Information Technology and U.S. Business

Chapter 3: Information Technology and U.S. Business

IT Industry
Effect of IT on U.S. Businesses
IT and Currency
Will Americans Abandon the Bank?
Antitrust Litigation

The desire of U.S. corporations to make money fueled the proliferation of electronics and communications technologies during the 1980s and 1990s. High-technology (high-tech) companies such as Microsoft, Apple, and Intel strove to create affordable computers, Internet technologies, cell phones, and a variety of electronics-based products for use in the office and at home. A huge market segment, commonly referred to as the information technology (IT) industry, developed around the production of these new technologies and included the manufacture of computers and electronic products, software publishing, data processing services, and computer systems design. According to the U.S. Department of Commerce, in Digital Economy 2003 (December 2003,, from 1996 to 2001 the IT-producing industries' real gross domestic product (GDP; total market value of goods and services produced) increased 41%, from $589 billion to $829 billion.

As information technologies spread through U.S. offices and corporations, they also transformed other industries outside of the IT sector. In the financial industries, innovations such as scanners and interconnected bank networks greatly reduced the number of paper checks in circulation daily. The retail industry discovered a new way to sell merchandise. The U.S. Census Bureau notes in 2006 E-Commerce Multi-sector Report (May 16, 2008, that by 2006, $107 billion in retail sales were conducted over the Internet annually. Furthermore, business-to-business manufacturing shipments ordered online during 2006 amounted to another $1,568 billion. (See Table 3.1.)

The economic impact of IT reverberated well beyond those industries that sold goods on the Internet, however. Every industry from trucking to real estate to health care to manufacturing incorporated new technologies that helped make doing business more efficient and affordable. Entire medical and law libraries were replaced by online databases that could be searched in minutes. Retail inventories, which used to be counted by hand, were linked directly to barcode scans taken at cash registers, a process that ultimately made ordering stock more efficient and reduced expensive storage costs. Bookkeeping and accounting, which was once an arduous task completed in thick, paper ledgers, was done in a fraction of the time and at a fraction of the cost using computer accounting software.

However, IT did not have a positive effect on all businesses. For example, travel agencies saw an enormous drop in revenue because of online reservations sites. The growth in online bookings led to a 29% drop in the number of travel agency jobs in the United States between 1998 and 2007. In Occupational Employment and Wage Estimates (May 9, 2008,, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) states that 120,850 travel agents were employed in 1998, compared to 85,580 in 2007. In Travelers Use of the Internet: 2005 Edition (2005,, the Travel Industry Association finds that 101.3 million American travelers used the Internet in their travel planning or booking in 2005, including 95.3 million (94%) who were traveling for pleasure purposes. Approximately 64.8 million (64%) travelers with access to the Internet had booked their own reservations online in 2005. John B. Horrigan of the Pew Internet & American Life Project (Pew/Internet) estimates in Online Shopping (February 13, 2008, that by 2007, 64% of travelers with Internet access had made their own reservations online. This figure equals nearly half (47%) of all American adults. On an average day 4% of Internet users were purchasing airline tickets, renting automobiles, or making their own hotel reservations online. The number of Americans performing their own travel services had more than doubled from only 18% in 2000. (See Figure 3.1.)

TABLE 3.1 Total and e-commerce shipments, sales, and revenues, 200506
source: U.S. Shipments, Sales, Revenues and E-Commerce: 2005 and 2006, in 2006 E-commerce Multisector Report, U.S. Department of Commerce, U.S. Census Bureau, Economics and Statistics Administration, May 16, 2008, (accessed July 15, 2008)
[In billions of dollars.]
Value of shipments, sales, or revenue
2006 2005 Year to year percent change % Distribution of e-commerce
Description Total E-commerce Total E-commerce Total E-commerce 2006 2005
Totala 20,912 2,937 19,583 2,579 6.8 13.9 100.0 100.0
B-to-Ba 10,605 2,716 9,924 2,393 6.9 13.5 92.5 92.8
Manufacturing 5,020 1,568 4,742 1,344 5.9 16.7 53.4 52.1
Merchant wholesale 5,585 1,148 5,181 1,049 7.8 9.4 39.1 40.7
Excluding MSBOsb 3,909 613 3,586 551 9 11.3 20.9 21.4
MSBOs 1,676 535 1,596 498 5 7.3 18.2 19.3
B-to-Ca 10,307 221 9,659 186 6.7 18.8 7.5 7.2
Retail 3,887 107 3,688 87 5.4 22 3.6 3.4
Selected services 6,420 114 5,971 99 7.5 14.9 3.9 3.8
*We estimate business-to-business (B-to-B) and business-to-consumer (B-to-C) e-commerce by making several simplifying assumptions: manufacturing and wholesale e-commerce is entirely B-to-B, and retail and service e-commerce is entirely B-to-C. We also ignore definitional differences among shipments, sales, and revenues. The resulting B-to-B and B-to-C estimates, while not directly measured, show that almost all the dollar volume of e-commerce activity involves transactions between businesses.
bManufacturers' Sales Branches and Offices.

IT Industry

Even though IT has been around since International Business Machines (IBM) began mass-producing computers in the early 1950s, it did not become a large part of the U.S. economy until the 1990s. A number of high-tech companies, such as Microsoft and Dell, had positioned themselves as the commercial leaders in Internet, personal computer, and cell phone technologies during the 1980s. When use of the World Wide Web became common in 1994 and the price of electronics began to drop, Americans flocked to these technologies. Revenues in the high-tech industry as a whole increased at a rate not seen in any industry since the postwar boom of the 1950s. Microsoft reported sales of $140 million in 1985. Ten years later its revenue had increased to $6 billion. Cisco Systems, the leading commercial maker of Internet routers and switches, grew at an even faster rate. Between 1990 and 2001, the company's revenue grew from sales of $69 million to $22 billion. Dell, the top seller of home computers in the U.S. market in 2007, saw sales increase from $300 million in 1989 to $61.1 billion in fiscal year (FY) 2008.

The growth of these companies along with the rest of the IT-producing industries had a tremendous impact on the economy. Table 3.2 shows a list of the types of businesses that make up the IT-producing industries. According to the Department of Commerce, in Digital Economy 2003, the IT industries made up roughly 8% to 9% of the U.S. domestic economy between 1996 and 2000. However, these industries were responsible for 1.4 percentage points of the nation's 4.6% annual average real GDP growth over these years. The GDP is one of the basic yardsticks used to measure the U.S. economy and is defined as the value, or sale price, of all goods produced in a country minus the cost of the materials that went into making those goods. In other words, the entire IT industry, which made up a little under one-tenth of the economy, accounted for over one-third of the economic growth. Between 1993 and 2000 employment in the IT industries expanded rapidly as well. IT companies hired people at twice the rate of all private industries and added more than 1.8 million jobs to the workforce in sectors such as software and computer services, computer hardware, and communication services.

TABLE 3.2 Information technology-producing industries
source: David Henry and Donald Dalton, Box 1.1. Information Technology Producing Industries, in Digital Economy 2003, U.S. Department of Commerce, Economics and Statistics Administration, December 2003, (accessed July 15, 2008)
Hardware industries Software/services industries
Computers and equipment Computer programming
Wholesale trade of computers and equipment* Prepackaged software
Retail trade of computers and equipment* Wholesale trade of software*
Calculating and office machines Retail trade of software*
Magnetic and optical recording media Computer-integrated system design
Electron tubes Computer processing, data preparation
Printed circuit boards Information retrieval services
Semiconductors Computer services management
Passive electronic components Computer rental and leasing
Industrial instruments for measurement Computer maintenance and repair
Instruments for measuring electricity Computer related services, nec
Laboratory analytical instruments Communications services industries
Communications equipment industries Telephone and telegraph
Household audio and video equipment communications
Telephone and telegraph equipment Cable and other TV services
Radio and TV communications equipment
*Wholesale and retail from computer manufacturer sales from branch offices.

End of the IT Boom

Toward the turn of the twenty-first century many Americans thought the IT boom could continue indefinitely. They invested enormous sums of money in IT and IT-related stocks. From late 1998 to early 2000 Microsoft's and Dell's stocks doubled in value, and Cisco Systems' stock quadrupled. The National Association of Securities Dealers Automated Quotation System (NASDAQ), a stock index that tracks the value of many IT stocks, rose from 2,442 on August 10, 1999, to a peak value of 5,132 on Friday, March 10, 2000one of the largest increases of a major stock index in history. Many Americans invested not only in large, well-established corporations but also in small e-commerce companies such as and eToys. Many of these dot-coms were brand-new businesses that had yet to produce any profits. People invested in them in the hope that these dot-coms would enjoy the sort of huge rise in value that made early investors in Dell or Microsoft millionaires.

On Monday, March 13, 2000, the NASDAQ dropped roughly 300 points, from a high of 5,013 to a closing low of 4,706. The index dropped for a couple more days, rebounded to a point close to its all-time high, and then proceeded to fall intermittently for the next two-and-a-half years, finally hitting bottom on October 10, 2002, at 1,108. Other stock indexes, such as the Dow Jones Industrial Average and Standard and Poor's 500, followed this downward trend, ultimately returning to 1998 levels. The stock bubble burst because investors began to fear that many IT and IT-related companies were not living up to expectations and pulled their money out of the market.

