One of the unique things about the Internet is that no one owns it—but that hasn’t stopped some corporations from trying to control it. Companies have realized the potential of dominating the Internet through access to phone and broadband wires, browser software, search engines, and—perhaps most important—advertising. However, throughout the Internet’s relatively short history, several companies have risen and fallen trying to control a medium characterized by few regulations and a strong entrepreneurial ethic.

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Internet Businesses

The business of the Internet, as we’ve seen in other chapters, often involves adapting existing businesses or forms of mass media to an increasingly online world. But there are some elements that are unique to the Internet, and success in one of these areas can give a company a huge advantage—and a certain measure of control—over how others use the Internet. Three such examples are Web browsers, directories and search engines, and, to a lesser extent, e-mail.

Web Browsers

In the early 1990s, as the Web became the most popular part of the Internet, digital companies like Microsoft thought that Web browsers—the most common interface of the Internet—would be the key to their commercial success.

Beginning in 1995, Microsoft—at that time with a near monopoly over computer operating systems with its Windows software—achieved a near monopoly over the Internet by strategically bundling its Windows 95 operating system with its new Internet Explorer browser software. The release of Windows 95, which made Internet Explorer the preferred browser for computers using Windows, devastated Netscape, the most popular browser at the time. Alarmed by the company’s growing power, the U.S. Department of Justice brought an antitrust lawsuit against Microsoft in 1997, arguing that it had used its operating system dominance to sabotage competing browsers. In 2001, the Department of Justice dropped its efforts to break Microsoft into two independent companies. In Europe, however, the European Union ruled that Microsoft had committed antitrust violations and fined Microsoft a total of about $2.5 billion.¹¹ Web browsers never became huge revenue-generating portals, and today companies like Microsoft, Apple, and Google release free browsers as a way to familiarize users with their other software. (Firefox, a nonprofit open-source browser, is an exception.) Although Internet Explorer dominated Web browsers for years, Microsoft recently replaced it with the Edge browser, which faces increasing competition from Firefox, Google Chrome, and Safari.

Directories and Search Engines

As Web sites rapidly proliferated on the Internet throughout the early 1990s, entrepreneurs seized the opportunity to help users navigate this vast amount of information. Two types of companies emerged—directories and search engines.

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Directories rely on people to review and catalogue Web sites, creating categories with hierarchical topic listings that can be browsed. Yahoo! was one of the first companies to successfully provide such a service. Established in 1994, Yahoo!’s directory quickly dominated the Web-directory market by acting as an all-purpose entry point, or portal, to the Internet.

Search engines offer a different route for finding content on the Web: a complicated algorithm and an enormous database of Web pages compiled and regularly updated by the search engine company. Users type in key words, and the algorithm is then applied to the company’s massive database, gleaning a list of Web pages ranked in order of relevance. Beyond its directory, Yahoo! began syndicating with the search engine service Inktomi to bring algorithmic search to its very popular portal.

In 1998, Google introduced the first algorithm to mathematically rank a page’s popularity based on how many other pages link to it—and immediately became the megastar search engine. Even Yahoo! switched to Google, along with many other portals, as its main search provider. However, search engine syndication provided only so much revenue. The application that made search engines (and Google especially) such important Web properties in the early 2000s was the ability to connect advertisers to the same key words users were typing into the search box. Ad sites soon appeared alongside (and in some cases, within) an algorithmic search list—an advertising strategy that was far more effective than banner ads. Google transformed almost overnight from a syndicated search engine service to an advertising firm. Yahoo! and Microsoft have heavily invested in competing search engine initiatives to reap some of the advertising profits but have not been able to match Google’s superior search engine. Google now claims about 70 percent of the search engine market in the United States, with Yahoo! and Microsoft’s Bing search engines trailing far behind. This has helped Google not only make a great deal of money on advertising (discussed later in the chapter) but also branch out into other areas. The company now offers other Internet services, including shopping (Froogle), mapping (Google Maps), e-mail (Gmail), blogging (Blogger), and browsing (Chrome), and has begun to experiment with behavioral advertising and the placement of TV ads. Google has even begun challenging Microsoft’s Office programs with Google Apps software. In its most significant investments to date, Google acquired YouTube for $1.64 billion and purchased DoubleClick, one of the Internet’s leading advertising placement companies.

