15 April 1998
Source:
http://www.doc.gov/ops/ecom.htm
Thanks to Jay Holovacs
U.S. Department of Commerce
Wednesday, April 15, 1998
Contact: Mary F. Hanley
202-482-4883
Remarks by U.S. Secretary of Commerce William M. Daley--
"The Emerging Digital Economy" [Executive Summary]
Good morning. And welcome. I am delighted all of you could
be here. And I especially want to thank the Information
Technology Policy Council for helping to organize this.
For several months, we have looked at the economic impact
of information technologies. And I told my staff on this day,
April 15th -- of all days -- I want to release the study.
As you know, this year when American taxpayers pay up, we
will spend less than they send in. The last time that happened,
IBM was not yet a member of the Dow; and there were no
Microsofts, or Worldcoms, or Yahoos. In fact, as I look around,
I think half of your companies weren't around 30 years ago.
Obviously, we arrived at this day because President Clinton
and Congress took the hard medicine of downsizing and cutting
programs. But the President would be the first to say that the
natural strength of America -- our entrepreneurs, all of you --
also brought us here.
So, the symbolism is clear: American technologies have
strengthened our economy to the point that this tax day, we are
in the black.
Let me say one more thing, before I go through the numbers.
This is about more than e-commerce, or e-mail, or e-trades, or e-files.
It is about the "e" in economic opportunity. It is about
the "e" in empowering businesses, workers, and consumers in ways
that have never been done. It is about making sure this works
to the benefit of all our businesses -- large and small, old and
new, service or manufacturing.
This is about whether we can give workers the skills to be a
part of this. And whether this is what American consumers want,
because in the end, they have all the votes. You can hook them
up, but consumers have to like it, or the technology loses this
election!
When I read papers, I see articles about the Internet
focused on negative issues. Things like pornography, identity
theft, or electronic pirating. You and I know these are only by-products
of something much larger, and with a much more positive
impact on people's lives.
The report I am releasing today, called the Emerging Digital
Economy, documents the importance of information technologies to
our economy, to our businesses, and to our consumers. This is a
work in progress. It will help us make better policy decisions;
and you in business make better business decisions. And, the
American people need to hear this side of the Internet, too.
So, with this in mind, look at some charts.
I am pleased to announce that in the last five years,
information technologies have been responsible for more than one-quarter
of real economic growth.
During a time when 15 million new jobs have been created,
unemployment is the lowest in 24 years, inflation is the lowest
in 30 years -- let me say this again: more than one-quarter of
the growth comes from information technologies.
You have demonstrated this is the best time in America to be
in business, and I, personally, thank you for that.
Next, as you can see, this industry now makes up more than 8
percent of our economy. And in our review, we found computer and
communications industries growing at more than double the rate of
the economy.
Next, these investments in information technologies account
for over 45 percent of all business equipment investment -- up
from 3 percent in the 1960s.
Our report shows companies are investing in these
technologies to boost productivity and efficiency. Already, in
industries like communications, insurance, and brokerage houses,
they constitute over three-quarters of all equipment investments.
Next, you can see that declining prices of information
technology products have lowered overall inflation by one full
percentage point.
Finally, and this is important, these jobs pay well -- very
well. There are 7.4 million people working in this field. They
earn close to $46,000 annually -- 64 percent more than the
private sector average.
And even with the big paychecks, there are more jobs than
people with the skills to fill them. We will require 1.3 million
new information technology workers over 10 years. That is more
people than build cars and trucks at the Big Three.
The President asked me to see what we can do to expand the
pool. But, to be honest, in this economy, where new industries
emerge overnight, and new talents are needed, I feel businesses
have to take on new responsibilities.
We want you to work with us to help people make the shift
into changing jobs. We need you to retrain workers, whose skills
may be obsolete. And we need you to work more closely with
schools.
I see it happening. When CEOs are faced with turning away
business because they cannot find the right people, they are
serious about changing.
Let me give you a few more numbers. Last year, 100 million
people logged onto the Internet, up from 40 million the year
before. That is faster than the phone, TV, and radio were
adopted.
