The Net Imperative
June 26 to July 2, 1999
The Economist is available online at http://www.economist.com/ It is an indispensable source of information on the global economy.
a few years, the Internet will turn business upside down. Be
prepared—or die, says Matthew Symonds
FIVE years’ time, says Andy Grove, the chairman of Intel, all companies
Internet companies, or they won’t be companies at all. Just another example of the
arrogance and exaggeration the information-technology industry is notorious for?
Yes, in the sense that Mr Grove is as keen as the next chip maker to scare customers
into buying his products. No, in the sense that, allowing for a little artistic licence,
he is probably right.
The Internet is said to be both over-hyped and undervalued. Ask
member of the “digirati”, and you will be told that the Internet is the most
transforming invention in human history. It has the capacity to change
everything—the way we work, the way we learn and play, even, maybe, the way we
sleep or have sex. What is more, it is doing so at far greater speed than the other
great disruptive technologies of the 20th century, such as electricity, the telephone
and the car.
Yet, nearly five years since the Internet developed mass-market potential
invention of a simple-to-use browser for surfing the World Wide Web, it is easy to
overstate its effect on the daily lives of ordinary people. Even in the United States,
the most wired country in the world, most people still lack, or choose not to have,
Internet access. And even for most of those who have access both at home and in the
office, the Internet has proved more of an addition to their lives—sometimes useful,
sometimes entertaining, often frustrating—than a genuine transformation.
Everybody loves e-mail; if you are a teenage girl, chat is cool; and the
retrieve information about so many things is truly miraculous, even if search engines
are a bit clunky. Despite early misgivings about credit-card security, buying certain
kinds of things on the web—for example, books, CDs and personal computers—is
convenient and economical, and has become popular. All these things are certainly
nice to have, but they could hardly be called revolutionary.
But while the media have concentrated on just a few aspects of the web—the
glamorous consumer side of content and shopping on the one hand, and the seamy
end of pornography and extremist rantings on the other—something much more
important is happening behind the scenes: e-business. The Internet is turning
business upside down and inside out. It is fundamentally changing the way
companies operate, whether in high-tech or metal-bashing. This goes far beyond
buying and selling over the Internet, or e-commerce, and deep into the processes and
culture of an enterprise.
From e-commerce to e-business
Some companies are using the Internet to make direct connections with
customers for the first time. Others are using secure Internet connections to intensify
relations with some of their trading partners, and using the Internet’s reach and
ubiquity to request quotes or sell off perishable stocks of goods or services by
auction. Entirely new companies and business models are emerging in industries
ranging from chemicals to road haulage to bring together buyers and sellers in
super-efficient new electronic marketplaces.
The Internet is helping companies to lower costs dramatically across their
and demand chains, take their customer service into a different league, enter new
markets, create additional revenue streams and redefine their business relationships.
What Mr Grove was really saying was that if in five years’ time a company is not
using the Internet to do some or all of these things, it will be destroyed by
competitors who are.
Most senior managers no longer need convincing. A recent worldwide survey
large companies carried out jointly by the Economist Intelligence Unit (a sister
company of The Economist) and Booz Allen and Hamilton, a consultancy, found that
more than 90% of top managers believe the Internet will transform or have a big
impact on the global marketplace by 2001.
That message is endorsed by Forrester Research, a fashionable high-tech
consultancy. It argues that e-business in America is about to reach a threshold from
which it will accelerate into “hyper-growth”. Inter-company trade of goods over the
Internet, it forecasts, will double every year over the next five years, surging from
$43 billion last year to $1.3 trillion in 2003. If the value of services exchanged or
booked online were included as well, the figures would be more staggering still.
That makes Forrester’s forecasts of business-to-consumer e-commerce over
same period—a rise from $8 billion to $108 billion—look positively modest. There
are two explanations: business-to-business spending in the economy is far larger
than consumer spending, and businesses are more willing and able than individuals
to use the Internet.