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E-mail

Because sending and receiving e-mail is still one of the most popular uses of the Internet, major Web corporations such as Yahoo!, AOL, Google, and Microsoft continue to offer free e-mail accounts to draw users to their sites; even Facebook introduced e-mail accounts in 2010. Each of these companies, some with millions of users, generates revenue through advertisements in subscribers’ e-mail messages, with Google’s Gmail ads tailored to key words contained in a message.

Money In and Money Out

The Internet’s quick commercialization in the 1990s led to battles between corporations vying to attract the most users. In the beginning, commercial entities like AOL (America Online) and Microsoft sought to capture business as Internet service providers and Web browser software companies, respectively. What no one anticipated was the emergence of search engines, such as Google, as a key advertising force, and the influence of the sharp rise in the use of mobile devices. We discuss throughout this book how other forms of mass media have changed their business models because of the Internet, and certainly that gives us part of the economic impact and performance of the Internet. The Internet is a big place, with many layers and different approaches to making money. The economic model of the Internet can be broken into four main areas: infrastructure (ISPs), paid Web services (such as Netflix), direct sales (such as Amazon), and advertising.

Infrastructure

Since the early 1990s, Internet service providers (ISPs) have competed to provide consumers with access to the Internet. The earliest ISPs offered dial-up access through a traditional telephone line. Today, the preferred access method is through broadband connections, which are much faster than dial-up. These systems incorporate the hardware of the Internet—fiber-optic cables, computer servers, routers, cellular towers, and mobile data systems—and individual connections with homes and businesses. The primary income for ISPs comes from the people who sign up for the service, usually a subscription with a monthly fee. In some instances, that fee is based on the volume of data a user downloads or uploads, but more often it is a flat fee per month, commonly bundled with cable television and telephone services. In fact, if this sounds similar to the business model of cable television companies, that’s because the largest ISPs are also the largest telephone and cable companies. These companies—including Verizon, Comcast, AT&T, Time Warner Cable, and Cox—control 98 percent of broadband DSL and cable modem services in the United States. Other providers include cities, which provide telecommunication services in the same way they provide other municipal utilities (see also “Media Literacy Case Study: Net Neutrality” on pages 306–307).

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Paid Web Services

Another way companies make money on the Internet is by offering services for which a customer can pay by amount of use or by monthly subscription. These services might be tied to other media businesses, such as Hulu (a joint venture between several broadcasters), or might be accessible only on the Internet, such as the video-streaming service provided by Netflix (which, according to some sources, accounts for up to a third of Internet traffic¹²). But these services are not limited to video streaming; in fact, this has become an area of entrepreneurial explosion on the Internet. A few examples of this array of services include paid sites (or premium options on otherwise free sites) for dating (Match.com, e-Harmony), data storage (Dropbox), computer security (Norton, McAfee), music (Pandora, Spotify), and even karaoke (KaraFun). Another example would be a news organization like the New York Times or publications like Consumer Reports, which have taken their traditional paper or magazine subscription models online.

Direct Sales

Some businesses rely in whole or in part on the Internet to sell products to consumers. This is distinct from the category of Web services because direct sales, or e-commerce, involves sales of physical objects (or, in the case of such things as music downloads, computer files). For consumers, buying items online or through mobile devices has the advantage of convenience. For sellers, the Internet can offer access to customers from different cities or even different countries. This can be a double-edged sword for some retailers. A small mom-and-pop business might now be able to sell to customers that would never have found it otherwise, but that same business might also lose local customers to a massive online retailer like Amazon. No matter the business doing the selling, online retail has indeed become big business. Online sales in the United States were around $300 billion in 2014 and are projected to be well over $400 billion by 2018. What’s more, a fast-growing percentage of that e-commerce is happening through mobile devices, though the projections don’t even include mobile transactions on apps like Uber or using mobile accounts to pay for consumer goods like coffee and pizza.¹³

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Advertising

In the early years of the Web, advertising consisted of traditional display ads placed on pages. These reached small, general audiences and thus weren’t very profitable. In the late 1990s, Web advertising began shifting to search engines. Paid links now appear as “sponsored links” at the top, bottom, and side of a search engine result list. Every time a user clicks on a sponsored link, the advertiser pays the search engine for the click-through. However, even though search engines insist on the relevance of their search results, the increasingly commercial nature of the Web and the ability of commercial sites to buy advertisements on popular sites (thus making more links) mean that search engine results are biased toward commercial sites. A site like Google is today making billions of dollars in revenue from these pay-per-click advertisements.

