Magazine: Business Week Issue: 11/14/9 Title: Cover: THE INTERNET Author: By John W. Verity in New York, with Robert D. Hof in San Francisco and bureau report If you have questions or comments about this or any other Business Week story, address e-mail to: bwonline@mgh.com If you want to send a letter to the editor for the Readers Report column, address e-mail to bwreader@mgh.com THE INTERNET: How it will change the way you do business You've heard of the Internet, right? Last year, this very public and amor- phous collection of computer networks exploded as the techno-fad of the decade--a peculiar blending of the personal computer and citizen's band radio, it seemed. The Internet was where millions of friends and strangers could chat and ``flame'' each other about every topic under the sun, from sex to Spam and Superman. It let people browse through thousands of on-line libraries, play new types of games, and trade software. But did you know that an all-new, very serious, and very grown-up Internet is emerging? That the Internet is getting much easier to use, even for non technical people? That it's shedding its old, frumpy look for glitz graphics, sound, and even video? And that now, new software and imaginative services are making the Internet one of the most exciting places ever fo doing business? EASY JUMPS. Just turn on, dial in, and see for yourself. Boot up a program called Mosaic in your desktop computer, and with the mere click of a fe graphical buttons you can see the future of the Internet--on a virtual stroll through what's easily its hippest, most exciting ``neighborhood.'' It's a collection of 7,000-plus independently owned computers that work to- gether as one in an Internet service called the World Wide Web. These com puters, called Web servers, are scattered all over the world and contain every imaginable type of data. But thanks to the high-speed Internet cir- cuits connecting them and some clever cross-indexing software, Mosaic lets you jump from one Web computer to another effortlessly--creating the con vincing illusion of using one big computer. Try it. Click on Mosaic's ``What's New on the Web'' menu item. That whisks you over the Net to a Web server at the University of Illinois' National Center for Supercomputer Applications. In seconds, Mosaic has retrieved a biweekly list of the servers most recently added to the Web by dozens o corporations, merchants, colleges, government agencies, and even grammar schools. A listing for something called WWW Paris catches your eye. Because that title appears in bold type, you know that clicking on it will activate an invisible ``hyperlink'' across the Web and summon forth additional pages of information--in this case, direct from a computer in Paris. Voila! In sec- onds, Mosaic displays a new screen listing all sorts of goodies available over the Net from the WWW Paris server: street and Metro maps, photos o city sights, museum listings. The new page even lets you jump--again, with a mouse click or two--to other Web computers run by schools, government agencies, and other institutions in and around Paris. Perhaps the City of Light has put you in the mood for shopping. Head for one of the Web's growing number of electronic malls and specialty stores-- 700-plus, at last count: Internet Shopping Network, recently bought by TV's Home Shopping Network Inc., is taking orders for computer gear. Hello Direct is selling telephone accessories (page 86). Click over to Mammot Records and you can grab concert schedules and download digitized singles and video clips from groups called Chainsaw Kitten and Machines of Loving Grace--all gratis. That's just a taste of how easy it is to surf the Internet these days. Th arcane codes and network addresses once required to search the Net's scat- tered resources are now buried under colorful, user-friendly screens an lively graphics. With the Web and ``Web browser'' programs like Mosaic, th Internet is finally turning into a network for the masses, not just a club- house and playground for engineers and hobbyists. VIRTUAL PARTIES. And it's that fresh, friendly face that's making the Net a splendid medium for electronic commerce. From corporate giants--IBM, AT&T Ford, Merrill Lynch, J.P. Morgan, Bank of America, Dun & Bradstreet, J.C Penney, Mitsubishi--to hundreds of startups, businesses the world over are jumping onto the Net or getting ready to. All told, some 21,700 commercial ``domains,'' the Internet equivalent of storefront addresses, are official- ly registered, up from about 9,000 in 1991. Some of these companies are simply experimenting--throwing a few pages of company or product information onto the Web for public viewing. Tupperware runs virtual Tupperware parties. The Rolling Stones' Voodoo Lounge on the Web plugs the group's records. IBM has what amounts to an electronic ver- sion of its THINK magazine (page 83)--with articles about the company an its products and research activities. ``ONE MARKET.'' Some companies, however, are doing something far more am- bitious. They're laying the groundwork for entirely new ways of doing business--dealing directly with