When President Clinton took office there were only 50 -- 50
-- web sites. Now, 65,000 are being added -- every hour.
Those are impressive numbers, no doubt. But the question we
have to ask is: are businesses truly reshaping themselves? Or
are they just dancing around here?
The answer is a big yes to true re-invention.
General Electric went on line to find suppliers -- and cut
costs tremendously. In two years, GE plans to buy $5 billion of
goods over the Internet, and expects to save $500 million.
Dell Computers saw 1997 Internet sales increase from less
than $1 million per day in January -- to daily sales of $6
million several times in December.
Cisco Systems closed 1996 with $100 million in sales on the
Internet. By the end of 1997, sales topped $1 billion.
It is small businesses, too. When I was in Michigan last
week, I heard an amazing number: 750 computer-related firms in
the state export. This is Michigan, smokestack America -- not
Silicon Valley.
E-commerce gives small and medium-sized firms immediate
access to worldwide markets without the need for overseas trips
or overseas reps.
On the retail front, we see two types of distinct activity.
First, direct access -- as when music is downloaded directly from
a company to a customer's computer.
And second, orders for goods to be delivered physically.
For example, Auto-by-Tel is a web-based automotive marketplace.
Last year, it generated $500 million in sales and processed
100,000 purchase requests -- each month.
So, what is the report telling us?
That the digital economy is alive and well and growing;
that some businesses and workers are reaping the benefits; that
businesses of all sizes should prepare for the digital economy;
and that, given the new role of electronic commerce, government
should re-think the way it looks at the economy.
To that end, at Commerce, I want to improve our surveys that
measure GDP, in order to better capture the value of these
technologies. I have asked Congress for the funds to do so.
As you know, our approach to e-commerce is that the private
sector should lead. Government's role is to establish a climate
where electronic commerce can flourish. We prefer private
contracts over government regulation. And, where we need to act,
the private sector should be part of the dialogue.
I am obviously focusing on adequate protection of
intellectual property on-line. It is staggering to think that
one day people with a computer may get every song ever sung,
every movie ever made, every creative work ever created.
My children would tell me: this is big. It is also big for
the entertainment industry, and clearly you can see their
concerns.
The Administration negotiated two treaties in 1996: the
World Intellectual Property Organization Copyright Treaty, and
the Performances and Phonogram Treat. These set international
standards for protecting copyrighted works, musical performances,
and sound recording.
I am pleased to say that Rep. Hyde recently moved the
implementing legislation through his Committee. Senator Hatch is
also working to move it through his Committee, soon after
Congress returns. I am also pleased to say that industry has
reached an agreement in principle on how to address the potential
copyright liability of on-line service providers.
I call on Congress to move quickly to finish the work, so we
can give a gift to consumers, while protecting the artists. It
is important that industry support these measures. We lead the
world in creating copyrightable works. We need to lead the world
in protecting those works.
Another key issue is privacy. To me, this is the make or
break issue. Look -- you can offer the best products, the best
selection, the best distribution. But consumers need to feel a
certain level of privacy.
They know companies can collect vast amounts of information
and instantly analyze it. And if they feel when they order a
plane ticket or buy a stock, that their personal transactions are
being shared with others, then I say it will be the last time
they do business on the Internet.
Last month, in an editorial, Business Week told businesses
and I quote: "Time is running out. The public does not trust its
promises for self-regulation to ensure privacy. The polls show
that people don't believe that these voluntary standards are
working. It's no wonder that the public wants the government to
step in immediately."
Now is the time for industry to act. President Clinton has
called for a self-regulatory approach to privacy. This would
stand on four pillars:
One, awareness. Consumers need to know who is collecting
personal information, how it will be used, and how they may limit
disclosure.
Two, choice. Consumers should have an option as to if and
how their personal information is used.
Three, data security. Companies with personal information
must take reasonable measures to assure reliability and
protection from loss, misuse, alteration, or destruction.
And, four, access. Consumers should have reasonable access
to personal records held by companies and be able to correct or
amend them.
