E-Commerce

Madam Chairwoman and members of the Subcommittee, I am pleased to appear before you today do discuss the role of the National Institute of Standards and Technology (NIST) in helping e-commerce thrive in the United States. As you know, NIST is an agency of the U.S. Commerce Department's Technology Administration.

We hear constantly about the growth and impact of e-commerce on the new economy and on our everyday lives. Everyone recognizes that e-commerce is big and getting bigger. Retail e-commerce gets a lot of press coverage, but the real impact of e-commerce is much broader than that. For example, business-to-business (or B2B) e-commerce activity is expected to pass one trillion dollars annually by 2003, compared to 108 billion dollars for retail e-commerce. I don't think I need to persuade you that the continued health and growth of e-commerce will be even more critical for our Nation and economy in the future.

The private sector is driving advances in e-commerce technology and use, as it should. So it is fair to ask: What is the role of the federal government in e-commerce? In particular, I would like to share my thoughts today on the role of NIST in e-commerce.

NIST's role in e-commerce is to work closely with the private sector to ensure that the e-commerce infrastructure is strong enough and flexible enough to enable the continuing growth and success of e-commerce. NIST provides unique tools to help industry build new e-commerce technologies and applications. We hear a lot of comparisons between the new "dot com" companies and the traditional "bricks and mortar" companies. To make analogy to the more traditional view -- which is more familiar to many of us who didn't grow up in the Internet age -- NIST provides the e-commerce "bricks and mortar" that industry uses to build new e-commerce "structures." However, in the e-commerce world, those "bricks and mortar" that NIST provides are not just physical things but also software, standards, and technical assistance. And industry uses the e-commerce "bricks and mortar" that NIST provides not just to build physical things, but also to provide services, software, and communications methods.

Let me be more specific about NIST's unique role in providing tools to the private sector to help e-commerce thrive. NIST provides three types of tools:

• Measurements and standards for the hardware, software, and networks that comprise the e-commerce infrastructure, ensuring that the infrastructure works effectively and can support continuing growth and change.
• Direct hands-on assistance, through the Manufacturing Extension Partnership, to American small manufacturers who need help to thrive in the new e-commerce-driven economy.
• Co-funding of private sector research , through the Advanced Technology Program, to help develop the new technologies that will enable future advances in the e-commerce infrastructure and new ways of exploiting e-commerce and information technology.

I would like to tell you more about each of these three types of e-commerce tools that NIST provides.

Measurements and Standards to Enable E-Commerce to Thrive

First, let's consider how the NIST Laboratories provide the critical measurements and standards that enable the private sector to build the e-commerce infrastructure and ensuring that it can grow and change with future technical and economic advances.

For example, standards are critical to ensuring that the incredibly vast and complex Internet—the network that is the backbone of e-commerce—can function and grow. The Internet contains millions of computers, communications devices, software systems, and other components, each coming in a wide variety of different types. Without common standards, the Internet would be the ultimate Tower of Babel, with different components speaking languages not understood or compatible with the other components, or not even able to speak and hear on the same frequencies.

The NIST Laboratories play a key role in working with industry to develop the standards that ensure the smooth functioning of the Internet to enable e-commerce, and facilitate future innovation and competition. In the intensely competitive information technology and e-commerce world, industry relies on the neutral, technical expertise of NIST to help formulate industry-wide standards that will benefit ALL players and the whole economy.

Randall C. Whiting, when he was President and CEO of CommerceNet, made the case for NIST involvement clearly and concisely. He said:

"...Many of the most fundamental components of the Internet, upon which e-commerce is dependent, are not effectively managed, coordinated, standardized or developed. It is essential that there be a close partnership between industry and government to effectively address the many infrastructure, technology and process issues that will face e-commerce in the near future. Having an agency such as NIST in that role will ensure industry has a partner that 1) understands the demands of technology and business innovation, 2) is experienced in key infrastructure standards, 3) is independent of political motivations..."

I want to briefly mention some other specific areas where NIST measurements and standards are key to enabling industry to exploit e-commerce advances.

Security

Successful e-commerce depends on secure transmission of data such as credit card numbers, financial information, medical records, and other sensitive information. NIST is leading the global effort to develop the Advanced Encryption Standard, which will be used to ensure that encrypted sensitive data cannot be decoded by anyone but the intended parties. Typical of NIST standards activities, NIST has worked very closely with industry on AES to develop guidelines and ways to test new possible standards. Companies from around the world submitted candidate new standards to NIST for extensive public testing and analysis. When the testing is completed in a few months, the Secretary of Commerce will announce the proposed final encryption standard (there may be more than one) that will provide data security for the next 50 years, ensuring that sensitive information can be safely exchanged for e-commerce.

In addition to making data safe, e-commerce security also depends on accurately identifying who you are communicating with. NIST has been a leader in helping develop Public Key Infrastructure (PKI) standards that ensure accurate identification of the parties in an Internet transaction. NIST works closely with the industry-led Internet Engineering Task Force which helps develop PKI and other security standards, and NIST works with many other private sector standards groups. NIST also developed a testbed where different private sector implementations of PKI can be tested to ensure that they work together effectively and are compatible with different hardware and software systems.

