The E-Business Equation: Government Not E-Active, But There Is Ample Opportunity

The E-Business Equation: Government Not E-Active, But There Is Ample Opportunity <@VM>DEFINING THE TERMS<@VM>CORPORATE VIEWPOINT<@VM>THE DELPHI GROUP<@VM>A New Type of Leader For a New Age<@VM>Q&A: A Primer on Portals and Profits in E-Biz

By John Makulowich

Without a doubt, the glut of information on e-business in print and on the World Wide Web would stop even the most voracious reader dead in his tracks. Picture that person standing before an infinite buffet that ranges all the way from steak tartar at one extreme to wilted lettuce at the other.


In that image, you begin to sense the breadth and depth of quantity and quality in publications, some trying to help executives sort out the impact of the Internet on their business, others offering tips and tricks to jump-start corporate and public agency initiatives.


It is all part of the bandwagon phase of the Internet and the World Wide Web, where every new idea triggers the me-too, knee-jerk reaction of entrepreneurs and comes across in banner ads as subtly as a carnival barker trying to attract curious spectators to see the bearded lady.


Not to be outdone, President Clinton and Vice President Gore weighed in on the federal side of the e-business equation with their own contributions last December. Released in midmonth were two presidential memoranda: the "E-Government Directive" and the "E-Society Directive." These called upon federal agencies to use technology to make government services and information more accessible and to help improve the education and lives of citizens.


And, with a deep bow to the commercial sector, both pronouncements highlighted that federal agencies would work cooperatively with business.


This approach will come as no surprise to those who read and believe that e-commerce is expected to exceed $1.4 trillion by 2003, according to one estimate. Other research, namely that by International Data Corp., sees the size of the global Internet economy exceeding $1 trillion by the end of 2001 and reaching $2.8 trillion by 2003.


Gore also released the Electronic Commerce Working Group's second annual report, called "Towards Digital eQuality." It detailed the administration's achievements last year in promoting e-commerce and described its vision. Among the noteworthy on its list were the current buzzwords of the Beltway: protect consumer online rights and privacy, support Internet growth and spread e-commerce's benefits to more people.


On the content front, more interesting was the memorandum on electronic government issued by President Clinton. That document could well serve as a blueprint for setting up a virtual government monopoly Web site of federal information and services. For example, the president directed the heads of executive departments and agencies to make available online by December 2000 the forms needed for the top 500 government services used by the public. And by October 2003, transactions with the federal government are to be available for online processing of services.


Further, the president directed the heads of agencies to promote using electronic commerce for faster, cheaper ordering on federal procurements, presumably yielding savings to the taxpayer.

With all the commotion at the federal and commercial levels about the promise and peril of e-business, one is often hard put to find precise information in trying to understand what constitutes e-business. It is even harder to uncover exactly how federal and commercial approaches differ, if at all.

Cases in point are readily available. There is the author of a major research report on the subject who identified 20 Internet business models and grouped them into four major categories. At the other extreme is a software executive who ranked companies as poised in one of only four stages of Web-based business development. In between are articles in prestigious management journals that alert readers to the advent of electronic commerce's second generation and feature interviews with business model iconoclasts such as Priceline's Jay Walker.

To cut to the chase, I turned to a number of academics and business school professors, among them Rolf Wigand, professor of information studies at Syracuse University and director of the Center for Digital Commerce in the School of Information Studies.Wigand's center takes an interdisciplinary approach to e-business with research, education and outreach activities that cover technology, management, strategy, economics and policy. It is working on a project funded by the National Science Foundation about the role of digital commerce in the real estate industry.

Wigand said the e-business field started with the label "electronic commerce." It always has meant having an enterprisewide perspective and pursuing enterprisewide applications.

"About three years ago, IBM started to push its e-business advertising campaign with full-page ads announcing its e-business services. I must give IBM credit for having the foresight to choose this label," he said. "About six to nine months ago, some consulting firms deliberately made the point that e-business is different from e-commerce. I think this is a play on words. For many people, [e-commerce] also meant, and still means and incorporates, e-business."

As far as the term digital commerce, to Wigand it means the same thing as e-commerce or e-business. He said he very carefully chose digital commerce in the center's name because he believes the phrases e-commerce and e-business will wear out.

