The Net Imperative
June 26 to July 2, 1999

The Economist is available online at It is an indispensable source of information on the global economy.

           Within a few years, the Internet will turn business upside down. Be
             prepared—or die, says Matthew Symonds

            IN FIVE years’ time, says Andy Grove, the chairman of Intel, all companies will be
             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 any signed-up
             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 with the
             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 ability to
             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 their
             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 supply
             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 of 500
             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 the
             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 stage of
             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 business moves
             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
             self-reinforcing circle.

             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 Internet
             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 Group,
             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 yet got
             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 new
             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 most
             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 been
             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 from
             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, which was
             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

             Bidding in thin air

             His company, based in San Francisco, started life about 18 months ago, selling
             remnant space on big websites such as Netcenter, Yahoo, Noir Network and Xoom
             through competitive bidding. What attracts publishers to, 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”, 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.
             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. 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 sellers and
             buyers will flock to 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, 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 coffee
             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 to
             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 for all
             three of the communities it serves. For researchers, it has created, 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 expects that
             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 an
             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 early
             Internet successes such as Yahoo, 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 unique
             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 stimulates
             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 most
             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 is that
             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 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 the
             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 might be an interesting retail
             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, the boss
             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 or all
             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 web-based
             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 more
             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 classes of
             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 bring the
             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 to
             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 mass. IBM,
             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 the
             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 Internet. Its
             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 the industrial
             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 way
             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. Early
             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 the opportunity
             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.