Forrester expects Britain and Germany to go into the same hyper-growth
e-business about two years after America, with Japan, France and Italy a further two
years behind. And just as countries will move into e-business hyper-growth at
different times, so too will whole industries. For example, computing and
electronics embraced the Internet early and will therefore reach critical mass earlier
than the rest. Aerospace, telecoms and cars are not far behind. Other conditions for
early take-off include the ready availability of the right kind of software, computing
platforms and systems-integration expertise.
Just as crucial is the impact of so-called “network effects” as online
from a handful of evangelising companies with strong market clout, such as Cisco
Systems, General Electric, Dell, Ford and Visa, to myriad suppliers and customers.
As both buyers and sellers reduce their costs and increase their efficiency by
investing in the capacity to do business on the Internet, it is in their interest to
persuade more and more of their business partners to do the same, thus creating a
However, even within particular industries companies are moving at different
speeds. Much depends on the competition they are exposed to, both from
fast-moving traditional rivals and from Internet-based newcomers. But nobody can
afford to be complacent. Successful new e-businesses can emerge from nowhere.
Recent experience suggests it takes little more than two years for such a start-up to
formulate an innovative business idea, establish a web presence and begin to
dominate its chosen sector. By then it may be too late for slow-moving traditional
businesses to respond.
For evidence of how far most companies still have to go in developing their
strategies, look no further than their corporate websites. A few pioneers—such as
Charles Schwab in stockbroking and Dell in the PC business—have successfully
transferred many of their core activities to the web, and some others may be trying
their hand at a few web transactions, with an eye on developing their site as an extra
distribution channel later. But more often than not, those websites are stodgily
designed billboards, known in the business as “brochureware”, which do little more
than provide customers and suppliers with some fairly basic information about the
company and its products.
Most managers know perfectly well that they have to do better. The Yankee
another technology consultancy, earlier this year questioned 250 large and
medium-sized American companies across a broad range of industries about their
views on e-business, and found that 58% of corporate decision makers considered
the web to be important or very important to their business strategy. Only 13%
thought it not important at all. A large majority (83%) named “building brand
awareness” and “providing marketing information” as key tasks for their websites,
and almost as many (77%) thought the web was important for generating revenue. A
smaller majority (57%) also saw its potential for cutting costs in sales and customer
support. Yet despite all this positive talk, three-quarters did not yet have websites
that would support online transactions or tie in with their customer databases and
those of their suppliers, although many were working on it.
In other words, most bosses know what they should be doing, but have not
around to it. It is easy to understand why. Knowing that you need a coherent
e-business strategy is one thing, getting one is altogether more difficult. And until
you decide precisely what your strategy should be, it will not be clear what kind of
IT infrastructure investments you will need to make.
Here we go again
All this gives many managers a terrible sense of déjà vu.
They have been through
outsourcing, downsizing and re-engineering. They may well have undergone the
frequently nightmarish experience of putting in the packaged information-technology
(IT) applications that automate internal processes and manage supply chains, known
collectively as “enterprise resource planning” (ERP), and are still wondering
whether it was worth spending all those millions of dollars. Nearly all of them
embraced the low cost and flexibility of PC-based so-called client/server computing
at the start of the 1990s, only to discover the perils of decentralising data and
distributing complexity. And over the past couple of years, they have invested lots of
time and money into nothing more exciting than the hope of avoiding a systems
meltdown on the first day of the new millennium.
So they have reason to be wary of consultants and visionaries who promise
paradigms and tidal-wave technology. A recent survey of chief executives’ attitudes
to IT conducted by the London School of Economics for Compass America found that
only 25% believed that it had made a significant contribution to the bottom line, and
more than 80% had been disappointed by its contribution to their company’s
No wonder many of them are asking themselves whether e-business is the
exciting opportunity or the most terrifying challenge they have ever faced. Yet most
of them know that the Internet is in an entirely different category from the
technology-driven changes they have either embraced or had thrust on them in the
past. The same survey suggested that the Internet has significantly changed
expectations about what IT could deliver, with more than half of the top managers
saying they had high expectations for the future.