The entire nation slipped into a recession. By 2001 several of the dot-coms were out of business, and many established IT companies began posting losses. From 2001 to 2002 Cisco Systems' sales dropped more than $3.4 billion, and Dell's annual earnings dipped by roughly $700 million. The Department of Commerce explains in Digital Economy 2003 that the main reason for the slowdown in the IT industries was that the private business sector stopped buying equipment. Throughout the 1990s just about every type of businessfrom law firms to paper producers to grocery stores to auto shops was either buying or updating its computers, printers, and networks. Businesses that did not make such investments quickly became outdated and inefficient and did not survive. By the turn of the twenty-first century many companies outside of the IT industries had already made an initial investment in IT equipment and required only upgrades as hardware needed replacement or as software was updated. In addition, the components that make up the infrastructure for the Internet (fiber-optic cables, routers, and switches) had largely been laid down by the late 1990s, so the need for these components greatly diminished as well.

Industries that produced hardware components and communications equipment were the hardest hit. The overall GDP for these industries dropped 22% and 18%, respectively, from 2000 to 2001. The Department of Commerce reports in Digital Economy 2003 that among the most negatively affected, semiconductor manufacturing fell from $67.9 billion in 2000 to $44.1 billion in 2001, a 35% decrease. The industries that did reasonably well during this recessionary period were the software and services industries and the communications services industries. Prepackaged software, computer processing, information retrieval services, computer services management, computer maintenance and repair, and other computer-related services all showed modest gains. Even though U.S. businesses as a whole had bought much of their hardware, many still had the need for new software, Internet service, and computer maintenance.

Lost Jobs

To cut their losses in this down market, IT companies began laying off many of the workers they had hired during the 1990s. In Digital Economy 2003, the Department of Commerce reveals that roughly six hundred thousand jobs were shed in the IT industries between 2000 and 2002. This job loss accounted for over a quarter of all the jobs lost during the recession. The rate of job loss in the IT industries was six times that of all private industry. Not surprisingly, the industry that lost the most jobs was computer hardware, from a high of nearly 1.7 million in 2000 to 1.4 million in 2002.

Even though many of the jobs that were lost simply ceased to exist, two additional trends combined to decrease the number of traditional employment positions. The term outsourcing refers to work contracted to nonemployees such as temporary workers; offshoring refers to situations in which the positions are assumed by workers located in another country where wages are cheaper. With the advent of e-mail, the Internet, and low-cost international phone calls, offices separated by continents could be linked through cyberspace. Geography was no longer a predominant concern for many companies. In India, for example, there were large numbers of highly educated people who spoke English, were knowledgeable about computer science, and were more than happy to work for a fraction of the typical U.S. hourly wage. Companies such as Dell moved high-paying technical assistance jobs, low- to midlevel computer programming jobs, and even technical documentation jobs to other countries.

Mark Gongloff reports in U.S. Jobs Jumping Ship (CNN/Money, January 19, 2004) that over 40% of U.S. companies had either contracted IT services or had run a pilot offshore outsourcing program by mid-2003. Deducing the number of jobs that have moved overseas since 2000, however, is all but impossible. The BLS, the government agency in charge of recording who loses their job and why, only began counting the number of jobs moved overseas in 2004. In Extended Mass Layoffs in 2006 (April 2008,, the BLS notes that during 2006, 55,751 workers lost their jobs due to movement of work, either through reorganization within the company or relocation of the work to another location in the United States or abroad. More than one-third (36%, or 13,367 workers) of those who lost their jobs through movement of work were affected by out-of-country relocations. (See Table 3.3.) More than six out of ten (63%) of the moves to other countries involved relocations to China and Mexico.

IT Becomes a Mature Industry

According to the Department of Commerce, in Digital Economy 2003, by 2003 the IT industries showed signs of recovery. The GDP in the IT-producing industries grew by an estimated 4.6% to $871.9 billion in 2003 as business spending on IT equipment began to accelerate. In the first nine months of 2003 IT spending by the private sector as a whole rose an estimated 2.3% on average. Consumer and household spending on IT equipment, which did not abate as sharply during the recession, grew faster through 2002 and into 2003. In addition, the IT industries did not cut back on research and development during the recession. Consequently, many new products were being developed by the end of the recession. Nevertheless, employment numbers in the IT industries had not recovered significantly by 2003. The Department of Commerce reports that these developments taken together point to the fact that the IT industries had settled into maturity. The department predicts that future growth will likely be more modest and less volatile than it was during the 1980s and 1990s.

TABLE 3.3 Movement of work actions by type of separation, 200506
source: Table 15. Movement of Work Actions by Type of Separation Where Number of Separations Is Known by Employers, 200506, in Extended Mass Layoffs in 2006, U.S. Department of Labor, Bureau of Labor Statistics, April 2008, (accessed July 15, 2008)
Actionsa Separations
Activities 2005 2006 2005 2006
With separations reportedb 259 232 34,194 34,036
By location
Out-of-country relocations 91 84 12,030 13,367
      Within company 68 71 9,438 11,776
      Different company 23 13 2,592 1,591
Domestic relocations 164 148 21,470 20,669
      Within company 132 125 17,135 18,210
      Different company 32 23 4,335 2,459
Unable to assign place of relocation 4 694
By company
Within company 204 196 27,267 29,986
      Domestic 132 125 17,135 18,210
      Out of country 68 71 9,438 11,776
      Unable to assign 4 694
Different company 55 36 6,927 4,050
      Domestic 32 23 4,335 2,459
      Out of country 23 13 2,592 1,591
      Unable to assign
aOnly actions for which separations associated with the movement of work were reported are shown.
bData on layoffs were reported by employers in all states and the District of Columbia.
Note: Dash represents zero.

By 2006 the information, communications, and technology-producing industries reached a gross output of $1,022.6 billion, which represented growth of 6.5% over the previous year's total of $960.5 billion. (See Table 3.4; gross output equals the value of the industry's total sales and other operating income.) Many high-tech companies such as Google and Apple saw their revenues exceed expectations between 2003 and 2008. Apple reported sales of $24 billion in 2007, up 287% from $6.2 billion in 2003. Google, with sales of $16.6 billion in 2007, had seen an increase of 1,032% from $1.5 billion in 2003. Dell announced that its revenues increased 19% between 2004 and 2005 and 14% between 2005 and 2006, but had only slight growth of 3% from 2006 to 2007 and 6% from 2007 to 2008, when sales reached $49.5 billion. Microsoft, which in FY 2002 had a revenue of $28.4 billion, saw its revenue more than double by FY 2008, when sales reached $60.4 billion; this represented a year-overyear revenue increase of 18% between 2007 and 2008, from $51.1 billion. The Bureau of Economic Analysis estimates in the press release Downturn in Finance and Insurance Restrains Real GDP Growth in 2007 (April 28, 2008, that in 2007 IT industries comprised 3.9% of the total U.S. economy.

Trends were positive in IT employment as well. In Extended Mass Layoffs in 2006, the BLS summarizes

TABLE 3.4 Gross output by selected industry, 200406
source: Adapted from Gross-Domestic-Product-by-Industry Accounts, in Industry Economic Accounts, U.S. Department of Commerce, Bureau of Economic Analysis, April 29, 2008, (accessed July 29, 2008)
[Billions of dollars]
2004 2005 2006
All industries 21,309.00 23,128.60 24,735.60
Private industries 18,871.80 20,537.00 21,982.90
Agriculture, forestry, fishing, and hunting 318.8 316.1 319.3
Mining 308.2 393.8 439.3
Utilities 372.4 404.3 431.2
Construction 1,064.90 1,180.40 1,260.10
Manufacturing 4,238.90 4,663.30 4,932.40
Computer and electronic products 365 372.3 386.2
Wholesale trade 990.4 1,062.20 1,158.70
Retail trade 1,213.50 1,281.20 1,352.60
Transportation and warehousing 651.4 708.2 756.9
Information 1,102.50 1,192.80 1,274.80
Publishing industries (includes software) 256.8 268.7 282.4
Motion picture and sound recording industries 86 90.6 94.2
Broadcasting and telecommunications 640.7 695.5 741.1
Information and data processing services 119.1 138 157
Finance, insurance, real estate, rental, and leasing 3,686.10 4,044.00 4,405.10
Finance and insurance 1,570.30 1,733.60 1,912.90
Real estate and rental and leasing 2,115.80 2,310.40 2,492.30
Professional and business services 2,167.00 2,359.90 2,529.30
Professional, scientific, and technical services 1,272.10 1,385.50 1,484.70
Computer systems design and related services 167.8 181.5 197
Management of companies and enterprises 341.7 371.6 396.3
Administrative and waste management services 553.2 602.9 648.4
Educational services, health care, and social assistance 1,479.10 1,580.40 1,685.70
Educational services 183.5 194.9 205.9
Health care and social assistance 1,295.60 1,385.50 1,479.90
Social assistance 117.1 122.9 130.6
Arts, entertainment, recreation, accommodation, and food services 771.4 815 871.3
Arts, entertainment, and recreation 180.4 185.6 193.2
Accommodation and food services 591 629.3 678.1
Other services, except government 507.1 535.5 566.1
Government 2,437.20 2,591.60 2,752.70
Private goods-producing industriesa 5,930.80 6,553.50 6,951.10
Private services-producing industriesb 12,941.00 13,983.50 15,031.80
Information-communications-technology-producing industriesc 908.6 960.5 1,022.60
aConsists of agriculture, forestry, fishing, and hunting; mining; construction; and manufacturing.
bConsists of utilities; wholesale trade; retail trade; transportation and warehousing; information; finance, insurance, real estate, rental, and leasing; professional and business services; educational services, health care, and social assistance; arts, entertainment, recreation, accommodation, and food services; and other services, except government.
cConsists of computer and electronic products; publishing industries (includes software); information and data processing services; and computer systems design and related services.

extended mass layoffs in IT-producing industries from 1996 through 2006. An extended mass layoff, as defined by the BLS, is one that affects at least fifty individuals for a period of at least thirty-one days; the number of events and of workers affected in mass layoff statistics do not reflect totals for the industry, but are indicative of overall trends. In the computer hardware subsector, job losses peaked in 2001 with 503 extended mass layoff events resulting in 102,587 lost jobs; by 2006 the situation had improved considerably, with only 48 events that included 12,036 lost jobs. (See Table 3.5.) In the software and computer services subsector, which includes industries such as software publishing, Internet services, programming, and network implementation, 2001 was similarly the worst year for layoffs, with 205 extended mass layoffs resulting in 29,420 workers being put out of work; in 2006, 23 events left 3,503 employees without jobs. The future looked more positive as of 2008, when the BLS (March 12, 2008, forecast long-term job growth in the IT industry segment.

TABLE 3.5 Extended mass layoffs in information technology-producing industries, 19962006
source: Table 4. Information Technology-Producing Industries: Extended Mass Layoff Events and Separations, Private Nonfarm Sector, 19962006, in
Extended Mass Layoffs in 2006, U.S. Department of Labor, Bureau of Labor Statistics, April 2008, (accessed July 15, 2008)
Information technology-producing industriesa
Total extended mass layoffs Computer hardwareb Software and computer servicesc Communications equipmentd Communications servicese
Year Layoff events Separations Layoff events Separations Layoff events Separations Layoff events Separations Layoff events Separations
1996 4,760 948,122 100 17,884 20 10,724 32 5,323 33 6,612
1997 4,671 947,843 64 11,934 15 1,730 23 2,515 18 3,237
1998 4,859 991,245 166 36,069 17 3,296 33 6,971 25 4,150
1999 4,556 901,451 103 22,557 20 3,731 27 4,344 18 3,930
2000 4,591 915,962 66 18,805 48 7,940 25 4,618 24 4,048
2001 7,375 1,524,832 503 102,587 205 29,420 140 34,874 136 30,084
2002 6,337 1,272,331 303 59,653 137 18,689 112 23,236 176 32,134
2003 6,181 1,216,886 196 32,689 80 13,426 62 10,408 113 21,721
2004 5,010 993,909 76 11,524 52 8,575 16 1,887 81 17,266
2005 4,881 884,661 75 11,928 32 5,667 13 3,000 47 7,725
2006 4,885 935,805 48 12,036 23 3,503 19 3,752 34 4,933
aInformation technology-producing industries are defined in Digital Economy 2003, (U.S. Department of Commerce, Economics and Statistics Administration, 2003).
bThe industries included in this grouping, based on the 2002 North American Industry Classification System (NAICS), are: semiconductor machinery manufacturing; office machinery manufacturing; electronic computer manufacturing; computer storage device manufacturing; computer terminal manufacturing; other computer peripheral equipment manufacturing; electron tube manufacturing; bare printed circuit board manufacturing; semiconductors and related device manufacturing; electronic capacitor manufacturing; electronic resistor manufacturing; electronic coils, transformers, and inductors; electronic connector manufacturing; printed circuit assembly manufacturing; other electronic component manufacturing; industrial process variable instruments; electricity and signal testing instruments; analytical laboratory instrument manufacturing; computer and software merchant wholesalers; and computer and software stores.
cThe industries included in this grouping, based on the 2002 North American Industry Classification System (NAICS), are: software publishers; Internet service providers; Web search portals; data processing and related services; computer and software merchant wholesalers; computer and software stores; custom computer programming services; computer systems design services; computer facilities management services; other computer related services; office equipment rental and leasing; and computer and office machine repair.
dThe industries included in this grouping, based on the 2002 North American Industry Classification System (NAICS), are: telephone apparatus manufacturing; audio and video equipment manufacturing; broadcast and wireless communications equipment; fiber optic cable manufacturing; software reproducing; and magnetic and optical recording media manufacturing.
eThe industries included in this grouping, based on the 2002 North American Industry Classification System (NAICS), are: wired telecommunications carriers; cellular and other wireless carriers; telecommunications resellers; cable and other program distribution; satellite telecommunications; other telecommunications; and communication equipment repair.

Between 2006 and 2016, for example, the computer systems design and related services sector was expected to add 489,000 jobs to the 1.3 million workers already engaged in this economic segment.

Effect of IT on U.S. Businesses

The rise of the IT industries, though dramatic, did not affect the U.S. economy nearly as much as the products that these industries produced. Nearly every task in a modern office, regardless of the business, employs some piece of technology that either was not present before the proliferation of IT or was only present in a limited way. These technologies have had a profound effect on both the productivity of businesses and individual employees.

In Digital Economy 2003, the Department of Commerce reports that the annual growth of productivity per employee in the private sector increased sharply during the 1990s. Figure 3.2 charts the productivity growth of the private, nonfarm business sector from 1973 to 2003. Between 1973 and 1995 the productivity of workers in the United States increased at a rate of roughly 1.4% each year. Then in 1995, which was just about the time the Internet became widespread, this entire curve shifted and the productivity of workers began to grow at 3.2% per year. The growth in value of what the average worker in the United States produced each year more than doubled.

To determine if this sudden acceleration in worker productivity was indeed because of the introduction of IT into the workforce, the Department of Commerce separates all private industry into those that were IT intensive, such as finance and retail, and those that were less IT intensive, such as construction. The department reveals that IT-intensive industries, which already had a relatively high worker productivity growth per year, increased in productivity much faster than less IT-intensive industries in 1995. During the recessionary period in 2000 and 2001, the IT-intensive industries' worker productivity did not wane. Conversely, yearly growth in worker productivity in non-IT-intensive industries did not occur before 1995; it then rose 1% per year until 2000 before turning negative. Such results suggest that the introduction of IT into the workplace has not only improved worker productivity for the long term but has also increased the rate at which it improves.

How IT Has Increased Productivity

The ways in which IT increased productivity and made businesses more profitable are nearly endless. Word processors and desktop publishing software dramatically reduced the time necessary to complete many mundane office tasks, particularly in the communications industry. The reduction of paper filing systems in the workplace reduced corporate storage needs and made document retrieval more efficient. Computer systems in factories allowed manufacturers precise control over production lines, increasing efficiency and thus saving millions of dollars. Interoffice and Internet networks gave corporations daily access to sales numbers and profit margins, enabling them to make faster decisions to increase profitability. For example, if a line of clothing was not selling, a company could see the figures immediately and pull the line from the stores, rather than allow it to take up valuable retail space.

The improvements in efficiency created by IT even hit the open road. The Department of Commerce includes in Digital Economy 2003 a study that employs data from the Census Bureau's Vehicle Inventory and Use Surveys. The study examines the use of onboard computers on trucks. Standard onboard computers record how truck drivers operate the trucks they drive. Owners of trucking fleets use these standard computers to oversee their drivers to make sure they are not mistreating the trucks. Advanced onboard computers, which debuted around the turn of the twenty-first century, have several innovative features, including global positioning system locators that allow the dispatcher to determine where the truck is in real time and communicate schedule changes to the driver. With the advanced onboard computers, the dispatcher can see where the entire fleet is and make scheduling decisions to fully use the trucks and avoid situations where the trucks are idle and waiting for cargo. The Department of Commerce analyzes the effect these various onboard computers had on the companies that used them. The department finds that when advanced onboard computers were used instead of the standard onboard computers, truck utilization increased by 13%. Industry wide, the use of advanced onboard computers added up to a 3% increase in the amount of truck utilization, which translated to $16 billion in extra revenue per year for the trucking industry.


E-commerce, which is simply the sale of goods and services over the Internet, has grown steadily every year since the debut of the World Wide Web in 1991. Though most attention has been given to online retail, most e-commerce actually occurs in business-to-business transactions. For example, 92.5% of e-commerce was conducted between businesses in 2006, whereas only 7.5% was conducted between businesses and consumers. (See Table 3.1.) In 2006 E-Commerce Multi-sector Report, the Census Bureau provides a breakdown of e-commerce as a percentage of the value of sales in each industry that did business online in 2005 and 2006. By far, most e-commerce in 2006 occurred in manufacturing, where shipments ordered online accounted for 31.2% ($1,568 billion) of the total value of all manufacturing shipments. (See Figure 3.3.) Merchant wholesalers came in second, with e-commerce

