The $600M Web Business Market
Information technology companies find a payoff helping other companies establish a presence on the World Wide Web
he Internet's World Wide Web is billed as the business hub of the future, a sort of Wall Street, Madison Avenue and Rodeo Drive all rolled into one virtual business center. But so far, the only people making money off this cyberspace marketplace are those who are building it.
And market research suggests that Internet service providers, computer companies and other traditional information technology concerns helping companies figure out how to do business on the Web will see their current $5 million market grow to more than $600 million by the end of the century.
"Few companies are making money now doing business on the Web," said Donald DePalma of Cambridge, Mass.-based Forrester Research Inc., the company that conducted the market study. "The real gold rush is for vendors. And that's going to be the case for at least the next 18 months," he said.
There are three segments of today's $5 million Web server market, DePalma said. The first is for companies helping other firms and organizations create a presence, what's known as a home page, on the Web.
Another group of companies are creating how-to software that helps businesses set up their own home page. And a third market is emerging for anyone that can help companies do real business on the Web. Firms with this advanced technology will share an elite marketplace as business on the Web matures.
A scant number of companies are collecting direct revenues from the Web today, but there are thousands using it as an advertising tool. The promotional medium, however, differs from traditional advertising in that businesses don't try to lure customers by announcing sale prices. Instead, the advertising is disguised as information or advice, and even lawyers have gotten into the act.
The Washington, D.C., law firm of Foley and Lardner created the Biotechnology Law Web Server to offer patent and other legal information of interest to biotechnology researchers. By creating this resource on the Web, attorneys establish themselves as experts in biotech patent law, said Jill McKay, director of marketing for ARInternet, a small Internet service provider in Landover, Md., that helps companies set up Web pages.
With everyone from computer stores to pizza joints and flower shops to T-shirt vendors seeking to make a name for themselves on the 'Net, there is a huge market for companies such as ARInternet to create home pages on the Web. Many different types of companies are now in the business of creating Web pages, including traditional systems integrators such as BTG, Science Applications International Corp. and Coleman Research.
"Most defense companies are looking for a profitable place to be and many have found a home in the Web market," DePalma said. Coleman Research of Orlando, Fla., which created Mobil Corp.'s home page, got involved after it helped the Department of Energy's environmental management program set up a Web presence. Only 10 percent of Coleman's business is commercial, but 95 percent of that comes from Internet services, according to Peter Skangos, a Coleman vice president. Coleman had made its living providing information technology services to the Ballistic Missile Defense Organization.
But Coleman and other government contractors face competition from the hundreds of Internet service providers that are also lining their pockets with revenues earned from creating Web pages. The business potential is so lucrative for service providers that ARInternet actually expects to make more money off helping organizations create home pages and other Web services than from selling access to the Internet, McKay said.
Competition also is coming from several other companies that are jumping into the Web server business with automated software that helps anyone create a home page, such as Microsoft's Word Extension. Prodigy and other online service providers are also giving subscribers access to a new service that shows members how to create a home page for themselves. While large companies will still look for professional software and services, these automated programs could snag some of the smaller business customers.
But while having a home page is precocious by today's standards, to do real business on the Web companies will require more sophisticated software in the coming years. A few firms are just beginning to sell the tools that make it possible for businesses and consumers to pay for things electronically.
The two established leaders in the advanced business software for the Web are NetScape of Mountain View, Calif., and Open Markets of Cambridge, Mass. Open Markets is younger than NetScape (formerly Mosaic), but DePalma expects both will be big winners in the looming marketplace.
A few forward-thinking companies are already seeking out the high-tech Web tools that these companies offer, but Open Market's vice president of marketing Bob Weinberger expects it to be between 12 and 18 months before that business really blossoms. Security is the key issue both Open Markets and NetScape are addressing, and each have different schemes that protect business transactions and handle payment.
In addition to security concerns, one thing keeping firms from doing real business on the Web is that companies simply don't know what they want to sell. Companies shouldn't just try to sell their same products electronically, Weinberger says. That won't work.
"For instance, you can't simply bring a magazine straight over to the Web and expect to sell electronic subscriptions," Weinberger said. Instead, companies should change their products and offer unique products of the electronic world, such as personalized catalogues or newspapers, he said.