could be replaced with the Internet in the near future.  The development of the Internet over the past decade provided users the convenience and simplicity of the Net with extensive possibilities for new ideas.  The U.S. Department of Commerce has announced that the information technology industry is growing twice as fast as the overall economy.  Due to the rapid growth of the Internet, traditional businesses such as traveling, insurance, advertising, music, and manufacturing are transforming quickly. 
 

Growing Internet 


Since the beginning of the Internet in 1969, the Net has grown immensely over the years.  eMarketer indicates that there are currently 58 million Internet users in the United States.  The number of Internet users has grown enormously because of the spread of affordable computers to many households and the advancement of technology.  The major factor of this development is the distribution of the user-friendly operating software, Microsoft’s Windows.  Microsoft’s CEO, Bill Gates, has introduced a software system that is visually helpful for users and succeeded in dominating the OS market over the past decade, allowing many households to own a computer in their homes.  And now that computer has earned a spot in common residences, many people are using the Internet as their source for information and entertainment. 
An increasing number of users are shopping online, as numerous products became available on the Net.  According to Forrester Research, 17 million households shopped online in 1999 with sales of over US$ 20.2 billion.  Because of this fact, many businesses are changing their ways to electronic commerce, or e-commerce.  E-commerce is the buying and selling of goods and services and the transfer of funds, including sales and purchases over the World-Wide Web and the Internet, and all other ways of doing business over digital networks.  According to Thomas F. Siems, Ph.D., senior economist and policy advisor for the Federal Reserve Bank of Dallas, the Internet has provided the US economy three advantages: the global network ability, quick information transfer, and accessibility to the World Wide Web (WWW) (qtd. in Fridman).  The global network allowed businesses to run sufficiently, the faster information transfer made business economical, and the WWW developed new business ideas and reduced transaction cost drastically (qtd. in Fridman).  These advantages have driven US businesses to use the Internet, contributing to the growth of our economy. 
However, despite the advantages of the Internet, cyber crime is an issue that withholds businesses from going online.  One issue concerning cyber crime is security breach.  The Internet is still in the process of development, and many hackers are capable of hacking into secure sites and computers quite easily.  For instance, Ira Sager and his colleagues stated that an online music retailer, CD Universe, had 3,000 credit card numbers stolen (“Cyber Crime”).  Another example given by Sager and colleagues was when a computer virus called Melissa made e-mail systems to crash worldwide, causing damage worth of $80 million (“Cyber Crime”).  Nevertheless many companies are strengthening their security by using software that can filter dangerous programs and training employees in case of an attack, and also programmers are constantly upgrading anti-virus software to keep up with the latest viruses. (Sager et al., “Cyber Crime”). 

   Work and Personal Internet Use in the US 
Year US Net  
Population		 Business 
Users		 Percent Personal 
Users		 Percent
1999 58 mil. 31.4 mil. 54% 26.6 mil. 46%
2004 88 mil. 49.3 mil. 56% 39.7 mil. 44%
source: eMarketer 
 

Changing Industries 


Travel 
One of the business industries that are shifting towards e-commerce is the traveling agency.  In the past, traveling agencies were the first place to look when you were planning a vacation.  However, over the years as more people started to use the Internet, entrepreneurs of the Net introduced a faster and cheaper way of reserving and acquiring tickets.  Customers can reserve plane tickets or travel packages in their home by visiting online travel agencies such as Travelocity.com and Priceline.com.  Compared to the limited options of the traditional travel agencies, the Internet offers various selections to the customers without the hassle of going through numerous searches.  According to Marty Jerome in his article “Is Your Company Next?”, the biggest advantage of selling tickets online is that the commission to the middleman is omitted, allowing the ticketing company to provide competitive prices (92).  The traditional ticketing agencies would mark up extra commission in order to maintain office space or other costs; on the other hand Internet travel agencies do not require spacious offices or representatives, thus cutting out the extra administration cost.  Web sites such as Biztravel.com, Travelocity.com, and Priceline.com have contributed to the $800 million online ticket sales last year, and according to Jupiter Communications the industry is expected to grow to $12.8 billion by 2002 (Jerome, “Company” 92). 

