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  1. 1. EC3007 Internet for Business Economists (IfBE) Lecture 2 The growth and development of the Internet: history, infrastructure, institutions and protocols. The Internet for Business Economists: Guy Judge, September 2008 1
  2. 2. Today’s objectives  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 The Internet for Business Economists: Guy Judge, September 2008 2
  3. 3. Reading 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 The Internet for Business Economists: Guy Judge, September 2008 3
  4. 4. Follow up work for the week 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 The Internet for Business Economists: Guy Judge, September 2008 4
  5. 5. Some points from last week  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 The Internet for Business Economists: Guy Judge, September 2008 5
  6. 6. The Internet 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 Internet for Business Economists: Guy Judge, September 2008 6
  7. 7. Internet backbone networks, ISP etc. The Internet for Business Economists: Guy Judge, September 2008 7
  8. 8. From ARPANET to Internet 1969 ARPANET - a single network with 4 nodes (funded from US Defense budget) 1973 work began on linking networks “Internetting”; first n 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 The Internet for Business Economists: Guy Judge, September 2008 8
  9. 9. The original ARPA network The Internet for Business Economists: Guy Judge, September 2008 9
  10. 10. Internet traffic (2005) as depicted by TeleGeography Inc. The Internet for Business Economists: Guy Judge, September 2008 10
  11. 11. A more detailed depiction of Internet traffic from TeleGeography Inc. (2006) The Internet for Business Economists: Guy Judge, September 2008 11
  12. 12. http://www.telegeography.com/maps/internet/images/europe_map_large.gif The Internet for Business Economists: Guy Judge, September 2008 12
  13. 13. JANET - the Joint Academic Network in the UK The Internet for Business Economists: Guy Judge, September 2008 13
  14. 14. Source: The Guardian Friday 1st February 2008 http://image.guardian.co.uk/sys-files/Guardian/documents/2008/02/01/SEA_CABLES_010208.pdf The Internet for Business Economists: Guy Judge, September 2008 14
  15. 15. Protocols A protocol is an agreement (set of rules) between the communicating parties (peers) on how communication is to proceed. The Internet for Business Economists: Guy Judge, September 2008 15
  16. 16. The TCP/IP suite 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 Internet for Business Economists: Guy Judge, September 2008 16
  17. 17. TCP/IP key dates  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 The Internet for Business Economists: Guy Judge, September 2008 17
  18. 18. Internet applications and their protocols 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 HTTP Other Internet applications include: chat systems, instant messaging, Videoconferencing, Video and audio streaming, Voice over Internet, peer-to-peer file-sharing, IPTV etc. The Internet for Business Economists: Guy Judge, September 2008 18
  19. 19. The IP address  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 Internet for Business Economists: Guy Judge, September 2008 19
  20. 20. Find your IP number 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). The Internet for Business Economists: Guy Judge, September 2008 20
  21. 21. DNS - Domain Name System (1) 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 The Internet for Business Economists: Guy Judge, September 2008 21
  22. 22. DNS - Domain Name System (2) ICANN (Internet Corporation for Assigned Names and Numbers) coordinates the assignment of IP numbers and Internet domain names. The Internet for Business Economists: Guy Judge, September 2008 22
  23. 23. DNS - Domain Name System (3) 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 The Internet for Business Economists: Guy Judge, September 2008 23
  24. 24. DNS - Domain Name System (4) Sub-domains can then be created lower down the hierarchy by those responsible for that level e.g. userweb.port.ac.uk ICANN has recently (June 2008) announced a relaxation of the system of domain names The Internet for Business Economists: Guy Judge, September 2008 24
  25. 25. The Internet puts you in touch with resources and people  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 for Business Economists: Guy Judge, September 2008 25
  26. 26. Network connections via  copper wires  cable  fibre optics  microwaves (radio frequency)  communication satellites The Internet for Business Economists: Guy Judge, September 2008 26
  27. 27. Network architecture  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 The Internet for Business Economists: Guy Judge, September 2008 27
  28. 28. Design issues for layers 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 The Internet for Business Economists: Guy Judge, September 2008 28
  29. 29. Size classification of networks  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) The Internet for Business Economists: Guy Judge, September 2008 29
