World Telecommunication Day 1999 |
Anyone who doubts the escalating impact of the Internet economy should glance at a recent study by the University of Texas. Funded by Cisco Systems, the report discloses that on-line commerce generated $301 billion in U.S. sales last year and currently supports a workforce of 1.2 million people. In fact, Internet commerce is now worth more than the telecommunications sector ($270 billion) and is not far behind the automobile industry ($350 billion)
While consumer sales grab the headlines, the business-to-business sector of e-commerce is generating the real money. Increasingly, doing business over the Internet is being recognized as a phenomenon that is transforming the business world itself. Forrester Research projects that business-to-business transactions will soar from $43 billion in 1998 to $843 next year and $1 trillion by 2003.
The Internet allows companies to link suppliers, manufacturers, assemblers, distributors, marketers and customers in new and previously undreamed-of ways. But e-business - which amounts to a much greater proportion of electronic transactions than e-commerce or retail sales - is also making the divisions between businesses themselves more porous.
While one of the purported advantages of the Internet is direct contact with customers, in actual fact a new breed of middlemen is emerging to facilitate e-business. Whether they call themselves vortexes or net market makers, these middlemen serve as hubs for a specific industry (vertical hubs) or business process (horizontal hubs). Their value is in gathering buyers and sellers, creating critical mass and reducing transaction costs. A California-based investment bank estimates that hub transactions will reach a value of $20 billion by 2002 - generating transaction fees of $10 billion within three years, with gross margins of 85 percent.
Horizontal hubs can spread across various industries. Examples of existing hubs include Employease (administration of employee benefits) and BidCom (project management). Up-and-running vertical hubs include Cattle Offerings Worldwide (beef and dairy), PlasticsNet.com (plastics) and Ultrapise (secondary mortgage exchange).
Companies like VerticalNet create vertical trading communities. Each of its portals serves as a hub for a particular industry - from paints to food ingredients - offering a one-stop source for news stories, product reviews and recommendations as well as storefronts from hundreds of vendors.
For an industry to have a portal with VerticalNet it must have at least $10 billion in domestic sales and be comprised of at least 3,000 companies with at least 40,000 buyers, which allows for fragmentation between buyer and seller. By the end of the year, VerticalNet plans to have 50 such industries on-line.
A good example of how Internet business is blurring the traditional lines between rivals is the recent cooperation between IBM and Cisco Systems, the world's largest manufacturer of Internet equipment. In a reversal of an earlier decree not to share products with rivals, IBM has signed a $2 billion, five-year contract to supply Cisco with chips and parts. Cisco, meanwhile, paid another $300 million to acquire patent rights to some of IBM's products, while IBM has been awarded another multibillion-dollar contract to help maintain Cisco customer computer networks based on Internet technology. As a result of these deals, IBM will no longer compete ''head to head'' with Cisco on most fronts in the networking market.
''The growth of the Internet and e-commerce has blurred many of the lines that exist between businesses in the off-line world,'' says Arthur Levin, legal officer of the International Telecommunication Union in Geneva. ''For example, large Internet service providers wear a series of hats that range from postman to broadcaster, publisher, merchant and phone operator. Since each of these services is regulated in a different manner, this convergence of products and services under one roof can create a regulatory dilemma.''
Mr. Levin goes on to explain that as a result, regulators are now confronted with the question of whether to create new frameworks or attempt to adapt existing laws. ''Since change is so rapid in this field, governments are also concerned that any actions they take do not lock in or confer a preference on existing technologies,'' he says. ''Thus, a general trend among regulators is to wait and see how markets and new technologies emerge and then determine the best regulatory approach.''
As companies leap to adapt to the electronic marketplace, they confront major challenges in trying to fashion their operations around this new business architecture. As established companies evolve their Web sites from static sources of information and advertising into actually carrying out transactions, the sites have to be integrated into existing computer systems.
Obviously, a true e-business has to go further than just linking in the order-entry system. Customers must also be linked to all parts of the business, including back-office support systems, resulting in a transparent and seamless system that keeps customer interaction as its core.
The Gartner Group research analysts estimate that for every dollar companies spend on prepackaged, e-commerce applications, they spend $5 to $50 on systems development and integration to create supportive internal architecture.
In a recent e-business technology forecast, PricewaterhouseCoopers says that the areas of greatest activity will be systems to fully integrate customer interface and supply chains, standards to allow orders and invoices to pass between applications without human intervention and enterprise application integration, which connects applications without the need for custom programming.
The workforce is also affected by the shift to e-business. ''There is little doubt that the Internet will transform the workforce, both in the types of skills that are required and in the way that products and services are delivered,'' says Mr. Levin, who gives an example in on-line retailing: ''The Web master has already replaced the store clerk.''
Many feel that this leaves staff to focus more closely on aspects like building brand loyalty and awareness. Merely creating an e-commerce Web site is not in itself sufficient to ensure customer loyalty; to outsmart their competitors, companies must constantly offer a higher level of service, better products, better catalogues and higher visibility.
Because constant reinvention is the order of the day for companies that strive to survive in this rapidly changing technological environment, workplace skills are also evolving. As well as the need for internal and external technical staff and support, there is greater demand for creative thinking and more flexibility in job definition.
E-commerce also allows for more flexibility in job location. A number of jobs can be easily performed at remote locations during odd hours - perfect for parents with children at home or staff who do not want the hassle of commuting, although not ideal for brainstorming activities and general workplace camaraderie.
Julia Clerk