suppliers, industrial customers, and poten- tially millions of on-line shoppers. In Silicon Valley, a group of elec- tronics manufacturers that includes Intel, Hewlett-Packard, IBM, and Apple Computer is building CommerceNet, an Internet marketplace for electronics goods and services. If it develops as planned, it could just about eliminate all paperwork between participating companies--everything from simple purchase orders and invoices to resumes and product specifications. ``With the Internet, the whole globe is one marketplace,'' says Bill Wash- burn, former executive director of Commercial Internet Exchange, a joint venture that runs one of the Internet's major trunk circuits. The Net' information-rich Web pages can help companies reach new customers, Washbur says. But it also will create ``all kinds of opportunities to save money.'' By linking buyers and sellers and eliminating paperwork, ``the cost per transaction will go through the floor,'' he predicts. That's why corporations are so eager to exploit the Net. They can use it as a tool for marketing, sales, and customer support. And as a low-cost alternative to fax, express mail, and other communications channels. And as a way of establishing a new ongoing relationship with customers. Volvo and Alfa Romeo are using the Web to zap photos and information about new cars to virtual tire-kickers. J.P. Morgan & Co. offers clients access to its risk-management database. Hyatt Hotels Corp. promotes hotels and resorts, providing discounts for those who say they saw it on the Net. GE Plastics is leading General Electric Co.'s foray with 1,500 pages of technical data on the Web to help customers use its resins. Xerox Corp. allows customers to try out software across the Internet, and computer buyers can log into a Digital Equipment Corp. Alpha computer to find out how quickly it can run their programs. Even law firms are getting into the act. Boston-based Hale & Dorr is usin the Net to speed up and cut the costs of some routine work. If a clien company needs a contract for a foreign distributor, say, it can fill out a electronic questionnaire and send it over the Internet to a Hale & Dorr computer. Expert-system software then constructs a draft document from boilerplate text. A lawyer reviews the document, makes necessary changes, and ships it back over the Net to the client--complete with a list of recommended lawyers in the other country. ``We see the Internet as one aspect of new technology that's critical to delivering legal services t clients,'' says Mara G. Aspinall, director of client services. FALLING BACK. No, it can't deliver 500 channels of interactive TV. But fo now, and most likely for a few years to come, the Internet is about a close as you'll get to the Information Superhighway. And with continuing improvements to the nation's telecommunications circuits, on which the In- ternet rides, the Internet itself ``will blend into the future era of in- teractive television,'' predicts former Silicon Graphics President James H. Clark, now chairman of Mosaic Communications, an Internet startup intent on bringing millions of people onto the Web with an inexpensive version of Mosaic Indeed, with high-profile broadband network experiments such as Time Warne Inc.'s Orlando project falling behind schedule, the Internet is the place to be today if you want to learn how to do business in the 500-channel fu ture. ``The Internet is where we're going to learn what it takes to gain people's attention in a crowded, confused, and conflicting [electronic] en- vironment,'' says Jeff Gentry, president of Home Shopping Network's HSN In- teractive unit. ``All savvy retailers are thinking about it.'' In fact, when it comes to almost anything but video on demand--electronic shopping, banking, publishing, information services--the Internet looks like the medium of choice. Why? Because it's evolving into the world's first digital-information utility--an all-purpose network that, within limits, lets anyone send anything digital to anyone anywhere. Already, In- ternauts have set up live, digitized ``radio'' broadcasts and are distributing--albeit slowly--digitized snippets of video. Several companies are extending the Internet's reach with links to pager services, too. No wonder big businesses are studying the Internet and why operators of on- line services--America Online, CompuServe, Prodigy Services, for instance-- are in a frenzy to give their subscribers better access to it. They need to live with the Internet or risk being overwhelmed by it. ``It's undeniably the new competition,'' says Mark Walsh, president of General Electric's GEnie Services. The numbers tell why. It has taken the on-line giants a decade to reach their current level of business--about 6 million subscribers total. But the Internet's population has jumped from an estimated 1 million individuals in 1988 to more than 20 million today, with hundreds of thousands joining each month. Within a year, Internet access may well be a given on new PCs. It's already built into IBM's OS/2 Warp operating system and will be part of Mi crosoft's Windows 95. And because every