LIFE ON THE INTERNET FAST TRACK

ELINOR HARRIS SOLOMON

Discovering the wonders and the perils of an e-world

Conjured up in the Digital Age are great wonders, most quite unforeseen and some almost unimaginable. Fueled by the Internet, the ongoing digital revolution will likely match in impact the invention of the Gutenberg printing press or the Industrial Revolution. But what does an increasingly wired and interconnected world, where information is stored and manipulated by computer, foreshadow for daily life and for society in the broader sense?

At the center of the digital revolution, of course, is the mighty Internet. When that vision first came to be, no one could possibly have dreamed what it would foretell. The central player was born in 1969, when Bolt Baranek & Newman (BBN), a small technology company in Cambridge, Massachusetts, won a contract to develop a fail-safe military communications network. Based on earlier work coming out of several universities, the network was designed to send out fragments of information in packets, to be reassembled quite literally from thin air at their points of destination. This prototype Internet (called the Arpanet) was deliberately conceived as anarchistic, without central direction, so that vital military secrets could be transmitted even if half the country was blown to bits by nuclear attack.

The World Wide Web supplied graphic interface for the Internet, the next step on the road to e-commerce. The Web was invented by Tim Berners-Lee, an idealistic scientist who sought no monetary reward. Its place of birth was CERN in Switzerland, where high-speed energy collisions fracture atoms into new and short-lived virtual particles. Scientists in the field could now more easily speak with each other. Still, it wasn’t always easy for the novice to get around.

An early Web navigation system, Mosaic, was developed at the University of Illinois in 1992 by 21-year-old Marc Andreessen, who later founded Netscape Corp. (now part of the merging Time Warner/AOL). Thenceforth, every web participant would have a specific address, or URL, and “construct” its own place of residence, or Web site. Early on, Netscape Navigator, a means of locating and tapping into these URLs, became almost the Web standard, although Microsoft would later challenge its predominance and provoke an antitrust battle of great proportions. Free software for the most part, Web “browsers” have transformed the way individuals and companies communicate, share information, advertise, and conduct sales online.

THE BIRTH OF E-COMMERCE

By the turn of the 21st century, e-commerce has gained a very firm foothold. About 50 percent of the US population now has Internet access at home. Internet traffic is doubling every 100 days. By 2003, online spending is projected to exceed $1 trillion. Some delivery and other grating snags occurred over the Christmas 1999 season, but consumers, wooed by the savings of both time and money, helped create an entirely new sector of the economy, almost overnight.

The message to the business community came through loud and clear. Traditional department stores, booksellers, drugstores, and other merchants have all rushed to create an online presence. And “dot-com” firms have sprung up to sell just about anything anyone could possibly want. Across the board, firm realignment and retooling are in full gear as companies seek to capture the scale economies of bigness and ubiquity. In the high-tech industries, sellers frantically “network” to gain advantage of scale economies, and they are glued together by merger, joint venture, or merely informal alliance. Partners try to work together in the New Economy because it makes economic sense and saves time and money to do so.

The rules of the game change as digital technology permeates society. Lines blur between the traditional “brick and mortar” firms and the dot-coms, whose sole abode is on the Web. The fledgling Internet firms rush to grab the lion’s share of the customer base before others do, which is referred to as the “first mover” advantage. The anticipated productivity payoff from computers has finally kicked in. Markets broaden and convergence is the order of the day—convergence of technologies, economic boundaries, companies, services, and user perceptions. Physical distance shrinks as markets leapfrog geographic, as well as economic, boundaries.

At Internet warp speed, some firms think they must grab the necessary partners before someone else does. But what does this urgency to combine do to the consumer? Are the scale advantages passed on, as the innovative brew continues to ferment? May freedom of choice become more limited? Some fear that profits may tend to migrate to the coffers of affiliates linked under vast corporate umbrellas, or that new entrants may be intimidated by the tacit rules of a powerful megagiant. Microsoft is accused of such use of monopoly power, either real or imagined. The newly revved-up Antitrust Division at the Justice Department lies in wait for other allegedly errant companies, as the present merger dust settles down. However, in dynamic markets such as these, perhaps the snail’s pace of judges and lawyers’ deliberations are somehow out of touch with reality and the natural burst of new products from out of nowhere.

FROM THE CLINK OF COINS TO THE CLICK OF A MOUSE

Money, too, can move at the speed of light, and the arrangements for online transactions have worked very well. The technologies and types of transactions possible are constantly changing, but not all the changes are a direct result of the Internet.