"I like to think that digital commerce is on more neutral grounds as a label and should outlive either term," he said. "I believe that some tiring of 'e-business' has occurred already. Isn't everything 'e-something' today? E-this, e-that ... e-here, e-there, e-everywhere."

Asked about the distinguishing characteristics of digital commerce in the public sector, Wigand said there is no real distinction between it and the private sector. He noted a number of areas in which e-commerce government and public-sector applications are important, such as procurement, supply chain management, electronic buying, electronic sourcing, the Electronic Data Interchange move toward a Web environment, and citizens' expectations to find government electronic-commercelike applications, such as filing taxes and searching their Social Security information.

"It seems to me that citizens today will also come to expect from their governments digital-commercelike applications," he said. "If I am interacting with companies in such advanced fashions, it will not be long [before] I expect similar forms of interaction with various levels of government. I think government also can save considerable amounts of money by developing its own electronic commerce strategies, for example, procurement, purchasing and integrated custom applications with businesses."

As a prime example, Wigand noted Singapore's completely electronically integrated shipping operation. Many of its efforts are EDI-based, an early forerunner of electronic commerce. The country pursued a strategic plan to move into the electronic world with its shipping and harbor operations. In doing so, it knocked out Hong Kong and Japan as any sort of dominant players within the Far East.

With regard to its own e-business focus and the orientation of many Internet-leaning, if not savvy, organizations, the center seeks to become a resource for the central New York business community and multinational corporations to provide consulting services, seminars and educational and networking opportunities.

Wigand cited as an example the center's Power and Gas Smart project, an initiative with a small local firm that is in hot pursuit of the energy consulting business. Part of the project's rationale is that buying and selling electricity and gas has been deregulated in the state of New York since Sept. 1. Nearly 65 firms registered with the Public Utility Commission to buy and sell energy within New York. Taking on an incubator function with Power and Gas Smart, the center is helping the company develop a business plan, research markets and review regulatory policy. And the center and the company are developing a strategy on how the company should pursue this business.

"We are developing a Web site from which this company eventually can buy and sell energy to other businesses," Wigand said. "We hope to see dynamic pricing so that a firm might buy electricity Monday mornings between 9 a.m. and 10 a.m. from whatever company offers the best price at that time. If a better price can be found for 10 a.m. to 11 a.m., the firm might switch to another electricity supplier."

It is clear that one key strategy of e-business entrepreneurs at work here is creating a site to serve as a portal, in this case, for the electricity and gas industry, similar to e-STEEL, the site for the steel industry. As Wigand and others know, such portal sites usually serve as the common entry point for Web users.

But there is an even more important function. Such portals also serve as the so-called sticking point, keeping and attracting new Web users the same way that world-class companies retain old clients while attracting new ones.

For instance, at e-STEEL, visitors not only can buy and sell, they also can find news about the industry and post and search for jobs in the industry. In a typical Web twist to business conduct, given this model, losing customers could become much more expensive than it is in the brick and mortar world.

As Wigand added as a promo for his center, all the efforts before building the Web site are interdisciplinary, requiring a range of professionals, such as designers, graphic artists, marketing experts, strategists, people with an understanding of economics and business models, content experts from the energy field, programmers, database designers, system architects and security people.

Another academic, Paul Farris, Landmark Communications professor in the Darden School of Business at the University of Virginia, offered another side to the government picture of e-business. Farris feels public-sector use of e-business has enormous potential.

"Government's role in e-commerce can be decisive for the entire economy. Government purchasing, standards for suppliers and human resources are leading a lot of what companies have to do," Farris said. "However, to be an intelligent buyer and contractor, government agencies need to understand and be in the forefront of this transformation."

Beyond the sector differences, Farris said the biggest challenge facing any organization seeking to enter the e-business fray is constantly revising its business model and being willing to abandon one that no longer makes sense. With the customer having changed in a very real way, intermediaries that add little value may find themselves out of the picture.

Said Farris: "Every company should consider how it will adapt to every other company embracing e-business. The first step is not learning to code HTML, but to think hard about how your business model will have to change to satisfy the end users once your customers are e-literate."Oracle Corp. is one company within the last six months that refocused its business on the electronic marketplace and then watched its stock price skyrocket.

