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Internet Drives On-line Commerce, But Commute Causes Traffic Jams

May 1999
By Michael A. Robinson

Finding the World Wide Web increasing in importance, businesses hit speed bumps in race to stay competitive.

The Internet’s promise of providing low-cost electronic commerce and information exchange in reality is bringing a whole new set of obstacles to corporations that are embracing these seemingly broad opportunities. These obstacles, apart from conventional logistics snags, involve rising costs, corporate intrigue and mushrooming marketing budgets.

With so many new domain names being registered each day and with so many unsophisticated consumers going on-line, gaining access to promised markets is proving to be more difficult as search engines, bulletin boards and news groups worldwide become bogged down with information overload. These problems are emerging concurrent with the cyberspace equivalent of an arms race where no business can afford to fall behind its competition.

Add to that a major battle over broadband delivery of corporate content, consumer news, information and entertainment, and the potential emerges for a lot of technological frustration and confusion. For instance, should a software manufacturer put a video advertisement on its web site, hoping that convergence means the message eventually will be displayed on a consumer’s cellular telephone?

Analysts who stay abreast of emerging trends on the World Wide Web laud the improvements in content and technology that stream forth each day. However, they also note that companies and consumers are scrambling to keep pace with rapidly changing technology without a clear picture of exactly what it is they want and how they can measure success or satisfaction.

Several recent Internet trends illustrate this growing problem. The Internet now ranks as the third overall source of information in the United States behind television and newspapers, but many users already rely more on the web than any other form of media. Improvements in Internet technology such as streaming audio and video, along with the advent of broadband telecommunications, will increasingly blur the distinction between television and the Internet.

A 50 percent growth rate is projected for the number of on-line users in the next three years. That means some 38 million more Americans will be getting on-line. It also means some inevitable frustration as heavy telecommunications traffic causes delays and breakdowns despite faster modems. When users of San Francisco-based Charles Schwabb & Company’s on-line trading services were recently denied access for more than an hour, complaints appeared in West Coast newspapers.

The growth in the number of web sites is nothing short of astronomical. More than 3 million sites already have been registered, according to Network Solutions Incorporated, Herndon, Virginia, a leading global registrar. With roughly 100,000 new sites registered each month, the .com domain name is becoming difficult to obtain. Scientists and academics are launching a second, faster Internet dedicated strictly to serving their own information needs.

The demographics of the Internet are rapidly changing. On-line users in the United States will more closely resemble the average American in the very near future. A recent report by IntelliQuest found that 49 percent of those planning to go on-line have a high school education or less. Pew Research found that 23 percent of those who have gone on-line in the previous year make less than $30,000 per year.

While these users tend not to be decision makers, more workers say the Internet is an indispensable part of their jobs. Workplace personal computers account for more than half of the increase in Internet connections. Since January 1998, the number of connected personal computers at work rose from 16 million to 24 million.

More than 40 percent of the roughly 72 million Americans already on-line access it from work at least part of the time. This could help explain why so many companies are rushing to convert their web sites from little more than on-line sales brochures to destination venues with meaningful content aimed at a business audience.

“A lot of attention gets focused on the consumer end of the Internet, but business applications may be far more important,” Mary Cronin, a professor of management at Boston College in Massachusetts, explains. “The volume of business-to-business transactions is much bigger. This is an incredibly important area for both suppliers and large corporations.”

Cronin began to track trends on the Internet in the early 1990s and has authored four books on the subject since 1993. Her most recent book deals with banking and finance on the Internet, but she is arguably better known in the general business market for the 1996 release of The Internet Strategy Handbook, which profiled several companies that had succeeded handsomely by harnessing the power of the web in creative yet bottom-line ways.

Cronin is among the first to acknowledge that the Internet has changed dramatically since 1996. For instance, at that time the big trend among businesses with a web presence was to use their sites primarily as marketing tools. Many companies rushed to get on-line, hoping to make direct sales from their sites.

Now, however, many companies realize they simply cannot take full advantage of electronic (e-) commerce because on-line sales may be neither practical nor appropriate. Instead, they are using Internet technology to establish or improve intranets and extranets.

In fact, a majority of large corporations now operate intranets as on-line sites to which only authorized corporate personnel have access. With applications for sales, marketing, internal communications, materials handling, human resources and product development, intranets offer companies the potential for significantly improved productivity and cost savings, Cronin observes.

At the same time, extranets offer the potential for even more meaningful on-line commerce in the business-to-business category. This category is often ignored by the popular media more consumed with the hot market for Internet stocks. Cronin says the definition of an extranet remains vague, but it generally means sharing information with valued clients and suppliers.