TABLE 3.6 Total and e-commerce value of manufacturing shipments*, 200506
source: Table 1. U.S. Manufacturing ShipmentsTotal and E-Commerce Value: 2006 and 2005, in 2006 E-commerce Multi-sector Data Tables, U.S. Department of Commerce, U .S. Census Bureau, Economics and Statistics Administration, May 16, 2008, (accessed July 30, 2008)
[In millions of dollars]
distribution of
Value of shipments E-commerce as
percent of total
2005 Y/Y percent change
NAICS 2006 Revised Revised Total E-commerce
code Description Total E-commerce total e-commerce shipments shipments 2006 2005 2006 2005
Total manufacturing 5,019,964 1,568,371 4,742,076 1,343,852 5.9 16.7 31.2 28.3 100.0 100.0
311 Food manufacturing 537,787 154,083 532,402 99,090 1 55.5 28.7 18.6 9.8 7.4
312 Beverage and tobacco product manufacturing 124,693 68,177 124,086 60,651 0.5 12.4 54.7 48.9 4.3 4.5
313 Textile mills 38,795 12,377 42,328 7,512 -8.3 64.8 31.9 17.8 0.8 0.6
314 Textile product mills 33,220 11,588 35,022 7,189 -5.1 61.2 34.9 20.5 0.7 0.5
315 Apparel manufacturing 30,462 9,307 31,401 8,908 -3.0 4.5 30.6 28.4 0.6 0.7
316 Leather and allied product manufacturing 6,019 926 6,181 826 -2.6 12.1 15.4 13.4 0.06 0.6
321 Wood product manufacturing 112,404 14,952 112,095 12,248 0.3 22.1 13.3 10.9 1.0 0.9
322 Paper manufacturing 170,361 40,781 161,928 30,579 5.2 33.4 23.9 18.9 2.6 2.3
323 Printing and related support activities 99,688 19,004 96,922 15,592 2.9 21.9 19.1 16.1 1.2 1.2
324 Petroleum and coal products manufacturing 548,955 160,177 475,787 130,869 15.4 22.4 29.2 27.5 10.2 9.7
325 Chemical manufacturing 657,748 205,299 610,873 173,747 7.7 18.2 31.2 28.4 13.1 12.9
326 Plastics and rubber products manufacturing 211,345 48,656 200,304 43,123 5.5 12.8 23 21.5 3.1 3.2
327 Nonmetallic mineral product manufacturing 126,015 20,648 114,849 16,469 9.7 25.4 16.4 14.3 1.3 1.2
331 Primary metal manufacturing 232,558 59,376 203,263 47,608 14.4 24.7 25.5 23.4 3.8 3.5
332 Fabricated metal product manufacturing 317,223 63,942 289,432 50,661 9.6 26.2 20.2 17.5 4.1 3.8
333 Machinery manufacturing 326,430 93,428 302,650 72,390 7.9 29.1 28.6 23.9 6.0 5.4
334 Computer and electronic product manufacturing 390,776 120,931 372,882 113,704 4.8 6.4 31 30.5 7.7 8.5
335 Electrical equipment, appliance, and components 120,038 34,327 111,977 30,602 7.2 12.2 28.6 27.3 2.2 2.3
336 Transportation equipment manufacturing 698,349 383,463 690,743 381,600 1.1 1.1 54.9 55.2 24.4 28.4
337 Furniture and related product manufacturing 86,749 18,187 84,181 16,233 3.1 12 21 19.3 1.2 1.2
339 Miscellaneous manufacturing 150,349 28,742 142,770 24,251 5.3 18.5 19.1 17 1.8 1.8
Note: Estimates are not adjusted for price changes.
*Estimates include data only for businesses with paid employees and are subject to revision.

representing 20.6% ($1,148 billion) of business, and retail trade finished third with 2.7% ($107 billion) of all sales originating from e-commerce. Selected service revenues were sales made by a number of sectors in the service industry and included businesses such as travel brokers and online publications. Some 1.8% ($114 billion) of total revenue generated by the selected services industry came from e-commerce.

Manufacturers are companies that take raw materials and parts and manufacture products used by other businesses or individuals. For instance, a soft drink company typically buys its cans from a manufacturer that makes the cans from raw aluminum. Dell buys computer components from dozens of manufacturers around the world to assemble its computers. The reason so many manufacturers use the Internet to conduct business transactions is that the Internet cuts costs and streamlines the processes involved in buying and selling manufactured goods. E-commerce allows the buyer to easily compare competitors' prices, reduces the costs of writing up and sending paper purchase orders and invoices, maintains an electronic copy of each sale, and decreases the time it takes for the goods to reach the buyer. The value of manufactured goods shipped through e-commerce rose at nearly three times the rate of total manufacturing shipments between 2005 to 2006. (See Table 3.6.) By far, transportation equipment manufacturing topped the list with nearly $383.5 billion being shipped as a result of electronic transactions. Chemicals, petroleum and coal products, computer and electronic products, and food were other subsectors with high e-commerce sales. Petroleum and coal products (15.4%) had the highest year-over-year increase in e-commerce sales from 2005 to 2006.

Merchant wholesale trade sales made up the second largest block of e-commerce transactions in 2006. Wholesalers act as a mediator between manufacturers and retailers. Wholesalers typically buy large quantities of goods from a number of manufacturers and then resell these goods in bulk to retail outlets. The wholesalers save the retailers the trouble of contacting each manufacturer themselves. Table 3.7 presents U.S. merchant wholesale trades in 2005 and 2006. Year-over-year wholesale e-commerce increased at a higher rate than wholesale trades overall, driven by growth in e-commerce sales of durable goods. Between 2005 and 2006 e-commerce sales of metals and minerals increased 33.5%, whereas overall sales of metals and minerals only rose 13.7%. Wholesale Internet sales of professional and commercial equipment

TABLE 3.7 Total and e-commerce wholesale trade salesa, 200506
source: Table 2.0. U.S. Merchant Wholesale Trade Sales, Including Manufacturers' Sales Branches and OfficesTotal and E-Commerce: 2006 and 2005, in 2006 E-commerce Multi-sector Data Tables, U.S. Department of Commerce, U.S. Census Bureau, Economics and Statistics Administration, May 16, 2008, (accessed July 30, 2008)
[In millions of dollars]
NAICS code Description Value of sales E-commerce as
percent of total
Percent distribution of e-commerce sales
2006 2005 Y/Y percent change
Total E-commerce Revised total Revised e-commerce Total sales E-commerce sales
2006 2005 2006
42 Total merchant wholesale trade including MSBOsb 5,585,008 1,148,181 5,181,420 1,049,264 7.8 9.4 20.6 20.3 100.0
423 Durable goods 2,868,396 574,720 2,643,390 511,942 8.5 12.3 20 19.4 50.1
4231 Motor vehicles and automotive equipment 710,009 333,350 654,754 305,782 8.4 9.0 47 46.7 29
4232 Furniture and home furnishings 84,375 11,724 79,666 11,133 5.9 5.3 13.9 14.0 1.0
4233 Lumber and other construction material 173,662 7,967 168,358 7,735 3.2 3.0 4.6 4.6 0.7
4234 Professional and commercial equipment and supplies 517,726 97,551 483,395 77,063 7.1 26.6 18.8 15.9 8.5
42343 Computer equipment and supplies 281,574 54,758 275,503 47,755 2.2 14.7 19.4 17.3 4.8
4235 Metals and minerals, excluding petroleum 216,178 7,538 190,117 5,646 13.7 33.5 3.5 3.0 0.7
4236 Electrical goods 409,804 45,966 376,035 41,227 9.0 11.5 11.2 11 4.0
4237 Hardware, plumbing and heating equipment 110,588 (S) 101,302 13,758 9.2 (S) (S) 13.6 (S)
4238 Machinery, equipment and supplies 416,431 35,676 381,233 32,064 9.2 11.3 8.6 8.4 3.1
4239 Miscellaneous durable goods 229,623 20,070 208,530 17,534 10.1 14.5 8.7 8.4 1.7
424 Nondurable goods 2,716,612 573,461 2,538,030 537,322 7.0 6.7 21.1 21.2 49.9
4241 Paper and paper products 140,251 17,746 135,877 15,198 3.2 16.8 12.7 11.2 1.5
4242 Drugs, drug proprietaries and druggists' sundries 518,513 296,619 506,061 290,866 2.5 2.0 57.2 57.5 25.8
4243 Apparel, piece goods, and notions 135,738 29,561 125,953 27,228 7.8 8.6 21.8 21.6 2.6
4244 Groceries and related products 605,417 86,559 574,953 78,883 5.3 9.7 14.3 13.7 7.5
4245 Farm-products raw materials 130,482 4,987 118,271 4,482 10.3 11.3 3.8 3.8 0.4
4246 Chemicals and allied products 153,772 17,862 148,275 15,917 3.7 12.2 11.6 10.7 1.6
4247 Petroleum and petroleum products 653,256 (D) 566,277 (D) 15.4 (D) (D) (D) (D)
4248 Beer, wine, and distilled beverages 109,197 (D) 101,886 (D) 7.2 (D) (D) (D) (D)
4249 Miscellaneous nondurable goods 269,986 48,658 260,477 43,462 3.7 12 18 16.7 4.2
(S) Estimate does not meet publication standards because of high sampling variability (coefficient of variation is greater than 30%) or poor response quality (total quantity response rate is less than 50%).
(D) Estimate is withheld to avoid disclosing data of individual companies; these data are included in higher level totals.
Note: Estimates are not adjusted for price changes.
aEstimates include data only for businesses with paid employees and are subject to revision.
bManufacturers' Sales Branches and Offices.

and supplies increased 26.6%, more than three times the increase experienced in professional and commercial equipment sales overall (7.1%).

E-Commerce and Retail

Retail sales consist of any product that is sold to an individual customer or company for use. Since the late 1990s nearly every major retailer from AutoZone to Neiman-Marcus to Wal-Mart has created a Web site. Many offer a greater variety of merchandise online than what is available in the store. The growth of such Web sites has allowed Americans to order just about anything and have it delivered to their front door within days.

