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Internet 2000 - Lawyers, Big Guns and Money

This article was originally published in the Spring 2001 issue of Communication Technology Decisions, the official magazine and Bi-annual publication of the International Institute of Communications.

Last year, a number of negative pundits predicted that 2000 would be remembered as the time when the world's computers crashed at the start of a new year. Due to years of prior planning and billions of dollars in upgrades and investments, the Year 2000 or Y2K problem was for the most part, a non-event. A number of significant events did occur during the year 2000, Internet usage reached 52% of the US home population in July. The number of women online in the US surpassed that of men for the first time ever, in the first quarter of 2000. By the beginning of 2000, there were an estimated 570 million email boxes worldwide, with the US having more than 334 million. By the third quarter of 2000, just over six million people were using internet-enabled cell phones in Europe. The numbers of subscribers utilising wireless data technology globally is set to rise from 170 million in 2000 to more than 1.3 billion by 2004.
2000 was the year that the internet evolved to become a mainstream means of commercial communication. Though significant social, political and technological advancements occurred, it is a time in the internet's history that will most likely be remembered for hi-tech stock market corrections, dot-com failures, high-profile hacks and memorable litigation, including the June 2000 ruling of US District Judge Thomas Penfield Jackson ordering that Microsoft be split into two companies. In hindsight, we will most likely look back upon this time and say: that was when the internet came under attack by lawyers, big guns and money.
Reality Check
To say the Nasdaq stock-market, home to many dot-com and technology companies, took a dive in 2000 would be an understatement. Four months into 2000, the money bubble burst for many US technology companies; even the more established and wellfunded companies could do little but watch their market (over) capitalizations shrink to all-time lows. Three of the Nasdaq's all-time, top-10 biggest point declines occurred in April 2000, including a 349 point decline on 3 April; a 258 point drop one week later on 10 April and another 286 point loss on 12 April.
In less than one month, many of the high-flying internet/tech stocks fell from grace: About.com's stock declined 59 per cent; Akamai Technologies was down 70 per cent and PlanetRx down 64 per cent. On 29 March 2000, Microsoft Corporation's stock closed just over US$107 and yet, less than one month later (24 April, 2000), Microsoft was trading at 66.625, reducing the company's market capitalisation by more than US$120 billion. Customer service complaints and a third-quarter revenue report well below analyst expectations, saw Priceline.com's stock suffer a nearly 90 per cent drop in share price as of September 2000.
Shunned by the financial markets, but desperately needing further funding, downtrodden dot-coms even found it difficult to raise venture capital funding. As a result, many internet/e-commerce companies such as Beyond.com, Pets.com and DrKoop.com found themselves in deep waters. Some companies just disappeared altogether - Living.com, Pseudo.com, Toysmart.com, Value America and media/entertainment sites FasTV.com, Pop.com and the Digital Entertainment Network.
Copyright or Copywrong?
In May of 1999, an unknown computer programmer named Shawn Fanning created a peer-to-peer file-sharing software programme called Napster. The service lets users find and download MP3 files directly to their computers from other Napster-users' computers. In less than a year, Napster's music-swapping service could boast more than 28 million users, thanks in large part to the publicity generated by a lawsuit brought by the Recording Industry Association of America (RIAA), claiming piracy and copyright infringement.
RIAA's position is that artists and labels must be compensated for the digital performance of their works. On 26 July 2000, US District Judge Marilyn Hall Patel sided with the preliminary injunction requested by the RIAA, issuing an order that Napster Inc. cease its music downloading operations. Judge Patel said: "When the infringing is of such a wholesale magnitude, the plaintiffs are entitled to enforce their copyrights." Within days of Judge Patel's order, Napster won a temporary stay of the injunction, which was upheld during a hearing on 2 October.
In a related case, that came to a head in September, US District Judge Jed S Rakoff found that the digital music distributor, MP3.com had knowingly violated copyright laws by creating the my.mp3.com service. Prior to Judge Rakoff's ruling, MP3.com had reached settlement agreements with BMG, EMI, Sony and Warner Music - paying a reported $20 million to each - leaving Universal as the lone plaintiff in the case. With damages assessed at $25, 000 per CD, MP3.com could be liable for more than $100 million; well below the $450 million judgment that lawyers for Universal were seeking. The legal dispute ended with MP3.com agreeing to pay Universal $53.4m and securing a licensing agreement to use songs owned by Universal.
