The Internet dates back to 1957, when the Soviet Union launched the Sputnik satellite and thereby started the "space race," in which it and the United States competed relentlessly for technological supremacy on the ground and in the skies. In the Cold War era, the fact that the Soviet Union was leading the way with space-focused technology caused U.S. military and defense institutions great concern. To close the gap, President Eisenhower created the Advanced Research Project Agency, or ARPA, which later came under the control of the Department of Defense as the Defense Advanced Research Project Agency (DARPA). DARPA's purpose was to fund scientific research, and the designers of the original ARPA system believed they could use the research mandate to develop an attack-proof communications structure for national defense purposes.

The great breakthrough was the linking of computers at participating institutions to the ARPANet,
an early version of today's Internet.

By the early 1970s, more than twenty institutions were participating, mostly universities and government agencies, linked by telephone lines and satellites in the continental United States, Alaska, and Hawaii. In 1973, ARPANet became international when connections to University College in London, England, and the Royal Radar Establishment in Norway were established.

Between 1982 and 1987, the foundations of the modern Internet were laid.
TCP/IP
Transmission Control Protocol/Internet Protocol, the communications protocol (standard) of the Internet. It permits the accurate transmission of messages over otherwise incompatible networks.

Prior to 1991, the rapid growth of the Internet made it difficult for users to find information in a timely manner. This obstacle to efficient Internet use changed in 1991 with two important developments:
"gopher" search tools and the code for the World Wide Web. With the release of gopher search tools, which were distributed free over the net, users were able to search in a text-only format.

That same year the first code for the World Wide Web was posted on a newsgroup by Tim Berners-Lee—today credited as the founder of the modern Internet—scientist at the European Particle Physics Laboratory (CERN) in Switzerland.

Berners-Lee's system included a language called hypertext markup language, or HTML. In time HTML was expanded to allow the posting of not only words but also pictures and sound files.

In 1993, a graphical browser called Mosaic was introduced, and the ordinary computer user could move around the Web in today's familiar point-and-click mode.

With the advent of Yahoo!'s commercial Website in 1995, users could locate information on the Web with relative ease using a dedicated search engine. Since then, the Internet's growth rate shot up, both in terms of access points and daily use, and it has continued unabated.

This phenomenal growth of the Internet during the late 1990s was extraordinary by almost all measures—number of households and businesses connected, number of Websites, and amount of business conducted over the net were only a few. What did not grow as quickly—in fact, did not grow at all—were profits from the many enterprises that blossomed as part of the emerging Internet economy.

Investors around the world bought the hype surrounding the Internet and put their resources in e-business models that appeared to have no hope of a profitable future. The market capitalizations of many Internet firms soared until they greatly exceeded that of profitable businesses in the physical world. It was also clear that in both the business-to-consumer (B2C) and business-to-business (B2B) arenas, there was a greater number of Internet firms than there was the potential business to support them.

It was a situation that could not continue.

Busted.
In mid-2000 and 2001, an upheaval took place. Venture capital became unavailable and many unprofitable, purely Internet-based firms could not survive without it. Stock market values for even the leading Internet firms dropped many-fold. As a result, major suppliers of Internet products and services, telecommunications carriers, and the burgeoning wireless market were all seriously damaged in the eyes of investors. Public euphoria about Internet business disappeared and media pundits speculated that e-commerce—business conducted on the Internet—was a short-term phenomenon that had run its course.

However, events since 2002 have proved the naysayers wrong. Consider the following:

• The number of Internet users worldwide was estimated to be 934 million in 2004, with studies showing it growing to 1.04 billion in 2005 and 2.2 billion by 2010.
• The United States alone has more than 203 million users;
• China has more than 133 million
• Japan has more than 82 million.

Although the global penetration of the Internet is only about 15.2%, 30 countries had penetration rates exceeding 50% of all households as of November 30, 2005. Leading the way is Iceland, with penetration of 76.5%, while the Scandinavian countries are close behind. The United States had a household penetration rate of 68.7%.

Online retail sales amounted to $143.2 billion in 2005.
That is a growth of 22% in a single year and 6% of total retail spending.
Forrester Research expects the double-digit growth to continue,
projecting online retail sales of $316 billion, or 14% of total retail sales, by 2010.

During the holiday shopping season in 2005, retail giant Wal-Mart had the most visitors to its site–27.7million visitors, an increase of 47% over the previous year.

Others in the top ten online retail sites for the season included Target, with 23 million visitors (39% growth), and Best Buy with 17.2 million visitors (30% growth). Their presence in the top ten, along with dominant online retailers like Amazon and eBay, underscores the role Internet marketing is beginning to play in the overall marketing strategies of all kinds of businesses.

eMarketer estimated that worldwide B2B e-commerce would exceed $2.3 trillion in 2004.

The Internet continues to evolve.
A consortium of universities, corporations, and government agencies is developing a network called Internet2. This closed network is currently limited to paying members who are willing to contribute to the development of a better Internet. The current version is said to be about 100 times faster than the public Internet. The concept is being developed around ideas of seamless content that moves freely over various media channels. It places emphasis on consumer control, social networks, and consumer creation of content.