Conformance Testing

World wide web pages and applications are becoming much more complex. Rather than just text and pictures, complex interactive data exchange and software applications are becoming routine on the web for e-commerce, including such things as optimizing manufacturing processes, planning the best delivery routes along many different stops with different priorities, automatic ordering and billing, and many other applications. A powerful new web programming language called XML (eXtensible Markup Language) appears very promising for future generations of advanced web applications. NIST has worked closely with industry (including the OASIS consortium) to develop tools and methods to make sure that e-commerce applications using XML work effectively across all the different types of computers, software systems, browsers, and networks. NIST's XML Conformance Test Suite will enable industry to exploit the full range of possibilities for XML to greatly expand e-commerce applications.

Wireless Internet

Going wireless frees computers, palm devices, and other hardware from the mobility limitations of cables or fibers, and extends e-commerce to just about any environment imaginable: communications with trucks and planes en route, exchange of information at building sites, and many other applications. To help develop the communications standards that enable broad adoption of wireless technologies, NIST chairs an effort involving all the major industry players, the Institute of Electrical and Electronics Engineers (IEEE) Broadband Wireless Access Standardization committee. The importance and impact of such NIST efforts are reflected by a statement from Louis Olsen, Vice President of Technology Development for Teligent, Inc. Olsen said:

"Teligent supports the IEEE 802.16 broadband wireless access standardization effort [Chaired by NIST], which we believe will drive down equipment costs and create a framework for new innovation. This will allow us to roll out service faster to more areas and serve more customers. Standards will make wireless a real alternative for residential broadband access and expand the range of customers served."

Fiber Optics

Continued success of e-commerce will depend on an enormous increase in data transmission rates, and NIST is providing the measurements and standards that will ensure that the fiber optic backbone of the Internet will be able to deliver the needed capacity. Every U.S fiber manufacturer relies on special NIST fiber standards to ensure that different fibers can be spliced together effectively—even tiny misalignments of two different fibers can dramatically impede data flow. NIST provides other standards and measurements that industry uses to ensure that fiber is manufactured with the tight tolerances needed to ensure proper quantity and quality of data transmission. And NIST is working closely with industry to develop the new measurements and standards to support a new technology called DWDM (Dense Wavelength Division Multiplexing) that will permit millions of different data streams to be jammed simultaneously into one fiber, vastly increasing the data capacity.

Making E-Commerce a Reality for Small Manufacturers:  Manufacturing Extension Partnership

In addition to measurements and standards, the second major tool that NIST provides to support e-commerce is direct, hands-on assistance to help America's 385,000 small manufacturers thrive in the e-commerce economy.

The Washington Post noted recently that: "...small businesses today seem bewildered by sites vying to help them do e-business." A recent National Association of Manufacturers study found that more than two thirds of manufacturers are not yet using electronic commerce to conduct business transactions. More than 50 percent of all supply-chain participants are small businesses. As supply-chains become increasingly driven by e-commerce, all parts of the chain will suffer if small manufacturers are unable to adopt e-commerce practices. At a recent manufacturing conference sponsored by NIST's Manufacturing Extension Partnership, one small manufacturer noted that he was quite comfortable deciding whether he needed to purchase a $20,000 truck versus a $50,000 truck, but when it came to selecting between a $5,000 email server and a $50,000 email server he had no idea how to approach the problem.

With centers in every state and Puerto Rico, the NIST Manufacturing Extension Partnership is uniquely suited to help American small manufacturers thrive in an e-commerce world. Each center works directly with small manufacturers to provide expertise and services tailored to their most critical business, technology, and training needs. Many MEP client companies report astounding improvements in productivity and profits through MEP assistance.

Recognizing the growing importance of information technology throughout the economy, MEP has stepped up its information technology assistance to small manufacturers. Throughout 1999, MEP centers helped small manufacturers successfully deal with Y2K problems through workshops across the country, Y2K self-help kits, a help center provided on-on-one assistance, and 24-hour-a-day assistance was provided through a web site. Building on this base of information technology support, MEP is training center field staff in e-commerce and Internet technologies so they can provide hands-on help to small manufacturers in adopting e-business practices. Beginning in the fall, MEP centers will offer seminars to help small manufacturers understand the promises and challenges of e-commerce and make informed technology and business decisions.

Supporting Research for Future E-Commerce Advances: The Advanced Technology Program

NIST's third major tool for advancing e-commerce is co-funding of private sector research to help develop the new technologies that enable future advances in the e-commerce infrastructure and new ways of exploiting e-commerce and information technology.

The Advanced Technology Program (ATP) bridges the gap between the research lab and the marketplace by providing cost-shared funding in the critical early stages of R&D. That is, when research risks are too high for other sources of funding, but technical success would bring about broad-based benefits. In a March 1998 workshop called "Defining the Advanced Technology Challenges of the Electronic Commerce Marketplace," industry strongly called for increased ATP investment in key technologies and infrastructure research that would enable e-commerce advances.