Insurance 
Another changing business, the Insurance industry, was known to follow traditional methods until they discovered that the Internet was quickly taking over many of their clients.  Many insurance policies are sold online cheaper, as the insurance company itself deals directly with the customers.  Insurance companies such as Geico and Progressive have utilized the Internet and have successfully profited in the industry (Jerome, “Company”, 94).  Due to the drop of policy sales with the traditional companies, an estimated 20% of all insurance agents have been laid off since 1995 (Jerome, “Company” 94).  The elimination of the middleman is a crucial factor in terms of cost, providing lower price of policies by cutting out the commission.  Although an increasing number of insurance companies go online for sales, many withheld the idea until one of the major insurance companies in the industry, Allstate Insurance Co., announced that they will start selling policies online (Waltner, “Transforms”).  Many companies are reconsidering their views of the Internet by the announcement, and are starting to take the Net seriously as a profit center for their business (Waltner, “Transforms”).  Forrester Research indicates that Internet insurance sales will grow consistently from $250 million in sales in 1999 to $4.1 billion in 2003. 

Advertising 
At present, one of the effective ways to promote an advertisement is to post it on the Internet.  The cost is lower, the maintenance is easier, and there are various ways to advertise.  With the low cost of sponsoring web sites and taking space, the advertising companies are benefiting tremendously.  The uniqueness of advertising on the Net has shown many possibilities as well.  One online advertising company, AllAdvantage.com, pays users by looking at the ads while they are online.  Each user can refer to friends or family about AllAdvantage, which in turn the user will receive additional commission depending on the number of referrals.  Only the Internet can use this type of advertising, and other advertisers such as GetPaid4.com and SendMoreInfo.com are coming up with similar ideas. 
Although web advertising takes up only a small portion of overall ads, major advertising companies are going online to explore new fields for advertising.  According to the Electronic Advertising & Marketing Report, ad measurement firm AdRelevance conducted a research that showed VISA, a major credit card company, posted more than 270 million ads on the Net for $6.5 million.  Other major brands like MSN, Amazon.com, and Netscape also took the majority of the ad placements (“Big Advertisers”).  This research indicates that popular brands are now the leading advertisers on the Net, thus implying the acceptance of Internet advertising. 

Music  
Unlike industries where the Internet improves the traditional methods, the music industry is on the verge of changing its whole concept of commerce due to the Internet.  Many people are using the Internet to download free music in a format called MP3, and the music industry is threatened by the concept of free music over the Net.  One of the popular MP3 downloading software, Napster, is contributing to the Internet by allowing Net users to download each other’s music.  According to Amy Kover’s article, “Who’s Afraid Of This Kid?”, Napster has gained so much popularity among college students that several universities were forced to filter the software to prevent clogging of their servers (129).  In addition, because Napster was posting free music on the Internet, the Recording Industry Association of America (RIAA) filed suit against Napster for copyright violation (Kover, 129).  The reason RIAA sued Napster is from the fear that Napster’s popularity may jeopardize CD sales, changing the concept of music business (Kover, 129).  Along with other traditional businesses, Amy Kover states that the music industry has always opposed new technology, and although the industry rejects the idea of new technology, several record companies are preparing to sell music through MP3 (130).  Some believe that the future of music depends on how to treat MP3 music.  Stewart Alsop, a partner of venture capital firm, New Enterprise Associates, comments that “Napster turns what was once a relatively expensive product into a completely free service.” (“Bye-Bye” 72). 
However, major record labels are arguing against the free music concept.  According to Ronald Grover and Steven Brull, record companies cannot completely give way to free MP3s because they will not be able to pay royalties to the artists (“Net Music?” 35).  Hence, record labels such as EMI, Universal, Sony, and Bertelsmann decided to sell music online (Grover and Brull, 35).  While Bertelsmann and Universal developed new methods to download music, Sony created a portable music player that can play MP3 music (Grover and Brull, 35).  Once the major companies move to online transactions, the music industry must reconsider its traditional way of performing business. 