The truth is, industry has been slow to put these
protections in place. While the pace has picked up recently,
the July 1st deadline when I report the progress to the President
is looming. I very much want this to be a positive report. And
I would like to use this opportunity to encourage industry to
meet this challenge.
I hope you move quickly to establish an overarching, self-regulatory
effort that includes consumer representation.
Let me say, I am also working quickly to end federal
involvement in Internet addressing. We have put forward a plan.
We are reviewing the comments. And we will move ahead to put
this into private hands.
We are also working to develop a uniform commercial legal
framework for electronic transactions worldwide. A key element
of this is recognition and enforcement of electronic signatures.
We have recently proposed an international convention that
supports two goals: recognition of signatures for legal and
commercial purposes; and expressly allowing a full range of
authentication technologies and business applications.
And one last issue I want to address is security, in
particular, encryption. Good security is essential. If you
don't have confidence your message or transaction will go only to
its intended destination and will not be intercepted, and read,
or changed by someone else e-commerce will never fulfill its
potential.
The President is trying to pursue a policy that balances law
enforcement, national security, privacy and commercial interests.
At the same time, that policy must be pursued in light of the
realities of a global economy. This issue cannot be considered
in a vacuum any more than any other economic issue.
The reality is that encryption products are rapidly
multiplying in the global market. At the end of 1997,
we estimate there were 656 encryption products in 29 countries
outside the United States. There are major producers in Germany,
Ireland, Canada, Israel and Great Britain. They are competitive
with anything U.S. producers can make. And they can supply
almost all the needs of computer networks.
And most of these producers do not need an export license if
they want to ship encryption software -- a tremendous market
advantage. Our policy, ironically, encourages the growth of
foreign producers at the same time it retards growth here.
The truth is that while our policy goal -- balance -- is the
right one, our implementation has been a failure. We have not
been able to agree -- amongst ourselves or with the business
community -- on how to reach that balance.
We have not been able to agree on what products can be
exported, on how to implement the policies that we have
announced, such as that concerning financial institutions. And
we have not been able to agree on what we want to encourage
companies to do or on what we want Congress to do.
In turn, our own paralysis has made it difficult to persuade
other nations to pursue policies similar to ours. Without the
cooperation of other nations, the global market is rendering our
policy obsolete. And I fear that will soon make our products
obsolete as well.
The lack of agreement is caused by the unwillingness to
compromise. There are solutions out there. Solutions that would
meet some of law enforcement's needs without compromising the
concerns of the privacy and business communities. But I fear our
search has thus far been more symbolic than sincere.
The cost of our failure will be high. Law enforcement is
foregoing the opportunity to have some problems addressed, while
effectively forcing our producers to go overseas or fall off the
cutting edge of the market.
The ultimate result will be foreign dominance of the market.
This means a loss of jobs here, and products that do not meet
either our law enforcement or national security needs. We are
headed down a lose-lose path. And we have to get back to win-win.
We've talked a lot about this for several years. We can
talk some more. But without a commitment on all sides to settle
for less than 100 percent, we are no closer to resolution than we
were when we began.
So, I say to you today that I intend to make a renewed
effort to achieve that willingness to compromise inside the
government. And I hope all of you will do the same among your
colleagues.
Let me close on this. Tonight, I travel with President
Clinton to South America, as we work to bring free trade to the
hemisphere. Seventy years ago, Herbert Hoover -- one of my
predecessors -- was our first president to ever visit South
America. Ironically, he went there to inaugurate air mail
service.
Knowing President Clinton, he will head straight to a
school, to check our e-mail service. He knows, better than
anyone, that in the information age, no matter where you live,
we can widen the circle of opportunity, so more people can make
more out of their lives.
That is what this report is all about. It shows -- clearly
-- that technology is re-shaping this economy and transforming
businesses and consumers.
We have made gigabytes of progress. And, yes, there are
more challenges ahead. So, I look forward to working, together,
to forever change the face of commerce, to provide more economic
opportunities, and to empower consumers as never before.
Thank you very much.