person who signs on can be a producer as well as a con sumer of information, the Internet constantly grows richer in content, too. ``The value of the network increases exponentially with each new network connection,'' says Marc Andreessen, vice-president for technology at Mosaic Communications. DOUBLING UP. Another feature of the Internet is that it knows no geographi bounds. Internauts are logging on from Brooklyn to Bangkok. From 3.2 mil- lion computers around the world today, the Internet is expected to swell to more than 100 million machines in five years. Already, the network reaches 75 countries with full service. Computer owners in 77 more countries are able to send and receive simple Internet E-mail. The number of Web servers is doubling every few months. To a remarkable degree, all of this has come about spontaneously-- accidentally, even. Nobody owns the Internet. It's not guided by any single company or institution. The result is a technical, social, and now commer- cial phenomenon--a wide-open hothouse of innovation where scientists and now executives try out their best ideas. Says Bill Fitzgerald, president of Tech 21 Inc., an Internet consulting firm in Eatontown, N.J.: ``The Net is an amazing collection of very bright people all pulling together.'' It all began with some brilliant design decisions in the late 1960s. Bac then, the Pentagon asked computer scientists to find the best way for an unlimited number of computers to communicate--without relying on any single computer to be traffic cop. A centrally managed network, defense strategists reasoned, would be too vulnerable to nuclear ``decapitation.'' So, betting on a new communications technology called packet-switching, the Pentagon in 1969 funded the Arpanet. Initially, it linked just four re- search labs, letting scientists and engineers test networking technology. Quickly, the Arpanet expanded to dozens of universities and corporations which added many refinements. They built programs to help people exchang E-mail, tap into remote databases, run supercomputers at a distance, and brainstorm via electronic bulletin boards. Perhaps the most powerful in- novation was the communications protocol that gave the Internet its name The Internet Protocol (IP) allows any number of computer networks to lin up and act as one. It works just like the global mail system, in whic dozens of independent authorities collaborate in moving and delivering on another's letters. Address a letter properly, affix the correct postage, and you can be sure, more or less, that it will arrive. There's no need to worry about who will carry it or what route it will travel. The full set of Arpanet protocols, known as TCP/IP (Transmission Control Protocol/Internet Protocol), tore through the academic and research com- munities and then into commercial computing with products such as Sun Mi- crosystems Inc. workstations. By the late 1980s, there were millions of computers and thousands of networks using TCP/IP, and it's from their in- terconnections that the modern Internet has emerged. Today, the Internet comprises 48,000 different networks around the world-- some covering entire geographic regions, such as the Northeast U.S., and others connecting only a single college campus. So well do they all work together that a researcher in Japan can browse the files of a computer at Georgia Institute of Technology just about as easily as a Tech student can. The Japanese user may see only a few seconds' delay as his messages move to and from Atlanta across a series of intermediary networks. FLAT RATE. By agreement, all of the Internet's subnetworks move each other's traffic at no charge to the others. As a result, its users essen tially pay a flat fee, based on the length of time they're connected to local subnetwork and the potential capacity, or bandwidth, of that connec- tion. In contrast, most other networks have charged customers according to the number of messages they actually generate or receive. In fact, the Internet's unique technology and pricing scheme ensure that it will be around, in one form or another, for many years to come. One of TCP/IP's most significant features, for instance, is that it isn't tied to any single computer or communications technology. Internet traffic can move over almost any physical channel--telephone lines, cable-TV setups, satel- lite links, wireless phones, or high-speed fiber-optic trunks. And whil the Net's first computing ``nodes'' were mainframes and minicomputers, it's now taking advantage of every advance in microprocessor technology. For all its brilliance, however, the Internet does have limitations. While creating a system to survive a nuclear attack, Arpanet designers weren't thinking about electronic commerce. So the Internet still lacks security features, which makes businesses wary of trusting it with data such as credit-card numbers needed for on-line shopping. Plugging these gaps is the focus of much Internet activity today (page 88). Still, many businesses aren't waiting to establish their presence on th Internet. Within a year, Dun & Bradstreet Corp. plans to sell and deliver credit