Many of the commercial survivors of the early e-commerce crash were enterprises that had both brick-and-mortar (physical world) and Internet presences. Consequently, when the Internet became commercially viable, they were ready to seize the opportunity it offered to improve existing systems and build new ones.

Consumers around the world also realized that the Internet provided an unsurpassed forum for communicating and acquiring information.
A 2004 study documented the fact that the Internet has become a part of daily life in a relatively few years.

According to the report:

• 88% of online Americans say the Internet plays a role in their daily routines.
  Of those, one-third say it plays a major role and two-thirds say it plays a minor role.
  The activities they identified as most significant are communicating with family and friends and finding a wealth of information at their fingertips.
• 64% of Internet users say their daily routines and activities would be affected if they could no longer use the Internet.
• 53% of Internet users say they do more of certain everyday activities simply because they can do them on the Internet.
  The most popular are "communicating with family and friends" and "looking up information."

According to a Pew Research February–April 2006 survey, 73% of American adults use the Internet.
That currently represents about 147 million people.

As both consumers and businesses make greater use of the Internet for activities ranging from communications to gathering information to completing transactions, organizations of all kinds have responded by making greater use of the Internet for marketing purposes. Internet advertising dropped briefly by 15.8% in 2002 as a result of the dot-com collapse, but since then, it has grown 20% per year. Online advertising revenue was about $18 billion in 2007 and is forecasted to grow another 20% to 30% in 2008.

Unlike the early years of e-commerce on the commercial Internet, when much of the Internet advertising was done by start-ups that vanished along with the bubble, the way is now being led by large corporations who have been heavy advertisers in traditional mass media.

According to Advertising Age:

• AT&T Wireless Services increased the number of online advertising items by 1,262% in 2004.
• Pharmaceutical marketer Schering-Plough followed suit, with an increase of 737%.
• Consumer credit services firm MBNA Corporation's online advertising grew by 471%.

Automobile manufacturers were also among those who increased their online advertising expenditures by substantial amounts.
Lexus, for example, has substantially reallocated its marketing budget for certified pre-owned (CPO) cars in recent years, treating CPO as a third product category in the Lexus line. According to Marv Ingram, national CPO/fleet manager for Lexus:

Based on market research, approximately 70 to 80 percent of luxury car shoppers use the Internet in the research phase of their shopping process, [and] we created a program that would address these issues.

Like corporations, governmental entities are discovering the power of the Internet to improve their operations and provide services to their citizens. According to a study by consulting firm Accenture, Canada has led the way in online government initiatives for 4 years in a row. Canada's e-government program has two specific goals:

1. to have the most commonly used services online by its citizens
2. to achieve a 10% increase in citizen satisfaction by 2005.

Canadian e-government achievements have consistently been rated above those of other leading countries, including the United States and Singapore. Drivers of its success include regular surveys of the needs of individuals and businesses and the use of focus groups to evaluate the portals that provide access to important government services.

These examples represent a growing realization by traditional brick and mortar enterprises and government agencies that the Internet can provide a cost-effective addition to their communications channels.

A survey of chief marketing officers finds 64% saying that the strategic importance of digital marketing in their firm is high or very high, with 39% indicating that more than 20%of their marketing budget would be spent online. They are using digital techniques to meet many marketing objectives because of its low cost, speed of delivery, and measurable ROI.

Source: CMO Council, "The Digital Marketing Dialog."

The Internet has infiltrated the daily lives of consumers and the strategies of marketers because it offers capabilities that are unique to it as a medium of communications.

When the Internet began to emerge in the public consciousness in the mid-1990s, no one really believed that it would spread through the global economy as quickly as it has. Consumers were generally indifferent, and business executives thought they had ample time to understand and adapt to the requirements of the new medium. To the surprise of all, it has diffused throughout the world more quickly than any other medium in modern history.

Diffusion theory suggests that rapid adoption implies a relative advantage on the part of the new product or service.
Unique characteristics of the Internet include:

• a single, common platform for communications and transactions throughout the world.
  That creates a medium for communications and a channel for commercial transactions unlike any that has existed in the past.
  
  
• a method of information supply that approaches the "perfect information" of economic theory.
  Consumers and business customers alike can obtain information from any Web-enabled organization quickly and at little or no cost. That allows them to broaden the scope of their search activities, which were previously limited to vendors that are geographically nearby or to which they have access through media such as catalogs and television advertisements. Not only is the scope of search increased, but the depth of information that can be obtained on the Internet is much greater than what is available via other media.
  
  
• an interactive nature of communications in this medium that affords an unparalleled opportunity for meaningful dialog with customers and suppliers alike.
  It also creates the specter of unparalleled intrusion into the private affairs of Internet users.
  
  
• a global scope.
  Assuming that the necessary infrastructure is available, any individual, business, or nonprofit organization in the world can connect to the Internet and avail themselves of its functions in exactly the same way as other users.
  