-30-
Date: Wed, 15 Apr 1998 15:16:26 -0800
From: "--Todd Lappin-->" <telstar@WIRED.COM>
Subject: Re: Commerce Dept Report on E-Commerce
To: CYBERIA-L@LISTSERV.AOL.COM
The report is huge, but this is the executive summary.
--T-->
THE EMERGING DIGITAL ECONOMY
The Digital Revolution: In recent years, the U.S. economy has performed
beyond most expectations. A shrinking budget deficit, low interest rates,
a stable macroeconomic environment, expanding international trade with
fewer barriers, and effective private sector management are all credit with
playing a role. While the full economic impact of information technology
cannot yet be precisely evaluated, its impact has been significant.
Building Out the Internet: Where advances in telecommunications and
computing largely occurred side-by-side in the past, today, they converge
in the Internet. Soon, virtually all information technology investment
will be part of interlinked communications systems, whether internal to a
business, between businesses, between individuals and businesses, or
individual to individual.
Electronic Commerce Between Businesses: Internet commerce is growing
fastest among businesses. Businesses use the Internet to lower purchasing
costs, reduce inventories and cycle times, provide more efficient and
effective customer service, lower sales and marketing costs, and realize
new sales opportunities.
Digital Delivery of Goods and Services: Software programs, newspapers,
airline tickets and music CDs no longer need to be packaged and delivered
to stores, homes or news kiosks. They can be delivered electronically over
the Internet.
Retail Sale of Tangible Goods: Increasing demands on leisure time and the
improvement of overnight and second-day delivery services that spurred the
growth of catalog shopping in the 1980s and 1990s are now leading people to
shop over the Internet.
Challenges Ahead: IT and electronic commerce can be expected to drive
economic growth for many years to come. To realize this potential,
however, the private sector and governments face a number of challenges.
THE DIGITAL REVOLUTION
The U.S. economy has performed beyond most expectations. A shrinking
budget deficit, low interest rates, a stable macroeconomic environment,
expanding international trade with fewer barriers, and effective private
sector management are all credited with playing a role. While the full
economic impact of information technology cannot yet be precisely
evaluated, its impact has been significant.
* Information technology industries have been growing at more than
double the rate of the overall economy-they now represent 8.2 percent of
GDP, up from 4.9 percent in 1985.
* IT industries have been driving real economic growth in the 1990s,
particularly in the last 3 years, where they have been responsible for
nearly 35 percent of total annual real GDP growth.
* Without information technology, overall inflation would have been
3.1 percent in 1997-more than a full percentage point higher than the 2.0
percent it was.
* Companies throughout the economy are betting on IT to boost
productivity. In the 1960s, business spending on IT equipment represented
only 3 percent of total business equipment investment. In 1996, IT's share
rose to 45 percent.
* In 1996, 7.4 million people worked in the IT sector and in
IT-related jobs across the economy.
* These workers earned just under $46,000 per year, compared to an
average of $28,000 for the private sector as a whole.
* At almost $56,000 per year, workers in the software and services
industries were the highest wage earners. Earnings in these industries has
been growing at a rate of 6.6 percent per year, versus 3.8 percent for
total private sector employment. In 1985, 557,000 people worked in these
industries. By 1996, the figure had more than doubled to reach 1.2 million
workers.
BUILDING OUT THE INTERNET
Where advances in telecommunications and computing largely occurred
side-by-side in the past, today, they converge in the Internet. Soon,
virtually all information technology investment will be part of interlinked
communications systems, whether internal to a business, between businesses,
between individuals and businesses, or individual to individual.
* The Internet's pace of adoption eclipses all other technologies
that preceded it. Radio was in existence 38 years before 50 million people
tuned in; TV took 13 years to reach that benchmark. Once it was opened to
the general public, the Internet crossed that line in four years.
* In 1994, 3 million people were connected to the Internet. By the
end of 1997, more than 100 million people were using the Internet.
* Traffic on the Internet has been doubling every 100 days.