According to the Census Bureau, in 2006 E-Commerce Multi-sector Report, e-commerce transactions accounted for 2.7% ($107 billion) of all retail sales in 2006. (See Figure 3.3.) Though this percentage may seem small, the amount of money made from e-commerce in retail increased rapidly from the late 1990s. The Census Bureau explains in E-Stats Archives (May 16, 2008, that e-commerce accounted for only 0.2% ($5 billion) of all retail sales in 1998. This percentage more than doubled to 0.5% ($15.6 billion) in 1999 and nearly doubled again to 0.9% ($28.8 billion) in 2000. In 2002 e-commerce represented 1.4% ($44.3 billion) of retail sales. A major reason that e-commerce sales formed only a small percentage of total sales was that many of those items included in total sales, such as gasoline or building supplies, could not be easily purchased online. (See Table 3.8.) Of those retailing sectors that did sell merchandise online in 2006, nonstore retailers and electronic shopping and mail-order houses topped the list in merchandise sold online. Motor vehicles and parts dealers came in third.

Table 3.9 focuses solely on the electronic shopping and mail-order house segment of retail. Many of the businesses in this category, such as Dell, sell their products almost exclusively online and through catalogs. Others are divisions of larger department stores, such as Nordstrom, created to sell the stores' products online. Online sales accounted for 39.4% of overall sales for electronic shopping and mail order businesses in 2006.

TABLE 3.8 Total and e-commerce retail sales*, 200506
source: Table 5. U.S. Retail Trade SalesTotal and E-Commerce: 2006 and 2005, in 2006 E-commerce Multi-sector Data Tables, U.S. Department of
Commerce, U.S. Census Bureau, Economics and Statistics Administration, May 16, 2008, (accessed July 30, 2008)
[In millions of dollars]
NAICS code Description Value of sales E-commerce as
percent of total
Percent distribution of e-commerce sales
2006 2005 Y/Y percent change
Total E-commerce Revised total Revised e-commerce Total sales E-commerce sales
2006 2005 2006
Total retail trade 3,887,363 106,583 3,688,059 87,397 5.4 22 2.7 2.4 100
441 Motor vehicles and parts dealers 898,624 20,004 885,997 16,503 1.4 21.2 2.2 1.9 18.8
442 Furniture and home furnishings stores 117,659 642 111,763 615 5.3 4.4 0.5 0.6 0.6
443 Electronics and appliance stores 108,362 1,213 101,609 1,163 6.6 4.3 1.1 1.1 1.1
444 Building materials and garden equipment and
supplies stores 344,728 606 327,192 496 5.4 22.2 0.2 0.2 0.6
445 Food and beverage stores 533,779 752 514,998 491 3.6 53.2 0.1 0.1 0.7
446 Health and personal care stores 224,752 (S) 209,008 (S) 7.5 (S) (S) (S) (S)
447 Gasoline stations 416,246 (S) 373,855 (S) 11.3 (S) (S) (S) (S)
448 Clothing and clothing accessories stores 214,876 2,077 201,534 1,748 6.6 18.8 1.0 0.9 1.9
451 Sporting goods, hobby, book, and music stores 84,772 1,502 81,801 1,138 3.6 32 1.8 1.4 1.4
452 General merchandise stores 552,109 (S) 525,248 (S) 5.1 (S) (S) (S) (S)
453 Miscellaneous store retailers 115,802 1,691 108,398 1,386 6.8 22 1.5 1.3 1.6
454 Nonstore retailers 275,654 77,641 246,656 63,554 11.8 22.2 28.2 25.8 72.8
4541 Electronic shopping and mail-order houses 190,865 75,230 164,345 61,940 16.1 21.5 39.4 37.7 70.6
(S) Estimate does not meet publication standards because of high sampling variability (coefficient of variation is greater than 30%) or poor response quality (total quantity response rate is less than 50%).
Note: Estimates are not adjusted for price changes.
*Estimates include data for businesses with or without paid employees and are subject to revision.
TABLE 3.9 Total and e-commerce sales of electronic shopping and mail-order houses, by merchandise linea, 200506
source: Table 6. U.S. Electronic Shopping and Mail-Order Houses (NAICS 4541)Total and E-Commerce Sales by Merchandise Line: 2006 and 2005, in
2006 E-commerce Multi-sector Data Tables, U.S. Department of Commerce, U.S. Census Bureau, Economics and Statistics Administration, May 16, 2008, (accessed July 30, 2008)
[In millions of dollars]
Merchandise lines Value of sales Y/Y percent change E-commerce as percent of total sales Percent distribution
2006 2005 Total sales E-commerce sales Total sales E-commerce sales
Revised total Revised e-commerce
Total E-commerce 2006 2006 2006
Total electronic shopping and mail-order houses (NAICS 4541) 190,865 75,230 164,345 61,940 16.1 21.5 39.4 100 100
Books and magazines 6,306 (S) 5,729 (S) 10.1 (S) (S) 3.3 (S)
Clothing and clothing accessories (includes footwear) 19,290 11,752 17,109 8,880 12.7 32.3 60.9 10.1 15.6
Computer hardware 20,664 8,915 19,998 8,519 3.3 4.6 43.1 10.8 11.9
Computer software 4,265 2,218 3,931 2,083 8.5 6.5 52 2.2 2.9
Drugs, health aids, and beauty aids 59,641 4,238 45,734 3,760 30.4 12.7 7.1 31.2 5.6
Electronics and appliances 10,074 6,987 8,749 5,860 15.1 19.2 69.4 5.3 9.3
Food, beer, and wine 3,448 1,729 2,944 1,363 17.1 26.9 50.1 1.8 2.3
Furniture and home furnishings 11,407 7,028 9,838 5,189 15.9 35.4 61.6 6 9.3
Music and videos 4,436 3,141 3,824 (S) 16 (S) 70.8 2.3 4.2
Office equipment and supplies 7,860 4,869 6,858 4,122 14.6 18.1 61.9 4.1 6.5
Sporting goods 4,201 2,422 3,872 1,790 8.5 35.3 57.7 2.2 3.2
Toys, hobby goods, and games 3,697 1,891 3,724 1,808 0.7 4.6 51.1 1.9 2.5
Other merchandiseb 26,476 11,123 24,451 9,092 8.3 22.3 42 13.9 14.8
Nonmerchandise receiptsc 9,100 5,392 7,584 4,236 20 27.3 59.3 4.8 7.2
(S) Estimate does not meet publication standards because of high sampling variability (coefficient of variation is greater than 30%) or poor response quality (total quantity response rate is less than 50%).
Note: Estimates are not adjusted for price changes.
aEstimates include data for businesses with or without paid employees, are grouped according to merchandise categories used in the Annual Retail Trade Survey, and are subject to revision.
bIncludes other merchandise such as collectibles, souvenirs, auto parts and accessories, hardware, lawn and garden equipment and supplies, and jewelry.
cIncludes nonmerchandise receipts such as auction commissions, customer training, customer support, advertising, and shipping and handling.

(See Table 3.9.) This number had increased dramatically since 1999, when e-commerce made up only 12.6% of sales of this retail sector. Regarding individual types of products, 70.8% of the revenues from the sale of music and videos came from online sales in 2006. This represented the highest percentage of online sales for any type of product in this retail segment and was closely followed by electronics and appliances (69.4%). In terms of sheer sales volume, more clothing and accessories ($11.8 billion) were sold than any other type of product.

In Statistical Abstract of the United States: 2008 (2007,, the Census Bureau outlines projections for growth in online retail trade from $132.1 billion in 2006 to $271.1 billion in 2011, an increase of 105%. In particular, automobiles and automobile parts are projected to increase 97%, from $15.9 billion to $31.4 billion, and the apparel, accessories, and footwear segment is expected to grow 104%, from $13.8 billion in 2006 to $28.2 billion in 2011.

Who Shops Online?

Pew/Internet reports in Usage over Time (2008, that 71% of people with an Internet connection in December 2007 had bought something online. However, the percentage of Americans who purchased retail merchandise regularly online was much lower. In Number of Online Shoppers Holding Steady (March 6, 2006,, Lydia Saad of the Gallup Organization indicates that as many as 52% of Internet users were buying merchandise online frequently or occasionally in 2005. This equated to roughly 38% of the U.S. population. When Gallup asked a similar question in 2003, only 36% of those surveyed replied that they regularly purchased a product online. Given the small increase over these three years, the percentage of repeat online customers may have been close to reaching its peak in 2005. Saad concludes that the Internet had firmly established its loyal customer base and that e-commerce sales were increasing relative to over-all sales simply because this customer base was buying more items online.

Not surprisingly, Saad explains that those Internet users who did their shopping online tended to be middle-aged and wealthy. Seventy percent of online Americans with a household income of $75,000 or more shopped online with some frequency in 2005, versus 30% of those with less than a $30,000 annual income. A higher percentage of Internet users thirty to forty years old (61%) regularly bought something on the Internet than users fifty to sixty-four years old (54%) and users eighteen to twenty-nine years old (42%). Roughly the same percentage of online men (53%) and women (51%) shopped online.

Online Auctions: A New Segment of the Economy

When e-commerce developed during the mid-1990s, many small business owners created modest commercial Web sites, hoping to sell their wares. However, Internet fraud and the propagation of questionable Web sites made people reluctant to give personal information to unknown vendors on the Web. Smaller vendors and buyers needed a common marketplace with rules and regulations to trade goods.