Part of the explanation is that IT investments, particularly ERP, have
inward-looking, concentrating on making each enterprise more efficient in isolation.
By contrast, the Internet is all about communicating, connecting and transacting with
the outside world. With e-business, the benefits come not just from speeding up and
automating a company’s own internal processes but from its ability to spread the
efficiency gains to the business systems of its suppliers and customers. The ability to
collaborate with others may be just as much of a competitive advantage as the ability
to deploy the technology. Certainly the technology matters, but getting the business
strategy right matters even more. And that may mean not just re-engineering your
company, but reinventing it.
IT IS a fact of life in the road-haulage industry
that whereas for
outbound journeys loads are likely to be full, on the way back
there is usually not much to carry. According to one industry
estimate, about half the lorries on America’s roads at any one
time are running empty.
The problem is that there has been no mechanism to link up
potential buyers of lorry space with all those empty containers, says Gregory Roque,
a former logistics manager for McDonald’s. His answer was to set up a new
organisation, National Transportation Exchange (NTE), which uses the Internet to
connect shippers who have loads they want to move cheaply with fleet managers
who have space to fill.
NTE helps create a spot market by setting daily prices based on information
several hundred fleet managers about the destinations of their vehicles and the
amount of space available. It then works out the best deals. When a deal is agreed, it
issues the contract and handles payment. The whole process takes only a few
minutes. NTE collects a commission based on the value of each deal, the fleet
manager gets extra revenue that he would otherwise have missed out on, and the
shipper gets a bargain price, at the cost of some loss of flexibility.
When NTE was first set up four years ago, it used a proprietary network,
expensive and limited the number of buyers and sellers who could connect through
it. By moving to the web, NTE has been able to extend its reach down to the level of
individual lorry drivers and provide a much wider range of services. Before long,
drivers will be able to connect to the NTE website on the move, using wireless
Internet access devices.
There are plenty of other perishable commodities that the Internet can
help to make
better use of. A good example is advertising space. No matter what the medium
is—print, poster, web or broadcast—sales teams spend a wildly disproportionate
amount of time trying to sell off “remnant” ad space, sometimes for as little as 20%
of the full price. Even worse, to get rid of these remnants they usually have to go
back to customers to whom they had already sold space at a higher price, so they
risk spoiling the market and losing goodwill, says Neil Cohen of Adauction.com.
Bidding in thin air
His company, based in San Francisco, started life about 18 months ago,
remnant space on big websites such as Netcenter, Yahoo, Noir Network and Xoom
through competitive bidding. What attracts publishers to Adauction.com, according
to Mr Cohen, is that it offers a simple solution that does not undermine their rate
cards or conflict with conventional sales channels. In the past few weeks the
company has branched out into print media, and within a few months it is likely to
hold its first auction for broadcast slots. Its commission on traditional media sales is
likely to be significantly smaller than the 30% it charges on web advertising.
Describing itself as an “online media marketplace”, Adauction.com conducts
web-based auctions at which bargain-hunting media buyers can bid for what they
want without having to spend time negotiating with sales reps. Adauction.com
operates three main types of auction: “Tune-in”, featuring specific product
categories, “MarketPlace”, a big monthly auction covering all categories, and
“LastCall”, a blind bulk buy that gobbles up a lot of space at the lowest rates. It also
operates “Opportunity Exchange”, a market that is always open and sells media on a
first-come, first-served basis at deeply discounted prices. Adauction.com has over
3,000 registered buyers, all of whom have undergone a credit check. The auctions,
conducted through the company’s website, can go on for several hours at a time.
Buyers can save time by automating their bidding through an agent called
“ProxyMan”. This allows them to enter the maximum price they are prepared to pay
for a specific space without letting other bidders know.
