Industry Profiles: Information Retrieval and Online Services

Overview

As the United States entered the information age and the concept of the "information superhighway" became commonplace, the previously small and obscure online information retrieval industry suddenly emerged as one of the hottest industries. Better known as online information services or simply online services, the core industry generated almost $9.1 billion in revenues in 1997 and was estimated to have revenues of $15.3 billion in 1999. But this was just for the traditional retrieval segment and excluded booming Internet-related business. According to Cahners In-Stat Group, revenues for Internet service providers (ISPs) were expected to total $32.5 billion in 2000, an increase of 37 percent from 1999. Cahners further forecast that revenues for wholesale Internet service, which ISPs resell to consumers, would reach $5.25 billion in 2002. The Internet has completely transformed all sectors of the electronic information industry, leading most traditional information vendors to set up Internet-based operations alongside the companies that specialize in Internet content and services.

The information services industry serves both businesses and consumers. The consumer online services segment of the industry is growing especially rapidly. This is supported by explosive growth in the number of Internet users. In the Unites States alone, more than half of the population, 143 million individuals, was online in early 2002, according to the U.S. Department of Commerce. This represented a 26 percent increase from 2001.

With 34 million subscribers, America Online (AOL) was the largest ISP in 2002. At that time, ISP-Planet reported that AOL served 19.4 percent of the U.S. market. By 2001, ActivMedia Research reported that about 25 percent of information or content-focused Web sites were turning profits, although most earned more from advertising revenues than from other sales. By late 2001, ISPs offering Internet access to businesses operated in an environment of consolidation. At that time, Cahners In-Stat Group indicated that 65 percent of 2001 revenues were attributable to the top ten ISPs, led by WorldCom/UUNet and AT&T.

History of the Industry

The electronic information services industry was born during the post-World War II information explosion. The advent of computers during this period formed the basis for channeling large amounts of data to scientists, engineers, businesses, and government agencies. Government investment in new information technologies in the 1950s and 1960s was supplemented by increased private sector spending on research and higher education. The result was that for the first time, skilled professionals could create, store, and quickly access large amounts of data.

The purpose of the earliest retrieval systems was simply to store and print information, mostly for technical endeavors. As the number and size of the databases grew, however, systems engineers began to focus on searching capabilities that could filter out unneeded data. Eventually, users were able to type commands into a computer that would search and display information containing specific keywords or phrases.

The first computerized bibliographic databases stemmed from the federal government's need for the efficient application of research dollars and the desire to eliminate duplicate analyses. Some of the more popular databases developed in this period included MEDLINE and ERIC. The government also subsidized nonprofit efforts, such as the American Chemical Society's Chemical Abstracts database.

In addition to supporting nonprofit services, government investment in the 1960s initiated many of the private information retrieval services that dominated the market in the 1980s and early 1990s. For instance, DIALOG sprang from a venture between the National Aeronautics and Space Administration (NASA) and Lockheed Corporation called Project RECON. ORBIT Online was developed as a result of System Development Corporation's work with the National Library of Medicine. Industry giant Mead Data Central (now called LEXISNEXIS) got its start from seed money provided by U.S. Air Force projects.

The federal government also played a vital role in developing telecommunications networks that made online services possible. Networks that essentially provided affordable access for database online users through local telephone lines stemmed from Department of Defense efforts. The network of all networks, the Internet, also began as a Department of Defense project known as the ARPANET. This network was developed by the depart-ment's Advanced Research Projects Agency (ARPA) in an effort to create a decentralized communications network that could be used during wartime. The technology was later passed on to universities, which quickly began to expand the uses of such a network.

As more efficient telecommunications networks arose and computer technology advanced in the late 1960s and 1970s, the market for online information services began to proliferate. Companies and libraries were increasingly relying on technical and legal information to provide a competitive edge in the marketplace or to make their research efforts more efficient. Furthermore, many users were finding electronic information access to be an important tool for increasing productivity.