* The number of names registered in the domain name system grew from
26,000 in July 1993 to 1.3 million in July 1997. Over the same period, the
number of hosts connected to the Internet expanded from under 1.8 million
to 19.5 million.
* Consumer electronics companies, media giants, phone companies,
computer companies, software firms, satellite builders, cell phone
businesses, Internet service providers, television cable companies are
aggressively investing to build out the Internet. Within the next five
years, the vast majority of Americans should be able to interact with the
Internet from their television sets, or watch television on their PCs, and
make telephone calls from both devices.
ELECTRONIC COMMERCE BETWEEN BUSINESSES
Internet commerce is growing fastest among businesses. Businesses use the
Internet to lower purchasing costs, reduce inventories and cycle times,
provide more efficient and effective customer service, lower sales and
marketing costs, and realize new sales opportunities.
* By 2002, Internet commerce between businesses will likely surpass
$300 billion.
* General Electric uses the Internet for procurement. Its lighting
division has lowered its purchasing labor costs by 30 percent and its
material costs by up to 20 percent. By the year 2000, GE aims to have all
12 of its business units purchasing materials via the Internet, for a total
of $5 billion. Doing so could save the company $500-$700 million over the
next three years.
* The automotive industry has shortened the time it takes to take a
care from concept to mass production from four to six years to about 30
months through the use of automation and electronic communication. They
now want to shorten the design cycle to less than 24 months by setting up
teams in different parts of the world and linking them electronically.
* At the beginning of 1997, Dell was selling $1 million worth of
computers via the Internet each day. By the end of the year, Dell
regularly sold over $3 million per day via the Internet, and even reached
$6 million during the holiday season. Dell estimates that it saves several
million dollars a year by having basic customer service and technical
support functions available on the Internet. Fifty percent of small
businesses that bought from Dell's Web site in 1997 had never purchased
from Dell before. Dell expects to do half its business on the Internet by
the year 2000.
* Boeing spare parts business allows its airline customers around the
world to check parts availability and pricing, order parts, and track the
status of their orders on the Internet. Less than a year after this
service was launched, about 50 percent of Boeing's customers used it for 9
percent of all parts orders and a much larger percentage of customer
service inquiries. Because of the Internet, Boeing was able to process
roughly 20 percent more shipments per month in 1997 than in 1996 with the
same number of data entry people.
* Cisco Systems has saved $363 million (approximately 17.5 percent of
total operating costs) by putting key business applications on the
Internet. Its technical support productivity has increased by 200-300
percent per year, lowering technical support staff costs by $125 million.
Customers download new software releases directly from Cisco's site, saving
the company $180 million in distribution, packaging and duplicating costs.
Having product and pricing information on the Web and Web-based CD-ROMs
saves Cisco $50 million in printing and distributing catalogs and marketing
materials.
* W.W. Grainger's (a leading wholesaler of manufacturing supplies in
North America) revenues from its Web site have been growing 100 percent
quarter over quarter. Over 30 percent of its online sales are to new
customers or incremental sales to existing customers. More than half of
all online orders are made when Grainger stores are closed.
* Two-thirds of Federal Express' shipping transactions are
transmitted and received using online services. The company's own
proprietary network handles 54 million transactions a day, allowing it to
keep track of every package FedEx delivers, every step of the way. Using
this system, National Semiconductor, a FedEx logistics customer, has seen a
reduction of its average customer delivery cycle from four weeks to one
week, and its distribution costs drop from 2.9 percent of sales to 1.2
percent.
DIGITAL DELIVERY OF GOODS AND SERVICES
Software programs, newspapers, airline tickets and music CDs no longer need
to be packaged and delivered to stores, homes or news kiosks. They can be
delivered electronically over the Internet.
* Lower sales and marketing costs, increased consumer choice and
convenience are driving the Internet's increased use in news and
entertainment, travel, software distribution, securities trading, banking
and insurance.
* Nearly 90 percent of Web users go online to get news and information.
* More than 2,700 newspapers and 800 TV stations, and all but three
of the top 50 magazines have a Web presence.