Could it be that the traditional, entrenched content companies - in this case the US recording industry and RIAA in particular - have failed to fully understand that what they perceive as a threat, could actually be an unprecedented opportunity waiting to be grasped. According to Forrester Research: Young consumers spend up to 61 hours per week and $26.9 billion per year going to the movies, listening to CDs, and playing video games seven out of 10 young consumers who surf entertainment online admit that the research directly influences the CDs they buy, the games they play, and the films they see. In fact, the web often stimulates, rather than depresses, offline entertainment. A quarter of online young consumers report spending more on CDs, concert tickets, videos/DVDs, and computer games since going online.
Companies such as MP3.com and Napster have actually had a direct and significant impact on generating additional revenues for the music industry. While piracy and copyright infringement are serious issues that cannot be ignored, peer-to-peer file sharing is here to stay.
Hack Attack
1999 was the year that computer viruses, specifically those transmitted via the internet, caused havoc for those caught with their digital defences down. Since the Melissa Virus outbreak in March 1999, there has been a proliferation of variant or copycat viruses, Trojan horses and worms, far more destructive than Melissa.
The current state of internet security or, more accurately, the absence of security, became painfully evident in the early months of 2000. In February, many of the largest internet sites were hit by a distributed denial of service attack (dDoS). Companies including Yahoo, Amazon, eBay, CNN, eTrade, ZDNet and Buy.com were all targeted. To implement dDoS attacks, hackers/crackers use easily available software programmes with names like trinoo, Tribe Flood Network (TFN2000) and stacheldraht (German for barbed wire'). The fact that such high profile websites were/are vulnerable should serve as a wake up call. For e-commerce to succeed, internet security measures must improve or we run the risk of losing consumer confidence regarding these technologies.
The third quarter of 2000 saw internet fraud and security breaches of significant proportion. In late August, investors of Emulex Corp, a fiber-optic equipment manufacturer, stood helpless as their stock value plummeted 62 per cent when a former employee of Internet Wire, 23-year-old Mark Jakob, allegedly issued a false press release on Internet Wire's news service. Jakob, apparently attempting to cover personal losses, wrote that the CEO of Emulex was resigning and that the quarterly earnings report of the company would show a quarterly loss instead of the expected profit earlier reported. Other financial news services including Bloomberg and Dow Jones picked up the story, based on the bogus press release, and as a result, Emulex's market value plunged nearly $2 billion in just 15 minutes, costing investors an estimated $50 million in losses.
In September, Western Union's website servers were breached by crackers who apparently absconded with nearly 16, 000 credit and debit card numbers of customers who had used Western Union's website to transfer funds. Western Union wasted little time in alerting its customers that their accounts had been compromised, going so far as too suggest they consider contacting their credit card company to cancel their account.
These high-profile cases should come as no surprise, as information security experts have been warning us for years about the internet's vulnerability. In its 22 March 2000 press release, the Computer Security Institute (CSI) announced the results of its fifth annual Computer Crime and Security Survey. The study was conducted by CSI with the participation of the San Francisco Federal Bureau of Investigation's (FBI) Computer Intrusion Squad. Highlights include:

• 90 per cent of respondents (primarily large corporations and government agencies) detected computer security breaches (cyber attacks) within the last 12 months.
• 71 per cent detected unauthorised access by insiders. But for the third year in a row, more respondents (59 per cent) cited their internet connection as a frequent point of attack, than cited their internal systems as a frequent point of attack (38 per cent).
• 70 per cent reported serious computer security breaches, including theft of proprietary information, financial fraud, system penetration from outsiders, denial of service attacks and sabotage of data and networks.
• 74 per cent acknowledged financial losses due to computer breaches.
• 42 per cent were willing and/or able to quantify their financial losses, totaling $265, 589, 940 (the average annual total over the last three years was $120, 240, 180).
• Financial losses in eight of 12 categories were larger than in any previous year. Furthermore, financial losses in four categories were higher than the combined total of the three previous years.
• Findings of the 2000 Computer Crime and Security Survey confirm that the threat from computer crime and other information security breaches continues unabated and that the financial toll is mounting.