As electronic markets began to grow, many publishing houses began to experiment with electronic publishing as a means of delivering their information. H.W. Wilson and Company, for instance, began offering access to Wilson indexes and abstracts online through WILSONLINE. Likewise, McGraw-Hill and other periodical publishers began offering their publications online. One of the greatest commercial uses of electronic information retrieval was for legal publications.

By the end of the 1970s, the emerging information retrieval industry was beginning to establish itself in many sectors of government, academia, and industry. Because of technical limitations, however, retrieval systems remained extremely costly. Furthermore, most systems were complicated and required professional research skills for effective use. As a result, estimated industry revenues were still well under $500 million by 1980.

Technological breakthroughs in personal computer and data storage devices fueled rapid industry growth through the 1980s and early 1990s. At the same time that microcomputers were becoming faster and less expensive, users were becoming accustomed to working with modems, networks, and other communications devices, which allowed large numbers of people to gain access to reservoirs of data. For the first time, information retrieval companies were able to expand their services to the end user, or the person who would actually use the information, rather than professional researchers.

As end users increasingly became the market for information providers, companies began to emphasize user-friendly system interfaces that allowed easier data searching and access, such as providing menus instead of requiring the user to memorize arcane commands. Firms were also quick to take advantage of retrieval technologies. For instance, online services were able to make use of faster modem communication speeds, that increased from 1,200 bits per second (bps) in the mid-1980s to more than 56,000 bps by the late 1990s.

The advent of CD-ROM technology in the early 1980s provided a powerful means for the storage and dissemination of information. CD-ROMs could hold up to 650 megabytes of data, a vast amount by that period's standards. By comparison, the magnetic diskettes in use at the time held only 1.44 megabytes or even just 760,000 bytes. As CD-ROM drives became standard hardware, particularly in business or institutional settings, the number of databases and information services offered on CD greatly increased.

Significant Events Affecting the Industry

The commercialization of the Internet, and especially the World Wide Web, in the mid-1990s had a significant impact on the industry. The debut of graphical Web browsers, led by Mosaic and quickly followed by Netscape and Microsoft, made the Web an appealing commercial medium. More importantly, Web browsers began to illustrate the benefits of using a single platform to access numerous sources of information. Traditionally, users needed to install and run a separate interface program on their computer for each database or information service they wished to access. This proprietary software was often idiosyncratic and difficult to use. The Web offered a solution in that only one comparatively user-friendly main program, the browser, needed to be installed on the local computer in order to navigate an infinite number of different services. Thus, information vendors began to test Web-based versions of their services and new Internet-based vendors sprang up rapidly.

Although some traditional information vendors were slow to appreciate the Internet's popularity, by 2002 most were offering online access to their information services as a shift from print to digital resources was taking place. According to Library Journal, this shift was especially evident at the nation's academic libraries. In 2001 the publication conducted a survey of academic libraries, which revealed that spending on electronic serials, which totaled 11 percent of library budgets three years before, had grown to 16 percent and was expected to reach 22 percent by 2004.

The Internet's commercial viability also helped create a whole new category of services: that of consumer Internet access providers. While services like America Online and CompuServe had been around for decades, until the Internet emerged they had only managed to attract a small following of business-oriented or technologically savvy users to their closed networks. As they began to open their services so that subscribers could access Web content outside the provider's network, a growing number of independent firms and telecommunications companies began to offer stripped down, Internet-only services that provided little or no custom content but offered full access to the wealth of online information populating the Internet. By the early 2000s, many government agencies, trade associations, newspapers, and magazines offered free searchable databases. These sources complemented the offerings of leading information services, which allowed users to quickly search multiple sources based on many different search criteria.

Key Competitors

A diverse spectrum of companies participate in the electronic information industry. Leading companies fall into one of four main service categories: database information services, Internet access services for consumers, Internet access services for businesses and resellers, and Internet search and navigation services.