reports over the Net. Its R.H. Donnelly unit, meanwhile, plans to create a World Wide Web-based yellow pages. By simply clicking on an ad, a viewer could be shunted instantly to that advertiser's Web computer--to browse an electronic catalog and perhaps place an order. One day, Donnel- ly's server might sort movie listings to show viewers only those that are convenient to them--or entice them with 30-second digitized previews. Even now, some companies are actually making sales on the Net. One pioneer is Robert Redford's Sundance Catalog Inc., which sells American hand- icrafts. In September, the Park City (Utah) mail-order house went live o the Web with a colorful 230-item electronic catalog that can automatically pass data to its back-office computers. When a browser decides on an item-- a fringed jacket, say--she just clicks on a ``buy'' button and it's added to an electronic order form. When ready, the consumer verifies the order entering shipping and credit-card information. RAZZLE-DAZZLE. Then, another series of Internet interactions begins. Com- puters at Evergreen CyberMart, a consulting firm that has been hired to manage Sundance's Internet operations, completes the virtual paperwork in a matter of seconds, checking credit-card limits and Sundance's inventory computer to make sure all items are in stock. It can remind the customer of a past-due balance, send a seasonal greeting, or try to ``cross-sell'' re lated items--a scarf to go with the jacket, perhaps. When the transactio is complete, Evergreen's computer automatically updates Sundance's account- ing, inventory, and shipping systems, too. There's more than technological razzle-dazzle at work here. Traditionally, it has cost mail-order companies from $10 to $15 to process a telephone or mail order, says Rodney Joffe, president of American Computer Group Inc., a direct-marketing service bureau that is helping to sell Evergreen's ser- vices. Over the Internet, Joffe says, that cost falls to $4. The Internet, it seems, has the potential to help reengineer all sorts of businesses--for a lot less than using private networks. Trane Co., a LaCrosse (Wis.) maker of heating and air-conditioning systems, had revamped its manufacturing so it could build custom-designed commercial air- conditioning systems in as few as 6 days--down from 36. But it still too up to 46 days to get the paperwork done using a mainframe-based network from IBM. The solution: Install powerful desktop computers in Trane's 12 field locations and connect them via the Internet for exchanging sales bids and other documents. Even salespeople's laptops will be on the Net. Using Internet instead of creating its own network will shave costs by at least 25%, says Dave Norton, a Trane system strategist. Right now, the biggest Internet business may simply be providing easy ac- cess to the Net. In the U.S. alone, this market will grow to $1 billion in 1996 from $47 million last year, says Joel Maloff, an Internet veteran and consultant based in Dexter, Mich. Now, companies such as Delphi Internet Services, UUNet Communications, and Performance Systems International are leading the way, but Maloff and other experts reckon that regional Bell companies, cable-TV operators, major long-distance carriers, and perhaps even Microsoft Corp. will jump in. One major opportunity for the phone companies: The National Science Founda tion in 1995 will stop funding NSFnet, which is the Internet's main cross- continental trunk line, or backbone. The NSF has leased gobs of transmis- sion capacity from telephone companies and created a backbone that connects regional TCP/IP networks across the country at essentially no charge. The obvious candidates to take over that function are the telephone companies themselves. ``We're convinced that what's needed is a commercial Internet that has security, privacy, reliability, and instant response,'' say Richard S. Bodman, senior vice-president at AT&T. After Internet access, companies helping to commercialize the Internet con- stitute another growth industry. Dozens upon dozens of startups are betting that the Internet can spawn the next crop of Microsofts and Compaqs. ``I haven't seen this much excitement since the early days of the PC industr in 1981,'' says David Cole, former CEO of Ashton-Tate Corp., a PC software pioneer and now an Internet entrepreneur. Like the IBM PC standard that sparked the 1980s technology boom, the Inter- net represents a wide-open market in which all kinds of new products and services may bloom and where a startup may have just as much chance as an IBM. ``The Internet is the Wild West of technology,'' says Donald Gooding, research partner at Accel Partners, a venture-capital firm that has in- vested in a half-dozen Internet-based companies. ``Nobody has written the rules yet.'' Cole's startup, Navisoft, is building software that uses the Web as a me dium for electronic publishing. For as little as $15,000 in hardware and software, says Cole, anyone can publish on the Web using Navisoft's pack- age. Cole is targeting magazine, newspaper, and newsletter publishers. Meanwhile, Premenos Inc. and