It is too early to say whether notoriously conservative mainstream media
buyers will flock to Adauction.com. In the traditional advertising world, strong
publications and big networks usually manage to pre-sell more than 90% of their
space; but on the web, even successful portals such as Yahoo can be left with 80%
unsold space. That may be why the auction model seems to work there, despite
competition from full-service web advertising networks such as DoubleClick. Last
month, Adauction.com relaunched its site as a vertical portal—a “vortal”, in the
latest Internet jargon—for media buyers, with online research tools and features
such as news, industry gossip and discussion groups. Mr Cohen says that his firm is
providing an increasingly “pro-active” customer service, giving “candid advice”
about how sites perform, and offering personalised buying plans. His e-business
strategy, he says, is based on the “three Cs” of content, community and commerce.
Whether sober Chemdex Corporation ever gets around to becoming a virtual
machine for biologists and lab technicians to gather around and swap the latest jokes
about cloning, it is certainly serving a community and offering a commercial
opportunity. Founded within weeks of Adauction, Chemdex provides a one-stop
shop for academic researchers and companies in the pharmaceuticals and
biotechnology business to purchase all their supplies. Already it claims to be the
world’s largest source of biological chemicals and reagents, with more than 170
suppliers and a vast electronic catalogue listing more than 460,000 lab products.
Chemdex’s founders, Dave Perry and Jeffrey Leane, had the right background
bring together life sciences and e-business. Mr Perry had previously set up a
biotechnology company and Mr Leane had been responsible for developing Bargain
Finder—one of the web’s first shopping robots. They found the market inefficient
and fragmented. Scientists were taking up valuable research time struggling to
purchase their supplies, using dozens of (frequently out-of-date) catalogues and
making many fruitless telephone calls. Life-science companies, under increasing
competitive pressure, were desperate to find ways of speeding up R&D processes
and reducing their cost. Suppliers were hamstrung by the logistical inefficiencies
inherent in paper-catalogue distribution.
Chemdex’s founders created a single, efficient marketplace on the Internet
three of the communities it serves. For researchers, it has created chemdex.com, a
web-based catalogue with powerful search engines and all the information needed to
base a purchasing decision on. For business customers, Chemdex has developed its
own procurement and integration software to complement its website. This means
firms can purchase through their own intranets and get the cost benefits of automated
approval and consolidated invoicing and billing. For its suppliers, Chemdex has
developed another range of software that offers supply-chain automation as well as
support for their reporting and decision making. And it is cleverly using its
technology and close integration with its partners’ buying and selling systems to
make it more difficult for them to switch to a potential competitor.
At present, Chemdex is handling about 2,500 transactions a day, but it
number to grow to 30,000 a day over the next two or three years. With more than
2,500 life-science companies and research institutes, and over 250,000 lab
scientists in America alone, that does not seem over-ambitious.
Each of these three companies—NTE, Adauction and Chemdex—exemplifies
entirely new sort of business that uses the Internet to change the way markets
operate. Ms Lief of Forrester Research identifies three new business-to-business
market models. First, there are aggregators, such as Chemdex, which help buyers in
fragmented markets select products by providing up-to-the minute price and product
information and a single contact point for service. Next, there are online auctioneers,
such as Adauction, which offer a reliable channel for sellers to dispose of
perishable or surplus goods or services at the best possible prices, and for buyers to
get bargain prices without taking a leap into the unknown. And lastly, there are
exchanges, such as NTE, that create liquidity in otherwise fragmented markets, lower
average stock levels by matching bid/ask offers and act as neutral third parties,
enforcing market rules and settlement terms.
Ms Lief argues that over time these distinct business models will tend
to merge. For
example, MetalSite, which creates a market for buyers and sellers of surplus and
secondary steel, is already both an aggregator and an auctioneer. What all these new
businesses have in common is that, in one form or another, they consolidate buyers
and sellers in markets that are fragmented either geographically or because of the
absence of any dominant firms. Together, they sail under the name of
“infomediaries”, a word coined by John Hagel of McKinsey—intermediaries who
sell information about a market and create a platform on which buyers and sellers
can do business.