Steve Perkins is senior vice president and general manager of both Oracle Federal Business and Oracle Financial Services. The latter covers capital markets, banks and insurance companies. In talking to Perkins, it becomes clear the extent of transformation in business practices and processes brought on by e-business, especially in both the public-sector and the financial services e-business worlds.

Asked if e-business is anything more than another name slapped on traditional business practices, Perkins said: "I'm in the camp that says we are in the early stages of a fundamental revolution in business models unseen since the Industrial Revolution."

For Perkins, all that business has done in the last 30 years, including information technology innovation, has been about more efficient execution of the business models in place in the United States and Europe since the turn of the century. It amounts to the classic supply chain with well-established organizational boundaries and the roles of executives and staff well-defined and understood.

Turn now to the Internet and the World Wide Web. With applications that sit on top of the Internet computing architecture, you begin to see fundamental changes in the models. With complete transparency in the supply chain, you see user-driven pull models as opposed to product push models. These are changing businesses like financial services, retail and publishing.

Moving forward, Perkins said we will see improved buying models and collaborative development, for instance, in the automotive industry. Both will lead to a pull model in the automotive business vs. the push model we have today, where the salesperson pushes a set number of showroom products to the customer.

"With customers in control, you can configure cars rather than buying inventory off the lot," Perkins said. "Think about the revolution that may represent in inventory carrying cost, manufacturing cost, the role the broker-dealers play. There are those kinds of models in every industry. I think we're in the early stages of what they will look like and the end result."

The point is well-taken, especially with Ford Motor Co. and Oracle working on a joint venture called Auto Exchange. It is a vertical marketplace that eventually will move to a collaborative development model using the same infrastructure and set of partners. Ultimately, there will be a 360-degree link from customers to manufacturers back to customers, a pull model for automotive manufacturer and retail.

Compare that with the current model, which amounts to guessing how many cars are needed in what colors, then fill the inventory, fill the supply chain, push it out to the dealers and push the inventory.

Not surprisingly, Perkins said such change will be quite dramatic on the government side as well because of the opportunity to improve service and reduce cost. However, the change also will be driven by demand from constituents, either partners, citizens or employees, to provide similar models based on the rest of their experiences in the commercial world.

"One of the things we will see is an intensified, accelerated outsourcing of government programs. These new business models can do it significantly cheaper and maybe with better service," he said. "If you are an administrative unit in the government providing commercial services, like accounting or [human resources], or you are providing logistics management services, all are candidates for outsourcing."

Even inside the government there is competition to offer service on the e-business model. For example, the General Services Administration offers competition and, in some cases, collaboration with other organizations to provide the lowest cost and highest value to its government customers.

Further, as Perkins said, there are five civilian agencies, called franchise agencies, with governmental charters that allow them to provide services to other agencies. If one thinks of the commercial model for an applications service provider or a classic outsourcer in the commercial world, these types of agencies have the opportunity to provide service to other agencies. By doing so, they expand their charter and lower their internal costs.

How far can one stretch the new model? How elastic is the e-business model? Quite elastic, it seems. Perkins felt, as did other e-business cognoscenti, the e-business model's defining characteristic is the change in control of the business process from the company/federal organization to the consumer, customer or citizen.

"The fundamental difference is now the citizen or the customer is in charge of the transaction," he said. "Today, they have this kind of 'click loyalty' that allows them to move rapidly between distribution groups or product providers. In the future, they're going to dictate product. So if I'm a consumer and I want to buy insurance, why shouldn't I be able to fill out a profile that says this is the kind of insurance I'm interested in, and then auction that on the Net to insurance providers?"

Preferring the term personalization to mass customization, Perkins extended his scenario to the government by asking rhetorically why a person cannot dictate how he or she interacts with government services, for example, in buying a license or in voting.

On the other side, the transactions that go forward on the new e-business model afford the company with the resources the ability to gather massive amounts of information on its customers or citizens.

Perkins agreed, noting the infrastructure needed, the physical storage, the networks and the information management capability. For him, these are keys to making the e-business model work, the layers of the Internet commerce model or Internet architecture.