The big money flows
Banks and financiers got into what would become the digital economy well over a generation ago, but called their novel invention “automation” or electronic funds transfers (EFTs). Ingenious banks very quickly found a way to make the expensive Eniaks and massive IBM mainframes earn their keep. As early as the 1950s, banks hired electrical engineers and created their own EFT lines, hooking up with other banks and financial systems around the globe to enable speedy and inexpensive money transfers. Now, 95 percent (by value) of bank payments travel the weightless electronic route. Like Paul Revere’s beacon, the messages to transfer large-value (or wholesale) money payments move forward as on and off impulses of light (only the horse is lacking). The signals travel out as electromagnetic light waves like ripples in a pond: they reach their destination by satellite or by fiber-optic cable above or below ground, at speeds close to instantaneous.

The daily value of the electronic payments flow is an astonishing $3 trillion, perched atop a very slim “real” money base. This amount, each day, is equal to one-third the entire US GDP for the whole year. A little money can be leveraged to go a long way.

What does this mean for society? On happily rare occasions, one “wires” money to provide quick bail for an errant relative, or to keep panting creditors across the country from the door. But brokers, insurance companies, and fund managers rely on electronic transfers, and have for some time. The weightless electronic flows buy currencies, stocks, bonds, and derivatives with swift dispatch. They enable healthy leverage and a quick turnaround of conventional bank money. Their vast speeds and size fuel market gyrations, but also provide great quantities of useful information flows and flag good buying opportunities.

The credit card
There is a practical payoff. The credit card, a success story of unimagined proportions, has become an integral part of the consumer economy. The American Express card found its way in the 1960s to well-traveled spenders on the East and West Coasts. What are now the VISA and MasterCard systems followed in the 1970s. The non-banks joined the electronic herd in the 1980s, and the 1990s saw the advent of debit cards, whereby money downloads directly out from the buyer’s account to the seller’s bank, but remains within the banking system and insured, always.

Much slower to get off the ground have been the schemes that take the buyer’s money out from the bank right away and put it into computer memory, somewhere. This “smart card” technology has been around for a decade, but its use in this country has been limited. Early prototypes featured two stripes, one to keep track of the money and the other to keep track of the user’s identification. Newer forms may do this with a sophisticated chip. The Metro fare card is a simple example. The purchaser first transfers some money from cash or bank account to the issuer of the card, then purchases a ride by inserting the card in the vendor’s terminal. In addition to money, medical records, blood type, and financial information can be down-loaded onto a stripe or chip embedded in the plastic. Such cards have gained popularity at toll roads, universities, metro systems, and for government IDs. When streaking through the fast lane, unencumbered by coins (or the lack of them) the time saved can be considerable.

An ill individual may find it handy to have medically required information available on the card (or wireless hand-held appliance), at a doctor’s fingertips. Information about the cardholder can be a lifesaver, but also can reveal far more than the cardholder might imagine. Card issuers, insurance companies, law enforcement or government offices, and toll road franchises all know a lot about the cardholder. So do the third parties to whom some card issuers choose to sell this information. Is retention of individual privacy in the digital age an emerging issue? Yes, definitely.

Cybermoney
The digital wallet yields concerns of this sort, along with the obvious time-saving benefits. AmEx now markets its “Blue” card with computer chip and other, as-yet unspecified, digital capabilities, while MasterCard and VISA have quite advanced plans and partners, such as Microsoft, 3-Com, and Nokia, to furnish seamless Internet access away from constraints of the cumbersome desktop PC.

How might this next generation of cards work? Again, the first step is to transfer (or download) balances from the bank to that of the digital wallet issuer. The cybermoney issuer will transfer the money promptly to the regulated bank of the merchant from whom the user wishes to buy something. Or, the user can elect to let the digital money issuer hold the balance for a time, as American Express does when it issues travelers’ checks. This pool of unused “money” now may reside on the books of the digital money issuer, perhaps in Redmond, Washington, or halfway around the world. Later on, to buy something on the Internet, the user simply clicks the appropriate button, and the funds are transferred from the issuer to the seller. The consumer gains convenience and, possibly, price discounts as inducement to give up the credit card grace period. To be determined, though, is the more sticky matter of how any money-in-waiting is backed up or invested when it migrates out from the cardholder’s bank account to the digital wallet issuer. Consumers may wish to demand a little interest on unused or idle balances held by VISA, AmEx, or the new Pay Pal.

Cyberbanks
In the Digital Age, banks as well as money get facelifts. Can virtual lobbies, navigated by point and click, replace a brick-and-mortar lobby? At a Telebank or Wingspan “bank,” the customer can never get face-to-face with a banker. Instead, the customer turns on the computer, logs on to the Web, and provides the proper address. The homepage provides a tasteful, if somewhat spartan, lobby complete with information of what lies therein, e.g., inducements to buy flowers, or wine from virtual vineyards, or whatever the dot-com alliance of the day is selling. This novel bank typically offers higher rates of interest as a carrot and is usually insured on the banking part of the deal.

