SAN JOSE, California--The Internet economy grew 68 percent from the first quarter of 1998 to the first quarter of 1999, pumping an estimated $507 billion into the United States economy and employing 2.3 million Americans, according to a University of Texas study released today by Cisco Systems Inc.

The sweeping study, the second measurement of the Internet economy by University of Texas economists, found that:

ù The Internet Economy grew from $64 billion in the first three months of 1998 to $108 billion in the first three months of 1999_an increase of 68 percent.

ù The Internet Economy, up from $301 billion in calendar year 1998 to an estimated $507 billion for 1999, today generates more annual revenue than such entrenched American industries as telecommunications ($300 billion) and airlines ($355 billion).

ù E-commerce, the amount of business conducted directly on the Internet, increased 127 percent from the first quarter of 1998 to the first quarter of 1999.

ù Of 3,400 businesses surveyed to measure the size of the Internet Economy, more than one third did not exist before 1996. Those new businesses now employ 305,000 people.

The complete results of the study, which was performed by the Center for Research in Electronic Commerce at the University of Texas' Graduate School of Business, can be found at http://www.InternetIndicators.com.

"The fact that the Internet Economy rose so much in just one year underscores that companies are embracing the Internet and that an Internet revolution is reshaping the economic landscape," said John Chambers, president and CEO of Cisco Systems.

"What is clear from our research is that the Internet Economy is an economic phenomenon never seen before," added Dr. Anitesh Barua, who along with Dr. Andrew Whinston headed the University of Texas research team that performed the study.

The 1999 Internet Indicators study builds on the first comprehensive survey of the Internet Economy, which was performed last year by Dr. Barua's and Dr. Whinston's team and sponsored by Cisco. The study shows how the Internet is transforming the US economy by dividing the Internet Economy into four segments and measuring the economic impact of each. The four are:

1) Internet Infrastructure Businesses--companies that make or operate the Internet's essential hardware and equipment (the worldwide connection networks or backbones), Internet Service Providers (ISPs), makers of networking hardware and software and personal computer manufacturers.

2) Internet Network Applications Businesses--entities that develop new uses for the Internet or connect new users to the Internet, makers of online search engine software, consultants and providers or Internet skills training, developers of multimedia applications and other applications

3) Internet Intermediaries--these are third-party businesses that use the Internet to link customers with products or services produced by others, operators of Internet portals, content providers for Internet sites and online travel agents or stock brokers.

4) Internet Commerce--businesses that sell their own products directly through the Internet, Internet retailers, Internet sites that earn revenue from subscriptions or fees and online advertising firms.

The Internet Indicators study is based on an unprecedented survey of more than 3,400 US companies that generated some or all of their revenues from products or services related directly to the Internet.