In 1998 Pierre Omidyar (1967), Jeff Skoll (1965), and Meg Whitman (1956) went public with eBay. The company, which was at first an auction site for collectibles such as Beanie Babies, quickly attracted the attention of small business owners. For a modest insertion fee, people could list their products on eBay's Web site. Buyers then bid on the objects, and when a sale was final, the seller paid eBay a commission of 1.3% to 5% of the item's sale price. The Web site included payment options that did not require the purchaser to provide credit card information, and it even offered protections against fraud.

The eBay Web site and its imitators created a whole new economic outlet for small business owners and people who simply wanted to pawn off their used goods. No longer was someone who wanted to sell embroidered pillows relegated to local flea markets. Individual vendors from crafters to high-end car salespeople could reach out to a nationwide audience. Even people with used stuff suddenly had more options than simply giving it to charity or holding a garage sale. In its 2007 annual report, eBay (2008, notes that it had eighty-three million active users who bought and sold over $60 billion in merchandise in 2007.

Virtual Goods

One of the more unusual industries to develop, due in part to eBay, was the sale of virtual goods, including money and characters from massively multiplayer online role-playing games. Games such as World of Warcraft and EverQuest place players in virtual worlds with thousands of other people where they can buy virtual property, kill monsters, and collect gold and other valuable virtual artifacts. Some of these online games even provide the player with the option to marry and build houses in a virtual world. Progressing far in these games and obtaining a high level, however, requires hundreds of hours of playtime. As a result, an entire cottage industry developed around the sale of virtual gold and characters on auction sites such as eBay. Typically, a player would buy the game, build up a character and gold, and then sell his or her password to the game to a buyer on eBay, sometimes fetching hundreds of dollars. Such sales represented the first industry centered on completely virtual goods. However, the article eBay Delisting All Auctions for Virtual Property (January 26, 2007, notes that in January 2007 eBay announced that it had begun delisting auctions of virtual goods in response to the suggestion that virtual items belonged to the game copyright holders and not to the gamers who earned them in the virtual world. Some sellers responded by selling their gaming services; that is, instead of auctioning virtual items themselves, they sold the time it would take to earn the virtual goods by playing the game on the buyer's behalf.

E-Commerce in the Service Industries

The service industry in the United States is enormous and encompasses everything from brokerage houses to real estate companies to travel agents to health care. Generally, any business that sells its services or some type of expertise belongs in this category. Of all the industries presented in Figure 3.3, e-commerce revenue made up the smallest percentage of total revenue for the service industries in 2006. In those areas of the service industry where e-commerce has broken through, however, it has created much change.

TRAVEL INDUSTRY. Probably no other type of business in the services sector was affected more by the Internet than travel reservations services. Before the Internet, travelers had to either comb through travel books and call airlines, hotels, restaurants, and other venues one by one, or else hire a travel agent to do it for them. When the Internet became widely available, businesses such as Travelocity set up Web sites where anyone could search for rates and make travel reservations on just about any airline or for most large hotels. Existing businesses, such as the airlines, developed Web sites of their own. These Internet innovations made it much easier for travelers to comparison shop and make travel plans on their own. E-commerce made up $8.4 billion (27%) of the total revenue ($31 billion) of travel arrangements and reservation services in 2006. (See Table 3.10.) The marketing research firm PhoCusWright explains in U.S. Online Travel Overview (2007) that for the first time in 2007 more travel reservations were made online than were made offline.

As a consequence, many traditional travel agencies have faced tough times since the late 1990s. In Occupational Employment and Wage Estimates, the BLS indicates that the number of travel agency jobs in the United States dropped 29% between 1998 and 2007, and that there will be little or no growth among agency positions in the next decade, with a projection of about one thousand new positions added by 2016. To avoid losing their jobs, many travel agents are beginning to offer specialized services that cater to consumers seeking unique travel experiences centered on hobbies, activities, or unusual destinations.

FINANCIAL SERVICES. Another service industry that experienced a great deal of change because of IT was the financial brokerage business. Since the early 1980s many of those who worked in the industry employed powerful computers and networking capabilities to track financial markets in real time and make financial transactions electronically. When the Internet became mainstream, large financial services organizations, such as Fidelity Investments and Charles Schwab, offered brokerage accounts to customers, allowing them to trade stocks online. Customers also had access to many of the research services that were only available to stockbrokers before the World Wide Web. Dave Pettit and Rich Jaroslovsky indicate in The Wall Street Journal Online's Guide to Online Investing: How to Make the Most of the Internet in a Bull or Bear Market (2002) that in 1996, 1.5 million brokerage accounts existed online. By 2001 this number increased to twenty million despite the recession, and brokerage accounts were projected to continue growing for many years. According to the Pew/Internet, in Usage over Time, 11% of Internet users in 2007 said they bought and sold stocks, bonds, or mutual funds online. Despite the increase in self-service brokering, the BLS (March 12, 2008, estimates that the ranks of stockbrokers will grow 46.1% by 2016, which is dramatically higher than the 11% employment growth predicted over all industries. However, the BLS (December 2007, notes that job opportunities for brokerage clerks, who generally assist securities brokers in their jobs, are projected to increase at a somewhat slower pace (20%) during the same period. One could surmise that even though IT has not harmed brokers' business, IT has replaced many tasks once completed by clerical employees.

REAL ESTATE SERVICES. The real estate brokerage sector was another service industry that underwent many changes because of the Internet. Before the Internet became widely available people could only find real estate listings in the newspaper or at a real estate agency. Many Web sites, such as, began listing thousands of houses for sale in every region of the country. These sites make it possible for people in Virginia, for example, to get a feel for real estate and real estate prices in Alaska, Arizona, or their own neighborhood. Monthly Internet statistics from ( show that Internet traffic on's site increased from 4.1 million unique visitors in February 2002 to 6.3 million unique visitors in July 2008. Due in part to a real estate boom that began around 2000 and started to wane in 2006, the number of real estate agents and brokers increased from 347,000 in 1998 to 564,000 in 2006, according to the BLS (December 2007, The BLS suggests that the increased use of Internet searches by potential homebuyers will limit the growth of the profession and especially reduce the need for part-time agents. An increase

TABLE 3.10 Total and e-commerce revenue, selected servicesa, 200506
source: Table 4. U.S. Selected Services RevenueTotal and E-Commerce: 2006 and 2005, in 2006 E-commerce Multi-sector Data Tables, U.S. Department of Commerce, U.S. Census Bureau, Economics and Statistics Administration, May 16, 2008, (accessed July 30, 2008)
[In millions of dollars]
NAICS code Description Value of revenue Y/Y percent change E-commerce as percent of total sales Percent distribution of e-commerce revenue
2006 2005
Revised total Revised e-commerce Total revenue E-commerce revenue
Total E-commerce 2006 2005 2006
Total for selected service industries 6,420,224 113,540 5,971,312 98,837 7.5 14.9 1.8 1.7 100
Selected transportation and warehousingb 312,445 7,256 292,756 6,147 6.7 18 2.3 2.1 6.4
484 Truck transportation 219,539 6,392 206,550 5,387 6.3 18.7 2.9 2.6 5.6
492 Couriers and messengers 71,777 (S) 67,024 (S) 7.1 (S) (S) (S) (S)
493 Warehousing and storage 21,129 801 19,182 703 10.2 13.9 3.8 3.7 0.7
51 Information 1,056,045 31,194 1,003,010 29,215 5.3 6.8 3 2.9 27.5
511 Publishing industries (except Internet) 279,415 13,344 269,283 12,146 3.8 9.9 4.8 4.5 11.8
517 Telecommunications 469,585 4,424 446,325 4,018 5.2 10.1 0.9 0.9 3.9
51811 Internet service providers and web search portals 27,775 4,045 25,863 4,147 7.4 2.5 14.6 16 3.6
Selected financec 499,162 7,344 406,374 6,093 22.8 20.5 1.5 1.5 6.5
5231 Securities and commodity contracts intermediation and brokerage 365,667 7,220 293,096 5,820 24.8 24.1 2 2 6.4
532 Rental and leasing services 117,669 6,347 108,489 5,427 8.5 17 5.4 5 5.6
Selected professional, scientific, and technical servicesd 1,161,511 24,719 1,080,716 23,057 7.5 7.2 2.1 2.1 21.8
5415 Computer systems design and related services 200,695 3,798 188,490 3,194 6.5 18.9 1.9 1.7 3.4
56 Administrative and support and waste management and remediation services 562,817 14,495 529,121 13,214 6.4 9.7 2.6 2.5 12.8
5615 Travel arrangement and reservation services 31,006 8,441 29,688 8,328 4.4 1.4 27.2 28.1 7.4
62 Health care and social assistance services 1,566,707 (S) 1,478,637 (S) 6 (S) (S) (S) (S)
71 Arts, entertainment, and recreation services 177,910 2,346 165,808 1,925 7.3 21.9 1.3 1.2 2.1
72 Accommodation and food servicese 578,949 9,512 545,713 7,735 6.1 23 1.6 1.4 8.4
Selected other servicesf 387,009 6,304 360,688 4,484 7.3 40.6 1.6 1.2 5.6
811 Repair and maintenance 141,562 990 136,920 957 3.4 3.4 0.7 0.7 0.9
813 Religious, grantmaking, civic, professional, and similar organizations 162,399 3,427 142,885 2,237 13.7 53.2 2.1 1.6 3
(S) Estimate does not meet publication standards because of high sampling variability (coefficient of variation is greater than 30%) or poor response quality (total quantity response rate is less than 50%).
Note: Estimates are not adjusted for price changes.
aEstimates are subject to revision and include data only for businesses with paid employees except for Accommodation and Food Services, which also includes businesses without paid employees.
bExcludes NAICS 481 (air transportation), 482 (rail transportation), 483 (water transportation), 485 (transit and ground passenger transportation), 486 (pipeline transportation), 487 (scenic and sightseeing transportation), 488 (support activities for transportation), and 491 (postal service).
cExcludes NAICS 521 (monetary authorities-central bank), 522 (credit intermediation and related activities), 5232 (securities and commodity exchanges), 52391 (miscellaneous intermediation), 52399 (all other financial investment activities), 524 (insurance carriers and related activities), and 525 (funds, trusts, and other financial vehicles).
dExcludes NAICS 54112 (offices of notaries).
eEstimates are based on data from the 2006 Annual Retail Trade Survey.
fExcludes NAICS 81311 (religious organizations), 81393 (labor and similar organizations), 81394 (political organizations), and 814 (private households).

of about 11% is expected between 2006 and 2016, with approximately sixty thousand new job openings for real estate brokers and sales agents.

