Finally realising its potential

By the middle of 2000, the downward spiral of credibility in e-commerce in particular, and the dot.com sector in general, had begun in earnest and when the stock market slump was believed by many to have been lead by disappearing Internet start ups, the wider perception of doing business on-line declined rapidly.

Now, however, the Internet is embracing and engaging more connected consumers and companies than predicted. Businesses and individuals are seeing costs reduce and the speed with which service issues are resolved is matched by the pace of innovation and productivity increases.

By the end of 1998 forecasters were ambitiously predicting that business to business trade on the Internet would reach $1.3 Trillion in the US. This now turns out to be a significant under forecast – with B2B e-commerce standing now at $2.4 Trillion p.a.

In fact, it seems that just as investor confidence reached it’s lowest point, the delivery potential of the Internet – in all senses of the word – was starting to be realised. For the Consumer this has meant that US e-commerce levels should come close to the ’98 forecast of $108 billion

In 2000 the Brookings Institution projected that productivity gains from e-commerce could be as much as $250 billion a year by 2005. But, again, this projection is going to be too low – with $450 a more likely number.

The source of these savings is multi-faceted – the speed of Supplier communication and the ease and greater accuracy in forecasting, for example means that in Supply Chain alone – about half a billion dollars of savings are going to be realised.

The strongest of the dot.com Companies have not only survived, but some are even starting to prosper – 43% of the ‘original’ start-ups [or the amalgamated] went in to profit in the second half of last year – and the trends remain positive at the half year close – with a likely 50% of Listed Companies profitable in 2003.

And this is before many sectors have been fully included – construction, agriculture, healthcare – all examples of late and accelerating entrants.

The answer to this apparent contradiction – commercial success versus stock market disaster, is that the consumers were not distracted by the valuation game going on behind the ‘shop’ – they just focused on a very convenient way of comparing and buying – and often gaining access to products that had not even been visible to them before. The interest has converted to habit buying continuing to grow the proportion of sales for many traditional organisations to as much as 25% of total sales.

Direct marketing has been finding its way – experimenting with the best ways of catching the consumers’ eye and even online advertising is on the up with companies like GOOGLE growing and recruiting like a 90’s success story and AMAZON.COM becoming on e of the World’s strongest Retailers.

The success of companies like eBay illustrates the way in which broadening the appeal to consumers increases sales for the benefit of the majority – but there are losers as well as winners. Music Industry estimates indicate that nearly 42 million music files are being shared annually and these between 100s of millions of fans worldwide. The Travel sector is another presenter of mixed blessings – UK offshoot of FlightBookers e-bookers in the UK and the off shoot from Microsft - Expedia in the US are forcing – literally – the closure of the weaker or isolated traditional Travel Agents.

In the Technology sector – DELL continues its domination strategy with full end to end use of the Internet – connecting Suppliers and Consumers in a seamless way, through a complex sourcing and simple assembly process.

Competitive Choice

For competitors of these Companies – the choice is an easy one – adapt and adopt - or abandon.

And very few are abandoning – most taking the learnings of the pioneers and coupling this with the now much lower cost of development in e-commerce. Although technology spend is much lower than 3 years ago – down 6% on 2001, a high proportion is being channelled to e-commerce development with a rise in 2002 of nearly 12%.

A big advantage of e-business development is that can be modular e.g. channel focused – and investment returns are covering spend in six months or less in many cases.

This return rate may even accelerate as the next phase of e-business technology tools emerge and impact. Virtuality is a key element of this with e-conferences and virtual exhibitions taken for granted and virtual research laboratories in the bio-tech sector also moving from acceptance through norm to necessity.

Tagging and Wi-Fi and smart dust – tiny silicon chips with tiny aerials capable of Internet communications to track or advise status – are all part of NextNet. Like supercharged bar-codes the Auto-ID Centre project puts chips with identification numbers on individual consumer products to track packs through the supply chain securing real just-in-time and revenue enhancement through higher fulfilment and sel-thru’ as forecasting gets better too.

But here too – development is not without challenge – broadcast transmission regulation by National policymakers may put a brake on Wi-Fi and the Napster saga proves that investment decisions in the media sector can fall foul of unfavourable legislation – or uncontrollable distribution.