And Oracle's role will be nothing less than the information management backbone. While companies are building warehouses to manage the mass of information, Perkins' challenge is to link that back office to the front office, to have a seamless integration where the user interface is a call-center application, an e-mail interaction, a self-service kiosk for citizens or a branch in the financial services world.

A good example of this is Oracle's contract with the Transportation Department for its so-called iStore. This e-business tool will allow the agency's departments to accept payments from citizens for goods and services via the Internet, minimizing payments by check and money order and replacing them with credit card transactions.

The Transportation Department already has put in place its first operating unit, the Office of Motor Carrier and Highway Safety. It allows carriers to register online for operating certificates and enables truckers to pay fines over the Web.

Beyond the individual company approaches and successes, there is the need for the big picture of what a broad range of companies do to confront e-business challenges. As The Delphi Group harkens from its Web site, "The hype meter is off the scale." It points to several new billion-dollar B-to-B investment funds launched recently, and the 32-page "e-everything" ad in the Wall Street Journal run by IBM Corp. Delphi itself has identified a $5 trillion, 2002 opportunity in just one segment of the B-to-B market.

The company recently conducted a study of more than 600 individuals on e-business. It correlated some 40,000 data points and looks at the attitudes, best practices and behaviors that distinguish the leaders in e-business implementation.

According to Carl Frappaolo, executive vice president and Delphi Group co-founder, organizations that have made the move toward e-business have a certain cultural attitude.

"There is this greater sense in the culture of survival predicated upon the ability to respond quickly to a marketplace, the ability to hone in on and fine-tune the core competencies of the organization itself, and then to establish partnerships with outside firms or other pieces of an extended value chain," Frappaolo said. "That can go everywhere from the customers and the way you identify your customers and deal with customers, all the way to suppliers of pieces and parts, to the products that you manufacture."

Among the more surprising findings in the survey was the degree to which companies are willing to partner with competitors in certain e-business deals. Compare that with what Frappaolo referred to as non-e-active companies, those outside the e-business arena for now that would never consider working with the competition. Frappaolo cited as an example organizations that are competitors but willing to share market expertise and the ability to sell in a hyperportal, or an extended portal. Here again the case is the automotive industry, where the consumer can visit one site to review five different models he or she is considering for purchase.

"The manufacturers are cooperating with putting their material up there, the idea being if they make it easier for individuals to get to the information, then the market should be larger, and they're all willing to vie for their piece of this overall bigger market space," said Frappaolo.

He said this example is an interesting reflection of what we now have geographically. When a person goes to buy a car, there are a number of dealerships within a number of square miles. In the same way on the Internet, the dealerships all were cooperating with one another, making it more convenient for the buyer. With the Web, it is more convenient for the buyer, even though it takes more cooperation among the vendors. According to Frappaolo, those vendors that get this model are jumping right on board.

Extend the model to supermarkets and you can see Safeway and Giant, competitors in many markets, working together with Web services that deliver groceries. Beyond this specific example is what Delphi has been stressing: creating the business-to-business portal, what they call vortals, or vertical portals. However, they are not information portals but are geared towards business transactions among business partners.

"One of the clearer examples is General Motors and Ford vying to see who puts up the first automotive industry vortal. The idea will be, in this one Web site, you have complete access to all the partner organizations, all the tire manufacturers and transmission manufacturers, right down to who's creating lug nuts for them," said Frappaolo.

Thus, at this one site would be access to all vendors or automotive manufacturers. When orders are taken for specific parts, they could be aggregated across numerous plants, perhaps also aggregated with what Ford and Daimler Chrysler and General Motors were looking for. You can then pursue e-business by going on the Web and shopping that order across the many different suppliers, seeking the best price at that time for that volume. As Frappaolo explained, you get a huge, interactive, bidirectional market environment in which competitors from both sides of the equation are cooperating.

So where are we headed with all this? For those who have been around the World Wide Web from the outset and recall the text-based browser and the pure one-dimensional broadcast medium out from a static page to a user, the level of change is overwhelming. Frappaolo sees the future in creating more marketing vortals where a person may shop for virtually any type of product over the Web.

"The Web is creating the mega mall of the future, so that all types of transactions, the B-to-C and B-to-B, occur across this environment," Frappaolo said. "As we become more acclimated and understand what we are doing, the efficiency on the way it can scale, is only going to go up."