Initially, infomediaries were mainly a consumer phenomenon, typified by
Internet successes such as Yahoo, Amazon.com and e-Bay, an auction site. But many
people now believe that perhaps the most profitable pure Internet companies, as
well as the most influential, will be business-to-business infomediaries, which will
have the ability to reorganise entire industries.
Charles Finnie, an analyst with Volpe Brown Whelan, a San Francisco-based
investment bank, calculates that the business-to-business infomediary market will
grow from $290m last year to around $20 billion by 2002. If those figures prove
correct, infomediaries, on the conservative assumption of an average 5% transaction
fee, will earn revenues of $10 billion within the next three years, and their gross
margins on those transaction fees will be a mouthwatering 85%.
Making the most of it
Mr Finnie’s excitement about the future of infomediaries is based on their
ability to exploit the Internet’s most salient characteristics. There are three
acknowledged facts about the Internet’s effect on commercial activity. First, it shifts
power from sellers to buyers by reducing the cost of switching suppliers (the next
vendor is only a mouse-click away) and freely distributing a huge amount of price
and product information. But buyers can feel overwhelmed by this new power in
their hands. They want one-stop-shopping: information they know to be accurate,
and advice they can trust. Sellers are in no position to offer disinterested advice.
That opens up opportunities for a third party: an infomediary.
The second fact is that the Internet reduces transactions costs and thus
economic activity. A banking transaction via the Internet costs one cent, compared
with 27 cents at an ATM or 52 cents over the telephone. Processing an airline ticket
on the Internet costs $1, compared with $8 through a travel agent. But such savings
may be available only to large businesses, such as banks and airlines, that reach
customers directly. Infomediaries, by linking buyers and sellers via the Internet, can
achieve similar savings for both in markets where they might otherwise miss out.
The third fact is that the speed, range and accessibility of information
on the Internet
and the low cost of distributing and capturing it create new commercial
possibilities. Infomediaries, sitting in the middle between buyers and sellers, are
uniquely placed to collect information, add value to it and distribute it to those who
will find it most useful. They can create a virtuous circle by using information to
attract more buyers and sellers, and learning more about them in the course of their
business transactions. For example, infomediaries such as Chemdex are trying hard
to gain a dominant share of supplier listings because that is likely to attract a
dominant number of buyers.
Mr Finnie puts it this way: “Infomediaries should focus on solving a particular
problem for a particular vertical market. By declaring a distinct focus area, the
infomediary attracts buyers and sellers whose primary interest lies in that area. If the
infomediary’s category is too broad or murky, almost no one will feel a sense of
urgency to go there. By sharpening their focus, infomediaries can provide a depth of
information... that drives transactions by generating continued customer loyalty and
participation. Increased customer participation adds yet more depth to an
infomediary’s knowledge base, which in turn drives more transactions.”
It is ironic that the Internet’s most distinctive business model should
be a new kind
of intermediary. Only a couple of years ago, enthusiasts were predicting widespread
“disintermediation” when Internet commerce took hold. On the friction-free web,
suppliers would be able to reach their customers direct without having to bother
with greedy middlemen. Now intermediaries are suddenly fashionable again—and
not just the new-fangled infomediary sort, but also some traditional businesses that
have managed to reinvent themselves with the aid of the Internet.
Take Marshall Industries, an American company that has become one of the
successful e-businesses around. Once a classic middleman distributing electrical
components, it has put all its business on to the web over the past couple of years
and redefined its old supply chain as an information-based value chain. Marshall’s
web pages provide its 40,000 customers with a range of Internet-based services
from technical data sheets to interactive training sessions and product seminars. The
company also offers “just-in-time” stock management, and tells its suppliers how to
run sophisticated marketing campaigns.
The lesson from both the infomediaries and from companies such as Marshall
intermediaries will prosper if they add value, and that the web offers many new
ways of doing so. Instead of “disintermediation”, the new buzzword is
“reintermediation”. Not everybody can be a direct seller like Dell Computer.