More than just attaching ads to searches for certain key words, Google has become a model of how to generate dollars through targeted advertising, or ads targeted to a consumer based on information the various Web sites have gathered about that individual. For example, Google’s e-mail program, Gmail, has an automatic search function that “reads” e-mails and then, based on key words it finds, selects ads to show users. This is one example of data mining, a system of collecting information about consumers, of which consumers are largely unaware.

Another common method that commercial interests use to track the browsing habits of computer users is cookies, or information profiles that are automatically collected and transferred between computer servers whenever users access Web sites.¹⁴ The legitimate purpose of a cookie is to verify that a user has been cleared for access to a particular Web site, such as a library database that is open only to university faculty and students. However, cookies can also be used to create marketing profiles of Web users to target them for advertising. Many Web sites require the user to accept cookies in order to gain access to the site.

Facebook is another site that has had success with targeted advertising, though it has gotten itself into some trouble as a result of aggressive data-mining efforts. With over a billion Facebook users across the globe, the massive social media service keeps track of what we “Like,” where we live, what we read, and what we want. Because typical Facebook users reveal so much about themselves in their profiles and messages, Facebook can offer advertisers exceptionally tailored ads. But in 2011, the Federal Trade Commission (FTC) accused Facebook of taking information it had told users would be private and sharing it with advertisers and third-party applications. Facebook CEO Mark Zuckerberg ended up settling with the FTC, admitting to “a bunch of mistakes,” and agreeing to submit to privacy audits.¹⁵

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The rise in smartphone use has contributed to extraordinary growth in mobile advertising, which jumped from $3.4 billion in 2012 to $7.1 billion in 2013, accounting for 17 percent of the $42.8 billion in total Internet advertising that year.¹⁶

Overhead: Building the Infrastructure

We’ve just explored ways in which companies make money by attracting users—and thus advertisers—to the Internet. But what about money they have to spend to build their Internet businesses? “Money out” takes the form of investments in infrastructure needed for the Internet to operate. This infrastructure includes software, facilities, and equipment, such as fiber-optic networks and bandwidth. Whereas giants like Amazon and Google certainly have a great deal of overhead—often related to keeping warehouses (for shipping of products or housing of dedicated servers)—the investments required by ISPs, and how they are allowed to capitalize on those expenditures, has become a part of public debate over the future of Internet regulation and control (see also “Media Literacy Case Study: Net Neutrality” on pages 306–307).

The Noncommercial Web

Despite powerful commercial forces dictating much of the content we access online, the pioneering spirit of the Internet’s independent early days endures; the Internet continues to be a participatory medium where anyone can be involved. Two of the most prominent areas in which alternative voices continue to flourish are in open-source software and digital archiving.

Open-Source Software

Microsoft has long dominated the software industry—requiring users to pay for both its applications and its upgrades, and keeping its proprietary code protected from changes by outsiders. Yet independent software creators persist in making alternatives through open-source software, in which code can be updated by anyone interested in modifying it. One example is the open-source operating system Linux, introduced in 1991 by Linus Torvalds and shared with computer programmers and hobbyists around the world who have avidly participated to improve it. Today, even Microsoft acknowledges that Linux is a credible alternative to expensive commercial programs.

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Digital Archiving

Librarians have worked tirelessly to build digital archives that exist outside of any commercial system. One of the biggest and most impressive digital-preservation initiatives is the Internet Archive (www.archive.org), established in 1996. The Internet Archive aims to ensure that researchers, historians, scholars, and all U.S. citizens have access to digitized content. This content comprises all the text, moving images, audio, software, and more than eighty-five billion archived Web pages reaching back to the earliest days of the Internet.

The Internet Archive has also partnered with the Open Content Alliance to digitize every book in the public domain (generally, those published before 1922). This book-scanning effort is the nonprofit alternative to Google’s Library Project, which has the colossal goal of digitizing every book ever printed. Working with the Boston Public Library, several university and international libraries, and a few corporate sponsors, the Open Content Alliance aims to keep as much online information as possible in the “commons”—a term that refers to the collective ownership of certain public resources, such as the broadcast airwaves, the Internet, and public parks. The alliance’s concern is that online content like digital books might otherwise become solely the property of commercial entities.