IT and Currency

IT has not only changed how people pay for merchandise but also how people make and receive payments in general. Credit cards, debit cards, electronic bank transfers, and online banking have eliminated much of the need to carry cash and personal checks. In The Future of Banking in America: The Effect on U.S. Banking of Payment System Changes (FDIC Banking Review, vol. 16, no. 2, 2004), Neil B. Murphy reports that over 88% of households in the United States used some form of electronic payment in 2001. The advantages of a cashless system are undeniable. With credit cards and debit cards people always have buying power at their disposal, they can make purchases instantly, and they can access and transfer money online. Banks and businesses are no longer required to spend money moving paper bills and checks all over the country. Furthermore, store owners do not have to worry about the security risks inherent with keeping large amounts of cash on hand.

Credit and Debit Cards

CREDIT CARDS. The most firmly established of these electronic payment methods is the credit card. The first general-purpose credit card was issued in 1950 by Diners Club. This credit card allowed restaurant patrons in Manhattan to charge a meal at any restaurant that participated in the program. Even though credit card use has increased almost every year since then, credit card transactions took place entirely on paper at first, which kept some people away. During the 1980s a computerized, networked credit card system was put into place using modems and other networking technologies. The result was that credit card use skyrocketed. Murphy estimates that in 2004 there were more than 1.2 billion credit cards in the United States. A little under half (551.9 million) of these cards were issued directly by retailers under a private label (e.g., Banana Republic or J.C. Penney). The rest were issued by banks or as travel and entertainment cards. Murphy reports that between 1997 and 2001 the number of credit card transactions grew from 12.9 billion to 17 billion. In The Electronic Payments Study (March 2008,, the Federal Reserve System explains that 18.9 billion general purpose credit card transactions were processed in the United States in 2006, along with about 2.8 billion private label credit card transactions.

Approximately 1.4 billion credit cards were active in the United States in 2005. (See Table 3.11.) This number was projected to grow to 1.5 billion by 2010. As to annual spending, $2.1 trillion was charged to credit cards in 2005 and was projected to increase to $3.4 trillion by 2010. Table 3.12 provides information on median account charges (half of charges were more and half were less), balances, and payments.

DEBIT CARDS. Since their introduction to the U.S. market in the early 1990s, debit cards have also become a popular method of payment for many Americans. Debit cards remove existing money from a money market or bank account when used, unlike credit cards, which are effectively making loans to their users. A debit card user does not owe money after the transaction, but must have sufficient funds in his or her account to cover the transaction.

Debit cards grew out of the automated teller machine (ATM) system that became widespread during the early 1980s. The first U.S. ATM was a Chemical Bank cash dispenser that went into operation in Long Island, New York, in 1969; as of 2006 there were approximately 395,000 ATMs in the United States, according to the American Bankers Association, in ATM Fact Sheet (2007, As of 2006, the leading owners of ATMs were Bank of America (16,733), Cardtronics (10,000), J.P. Morgan Chase (7,310), U.S. Bancorp (7,164), and Wells Fargo (6,200). ATM usage appears to have peaked in 2001, when 13.6 billion transactions were conducted at U.S. ATMs. Since that time, as people increased their use of debit cards, online banking, and other options, ATM use declined to 10.1 billion transactions in 2006.

Some ATM networks, which were originally constructed to allow bankcards access to ATMs at multiple banks, expanded their networks to grocery stores and select mainstream retail stores such as Wal-Mart. Customers could then use their ATM cards to buy groceries or merchandise at the register without first having to withdraw cash from a machine. When this debit card system appeared as if it might become widely used, Visa and MasterCard responded by opening their extensive

TABLE 3.11 Credit cardsholders, number, spending, and debt, 2000, 2005, and projected 2010
source: Table 1157. Credit CardsHolders, Number, Spending, and Debt, 2000 and 2005, and Projections, 2010, in Statistical Abstract of the United States : 2008, U .S. Department of Commerce, U .S. Census Bureau, Economics and Statistics Administration, 2007, (accessed July 15, 2008). Data from the Nilson Report newsletter, Carpinteria, CA.
[159 represents 159,000,000]
Type of credit card Cardholders (mil.) Number of cards (mil.) Credit card spending volume (bil. dol.) Credit card debt outstanding (bil. dol.)
2000 2005 2010, proj. 2000 2005 2010, proj. 2000 2005 2010, proj. 2000 2005 2010, proj.
Totala 159 164 176 1,425 1,395 1,466 1,458 2,052 3,378 680 832 1,091
Bankb (NA) (NA) (NA) 455 546 623 938 1,373 2,157 480 612 775
Store 114 114 114 597 500 491 120 134 197 92 87 102
Oil company 76 60 55 98 79 76 50 67 126 5 9 13
Otherc 132 125 113 275 270 276 350 477 898 103 124 201
NA Not available.
aCardholders may hold more than one type of card.
bVisa and MasterCard credit cards.
cIncludes Universal Air Travel Plan (UATP), phone cards, automobile rental, and miscellaneous cards. Except for data on cardholders, also includes Discover and American Express.
TABLE 3.12 Use of general purpose credit cards by families, selected years, 19952004
source: Table 1158. Usage of General Purpose Credit Cards by Families: 1995 to 2004, in Statistical Abstract of the United States: 2008, U.S. Department of Commerce, U.S. Census Bureau, Economics and Statistics Administration, 2007, (accessed July 15, 2008). Data from the Board of Governors of the Federal Reserve System.
Age of family head and family income Percent having a general purpose credit card Median number of cards Median new charges on last month's bills (dol.) Percent having a balance after last month's bills Median balance (dol.)* Percent of cardholding families who
Almost always pay off the balance Sometimes pay off the balance Hardly ever pay off the balance
1995, total 66.5 2 200 56 1,800 52.4 20.1 27.5
1998, total 67.5 2 200 54.7 2,200 53.8 19.3 26.9
2001, total 72.7 2 200 53.7 1,900 55.3 19.1 25.6
2004, total 71.5 2 300 56.2 2,100 55.7 20.3 24
Under 35 years old 60.6 2 200 66.1 1,500 49 20.4 30.6
35 to 44 years old 73.3 2 300 70.8 2,400 41.6 26.2 32.2
45 to 54 years old 77.5 2 300 61.2 3,000 49.3 23.9 26.8
55 to 64 years old 78.2 2 400 46.1 2,500 66.8 16.8 16.5
65 to 74 years old 75.5 2 300 37.7 2,300 70.7 13.4 15.9
75 years old and over 65.4 2 200 32.2 1,100 77.5 12.9 9.7
Less than $10,000 31.5 1 100 59.4 1,200 50.9 17.3 31.9
$10,000 to $24,999 48.6 1 100 59.7 1,200 49.9 17 33.1
$25,000 to $49,999 71.2 2 200 64.3 2,000 46.9 20.3 32.8
$50,000 to $99,999 88.2 2 300 56.1 2,800 56.1 22 21.8
$100,000 and more 96.6 2 1,200 42.8 3,400 71.1 20.2 8.7
*Among families having a balance.
TABLE 3.13 Households that used selected payment instruments, 1995, 2001, and 2004
source: Table 1155. Percent of U.S. Households That Use Selected Payment Instruments: 1995 to 2004, in Statistical Abstract of the United States : 2008, U.S. Department of Commerce, U.S. Census Bureau, Economics and Statistics Administration, 2007, (accessed July 15, 2008). Data from Loretta J. Mester, Changes in the Use of Electronic Means of Payment: 19952004, Business Review, 2006. Published by the Federal Reserve Bank of Philadelphia.
[In percent]
Age and education of head of household Any of these instruments ATMa Debit card Direct deposit Automatic bill paying Softwareb
1995 2004 1995 2004 1995 2004 1995 2004 1995 2004 2001 2004
All households 77.7 90.4 62.5 74.4 17.6 59.3 46.7 71.2 21.8 47.4 18 19.3
Under 30 years old 76.3 87.3 72.3 83 24.4 74.4 31 54 17.7 36.5 17 20.4
30 to 60 years old 78.7 90.3 68.6 82.3 19.7 67.6 42.8 68.2 24.4 50.3 22 21.9
61 years old and over 76.1 91.9 44.2 51.6 9.6 32.5 63.3 87 18.2 46.5 9 12.8
No college degree 71.4 86.2 54.7 67.4 14.3 54.9 40.3 64.3 18.1 39.5 10.9 12.4
College degree 91.8 97.5 80.4 86.4 25.2 67 61 83.2 30.1 61.1 31.8 31.3
aThe question on ATMs asked whether any member of the household had an ATM card, not whether the member used it. The other questions asked about usage of other instruments.
bThe question on software asked whether the respondent or spouse/partner uses any type of computer software to help in managing their money.

networks to banks and debit card users. Since 1995 the use of debit cards has grown at a rapid pace. According to Murphy, from 1995 to 2001 the percentage of American households using a debit card grew from 17.6% to 47%. In 1995 there were 1.4 billion debit card transactions, and by 2000 the number of transactions had increased to 8.3 billion. In Electronic Payments Study, the Federal Reserve reports that there were 16 billion signature debit transactions (those routed through the Visa or MasterCard check systems) and 9.4 billion personal identification numberbased debit transactions (those routed through the electronic fund transfer banking system) in 2006. Table 3.13 shows that six out of ten (59.3%) U.S. households used a debit card to make payments in 2004, with younger, more educated households more likely to employ this payment method. About three-quarters (74.4%) of those under age thirty used a debit card in 2004, compared to fewer than one-third (32.5%) of those aged sixty-one or older.