Industry makes numerous strong proposals to ATP for information technology work that supports e-commerce advances, and ATP has invested in a broad range of infrastructural technologies including: component-based software, learning systems, telecommunications, digital video and data storage, internet-based manufacturing, and telemedicine.

For example, ATP support enabled VitalWorks, a small Massachusetts company, to create a new software system that makes record keeping much easier for physicians. With the new system, the physician enters only a few key words in response to questions from the computer and the software creates complete, accurate clinical notes, while also entering all the diagnostic and treatment information into a database that can be used for research, tracking treatment effectiveness, and other applications.

This technology is now being used in electronic patient charts and has reduced errors of omission from as much as 60 percent to as few as 1 percent in some cases. A new software module is already used at some 300 U.S. sites by an estimated 5,000 doctors and it is predicted that the Veterans Administration could realize annual savings of several million dollars for each medical region. The underlying technology also could have applications in fields such as law and business.

FY2001 Ecommerce/Ebusiness initiatives

Although NIST is making valuable contributions to industry's evolution to e-businesses, it is clear that this is just the beginning, and there is much more work to be done. That is why NIST has proposed an FY 2001 e-commerce initiative with three components: MEP E-commerce outreach (+$9M, $15M total including $6M reprogramming), Manufacturing Interoperability (+$4M), and Wireless Technologies (+$1M).

MEP E-commerce Outreach: NIST MEP's efforts to date are just a small step towards helping small firms acquire the resources and expertise needed to adopt e-commerce business practices. NIST's FY2001 budget request includes a $9 million initiative to enable NIST MEP to work with the Small Business Administration and the U.S. Department of Agriculture on and e-commerce outreach program. This initiative will provide continued funding for approximately 200 information technology professionals who were added by MEP centers to work on Y2K outreach. It will also enable NIST MEP to develop tools to help small firms not only better understand e-commerce but to develop and implement an e-business strategy and use e-commerce technology.

Manufacturing Interoperability: This initiative will focus on working with industry to develop the measurements and standards necessary to ensure accurate and efficient exchange of manufacturing supply chain electronic data (+$4M). Imperfect interoperability—barriers to communicating electronic data between manufacturers, in supply chains, and within enterprises—imposes a cost of at least $1 billion per year on the automotive supply chain alone. In one recent case an engineering service provider was barred from bidding on an automotive manufacturer's projects during the two months it took to track down the source of a data translation error. It turned out not to have been the fault of the engineering service provider. Data exchange problems can cost large companies significant revenue from being late to market, or manufacturing defective products, but small companies might not be able to survive if they are barred from bidding on contracts for significant periods of time.

By 2003, it is estimated that 137 million business users will be involved in remote work of some kind.¹  Industry sources indicate that Fortune 500 companies already outsource 78 percent of their transportation, 54 percent of their distribution, and 46 percent of their manufacturing.²  These numbers are expected to increase, with the third-party logistics industry expected to double to $50 billion in the next two years.³

Without the improved measurements and standards that this initiative would develop, the increased volume of remote work, and outsourcing will result in increased costs to U.S. manufacturers.

Wireless Technologies: This initiative will focus on development of measurements and standards to enable broad adoption of next generation wireless communications (+$1M). These wireless technologies will impact communications, commerce, and government. They will also result in new paradigms for health care, public safety, education, law enforcement, manufacturing, and entertainment. But without proper measurement tools and standards, the new wireless technologies will develop more slowly and inefficiently, impeding U.S. economic and technology growth and risking increased loss of market share and technology leadership to other nations in the highly competitive global marketplace. If we need any evidence we need look no farther than the experience with cell phones in Europe.

New measurement capabilities and standards are needed to enable U.S. industry to lead the transition of information technologies from desktop personal computers to a new paradigm of ubiquitous, networked and embedded computing connected by wireless links. This initiative will enable NIST to develop the measurements and standards infrastructure to support the emergence of new wireless information technologies

NIST has a very successful record of working for almost 100 years with industry, other government agencies, universities, and non-profit organizations to help provide the infrastructure for commerce and economic growth. The technologies of 100 years ago were very different than today's technologies, but the core nature of NIST's role remains the same: work with the private sector to develop and apply the measurements, standards, and technologies that enable prosperity and enhance quality of life. NIST is already helping industry develop and apply e-commerce technologies that are transforming our economy. And we are prepared to take an even greater role in the future to help industry master the challenges and opportunities of e-commerce.

Thank you for this opportunity to appear before you today. I would be happy to take any questions.

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¹  Key Issues in Mobile and Remote Middleware, K. Scherberger, Gartner Group (April 24, 1998).

²  Internet Collaboration Gets Another Tool, Technical Insights Alert, John Wiley & Sons (June 11, 1999).

³  Ibid.