Culture is a real challenge with restrictive and traditional States frowning on the content of some Internet operators - and with naivety in some Corporations on the acceptance levels by workers, suppliers and customers. Although all these components had access to all the information in the World they could want through the Internet – when General Motors tried to mimic DELL’s model for customisation by customers they quickly found that the collateral demands on suppliers and the dealer network were unmanageable.

Greater success in the pharmaceutical sector though where one of the Global Top Five has tripled their research capability to 21,000 scientists and other researchers – not only expanding in the volume of research being done but extending the reach into global competencies and innovation. They did this by creating on on-line forum where challenges and opportunities were posted with cash grants on offer to those who solve the problems. The site is not only global but open to all and multi-lingual.

Effectiveness is the main goals for companies like DELL with productivity high on the list – despite being the acknowledged leader of e-business, DELL estimates that it is only at a 50% utilisation level of the Web’s potential – with most others at 20%. And even CISCO Systems is only beyond year three in serious utilisation of it’s e-opportunities – and believes it is one only a few that advanced. The good news is that productivity increases accelerate with 1% in year one utilisation rising to 5% per annum in year three.

But in 2003, business and consumers alike are far better positioned than they were a half-decade ago to profit from the Internet. Why? The Net is far more powerful, thanks largely to broadband. In the past year, broadband usage in the U.S. has shot up to 19 million households, doubling since 2001, and is expected to reach 40 million by the end of 2004, predicts Forrester. Rates are even higher in Canada, Japan, and Korea, and growing fast. Already, speedy connections are transforming behaviour, as consumers treat the Web like phone service or electric power -- always there. Broadband subscribers spend 58% more time online, according to a Forrester survey, and spend 37% more on e-commerce.

While broadband speeds up the Net, the wireless radio-based networks known as Wi-Fi untether it. For corporations and e-merchants alike, Wi-Fi carries broadband nearly everywhere a laptop can go, from meeting rooms to the factory floor.

The payoff is productivity. GM may have fallen flat with its Internet effort to customize cars. But the auto maker is faring much better with a Wi-Fi project. In more than 90 GM plants, Wi-Fi devices are mounted on forklifts and placed in the hands of employees, who use them to track engine parts and car seats, helping to speed production. And some execs, including GM CEO G. Richard "Rick" Wagoner, keep tabs on operations in Asia and Europe by logging on to the corporate network from secure Wi-Fi connections at home. "It helps us compete in a world where everything is moving faster," says GM Chief Technology Officer Anthony E. Scott.

At the other extreme are machine-to-machine systems. That's the Internet on automatic pilot. The idea is to give machines the smarts to tell each other what to do -- while humans, presumably, are free to carry out more important work. Some companies, such as Ford Motor Co. (F ) and Italy's Prada, are using the Web to allow machines to monitor each other, track products as they move through warehouses, and even make decisions without human intervention.

Beckman Coulter Inc. (BEC ), of Fullerton, Calif., which makes blood analyzers and other medical equipment, links the machines it sells to a computer back in its factory. The computer, unlike humans, works every minute of the week to monitor that everything is running smoothly. When a problem crops up, the computer alerts a Beckman technician, who can often make repairs before the machine breaks down. Beckman expects this system to save it as much as $1 million annually. But the far larger benefit is customer satisfaction for a company that fixes the machines it sells before they show signs of malfunctioning.

Computer scientists envision a day when there are vast networks of smart machines, each one no bigger than a grain of rice. Researchers at the University of California at Berkeley and Palo Alto Research Center Inc. are developing tiny chips, equipped with microscopic antennas, called smart dust. The flecks of silicon could be embedded in materials or products to sense problems or relay data wirelessly to a computer network. For now, the first practical hints of this vision are surfacing in a project sponsored by Wal-Mart Stores (WMT ), Gillette (G ) , Procter & Gamble, and 84 other companies that could dramatically change supply chains. These are next-generation bar codes, which communicate to the network with every move. Standing still and observing while development and adoption is accelerating is not an option for any company – ask those who have been on the receiving end of Amazon.com. DELL, e-bookers – the list is not endless, but it’s big, growing and deadly to the traditional player unable to embrace the potent channel management capability the Internet presents.

Those taking the leap are finding themselves not only in new regions and countries but new markets and new businesses where operations run increasingly on automatic, with no operator intervention as – for example – the full end to end supply chain becomes connected.

It’s the car, the phone, the colour tv, the jet – it’s the latest underrated impact on society or business – understand e-commerce and leverage – and understand success.