Internet commerce: where is the money? Who are the players?

Computer Industry Report, Jan 1, 1998

Will Internet commerce finally live up to the hype it generated two years ago when everyone thought it was the cool thing to do but nobody was doing it? IDC data indicates that it will, and vendors supplying the products to enable this commerce have an equal chance to flourish - but as Orwell wrote, "Some animals are more equal than others."

In recent months, much of the focus in the IT industry has turned to the consumer. Hardware makers need to tap the consumer market to continue strong growth rates because commercial markets are approaching saturation. Aggressive pricing by PC makers and the development of alternate computing platforms (such as WebTV and smart handheld devices) have given price- sensitive home users the means to "get wired." Their motivation to do so usually comes from a common source: the Internet.

According to preliminary findings from IDC's Internet Commerce Market Model,(*) the number of home Internet users will increase from about 48 million worldwide in 1997 to nearly 160 million worldwide in 2001. This is 35% year-on-year growth. The amount of Internet commerce taking place in the home will increase also, from $5 billion in 1997 to $59 billion in 2001.

* Note: Final results will be available in February.

This massive incremental opportunity must mark the consumer Internet shopper as the greatest opportunity in the IT industry, right?

No.

The market for consumer Internet commerce is growing by leaps and bounds, but it is overshadowed by the size of the business-to-business Internet commerce opportunity.

According to the Internet Commerce Market Model, business-to-business commerce over the Internet will grow from $7 billion in 1997 to $177 billion in 2001.

Why is business-to-business commerce so hot? Although the advantages of shopping by 'Net will certainly coax some couch-rooted home users to make buys from their Lazy Boys, the advantages Internet commerce offers businesses are more than luxuries - they're becoming necessities.

The economies companies gain by integrating various pieces of the enterprise - distributors, components suppliers, shippers, and so forth - through semi- public networks or extranets has been evident for years. Large automotive makers long have shelled out big bucks for electronic data interchange (EDI) solutions to link the various and disparate members of their extended families.

The Internet claims to offer the same business necessities EDI provides (real-time inventory tracking, component ordering, etc.) without the prohibitive cost of virtual private networks. In addition, its open standards give enterprises that choose to implement Internet solutions the option to reach anyone they want, from their largest business partner to their smallest consumer.

The key for vendors of Internet commerce solutions is to offer these necessities through solutions that integrate Internet commerce as part of the enterprise for large sellers/retailers. This integration must be as timely and seamless as possible and should offer scalability and functionality that correlate with clients' needs.

As business-centric as Internet commerce is becoming, however, the focus keeps coming back to the consumer. Consumers of the 21st century will not have the tolerance that was ingrained in their analog-world ancestors. They are thirsting for instant gratification as never before, and business partners must improve their efficiencies - from sales order to fulfillment - to quench that thirst.

This issue of The Gray Sheet examines business theories associated with Internet commerce and product offerings from several prominent players. Also, it examines a case in which one company's attempt at Internet commerce needs to be refined.

THEORIES BEHIND INTERNET COMMERCE

The IT community has put to rest the theory that the Internet opens whole new markets for goods and services, and most decision makers recognize the Internet for what it is: a multi- faceted channel that offers new efficiencies for sales, marketing, customer service, shipment tracking, inventory monitoring, and many other aspects of the total business model.

Although the Internet may not open vast new markets, it does extend a significant degree of power to companies that recognize how to leverage the efficiencies of this new channel. In short, it will change markets, not create them. Not surprisingly, the IT vendors responsible for enabling Internet commerce have detailed hypotheses about the ways Internet commerce will change the world.

At Fall Internet World, 1997, Open Market's chairman and cofounder, Shikhar Ghosh, presented four discrete strategies with which entrepreneuring organizations could leverage Internet commerce to outperform competitors and change the landscapes of their markets [ILLUSTRATION FOR FIGURE 1 OMITTED]. Not surprisingly, these four strategies can be implemented with Open Market products, but the theory behind these strategies is sound nonetheless.

The four strategies Ghosh and Open Market claim will provide companies with the greatest leverage are as follows: