Information services of all kinds are an important growth sector of the economy. In this subsection let us consider just three: (1) information utilities, (2) credit rating services, and (3) airline reservation systems. Another giant system which we will not discuss are medical records used by life insurance companies to evaluate potential customers.
Information Utilities: Private information utilities America on Line (AOL), Prodigy and CompuServe were created before the creation of the Web.These information utilities offered a wide variety of information services, such as (1) News, Sports, and Weather; (2) Electronic Mail; (3) Reference library; (4) Shopping; (5) Financial Information; (6) Travel & Leisure ; (7) Entertainment and Games; (7) Membership Support Services. These services include such specifics as a brokerage service, an airline/hotel reservation system, shareware software, and member forums using interactive text communication. With the creation of the Web Prodigy wenty defunct, CompuServe change its business plan, and AOL is losing its members. These information utilities charged a fee for service. With the growth of the Web they were replace by portals, such as Yahoo.com, Google.com, and msn.com. A central feature of these portals is the search engine to find sites of the web. Google,com has developed the most successful search engine and has grown accordiningly. The portals make money by advertising and do not charge viewers a access fee.
Credit Ratings: The second example is the growth of computerized credit ratings. Currently credit information on almost every household in the US is stored in these systems. Merchants for a fee can rapidly determine the credit rating of a customer. The positive aspect of this development is that it makes our credit oriented consumer markets possible. Without these files it would be a very difficult, time consuming process to obtain credit for an automobile or a house. A basic problem is the accuracy of the files. The industry lobbied and obtained a national law, the Fair Credit Reporting Act of 1984, which supersedes common law absolving them from law suits over the accuracy of the data. Over time consumers have obtained the right to examine their files. However, the onus is on the consumer to correct the information in the files. In an extreme case he might have to go to court to have his file corrected. If these firms had remained under common law, they would have been expected to exercise due care in collecting the data. You could sue them for damages. Under common law, collecting the data would be more expensive; however, there would be many fewer errors in individual records.
Airline Reservation Systems: Airline reservation systems are another innovation based on computers. Without airline reservation systems, it simply would not be possible to process the volume of airline traffic. In this respect alone airline reservation systems are an innovation. But these systems are also very interesting because of the inherent conflicts of interest. Travel agencies use the airline reservation systems to book flights for customers. The airline developing the system will place its flights first. During the collapse of Braniff, it was alleged that the American Airline reservation system showed Braniff flights as always being full. This is possibly true because the programmers were forced to take a cut in pay and could not fly Braniff flights because of Braniff's tactics.
Airline firms with reservation systems have a competitive edge over airline firms without such reservation systems because the former can easily calculate the profitability of every flight listed in the system. They know how many passengers were on board and can make an excellent estimate of the rival's costs. In the deregulation of the early Reagan administration several new airlines started. Most failed and one of the reasons is that the established airlines with reservations systems had a distinct competitive advantage. For a truly competitive market, each airline needs equal treatment. Can this be obtained when the airline providing the information service has a conflict of interest? The fact that American sells this service to lessor airlines indicates that the conflict of interest issues are being at least partially resolved by contract negotiation. Southwest Airlines has always maintained its own separate site for selling tickets.
When the airline firms first created their airline reservation systems, travel agents used them to sell tickets to customers. With the growth of the internet, customers shifted to using Internet sites that accessed all the airline reservations systems to find the best price. These sites, such as Orbitz and Travelvelocity, were discussed in the previous section.
Online Education: The advances of the Internet
have created an opportunity for the growth of online education. In 2007
as many as 1 million K12 (grade and high school) students enrolled in
virtual schooling in the US. The number of college and graduate
students taking at least one online course was 3.9 million. About 38%
are full time online students and the growth in online college +
education is more than 20% a year.
Demand:
K12: Home-schooled students use online courses. Also, for students
focusing on ballet, acting, or sports, such as tennis, online education
provides flexibility.
College and beyond: Online education appeals to working adults needing
more education to advance their careers, but do not want to quit their
jobs to attend school full time. Also, full time students are taking
some of their coursework online.
Supply:
K12: Most online courses for primary and secondary students are
supplied by private organizations. A few states, such as Virginia, West
Virginia, and Mississippi have public online high schools.
College and beyond: Online college and graduate courses are supplied by
state universities and some private universities. New providers of
online education are for profit universities such as The University of
Phoenix. The University of Texas at Austin offers online courses
through the extension service and students must obtain prior permission
from their departments to obtain credit.
Comment: Research evaluating online education has found that students
can learn just as much online as in the classroom. Empolyers do not
value online degrees as highly as regular degrees, but online degrees
are gaining acceptance. For example, the CIA accepts them. I believe
online education will continue to expand for some time.
Information Services: Surf the Net