Electronic Transfer of Money

Another type of paperless monetary transaction that has grown in popularity is the electronic transfer of money, formally known as the automated clearinghouse (ACH) system. Electronic transfer is an electronic form of the checking system. When making an ACH transaction, the person or business with the checking account provides the account and routing number to another party along with the authorization to wire money directly into or out of an account. For the most part, large corporations employ this method of payment and receipt more extensively than individual households. Murphy notes that 97% of large corporations used the ACH system extensively in 2002, largely for business-to-business transactions involving substantial amounts of money.

Individuals who use the ACH system typically do so to receive regular salary or Social Security payments and to make regular monthly payments. According to Murphy, 3.8 billion direct deposit payments were made into individual accounts in 2002, and the number of direct payments by consumers topped 2.8 billion, which was a 10.1% increase from 2001. Table 3.13 displays the percentage of households that took advantage of direct deposit and automatic bill paying in 1995 and 2004. Over these nine years the percentage of households using direct deposit increased from 46.7% to 71.2%, and the percentage of households using ACH for paying bills increased from 21.8% to 47.4%.

Many Americans also file their tax returns and receive refunds through an electronic payment method. The Internal Revenue Service (IRS; July 5, 2008, states that during the 2008 tax filing season 87.3 million tax returns were filed over the Internet either from home or through a tax preparer such as H&R Block. This represented a 12.4% (77.7 million) increase over 2007. When the tax return is sent via Internet, the IRS provides the option of either paying taxes or receiving taxes directly through a personal bank account, using the Electronic Federal Tax Payment System. The IRS (April 19, 2008,,,id=184855,00.html) states that it processed 61.8 million direct deposit refunds in 2008, an increase of 8.1% over 2007 (57.2 million).

Despite all the electronic transfers that take place in and out of bank accounts each year, Americans still write a staggering number of checks. In 2007 Federal Reserve Payments Study: Noncash Payment Trends in the United States, 20032006 (December 2007,, the Federal Reserve reveals that Americans wrote 30.6 billion checks in 2006, down from 37.3 billion in 2003. According to the Federal Reserve, in The Check Sample Study (March 2008, http://www.frbservices.orgfiles/communications/pdf/research/2007_check_sample_study.pdf), a statistical analysis of thirty thousand checks, the largest percentage of checks in 2006 (48.7%) were those written by consumers to businesses, followed by business-to-business check payments (22.1%) and business-to-consumer checks (15.1%).

Because the cost of creating, mailing, and handling so many paper checks is enormous, the U.S. government has made efforts to reduce the number of paper checks in the system. Early in 2003 the Federal Reserve reduced what it charges banks for processing electronic transfers and raised the prices it charges banks for processing paper checks. Then on October 28, 2003, Congress passed and President George W. Bush (1946) signed the Check Truncation Act. The act, also known as Check21, went into effect on October 28, 2004. Under the Check Truncation Act banks are no longer required to hold onto the original paper checks they receive. Instead, when a payee deposits a check in a bank, the bank makes a digital copy of the check and shreds the original. The bank then simply wires the payer's bank for the money, avoiding the postage and processing involved in sending the actual check to the payer's bank. If the payer needs a copy of the check, the stored digital image can be printed.

Will Americans Abandon the Bank?

Dennis Jacobe of the Gallup Organization indicates in Banking Customers Still Love Bricks and Mortar (June 10, 2003, that in 2003 Americans wanted both the option of banking electronically and of visiting their local bank branch. Because of the high costs of hiring tellers and leasing branch space, banks have encouraged the use of electronic banking among customers as a whole. The banks' efforts appear to be working. In March 2000 only 7% of Americans reported any experience with online banking, and by 2003, 29% of Americans said that they banked online from home at least once a month. In Usage over Time, Pew/Internet reports that in March 2000, 17% of Internet users reported that they had ever banked online. By June 2003 this percentage had doubled, and roughly one-third (34%) of Internet users had conducted banking online. This trend showed continued growth, reaching 53% by September 2007.

Even though Americans have taken advantage of online banking, debit cards, and ATM services, most still make regular trips to a bank branch location. Jacobe notes that in March 2000, 87% of respondents said they were bank customers and 78% said they used the bank once a week; by 2003, 83% of Americans still visited their bank once a month on average, and three out of ten (29%) visited the bank four or five times a month. Between 2000 and 2003 the frequency of visits appeared to have gone down, but the number of banking customers did not change. Overall, Jacobe concludes that seeing a teller face to face is still important to Americans. In particular, when faced with a complicated transaction, people would rather deal with someone in person. However, by 2006 fewer than one-third of Americans reported conducting most of their banking at a branch location. In ATM Fact Sheet, the American Bankers Association finds that as of July 2006, 32% of Americans did most of their banking at a traditional branch location, 26% used an ATM, 26% banked online, 5% banked by phone, and 5% conducted most of their banking by mail.

Antitrust Litigation

Throughout U.S. history technological innovation has tended to give rise to the formation of monopolies. Those companies that create a widespread demand and a standard for new technologies often become the only producer of that technology, shutting down further competition in that industry. Since the passage of the Sherman Antitrust Act in 1890, companies in the private sector have been forbidden from blocking competitors from entering the market. If a company grows large enough and powerful enough to keep competitors out of the market and become a monopoly, then the U.S. Department of Justice (DOJ) typically intervenes and either reaches a settlement with the company or files an antitrust suit and takes the company to court. The U.S. government takes the stance that monopolies reduce competition, which hinders economic progress and innovation. Even though this law may appear easy to understand, the courts and the DOJ have to weigh a number of factors before breaking up a monopoly, including the negative effects the ruling may have on consumers.

In 1998 the DOJ and the attorneys general of twenty states filed an antitrust suit against Microsoft Corporation. Along with other charges, the government claimed that Microsoft violated antitrust law when it integrated its Internet Explorer Web browser software with Windows. At the time, Windows was the only operating system widely available for the personal computer (PC). When Microsoft integrated Internet Explorer and Windows, other Web browsers such as Netscape could not compete. The DOJ maintained that this act created unfair competition for those other companies that made browsers for PC systems. Microsoft officials claimed that Internet Explorer was now part of Windows and that separating the two would destroy the most current versions of the operating system and years of development on their part.

On November 5, 1999, Judge Thomas Penfield Jackson (1937) of the U.S. District Court presented a preliminary ruling, which asserted that Microsoft did have a monopoly with its PC operating system and that the monopoly prevented fair competition among companies making software for personal computers. Five months later, on April 3, 2000, Judge Jackson gave his final ruling, ordering that Microsoft should be split into two separate units: one that would produce the operating system and one that would produce other software components such as Internet Explorer. Microsoft immediately appealed, and the case went to the federal appeals court under Judge Colleen Kollar-Kotelly (1943). In the midst of the judicial review, the White House administration changed, and the DOJ, now led by John D. Ashcroft (1942), came to an agreement with Microsoft that did not involve the breakup of the company. However, several of the states continued to battle the software giant in court. On November 1, 2002, Judge Kollar-Kotelly ruled that the company should not be broken up and should follow the agreement laid down by the DOJ and accepted by the attorneys general of Illinois, Kentucky, Louisiana, Maryland, Michigan, New York, North Carolina, Ohio, and Wisconsin. Additional remedies proposed by California, Connecticut, the District of Columbia, Iowa, Florida, Kansas, Massachusetts, Minnesota, Utah, and West Virginia were dismissed. The agreement required Microsoft to take a number of steps that would allow competitors to once again compete in the market. Among these provisions, Microsoft was required to give computer makers the option of removing Internet Explorer and other Microsoft programs that run on top of the Windows operating system. Microsoft was also forced to reveal details about the Windows operating system that would allow makers of other software to better integrate software with Windows.

In a series of reports issued at roughly three-month intervals, the DOJ ( updates Microsoft's progress in complying with the terms of the final judgment in the case. Each report covers progress toward goals such as sharing technical documentation, providing feedback to software developers, promoting data portability, and supporting interoperability among systems. In Joint Status Report on Microsoft's Compliance with the Final Judgments (September 25, 2008,, the DOJ explains that with more than twenty thousand pages of technical documentation to review and rewrite, over thirteen hundred technical documentation issues remained unresolved as of August 31, 2008.

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