E-valanche - Chief Executive Guide: Beyond the Internet - includes related articles - growth of electronic commerce

Chief Executive, The, March 15, 1999 by Christine Larson

Two years ago, we wondered how we'd ever make money on the Net. Now we wonder how we got by without it.

Market Makers: E-Commerce Levels the Playing Field

Internet marketplaces level the playing field, letting large and small companies interact with equal ease, and allowing small companies an electronic outlet for their products that they might not otherwise be able to afford.

"Half our suppliers do less than $10 million in annual sales," says David Perry, CEO of ChemDex. "They can't afford to invest in an e-commerce-enabled system that costs $4 million to $10 million. We've done it for them."

E-STEEL's CEO, Michael Levin, points out that bringing together buyers and sellers of all sizes benefits all players in his industry. "In all sides of this," he says, "there's a tremendous amount of productivity gained. It enables matches that wouldn't ordinarily be made - sellers can reach out to clients that might not have made sense before."

The biggest threat to your business might not look like a threat at all.

Maybe it's disguised as a technology company, handling your electronic orders. Or maybe it looks like an auction site, introducing your sales force to hard-to-find customers via the Web. Who knows, it might even be Microsoft or Intuit or companies that have little to do with your industry - on the surface. But one way or another, some company out there has launched an attack on the way your industry does business. And sooner or later, your company - and industry - will have to find ways to co-exist, cooperate or compete.

"E-business is going to transform entire industries," says Cathy Neuman, firmwide ebusiness leader for PricewaterhouseCoopers.

Industries as diverse as trucking and insurance, steel and food service, are already undergoing significant transformations in their relationships with customers, suppliers, and other companies. And while these changes threaten the very existence of some companies, others are seeing their profits increase and their opportunities expand.

"It blows my mind when traditional companies say they'll move to the Web when it's ready in two or three years. It's ready now. It's happening now," says Chris Larsen, CEO of e-loan, an on-line mortgage company.

Industrial Evolution

In the last 18 months, the key question behind electronic commerce has changed from "Who's making money?" to "Where do I sign up?"

Success stories like Dell's $10 million in Web sales a day, Cisco's 20 percent increase in productivity from streamlined Internet ordering processes, and the 1998-99 holiday season's explosion in Internet shopping - a record number of on-line shoppers spent $3.5 billion in the fourth quarter of 1998 - are making executives in every field sit up and take notice

"The important thing is to realize there is a segment of people who want to do business this way, and you have to respond to people's wishes," says Hussein Enan, CEO of InsWeb, a consumer shopping site for insurance policies.

Some 80 percent of CEOs expect the Internet to have a significant impact on their business, according to a 1998 PricewaterhouseCoopers survey of Fortune 1000 CEOs. But a much smaller percentage understood just how this will transform their industry.

On some levels, a little skepticism makes sense. Why invest millions of dollars for an electronic ordering system? Even high profile Amazon.com isn't yet turning a profit. What earthly impact could Internet commerce have on a relatively low-tech industry like steel or trucking? Even five years from now, on-line retail won't exceed 6 percent of the total U.S. retail economy, according to Forrester Research.

On the other hand, Internet commerce has already irreversibly changed the way some industries work. Computer sales leader Compaq, spurred by Dell's staggering on-line sales figures and efficient make-to-order system, has had to reinvent its relationship with consumers and channels; recently, the company launched a Web site to sell computers directly to individuals, much to the chagrin of its dealers. Barnes & Noble hasn't just put up a Web site to compete with Amazon.com: in a move toward collapsing the supply chain, the company recently purchased Ingram Books, the world's largest book distributor. And venture capital is flowing into on-line commerce ventures at 50 times the rate of content sites, according to Andy Zimmerman, global leader of PricewaterhouseCoopers's InfoComm group.

Creating New Markets

Right now, electronic commerce companies - some starting from scratch, others backed by industry leaders - are changing the way businesses buy from each other. And that means far more than sending an e-mail instead of a fax. Business-to-business electronic ventures are creating new revenue sources, streamlining business processes, and opening up new markets.

While much ballyhooed consumer auction sites have attracted media attention, the big money's in business-to-business auctions, where new spot markets are appearing for everything from spare parts to government permits. Forrester predicts on-line business-to-business auctions will transact $52.6 billion by 2002, while total business-to-business on-line sales will reach a whopping $3.2 trillion by 2003 (see chart, below).