other software developers are working on pro- grams to turn Internet into a low-cost alternative to private ``electronic data interchange'' (EDI) networks. EDI setups, such as the one run by Gen- eral Electric's Information Systems unit, have been moving electronic busi- ness forms between companies for the past decade--letting General Motor Corp., for example, automatically post orders in a subcontractor's com- puter. That could be done on the Internet now, for about half the cost, but businesses seem reluctant to switch until they're sure that their EDI traf- fic is safe on the Net NETIQUETTE. If companies simply want to advertise, though, there are a dozen agencies ready to help. The Online Ad Agency, operating out of New York's TriBeCa district, is one of the startups targeting the Internet market (page 84). It's a tricky assignment, though. Even now it's still a major breach of netiquette to blanket personal mailboxes or public bulleti boards with advertising messages. ``You have to be very careful,'' says Ed ward W. Sznyter, whose Market dot NET company plans to help publishers pro- mote books over the Internet. The big consumer-brand marketers are also gearing up--in large part because on the Web the medium definitely is the message: The Web is hip, and being there may help brands refresh their images. Miller Brewing Co. recently launched the Miller Genuine Draft Tap Room--a trove of lifestyle articles and graphics on the Web. Even better than their hipness is the net surfers' demographic profile. Ogilvy & Mather Direct, a New York ad agency, dubs them ``techno-savvies.'' Their vital statistics: 80% are male; median in- come, $54,000. Hours per day spent on-line: one or more. Looking is one thing, buying's another. So far, on-line shopping has not been a winner for network operators such as Prodigy and America Online. Forrester Research figures that on-line shopping will generate only about $200 million in revenues this year--not even a drop in the $1.5 trillion bucket U.S. consumers spend in stores and mail-order channels. Internet could change that. On commercial services, the network operator controls content and the link with consumers. On the Web, a business runs its own show, offering as much information as it likes and creating a direct dialogue with customers to learn what they're thinking. Observing how consumers browse its Web pages, ``we can change our catalog on a dime,'' says Rick Schwartz, manager of marketing communications at Paper Direct, a seller of paper and software. That suggests big changes ahead for business. It's true that as an elec tronic agora, the Internet is still under construction. But with all th innovation, fresh thinking, and entrepreneurial zeal concentrated on the Net, it seems clear that this nebulous but vast setup will become one of the busiest business districts the world has ever known. SIDEBAR AND LEADING THE NEWS IN IBM'S CYBERZINE... Big Blue is jumping onto the Internet's World Wide Web as a means of get ting its message across to customers, investors, the public, and its staff quickly and inexpensively--and in a digitally hip manner. ``This is a wa to open up the company to the world,'' says John Patrick, a marketing com- munications manager at IBM's Networked Applications Services unit, who i overseeing the company's foray into public cyberspace IBM's ``home page,'' a sort of table of contents for its World Wide Web server, offers pathways to a wide selection of information--some of i practical, some of it designed just to enhance Big Blue's image. There's a greeting from Louis V. Gerstner Jr., complete with a digitized picture of the chief executive. There are the company's latest earnings reports, rundowns on research projects and new products, a catalog of software items, and stories on how various customers are using IBM machines. Viewer of this page need only click with a mouse on the words appearing in bold, blue type and within seconds they'll be viewing additional information o that topic Y'ALL COME BACK. Like many companies, IBM is determined to make its home page a popular spot on the Web, a place to which people will return again and again just to stop by and see what's new and interesting there. And that means coming up with a continuing stream of new articles and graphics--much like producing a regular magazine or television show. Currently, the company's main feature story here is about how an IBMer named Don Nix is using multimedia computers to teach reading to children at a long-neglected school in Harlem. Click on a graphical button and you can hear a digitized recording of the kids singing a song about Rosa Parks an the Birmingham bus boycott. To help keep the stories flowing, Patrick has named a home page editor and rounded up a small staff to help him scout out stories within IBM and turn them into material for the Web. He also has laid down rules for how all IBM units should format information for presentation on the Web. Journalism 101 for the Information Age. By John W. Verity in New York SIDEBAR READY OR NOT, THE ELECTRONIC MALL IS COMIN Advertising on the Internet. Just a few months