The real revolution
THE Internet seems to spawn new businesses and business
models every day. Some of these new businesses will, in time,
become established giants, and some of them may dominate
their particular sectors. The qualities they share are a deep
understanding of how technology can serve their business
strategies, a proven flair for implementing those strategies, and
unlimited ambition. A few, such as Amazon.com and E*Trade, are already on the
way to achieving that kind of success. Most, despite today’s towering market
capitalisations, will simply fade from view, unable to hold on to their much-vaunted
“eyeballs”, or turn them into solid profits that build long-term businesses.
Of the entirely new business models made possible by the Internet, it is
infomediaries that have the potential to be both highly profitable and difficult for
rivals to dislodge. They can also vastly improve the efficiency of even low-tech
vertical markets, such as road haulage or steel. But impressive though these fiercely
entrepreneurial firms may be (and downright terrifying for some of the old-fashioned
bricks-and-mortar companies whose necks they are breathing down), they are just a
harbinger of what is coming.
In a presentation to Wall Street analysts a few weeks ago, Lou Gerstner,
the boss of
IBM, described the new “dot-com” companies as “fireflies before the storm—all
stirred up, throwing off sparks”. But he continued: “The storm that’s arriving—the
real disturbance in the force—is when the thousands and thousands of institutions
that exist today seize the power of this global computing and communications
infrastructure and use it to transform themselves. That’s the real revolution.”
Mr Gerstner went on to say that although Amazon.com might be an interesting
concept, it would pale into insignificance against what Wal-Mart was gearing up to
do; that Netbank’s signing up of 8,000 accounts in three months was also interesting,
but not nearly as interesting as BancOne’s John McCoy declaring that his growth
strategy for what is one of America’s most go-getting banks was shifting from
acquisitions to providing Internet-based financial services.
Just as interesting to Mr Gerstner was the recent declaration by Jack Welch,
of GE, that the Internet was the biggest force he had seen in a long career, and a visit
by the entire top management of Philips, an electronics firm, to IBM’s headquarters in
Armonk to find out what they needed to do to turn their company into an e-business.
Who’s the biggest of them all?
Mr Gerstner could not resist adding that although, perish the thought,
IBM should not
be considered an Internet business, about a quarter of its revenues of $80 billion
was coming from e-business-related sales. Put another way, IBM’s Internet revenues
and, even more to the point, its profits, dwarfed those of all the top Internet
companies combined. Taking the financial results of the top 25 Internet “standard
bearers” together—the AOLs, eBays, Yahoos and so on—they collectively generated
about $5 billion in revenue and lost around $1 billion last year.
Mr Gerstner’s point is well made. When a really large company moves some
of its operations to the web, important things start to happen. The first is a ripple
effect. All the big company’s trading partners come under intense pressure to turn
into e-businesses too. The big firm, having invested a lot of money in e-business
infrastructure, is determined to get a return on it. Customers and suppliers who want
to trade the old-fashioned way will get frozen out, while those who “get it” will
simply win more business.
The tsunami effect
A case in point is GE. It has developed the Trading Process Network, a
link to its suppliers that enables them easily and quickly to make bids for GE
components contracts. It features an electronic catalogue, the ability to make
electronic purchases and the option of paying online with an electronic credit card.
The system has cut procurement cycles in half, processing costs by a third and the
cost of goods purchased by 5-50%. GE now does well over $1 billion-worth of
web-based business annually. The number of its suppliers has come down, but the
remaining ones have become more efficient.
Once companies start trading in this way, they soon begin to collaborate
closely too. For example, Chrysler has pooled more than 25,000 ideas for
cost-cutting measures from its suppliers. It reckons it saved $1.5 billion in 1998 and
could reach $3.7 billion when all the schemes are fully implemented.
Or take Visteon, Ford’s $18 billion parts division. Visteon has two main
customer: other car manufacturers, who put in large, relatively predictable orders,
and for whom electronic data interchange over value-added networks was a
satisfactory, albeit expensive, solution; and thousands of dealers and after-market
parts distributors, for whom it was not.