The leading online vendors of multiple databases to professional searchers are Dialog Corporation and the LexisNexis Group. Founded by Roger K. Summit in 1972, Dialog Corporation is the world's oldest information retrieval service. The company was known as Knight-Ridder Information, Inc. until 1997, when it was bought out by the British company Market Analysis and Information Database, PLC. The Thomson Corporation, a leading global provider of integrated information solutions, acquired the Information Services Division of Dialog in May of 2000 and incorporated it into its Scientific, Reference & Healthcare group. According to Thomson, which posted 2001 revenues of $7.2 billion, Dialog's commercial online collection of information is the world's largest. In 2002, the company employed more than 1,100 employees. At that time, users were able to search 900 databases containing 6 billion pages of text and 3 million pictures. Dialog's main services included DataStar, DIALOG, and Profound.

The LexisNexis Group is a division of UK-based publishing company Reed Elsevier, which posted 2001 revenues of $6.6 billion. LexisNexis was founded in 1966 as the Data Corporation. In 1968 it was acquired by the Mead Corporation and renamed Mead Data Central. Mead Data Central was sold to Reed Elsevier in 1994. The company's services include Lexis and Nexis. Started in 1973, Lexis offers access to legal databases. Nexis, which began in 1979, is the largest news and business information service. LexisNexis offers its information services electronically via dial-up or the World Wide Web as well as in print and CD-ROM formats. The company's electronic solutions allow users to search more than 3 billion documents.

Known to users as AOL, America Online, Inc. is the world's largest consumer online service, boasting 34 million subscribers in early 2002. In the mid-1990s, it emerged as the most popular U.S. service because it focused its content on serving the interests of a mass audience in contrast to some of the more specialized materials offered on competing services like CompuServe. By 1997, it was able to acquire its long-time rival CompuServe in a complex transaction that preserved the unique identity of the CompuServe service, which had 3 million users by 2002. In January of 2001, AOL merged with Time Warner to form AOL Time Warner, Inc., and America Online, Inc. became a division of the newly formed media and entertainment powerhouse. AOL, Inc. had 2000 revenues of $7.7 billion.

Purchased by the emerging telecommunications colossus WorldCom in 1996, UUNET Technologies, Inc. is the world's largest commercial Internet service provider. UUNET focuses exclusively on providing businesses and online service providers (such as the Microsoft Network) with access to the Internet and its global network backbone. UUNET developed one of the most widely deployed Internet networks in the world. The company's backbone allowed it to offer local access from more than 1,000 locations worldwide at speeds ranging from 28.8 Kbps to 155 Mbps. In February of 1997, WorldCom began a $300 million program to upgrade and expand the existing UUNET backbone bandwidth and dial capacity. By 2002, UUNET had increased the access speed to its backbone from a T-1 level (1.544 Mbps) in 1993 to 10 Gbps. At that time, the company also offered additional services including Web hosting. WorldCom filed for bankruptcy in 2002.

Yahoo! Inc. began as one of the first navigation services on the Internet and remains one of the key access points, known in industry jargon as "portals," to the Internet's content. As opposed to many of its competitors who relied on computer programs, Yahoo used human effort to categorize web pages listed in its search engine, resulting in what some regard as a more valuable structure for storing and retrieving data. In 2002, Yahoo! was still the most widely used search engine on the Internet. The company's 2001 revenues were $717.4 million, which were derived from different forms of advertising, as well as services like auctions and services like Yahoo! Bill Pay and Yahoo! Auctions.

Yahoo! was created in 1994 by David Filo and Jerry Yang, two Stanford University graduate students, and went public in 1996 with one of the first and most successful stock offerings in the Internet services industry. The company acquired HotJobs in late 2001 and launched its Premium Document Search service in January 2002, allowing customers access to more than 70 million full-text documents from more than 7,000 different sources. The latter development put Yahoo! in the same market as traditional information retrieval companies.