  30. 30. client-server model briefly mention different software models: • fat client software • thin client software • Software as a Service (SaaS) The Internet for Business Economists: Guy Judge, September 2008 30
  31. 31. clients E-mail client software  Outlook  Pegasus  Eudora also web based e-mail systems such as Gmail, Hotmail, Yahoo! The Internet for Business Economists: Guy Judge, September 2008 31
  32. 32. SMTP 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 The Internet for Business Economists: Guy Judge, September 2008 32
  33. 33. M IM E Multipurpose Internet Mail Extension specifies how non-text may be transmitted by SMTP The Internet for Business Economists: Guy Judge, September 2008 33
  34. 34. Key dates in the evolution of the Internet - Electronic Mail  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”! The Internet for Business Economists: Guy Judge, September 2008 34
  35. 35. Ray Tomlinson The Internet for Business Economists: Guy Judge, September 2008 35
  36. 36. World Wide Web (WWW) 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) The Internet for Business Economists: Guy Judge, September 2008 36
  37. 37. Key dates in the evolution of the Internet - precursors of the World Wide Web  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 The Internet for Business Economists: Guy Judge, September 2008 37
  38. 38. Key dates in the evolution of the Internet - the World Wide Web  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 The Internet for Business Economists: Guy Judge, September 2008 38
  39. 39. Sir Tim Berners-Lee The Internet for Business Economists: Guy Judge, September 2008 39
  40. 40. The Internet for Business Economists: Guy Judge, September 2008 40
  41. 41. remote access or terminal emulation telnet  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 The Internet for Business Economists: Guy Judge, September 2008 41
  42. 42. file transfer 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 The Internet for Business Economists: Guy Judge, September 2008 42
  43. 43. Internet organisations and agencies 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) The Internet for Business Economists: Guy Judge, September 2008 43
  44. 44. Internet organisations and the United Nations  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 The Internet for Business Economists: Guy Judge, September 2008 44
  45. 45. Internet metrics 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 The Internet for Business Economists: Guy Judge, September 2008 45
  46. 46. The Internet for Business Economists: Guy Judge, September 2008 46
  47. 47. The global number of Internet Users, 1991-2004 Source: International Telcommunications Union website, accessed 15th August 2007. http://www.itu.int/ITU-D/ict/statistics/at_glance/KeyTelecom99.html The Internet for Business Economists: Guy Judge, September 2008 47
  48. 48. Source: Bandwagon effects in High-Technology Industries, Jeffrey H Rohlfs, MIT Press 2001 The Internet for Business Economists: Guy Judge, September 2008 48
  49. 49. Internet metrics  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? The Internet for Business Economists: Guy Judge, September 2008 49
  50. 50. Some important concepts (see Rohlfs)  Network externalities  Complementary bandwagon effects  Interlinking  Interoperability  Common standards and protocols  Critical mass The Internet for Business Economists: Guy Judge, September 2008 50
  51. 51. Reasons for the rapid growth of the Internet and its use  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 The Internet for Business Economists: Guy Judge, September 2008 51
  52. 52. “combinatorial innovation” and “recombinant growth”  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. The Internet for Business Economists: Guy Judge, September 2008 52
  53. 53. Metcalfe’s “law” or DeLong’s “law”  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. The Internet for Business Economists: Guy Judge, September 2008 53
  54. 54. E-commerce and e-banking drivers  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 The Internet for Business Economists: Guy Judge, September 2008 54
  55. 55. Reduction in transactions costs Cost to bank - typical US funds transfer transaction ($) Source: PIU Report on e-commerce The Internet for Business Economists: Guy Judge, September 2008 55
  56. 56. Convergence, 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 The Internet for Business Economists: Guy Judge, September 2008 56
  57. 57. Internet diffusion and the digital divide (1) The Internet for Business Economists: Guy Judge, September 2008 57
  58. 58. The Internet for Business Economists: Guy Judge, September 2008 58
  59. 59. Internet diffusion and the digital divide (2) 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 The Internet for Business Economists: Guy Judge, September 2008 59
  60. 60. Possible essay question  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 . The Internet for Business Economists: Guy Judge, September 2008 60

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