Despite reassurances, the fledgling independent cyberbanks have shown a tendency to sell out to the large banking institutions, which also wish an on-line presence. Users often find it difficult to navigate the cyberbank web sites, and also appear to prefer the big name brand and its track record. Perhaps, plain and simple, people covet a little human guidance. Maybe they long for the familiar physical bank structures, and the chatty teller. The evolving model may be “click and mortar,” or a combination of on-line and old-style banking all served up together. Yet to be resolved, however, are the most worrisome issues of theft, security, fraud, and privacy.

THE EMERGING ISSUES

A Jesse James or Bonnie and Clyde team could always rob a bank, but it was slower and more messy than now. Nowadays, theft, fraud, and security breaches are much faster and more efficient. All it takes is a well-directed keystroke or two. Alas, no one is immune. Even the security-encircled Citibank has had its problems and intrusions. A Russian hacker managed several years ago to steal $400,000 from its coffers. In an attempt to get the time zones just right, he worked from St. Petersburg at 2 am. The money moved so far and so fast that it was halfway around the world before anyone could apprehend the thief.

Money laundering is a more fertile illegal occupation when one has a vast electronic pipe with which to work. The latest estimates put the annual value of laundered money at over $300 billion. A startling $8 billion in illicit funds have flowed from Russia through the prestigious Bank of New York, according to recent confessions. The “willful blindness” statute puts the burden of asking questions of suspicious clients on the financial seller. A new breed of cyberlaw is needed, and the protections made clear to the individual whose reputation, identity, or funds are at risk.

Particularly unsettling was a 1998 SEC sting operation, which uncovered the presence of another Digital Age newcomer, identity theft. For a fee of $150, it was found, a firm so engaged would provide key information to the curious buyer of the secrets, with the intent, presumably, to establish the new identity and enter the victim’s bank account.

One solution is the New Economy’s mathematical locks and keys, encryption. An arcane science, carried over from top-secret military applications, encryption protects both funds and identities. Popular in banking is the “public key” method with its two keys, one to send (encrypt) and the other to receive (decrypt). The key to send comes in the equivalent of an electronic phone book, while the key to receive (or unlock) is kept very secure. A further adaptation, the software for digital signatures is being marketed in an analogy to pen and ink signing. That provides assurance that the customer or cardholder really did authorize the transaction.

More science fiction movie plot than reality, at least for now, are other digital authorization methods. Digital fingerprints are the favored ID device of some, while the more venturesome may seek unique identification in the iris of the eye, or personal DNA. Embedded identification chips have a small, if enthusiastic, following, despite the Big Brother overtones. Speech recognition, from the voice’s unique voiceprint, seems less invasive as a kind of “open Sesame” command for car doors or ATMs (see page 50).

Fact or fiction, most serious are the privacy issues. Voluminous questionnaires seeking intrusive information always existed, but data collection in pre-Internet days was problematic. It was difficult for data gatherers, who have always been a part of modern society, to get their hands on all the relevant facts sought in purchase or warranty questionnaires, or collected by state licensing bureaus. Reams of information might be collected, but the individual was mostly protected by the inept nature of humans and the slow speed at which information could be tabulated and compared. Now, data of all sorts is readily available to legitimate data analysts, as well as those who would use the information for criminal purposes.

A term now frequently seen is “link analysis,” or the linking up of diverse databases, such as police records, supermarket purchases, or social security files. Artificial intelligence is used to ferret out profiles of criminals, or predict what the customer will buy at the market. The IRS, too, has caught on to the Big Brother possibilities, by point and click cross-checking of actual IRS payments with Social Security income records. Caught in the net are lower-income tax delinquents, many of them part-time or hourly workers. Public sensibilities were shocked when it was learned that some states were selling information gleaned from drivers’ licenses. Another newly coined phrase is “competitive intelligence,” gathered up when both money and purchasing information are pooled in one corporate data resting place for later perusal or resale. Fueled by the Internet possibilities, one never knows what surprising revelation will next appear.

Society is now encircled by a great web of personal information readily accessed by Social Security number. Congress takes a hard look at the issues now, as it did when the national data base idea struck the public’s raw nerve in the 1960s. Police and medical records, and buying and registration forms, all contain vast quantities of information accessible at the click of a mouse. “Cookies” on a hard drive may collect a “footprint” of every site an individual visits on the Web. Toll roads take the driver’s smart card in lieu of coins, but also collect information. Cell phones provide a footprint about who the caller is and where he or she has been. The ubiquitous credit bureaus know more about each person than anyone can possibly imagine, much of it dead wrong.