* Up until 3 years ago, print revenues made up 85 percent of
McGraw-Hill financial information service's sales. Today, digital products
account for more than 50 percent of the division's sales.
* Airlines are able to drive down costs and generate new revenues
through the Internet. Commissions paid to online travel agents are about
half the commission paid to traditional agents. Through auctions and
special "cyberfares"offered to Internet customers, airlines can sell seats
that otherwise would go unsold. American Airlines' NetSAAver program has
generated tens of millions of incremental revenues since its launch in
March 1996.
* Travelocity and EasySABRE book $4 million in travel sales each
week, up from $1 million in January 1996. Two years after its launch,
Travelocity has 2 million registered members.
* By the year 2000, online travel sales could reach $5 billion, or
close to 7 percent of U.S. airlines' revenues for passenger air travel.
* It costs about a penny to conduct a banking transaction using the
Internet and more than one dollar if handled by a teller at a branch bank.
In 1997, 4.5 million households were banking online. By the year 2000, as
many as 16 million households are expected to do so.
* Connecting billers and payers electronically could save as much as
$19-46 billion each year in check processing costs.
* By 2001, $1.1 billion of insurance premiums will be generated via
the Internet.
* Nearly 5 million people actively trade stocks online and pay $8-$30
per trade, versus an average of $80 paid to traditional brokers. In 1997,
$614 million in broker commissions were generated online, representing 29
percent of all commissions paid to discount brokers last year.
RETAIL SALES OF TANGIBLE GOODS
Increasing demands on leisure time and the improvement of overnight and
second-day delivery services that spurred the growth of catalog shopping in
the 1980s and 1990s are now leading people to shop over the Internet.
* By the end of 1997, 10 million people in the U.S. and Canada had
purchased something on the Web, up from 7.4 million six months earlier.
* 1-800-FLOWERS sold $30 million online in 1997. While this
represents only 10 percent of the company's total revenues, its profit
contribution to the overall business is nearly that of its store-based
business which is twice as large.
* Amazon.com offers a selection of 2 million book titles to Internet
customers (traditional bookstores have about 150,000 titles). In 1996,
the company recorded sales of less than $16 million. In 1997, its sales
reached $148 million.
* Sixteen percent of all new car and truck buyers used the Internet
as part of their shopping process in 1997, up from 10 percent in 1996. By
2000, the Internet will likely be used in at least 21 percent of all new
car and truck purchases.
* Auto-by-Tel, a Web-based automotive marketplace, processed an
average of about 29,000 purchase requests for autos each month in 1996. At
the end of 1997, the Web site was generating $500 million a month in auto
sales ($6 billion annualized) and processing over 100,000 purchase requests
each month.
* In order for the full potential of Internet retail sales to be
realized, consumers must be more comfortable that credit card and personal
information given online will be not be tampered with, stolen or misused.
The U.S. government is encouraging the private sector to establish codes of
conduct and self-regulation in order to empower consumers to have control
of their own personal information.
CHALLENGES AHEAD
IT and electronic commerce can be expected to drive economic growth for
many years to come. To realize this potential, however, the private sector
and governments face a number of challenges.
* The pace of technological development and the borderless
environment created by the Internet drives a new paradigm for government
and private sector responsibilities.
* Where possible, rules should result from private collection action,
not government regulation.
* Governments must allow electronic commerce to grow up in an
environment driven by markets, not burdened with extensive regulation,
taxation or censorship. Governments have a role to play in supporting the
creation of a predictable legal framework for doing business on the
Internet-a role that must be exercised in a non-bureaucratic manner.
* Greater competition in telecommunications and broadcast industries
should be encouraged so that high-bandwidth services are brought to homes
and offices around the world.
* Information technology has already begun to create demand for
highly skilled workers. As electronic commerce becomes more widespread, it
will drive further changes in the labor market. Countries that have an
insufficient supply of skilled workers will see high-skilled, high-paying
jobs migrate to countries that can supply the needed talent. The private
sector and governments must work together to create new human resources
policies that better prepare students and workers to meet the challenges of
the emerging digital economy.
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