enet2_09.ppt

1 The Economics of the Internet and the Digital Economy: Guy Judge, February 2009

Lecture 2The growth and development of the Internet: history, infrastructure, institutions and protocols.

The Economics of the Internet and the Digital EconomyENET (U10988)

The Economics of the Internet and the Digital EconomyENET (U10988)


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


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


Practical 21 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 people3 identification of the role of some key

organisations4 Internet metrics issues

Follow up work for the weekFollow up work for the 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

Some points from last weekSome points from last week


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


Internet backbone networks, ISP etc.Internet backbone networks, ISP etc.


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


The original ARPA networkThe original ARPA network


Internet traffic (2005) as depicted by TeleGeography Inc.Internet traffic (2005) as depicted by TeleGeography Inc.


A more detailed depiction of Internet traffic from TeleGeography Inc. (2006)A more detailed depiction of Internet traffic from TeleGeography Inc. (2006)


http://www.telegeography.com/maps/internet/images/europe_map_large.gif


JANET - the Joint Academic Network in the UKJANET - the Joint Academic Network in the UK


Source: The Guardian Friday 1st February 2008

http://image.guardian.co.uk/sys-files/Guardian/documents/2008/02/01/SEA_CABLES_010208.pdf


A protocol is an agreement (set of rules) between the communicating parties (peers) on how communication is to proceed.

ProtocolsProtocols


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


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


Early core applications File Transfer FTP (SSH is usually now preferred) Terminal access (remote login) Telnet Electronic mail (E-mail) SMTP, POP3 Newsgroups Usenet The World Wide Web HTTP

More recent Internet applications include: chat systems, instant messaging, videoconferencing, video and audio streaming, Voice over Internet, peer-to-peer file-sharing, IPTV etc. They all have their associated protocols.

Internet applications and their protocolsInternet applications and their protocols


Every computer on the Internet has a unique IP address - under the currently dominant

IPv4 system it consists of four numbers separated by dotse.g. 198.137.240.100identifies 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


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.

http://www.sinc.sunysb.edu/cgi-bin/MyIP

Why not try it?

Find your IP numberFind your IP number


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)


ICANN (Internet Corporation for Assigned Names and Numbers) coordinates the assignment of IP numbers and Internet domain names.

http://www.icann.org/



The top level domain covers two identifiers, separated by a dot

generic type or group (gTLD)- e.g. .com, .ed (or .co and .ac)

country codes (ccTLD) - e.g. .uk, .nl, .jp, .cn



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



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


via copper wires cable fibre optics microwaves (radio frequency) communication satellites

Network connectionsNetwork connections


architecture is a set of layers and protocols

the purpose of a 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


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


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


client-server modelclient-server model

different software models:

• fat client software• thin client software• Software as a Service

(SaaS) • cloud computing


E-mail client software - examples Outlook Pegasus Eudoraalso web based e-mail systems such as Gmail, Hotmail, Yahoo!

E-mail clientsE-mail clients


Simple Mail Transport Protocol (SMTP) (outgoing mail) 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

Multipurpose Internet Mail Extension (MIME)specifies how non-text may be transmitted by SMTP

E-mail protocolsE-mail protocols


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 MailKey dates in the evolution of the Internet: Electronic Mail


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)


1965 Theodore (Ted) Nelson sets up project XANADU to establish a world-wide distributed library of information - he was the first to use the term hypertext (earlier inspiration from Vannevar Bush [1945])

gopher system developed at University of Minnesota

mid 1980s - hypertext packages such as HyperCard (1987) and Guide were developed

Key dates in the evolution of the Internet - precursors of the World Wide WebKey dates in the evolution of the Internet - precursors of 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

Key dates in the evolution of the Internet - the World Wide WebKey dates in the evolution of the Internet - the World Wide Web


Sir Tim Berners-LeeSir Tim Berners-Lee


telnet allows you to login to other remote computers on Internet to which you have access rights

e.g. I used to log in to the MIMAS computer at Manchester from Portsmouth using telnet to access data and to run econometrics programs

remote access or terminal emulation telnet

remote access or terminal emulation telnet


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

today more secure protocols such as SSH are preferred

file transferfile transfer


There is 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


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


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


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


Source: Bandwagon effects in High-Technology Industries, Jeffrey H Rohlfs, MIT Press 2001


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


Some important concepts (see Rohlfs)Some important concepts (see Rohlfs)

Network externalities Complementary bandwagon effects Interlinking Interoperability Common standards and protocols Critical mass


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


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”


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”


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


Source: PIU Report on e-commerce

Reduction in transactions costsCost to bank - typical US funds transfer transaction ($)Reduction in transactions costsCost to bank - typical US funds transfer transaction ($)


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


Internet diffusion and the digital divide (1)Internet diffusion and the digital divide (1)


Internet access is more unequally spread than income

Top 20% of people (by income share) have86% of GDP93% of Internet access

Bottom 20% of people (by income share) have1% of GDP0.2% of Internet access

United Nations Human Development Report, 1999

Internet diffusion and the digital divide (2)Internet diffusion and the digital divide (2)


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

You would also mention eCommerce, and possibly file-sharing, Web 2.0 and other applications giving rise to complementary bandwagon effects

Possible essay questionPossible essay question

enet2_09.ppt

Technology

internet protocols

internet computer

internet metricsissues

internet i

internet backbone networks

recent internet applications

ip addresses

different networks