  
• the opportunity for organizations to compete on a level playing field regardless of size or distance. (i.e. www.topnation.com)
  Neither the size nor the location of an enterprise is apparent to a visitor to its Website unless the enterprise chooses to make it so. To that extent, the playing field has been leveled.
  
  
• an "always on" communications network.
  It allows consumers and businesses alike to access information, entertainment, and businesses services on a 24/7/365 basis.
  
  
• a "many-to-many" communications network,
  as compared with one-to-one networks like the telephone or one-to-many systems like television or radio broadcast.

The combined effect of these unique characteristics is a network that can reach anywhere on the planet, connecting any set of persons or organizations who choose to be connected. The result is strategic opportunities and options that were previously unthinkable.

In addition, because incremental costs of adding nodes to the network are negligible, the economics of business processes are being changed in profound ways. According to Mercer Management Consulting, there are four ways in which the Internet affects business processes, not at the margin, but by orders of magnitude:

• Cost.
  An online bank transaction costs $0.04 versus more than $1 for a transaction at a branch, a greater than 25 x factor of improvement.
• Quality.
  The design process for the Boeing 777, being entirely electronic, generated one-tenth the number of errors generated by the prior physical design process.
• Customer Access.
  Whereas a large retail store might be lucky to get 50,000 visitors a month, a leading electronic retailer can get 5 million visitors or more each month—a 100-fold improvement.
• Choice.
  Amazon.com, the Internet's leading retailer, "stocks" more than 4 million books, roughly 25 times the assortment of a Borders superstore.

The Internet is changing business processes in fundamental ways.

• It is altering the nature of our relationships with customers and other stakeholders and broadening the base of those who interact in meaningful ways with the businesses.
• It enhances speed and affects timing of activities of many kinds.
• Above all, it transforms the nature of successful organizations.
  Hierarchical organizations lack the flexibility to compete in the information-driven economy. Vertical integration no longer offers substantial benefits in either cost or control. Traditional corporate boundaries blur as information moves freely across them, and the most effective organization is often a virtual one.

In this environment, marketing takes on new and challenging roles. The nature of the Internet marketing milieu is portrayed below.

The Internet marketing paradigm.

The milieu in which Internet marketing takes place is seen as a complex environment in which marketers attempt to achieve four distinct generic goals:

• Customer acquisition is a foundation goal of all marketers. To grow and thrive, all businesses must attract a continuing stream of new customers. Internet marketing adds another communications channel and a variety of techniques to the customer acquisition effort.
• Customer conversion is the process of changing visitors, shoppers, or prospects into actual customers. It requires persuading the customer who has simply made contact, say by visiting a Website, to make a purchase or to engage in a set of interactions that will eventually result in a purchase.
• Customer retention involves turning the newly found customer into a loyal one who will remain with the enterprise over an extended period. Marketers have learned that it is cheaper to retain customers than to acquire them and that they must therefore focus some of their activities specifically on retention.
• Growth in customer value, that is, the equity that exists in the enterprise's customer base, is the end goal of the acquisition, conversion, and retention process. Marketers have discovered that not all customers are equally profitable. Internet marketers can track customer behavior, calculate the profitability of individual customers, and improve the value of the overall customer base.

In the information-driven Internet economy, marketing decisions are made in an increasingly complex environment characterized as producing the I-Marketing Inputs. These inputs are the specific environmental factors that affect the way Internet marketing is done.

The inputs include the following:

The business models that are prominent on the Internet.

• Transactions models are the way in which Internet businesses organize to carry out exchange, whether it be content or commercial transactions.
• Revenue models are the various streams of revenue that businesses can employ to support their activities.
• Multichannel marketing is the driving force behind many business models. Multichannel marketing requires the integration of both offline (physical world) and online (interactive) channels.

The interactive channels that permit Internet communication and commerce include the following:

• Website on the Internet.
• Email marketing has become an important technique for customer acquisition and especially for customer retention.
• Wireless marketing over the Internet is a burgeoning channel.

The offline channels—including the mass media of print and broadcast, marketer-created events, sponsorships, and public relations—that represent an important part of the integrated communications process.

The social and regulatory issues that have become increasingly important as the Internet has achieved a place among the major communications channels.

The Actions that marketers can take to avail themselves of the Internet as a powerful channel for communications and transactions include:

• online advertising and promotion that can be used to incite the viewer to immediate action or to build the image of the brand. Many kinds of online advertisements exist, ranging from static banners to full-page rich media ads to ride-along ads.
• e-commerce, which refers to commercial transactions on the Internet. Consumer, business, not-for-profit, and governmental marketers are all using the Internet for transactions ranging from purchase of goods and services to renewal of driver's licenses to contributions to charitable causes.
• customer service and support, which is taking its place as a key marketer activity, largely as a result of the emphasis on customer retention. Through judicious use of the Internet, the quality of customer service can be improved while simultaneously decreasing the cost to deliver.

No single input or action, however, is particularly effective on its own. The strategic imperative is to integrate all marketing activities, online and offline, into a seamless whole.