A GLIMPSE INTO THE FUTURE

Technologies coalesce, become easier and faster to access and use, jump over barriers, and creep into daily life, regardless of whether the average person understands how they work. Speculation abounds about the effects of the “digital divide” between the affluent and the poor, the computer literate and the more computer timid. And schools stress computer literacy. As Internet access shifts from the PC to other user-friendly appliances, like Web TV or the $149 Palm m100, the less technologically adept are wooed. Brick and mortar malls suffer as buying on-line grows. Teleconferences and telecommuting cut down on travel time and cost, aided by continuous broadband access away from the workplace. Populations disperse, then coalesce into giant economic centers, like Washington/Baltimore/Philadelphia. Architecture adapts. At Internet speeds, society adapts also. Job opportunities broaden. It is an exciting time in which to live and work, but also somewhat fearsome.

The future tradeoffs, therefore, remain to be carefully balanced. For example, a mobile phone offered through a VISA/Nokia business collaboration lets a caller use his or her VISA credit card, transfer funds, pay bills, or search for stock market opportunities. On-line traders can ply their trade more fully, away from home or office. In order further to extend the cell phone’s reach, companies busily put up towers across the verdant Virginia landscape. But don’t forget, the caller’s personal information also follows that same route, far and wide.

Or, in another scenario, someone with a MasterCard Mondex smart card can send electronic cash to a loved one. This deal, too, entails powerful partners, plus a little concern. MasterCard notes with some pride that Microsoft’s Windows platform will offer the necessary smart card readers as standard equipment, so all the cardholder has to do is put the card in the reader, key in the necessary instructions, and the right bank account is debited while that of the recipient is credited. A colorful demo on the MasterCard web site shows nicely how the money transfer works, replete with dialogue between indulgent mother and grateful college-age daughter. But, given recent hacker intrusions on the biggest web sites, is money secure when it travels the Internet route? Are the latest credit card encryption standards, now being carefully tested, going to allay customer fears? And what may happen to all that information, financial and otherwise, which gets routed around the globe? Is Big Brother watching, or waiting?

In other examples, too, the good and the bad commingle. Scott McNealey of Sun Microsystems says chips will be hidden everywhere, though few people will be aware of them. A chip, hidden in appliances, orders spare parts as needed, manages the household, fills (or cleans) the refrigerator, according to the homeowner’s precise pre-programmed specifications. The “smart house” of the future (being developed at MIT) may recognize the homeowner at the front door, and serve up, with panache, a dry martini with olive, perhaps. An embedded medical chip indicates when medications need to be taken, or bought, or whether orange juice must be substituted for the martini.

Chips of the future also will collect vast amounts of information. Instructed by global satellite, chips will offer driving directions or warn of road construction or danger. With any luck, they may also locate any errant child or grandchild who asked for the keys to the car and failed to return on time.

The virtual grocery, already a reality in some cities, will deliver food orders and make the appropriate deductions from the customer’s money balance. The Internet will be accessed from one little wireless gadget that can be used while waiting in a doctor’s office or riding in a car. But does society really want all this? What may happen to social skills, reasoning abilities, and enjoyment in reacting to others, face to face? May we become hooked on too much of the fantasy about to turn real? People had these fears about TV, too.

Like many teachers, I prefer face-to-face contact with students. Web pages and downloaded files do get a lot of heavy academic lifting done online, though. Paper money and the clink of coins feel like spending real money, and clicking a digital shopping cart page often does not. Surfing the Web can yield vast quantities of information with unexpected exhilaration as the user moves from link to link, as on the ocean waves. Many of the links may prove useless, and nobody can possibly absorb all the information out there. Perhaps it doesn’t matter. Internet browsing is the salvation of those shut in by illness, snowstorms, heatwaves, or for whatever reason. E-mail establishes most welcome contact with family, friends, and fellow professionals.

Few computer users will ever understand all the technical pieces. No one is smart enough to do that. But the real societal effects of the Web’s escalating outreach will manifest themselves soon enough, and they may be outside the realm of present imagination. Who in the early computer days could possibly have dreamed up the Internet concept, and what it could portend? For that reason alone, nobody should be in any big hurry to embrace, without stringent scrutiny, all that the Digital Age has to offer. One problem, simply, is that technologies, and those who would abuse them, are proliferating faster than the safeguards can be put in place. There remains also the fear that someone, anyone, can tap into our lives, our existence, our secrets—and our finances.

Like a curve ball, one never knows what the end results may be. At this point, there is plenty of time, still, to think, to play the role of healthy skeptic, to learn, to test, and to balance.

Elinor Harris Solomon (CC ‘93) currently teaches economics at George Washington University, and was formerly at the Federal Reserve Board of Governors and the Antitrust Division of the Department of Justice. Solomon is author of Virtual Money (Oxford University Press, 1997), and editor of two earlier books for Kluwer Academic Publishers regarding electronic payments.

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