Industry Projections

According to figures published by the U.S. Department of Commerce, the information retrieval segment, which again excludes some of the Internet businesses, was growing at an annual rate of approximately 30 percent in the late 1990s. This growth rate was expected to continue through 2004. By 2004, this segment was forecast to exceed $56 billion in annual revenues.

Continued brisk growth is expected for all of the Internet-related services as well. According to IDC, the volume of worldwide Internet traffic is expected to increase 93 times from 2000 to 2005, reaching a level of 943 million users. Another measure of Internet development is advertising revenues. Online advertising revenues, according to published estimates by GartnerG2, were expected to increase from $7.9 billion in 2001 to $11.4 billion in 2002, $14.7 billion in 2003, and $17.2 billion the following year. By 2005, these revenues were expected to be $18.8 billion. As a result, services like Yahoo! that depend heavily on advertiser dollars are likely to achieve proportionate revenue gains in this period. Again according to GartnerG2, of the 2,800 Web sites that sold advertising, a mere 20 of them generated 80 percent of all revenues.

Wireless Internet devices were exploding in popularity in the early 2000s. AOL allowed its subscribers to access a wide variety of information including e-mail, news headlines, stock information, and instant messages via wireless devices like personal digital assistants (PDAs), wireless phones, and the company's AOL Mobile Communicator. Cahners In-Stat Group expected the number of people using business wireless data to grow 32 percent in 2002, reaching 39 million. Furthermore, Ovum predicted that revenues from wireless portals would mushroom to $42 billion by 2005, a significant increase over 2000 revenues of $747 million.

Global Presence

Information is a highly exportable product once language and technology standards barriers are surmounted, and the United States is the world's largest exporter of electronic information services. By nature, Web-based services are accessible from anywhere in the world. Accordingly, services like Yahoo! are widely used by people around the globe. Other kinds of services have an international presence, too. Notably, America Online is a significant provider of online services throughout the world. In March 2002, WebSideStory's StatMarket revealed that AOL served 14 percent of Internet users worldwide. UUNET also has sizable networking operations around the world, particularly in Europe. Its backbone includes direct cable connections across both the Atlantic and Pacific oceans, and employs satellites to reach parts of the world where it lacks cabling.

In the early 2000s, international growth was occurring for Internet service providers, especially in markets like India. Traditional information retrieval companies also had established global customer bases. For example, in 2002, Dialog operated from 32 countries including the Middle East, South America, and South Africa, and served customers in 103 countries.

Employment in the Industry

Job opportunities abound in the electronic information industry. Conservative estimates suggest the indus-try's labor force doubled between 1988 and 1997. According to the U.S. Bureau of Labor Statistics' 2002-2003 Career Guide to Industries, employment in the information retrieval sector had realized significant growth since the late 1980s, resulting in the creation of 196,000 jobs between 1990 and 2000. In 1997, the typical U.S. annual wage for workers in the information retrieval systems industry was $49,582. Between 1990 and 1997, wages in this industry grew at an average rate of 6.2 percent annually.

Sources for Further Study

albanese, andrew richard. "moving from books to bytes." library journal, 1 september 2001.

cohen, j., et al. "internet navigation." new york: merrill lynch capital markets, 13 april 1998.

"computer and data processing services." career guide to industries 2002-03 edition. u.s. department of labor, 15 march 2002. available at http://www.bls.gov/oco/cg/cgs033.htm.

computer industry forecasts. data analysis group, 1997.

"information services." u.s. industry and trade outlook. new york: mcgraw-hill and u.s. department of commerce, 2000.

tenopir, carol. "getting what you pay for?" library journal, 1 february 2000.

tenopir, carol. "will online vendors survive?" library journal, 1 february 1998.

tenopir, carol, gayle baker, and william robinson. "racing at full speed." library journal, 15 may 2001.