As a hypothetical example, a company making jet engine parts for Boeing may need access to parts catalogs and identification numbers that go back several years. Making these accessible on-line to a supplier cuts time and money wasted on duplicating past efforts. In turn, the engine part manufacturer can show Boeing designers tensile strength, metals and velocity tests from its own extranet. Both companies can share information with other companies involved in the design of new wide-body aircraft.

“For a lot of companies, sales on-line will not be nearly as important as the ability to communicate with customers and suppliers behind the scenes,” Cronin adds. “E-commerce is moving rapidly, but in terms of a global connection, there are still a lot of barriers to having a seamless electronic marketplace.”

Among the barriers, Cronin says, are local customs, privacy concerns, international funds transfers, the possibility of selling sensitive materials to criminals or terrorists posing as corporate buyers, and the lack of a global Internet standard for business.

Nevertheless, Cronin notes, companies must stay abreast of Internet developments to remain competitive because rivals are harnessing new technologies and multimedia tools to entice customers and enhance relationships with key constituencies. In that sense, the web represents the corporate equivalent of the arms race: Companies cannot afford to ignore the weapons their rivals are developing.

For information technology (IT) specialists, this growing electronic competition is akin to selling blue jeans to ’49ers during the California gold rush. Whether their customers strike it rich or go bust, IT suppliers will make money.

“The good news to IT vendors wanting to capitalize on the Internet revolution is that there is a considerable opportunity out there,” according to Anna Giraldo, senior analyst with the Internet and e-commerce strategies group at International Data Corporation (IDC), Framingham, Massachusetts. “The challenge is to be able to recognize how and where the spending occurs and why.”

Corporate spending on the Internet will reach $85 billion in the United States alone in 1999, and it will surpass $203 billion by 2002, IDC concluded in a recent analysis of electronic commerce. IDC officials offer that the manufacturing sector will spend $24 billion; financial services companies, $16.6 billion; on-line media and communications, $10.7 billion; and retail, $6.2 billion.

“Corporate Internet spending is being driven by the ongoing quest to sustain competitive advantage,” Giraldo declares. “Corporations need to be innovative, efficient and ultimately profitable in order to remain competitive, and Internet technologies enable businesses to do so.”

Meanwhile, with so much at stake on the Internet, a battle over broadband delivery of content is taking shape, analysts observe. In fact, telephone companies are competing directly with cable companies for control of consumer markets and with satellite firms in the desktop arena. Internet service providers (ISPs) are forging alliances with digital subscriber line (DSL) companies and are banding together to fight local cable monopolies.

Leading Internet service providers recently formed the OpenNET Coalition, a Washington, D.C., lobbying group that wants regulators to take action on the issue of open access to cable. The showdown promises to be complex, observers say, because cable regulations span many federal, state and local agencies.

Cable companies generally receive local area monopolies from municipalities, but they also face state public utility regulations and oversight and must comply with federal communications regulations. Whether this complexity will give ISPs the opening they need remains to be determined, but the Internet companies have size on their side.

OpenNET Coalition’s founding members include MCI WorldCom, America Online, MindSpring, Prodigy, U S West, Netscape, Cable and Wireless USA Incorporated, Washington Association of Internet Service Providers, CyberRamp, Bertelsmann Internet Services, FlashNet Communications, ConnectNet and the Texas Internet Service Providers Association.

The major telephone companies also hope to use DSL technology to gain an advantage because their technology provides broadband delivery of content using existing copper telephone wire. With almost everyone in the United States owning a telephone, as opposed to 60 percent having cable television, the regional Bell operating companies have a strong incentive in their quest to become the major source for Internet access.

However, people should not count out the satellite companies either, cautions Greg Caressi. He is the research manager for satellite communications at Frost & Sullivan, a marketing research and forecasting group in Mountain View, California. Satellite companies likely will be in a number-three position nationwide, but they have the ability to dominate selected markets.

“Satellite will definitely be a big player in the more remote areas where there’s not enough of a market to warrant a DSL rollout,” Caressi explains. “Satellite [delivery of information] will certainly have an important niche for large corporations with widely distributed sites.”

Cronin offers that she is intrigued by the competing technologies for Internet access, but she warns corporate IT and marketing managers not to get distracted by who is using which modem for what purpose. In the next two to three years, the majority of Americans will get their information via the Internet, she predicts.

That means companies must have a technologically sophisticated web presence that is both informative and enticing. Without a robust web presence, many companies will lose market share to more technologically sophisticated rivals, Cronin says.

“If you’re not up to task, you will really fall behind other people who do it better,” Cronin concludes. “So many people look to the Internet as the place to get their information, download software and get connected to what’s happening. Once they get used to getting their information from a particular source, they have no reasons to go around looking for your stuff.”