ago, the very idea caused Internet veterans to gnash their teeth. The Internet community had thrived--both socially and technically--precisely because of its implicit ethic: Give as much as you take. Where else could a university researcher say, offer thousands of colleagues copies of her new database program and then enjoy a flood of comments and improvements in return--at essentially no charge to anyone? Madison Avenue, with its one-way messages and penchant for mass-market overkill, would seem the very antithesis of the Internet culture. Today, though, the Internet is becoming a hotbed of advertising and commer- cial activity, and yet its culture seems to be surviving. Advertisers are experimenting with ways to get their messages across on the World Wide Web an Internet service that delivers screens of eye-catching graphics and tex to computer owners using a viewing program called Mosaic. But there's zero interference to the Net's bulletin boards, E-mail, or other services be cause Internauts don't see any commercial messages on the Web unless they actively seek them out. And there's the rub for advertisers: how to get people to find and then look at an Internet ad. For one thing, there's no good road map for the Net--no spatial or even conceptual plan to rely on. Worse for advertisers, there are none of the conventional ad spaces--no billboards, no magazine or newspaper pages, no airtime. WEBBED FEES. One answer: Create a there there. Build useful and interesting virtual spaces to draw potential shoppers en masse. With millions of new Internauts entering the Net and looking for a shortcut to all its goodies, a dozen companies are creating ``electronic malls'' and other ``places'' o the Web that provide easily understood doorways into the Net. O'Reilly & Associates Inc., for instance, charges companies $250 and up to be listed in its Global Network Navigator (GNN) computer, which Internauts can browse at no charge and use to locate and jump to whatever interests them else- where. When consumers see an ad, though, will they bother to click on it? Only if you offer them useful information or something novel, it seems. One O'Reilly client, Worldview Systems Corp., working with Fodor's Travel Pub lications Inc., uses GNN to advertise and solicit electronic orders for customized travel itineraries. The ad gives the consumers as much--or as little--information as they need to start planning a vacation. Internauts also like the latest techno-goody. Thousands downloaded a 60-second digitized video from Oscar Mayer Foods Corp., for example. ``You've got to bait the cyberhook,'' says Larry Chase, president and founder of the Online Ad Agency, a New York startup. Working closely wit the New York Web, an Internet consulting firm in Manhattan's hip TriBeC district, Chase has signed clients such as apparel maker Esprit, 1-800- Flowers, and Radical Media, a video-production company. He came to the In- ternet after years of consumer-goods copywriting at DDB Needham Worldwid Inc. and Young & Rubicam Inc. Stephan and David Moscovic were Parisian art- ists before founding New York Web, where they design information for dis- play on the Internet. One recent client: Mario Cuomo, running for reelec tion as governor of New York. So far, Internet ads are being composed mainly by startups, most of them with roots in Silicon Valley, not Madison Ave. But if the Net should prov as effective a medium as they believe, the big guns will start jumping into the game quicker than you can say World Wide Web By John W. Verity in New York SIDEBAR HELLO DIRECT, GOOD-BYE MAIL ORDER? The idea of selling merchandise over computer networks had always intrigued mail-order industry veteran Chuck Volwiler. As co-founder and vice president for marketing at Hello Direct, a supplier of high-end telephone gear in San Jose, Calif., he had investigated the possibility of selling over CompuServe and Prodigy in the early 1990s. But he decided against it. ``I was disappointed with the graphics quality and the cost,'' he says. ``I knew nobody who'd been able to make it pay for itself.'' Early this year, though, the Internet began to beckon. A program called Mosaic, used to search the Net's World Wide Web, was making it possible to distribute near-photo-quality images to ordinary personal computers. And millions of people--mostly the technically savvy types who are prime Hello Direct prospects--were piling on to the Net. So, with help from Internet Distribution Services Inc., a company in nearby Palo Alto that wrote the appropriate software, Hello Direct put up an electronic catalog describing some popular products. One best-seller: the HelloSet headset, which keeps hands free and necks straight and uncramped INSTANT UPDATES. The advantages of selling via electronic catalog go well beyond eliminating some postage and printing costs: Hello Direct will con- tinue to print catalogs for years to come. The real plus is the fast, two way flow of information between supplier and customer. ``The customer can keep going deeper and deeper,'' summoning up additional information about a complex product, says Volwiler. And by