Visteon has deployed Netscape’s CommerceXpert Internet applications to
same sort of speed and certainty to small dealers ordering parts as used to be
expected by manufacturers. This not only gives them a better service, but also
allows Visteon to gather information far more effectively and expand into new
markets. Visteon’s chief information officer, Chris Mann, says that to reach these
customers efficiently, “the conventional supply chain is no longer appropriate. It’s
not sequential, it’s more like a web.” Visteon can also use the Internet’s flexibility to
do more for its customers than before.
Ford is also spending more than $300m on its Internet computing infrastructure
support a series of web-based applications that it hopes will make car-buying more
personalised. At the same time it is trying to redefine itself as a consumer business
rather than a manufacturer.
Another thing that big companies bring to the e-business party is critical
enthusiastically gobbling its own dog food, may be the biggest e-business of all.
This year it expects its sales over the Internet to total nearly $15 billion—more than
Cisco’s total revenues, boasts Lou Gerstner—compared with $3.3 billion last year.
Customers will visit IBM’s home article 28m times this year for e-service and
support. These self-service transactions will save $600m. And by electronically
procuring more than $12 billion-worth of goods over the Internet this year, IBM will
eliminate about 5m paper invoices.
As for Wal-Mart, that is still a question of wait and see. Nobody understands
concept of the integrated value chain better than the world’s biggest retailer. It has
always seen itself as buying for, rather than selling to, its customers. It works very
closely with big suppliers such as Warner-Lambert and Procter & Gamble. It also
shares a mass of information on stocks, updated daily, with over 4,000 suppliers
who are connected to its private network.
But thus far, the $138 billion shopping giant has remained wary of the
website looks amateurish. The selection of merchandise is patchy, and order
fulfilment is inconsistent and does not seem to be integrated with Wal-Mart’s
super-efficient back office. Even more surprisingly, Wal-Mart has yet to exploit the
data being gathered by its online operation by building up records of customer
preferences. Wal-Mart’s website is due to be relaunched in the autumn—according
to Mr Gerstner, in spectacular form.
New rules of engagement
So, back to the original question: is e-business the biggest thing since
revolution, or is the Internet just another useful tool for speeding up business
communications, a bit like the telephone? The answer may lie somewhere between
the two. The Internet goes far deeper into industrial and business processes than the
telephone, but it is not creating entirely new industries. At least not yet.
It is also still early days to judge the Internet’s full significance for
the way business
is conducted, even allowing for the faster adoption of new technology that it both
furthers and is a part of. That said, most of the pure technology issues now seem to
be largely resolved, or at least well on the way towards resolution, as in the case of
privacy, security and lack of bandwidth.
The big unknowable is how a completely networked world will change the
people work with each other. In the past, the rules of business were simple: beat the
competition into submission, squeeze your suppliers and keep your customers in
ignorance the better to gouge them. At least everybody knew where they stood. The
new technology makes an unprecedented degree of collaboration possible, but
nobody can predict how far that will reach outside the boundaries of individual
firms, and how people will adapt to rapidly shifting business alliances and
federations. Nor is it clear how companies will respond to ever more demanding
customers with perfect market information.
All in all, then, e-business is far more about strategy than about technology.
e-commerce companies have used their understanding of the technology’s potential
and the absence of any baggage to steal a march and enter markets that would
previously have been closed to them, but in future simply having a good business
idea and being technologically smart is unlikely to be enough.
The big battalions of global business have taken a little longer to see
and work out how to adapt their multi-layered supply chains and diverse distribution
channels, to say nothing of their melange of legacy IT systems or their inherently
conservative customers. But they are getting there now, and it is they and their
customers, not the Internet start-ups, that will increasingly define what e-business
means. Because the main actors will be established rather than new businesses, the
process will feel more like a highly telescoped evolution than a revolution. But
revolutions come and go; evolution sticks. The ways in which the Internet is
changing the world may be less spectacular than some of its enthusiasts might wish,
but a good deal more profound.