Manufacturing 
The manufacturing industry is also undergoing a dramatic change because of the Internet.  In the past, manufacturers were regarded as the unseen workers who only produced, leaving sales and marketing to other firms.  However, movements of several manufacturers are reforming the conventional roles of manufacturers.  For instance, Ford, one of the largest conglomerates of the automobile industry, is using the Internet to restructure the concept of manufacturing.  Kathleen Kerwin and her colleagues mention in their article, “At Ford, E-commerce is Job 1”, that Ford is using the Net to “become a model of efficiency in the Internet Age.” (74).  The systematic use of the Internet will reduce cost tremendously and allow the manufacturer to work sufficiently.  Ford is using the Internet to deal directly with customers, linking ordering, financing, repairing, and supplying into one process (Kerwin et al. 76).  This type of business has already been successful with a company in a different field.  Kerwin and others give an example of Dell Computer Corp., which has established a reputation for manufacturing customized computers (75).  Dell deals with hundreds of suppliers, creating a systemized assembly line and efficient delivery (Kerwin et al. 75).  As a result, manufacturers are using the Internet to become retailers, customizing their products for the customers’ best interest. 
 

Future of Business 


According to eMarketer, the Internet population will increase to 88 million by the year 2002, with 56% of them representing business users.  Many aspects of the Internet have contributed to our society, and one of them is the development of e-commerce.  E-commerce has revolutionized the way of business, attracting various enterprises to go online.  The driving forces that make businesses go online are the low cost, wide accessibility, and quickness of the Net, allowing new ideas to replace conventional methods of business.  We are currently in a stage where businesses are adopting ways to the Internet, gradually changing from real transactions to virtual transactions.  Thus, the growth of the Internet is evidently changing on how we do business. 
Mark T. Hogan, group vice president of General Motor’s Corp. admits, “We’ve come to realize that if we don’t move with Internet speed, we could become extinct.” (Hof, “New Era”).  Agreeably, if traditional businesses do not recognize the benefits of the Internet and change their attitude soon, they may in fact become outcasts of modern business. 
 


 

Works Cited  

Alsop, Stewart.  "Bye-Bye, Music Business."  Fortune.  20 March 2000. 

"Big Advertisers Are Moving To The Web, New AdRelevance Study Says." Electronic Advertising & Marketing Report.  11 February 1999.  Vol. 13.  Issue 21. 

"Facts and Figures."  The Internet Economy Indicators.  20 March 2000.  <http://www.internetindicators.com/facts.html> 

Grover, Ronald, and Steven V. Brull.  "A Little Net Music?" Business Week.  7 February 2000. 

"Internet Fuels Record American Economic Growth."  News Bytes News Network.  28 March 2000. 

Jerome, Marty.  "Is Your Company Next?"  PC Computing.  February 2000. 

Kerwin, Kathleen, et al.  "A New Era of Bright Hopes And Terrible Fears."  Business Week.  4 October 1999. 

---.  "At Ford, E-Commerce Is Job 1." Business Week.  28 February 2000. 

Kover, Amy.  "Who's Afraid of This Kid?"  Fortune.  20 March 2000. 

"More Than Half Of Net Users Go Online For Business."  CyberAtlas.  27 October 1999.  <http://cyberatlas.internet.com/big_picture/demographics/article/0,1323,5931_226921,00.html> 

Sager, Ira, et al.  "Cyber Crime."  Business Week.  21 February 2000. 

Waltner, Charles.  "Internet Slowly Transforms Staid World Of Insurance." Information Week Online.  13 March 2000.  <http://www.informationarticle=infoweek/777/insure.htm&pub=iwk> 
 

 Terms: 
E-commerce 
Buying and selling of goods and services and the transfer of funds, including sales and purchases over the World Wide Web and the Internet, and all other ways of doing business over digital networks.  
Hacker 
An expert programmer who figures out the finer details of computer systems or networks, as opposed to those who learn only the minimum necessary. A malicious hacker breaks (or cracks) the security of computer systems in order to access, steal, or destroy sensitive information. 
World Wide Web 
A distributed hypertext system invented by Tim Berners-Lee on a NeXT Computer. Currently, one of the most popular services offered on the Internet.  
Computer Virus 
An insidious piece of computer code written to damage systems. Viruses can be hidden in executable program files posted online.  
Download 
To transfer data from a larger "host" system to a smaller "client" system's hard drive or other local storage device.  
MP3 
Stands for MPEG Layer 3, which is a way to store music files on a computer disk in such a way that the file size is many times smaller than a CD.  
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