automatically tracking their paths, Hello Direct can learn which products are getting the most attention--and, perhaps, why that's so. If it proves to be necessary, Hello Direct can up date its catalog almost instantly. And the electronic catalog works both ways: Customers now send E-mail suggesting product improvements and asking for technical support. ``We've been real happy,'' says Volwiler. Now, the company has begun work- ing with American Computer Group Corp., a mail-order service bureau that will process orders arriving over the Net from customers' computers. Some- day, Hello Direct may be able to say good-bye to 1-800 sales forever. By John W. Verity in New York SIDEBAR SHIELDING THE NET FROM CYBER-SCOUNDREL In 1988, an insidious self-replicating computer virus penetrated the com- puter system at the University of California's Berkeley campus. Known as the Internet Worm, the virus wriggled out of control for days, corrupting thousands of computers on the Internet. Last February, the Computer Emer- gency Response Team (CERT) at Carnegie Mellon University, which monitors Internet security, warned network administrators that a band of intruders had stolen tens of thousands of Internet passwords. In July, the Lawrenc Livermore National Laboratory conceded that an employee had used its com- puters to distribute pornography. The number of Internet ``incidents'' reported by CERT reached 1,300 last year, up from 50 a few years earlier These episodes serve as a reality check: The Internet, which promises elec- tronic intimacy with millions of potential customers, may also be fraught with bugs, snoops, and questionable characters. ``The opportunities for creative fraud are vastly greater than they used to be,'' warns Peter G Neumann, principal scientist at SRI International in Menlo Park, Calif Hackers may be licking their chops at the idea of lots of new Internet com- puters to break into, but dozens of companies are cooking up ways to thwart them. The first line of defense is access control--keeping unwanted visitors out and company secrets in. Trusted Information Systems in Glen- wood, Md., Harris Computer Systems in Ft. Lauderdale, Fla., and Digital Equipment Corp. are among the companies that build fire walls--secured gateways between private networks and the Internet. Basically, all traffic must pass through the fire wall. ``When you visit some businesses, you stop at the front desk, and if you are approved, you walk in. Other times, you have to wait for somebody to come out to meet you,'' says Steven M. Bellovin, a senior researcher at AT&T Bell Laboratories and co-author of Firewalls and Internet Security. ``Or yo hand [a package] to the mailroom, and never go in. All of those models are used in fire walls.'' The Sidewinder fire wall from Secure Computing Corp. in Roseville, Minn., lets businesses strike back by feeding an intruder false data or tracing him back to his computer. Once businesses allow messages to come through the fire wall, they still have to make certain they are authentic. Did the order come from the person or company whose name is on it? Was it tampered with en route? Has it remained confidential? Internet messages must be ``hermetically sealed,'' insists Gerald H. Taylor, president of MCI Communications Corp. Cryptography addresses most of these concerns. Cryptographers apply mathe matical algorithms to garble messages and create ``digital signatures,'' the equivalent of fingerprints. One popular method: the public-key encryp- tion concept developed by the founders of RSA Data Security Inc. in Redwood City, Calif. RSA has a joint venture with Enterprise Integration Tech- nologies Corp., based in Palo Alto, Calif., the operator of CommerceNet, a fledgling electronic marketplace on the Internet. The venture, called Terisa Systems, is aimed at securing transactions on World Wide Web serv- ers. RSA's encryption is also licensed to a number of software makers. ACCESS CARDS. In some security schemes, electronic ``tokens'' are issued to authorized Net users. Digital Pathways Inc. in Mountain View, Calif., pro- duces a handheld authentication calculator known as SecureNet Key, which uses DES (Data Encryption Standard). This month, National Semiconductor Corp. will unveil PersonaCard, a card that fits into a computer's PCMCIA slot. And Security Dynamics Inc. in Cambridge, Mass., has created a access-control card called SecureID that generates a random code every 60 seconds. Users must present the latest code to gain entry. The federal government is also concerned about security on the Information Superhighway and is working on its own solutions. But Uncle Sam is adding a great deal of uncertainty by limiting international use of powerful encryp- tion techniques in the name of national security. For now, that leaves it up to Corporate America to make its virtual outposts secure. By Edward C. Baig in New York, with John Carey in Washington ------------------------------------------------------------ The contents of this file are copyright 1994 by the publisher in whose directory this file appeared. 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