As Frappaolo said, four years ago most people could not even begin to comprehend what it would mean to create a reverse auction on a Web site. Today it is commonplace. Now vortals are capturing people's attention, but many of them still have a hard time understanding. Give it eight, nine, 10 months, he said, and most of the organizations, the enterprises out there, will understand these models and will want to be a part of one or start planning for one. Then the next horizon will come.

As for the public sector, Frappaolo said the federal government, and government in general, is not e-active yet, but there is ample opportunity. When one begins to understand what e-business is all about in the B-to-B paradigm and the idea of vortals, the first thing that came to Frappaolo's mind was the government. But, as he noted, the government is without competition, yet it is a huge marketplace, a major consumer of many different products.

"For them to say they are building a mega Web site, if you want to do business with the federal government, everything from the different secretarial offices, up from the White House to the janitorial people that clean the Capitol, if you want to do business with us, here's the site, the way you are going to do business with us. They could start reaping these economies of scale discounts, simplifying the way they build partnerships, strike up deals. It's a natural for them. They are the mega vortal out there," said Frappaolo.

Reg Foster

As the pace of e-business on the Internet quickens as rapidly as a hummingbird's wings, many companies only now are gearing for the long term with executive level changes.

One example of a company well ahead of the curve ? in fact, the first to name a chief e-commerce officer ? is American Management Systems Inc. of Fairfax, Va., which created the role in spring 1998. The position now is held by Reg Foster.

According to Foster, by now almost every "legacy" organization has established such a position, although the title varies. The reason why is obvious.

"The e-commerce/e-business tsunami requires a new form of executive leadership to drive the necessary business re-invention and organizational change, leadership which synthesizes technology with business strategy," Foster said.

More important than the title is the range of functions that come with the territory and the understanding by the executive in charge of what the term e-business includes.

Foster said that while a number of firms seek to create a distinction between e-commerce and e-business, most use terms such as e-commerce, e-business, e-services and digital business interchangeably. All point to the strategy and initiatives necessary to transform themselves into next-generation enterprises.

In the case of AMS, it specializes in consulting and Web integration but selects client solutions from the industry's best, along with leveraging its alliances with industry leaders such as Ariba Inc., Mountain View, Calif., and Siebel Systems Inc., San Mateo, Calif.

Beyond the e-commerce title cachet and corporate skill set, Foster said a key to e-commerce success is e-knowledge management, especially for legacy organizations, because they already have enormous amounts of useful information about their own enterprise, customers, suppliers and partners.

"However, a lot of it is locked in the permafrost of their legacy systems. The best clicks and mortar companies are using Web technology to better leverage this knowledge, making it a cornerstone of powerful e-marketing campaigns, personalization and supply/value chain management improvements," Foster said.

The key to success is an e-strategy, he said. While a company will not die immediately without one, it will start withering away.

To thrive in the "e-conomy," the enterprise also will need to execute well a number of other factors. These include business reinvention, organizational redesign, change management, technical architecture revamping, new business approach piloting, industrial strength scaling, bulletproof implementations and seamless integration with existing legacy systems.

And the whole program of e-initiatives needs to be well-managed across all the enterprises' organizational stovepipes, Foster said.

With the e-commerce revolution essentially moving organizations from the epoch of technology-enabling operations and strategy to the new era of technology forcing the reinvention of operations and strategy, the question arises of the role and operation of government.

Foster said that regardless whether it is the public or private sector, the next generation enterprises will be customer-centric. They will all use ubiquitous, broadband connectivity to weave together the enterprise, its suppliers, partners and customers.

But there are key differences and concerns for the government vs. the private sector. For starters, governments seek equal access by all, while the private sector focuses on making a profit. Also, the commercial organizations want to gather as much private information as possible and use it for mass customization, personalization and focused micro marketing. The government is more strongly mandated to protect private information from unauthorized use.

"Governments tend to be more supportive of open standards, whereas the private sector will leap at the opportunity to establish a proprietary approach if it creates competitive advantage," Foster said.

When you stir in politics to the federal government pot, you are likely to see political leaders rise who are more focused than ever on serving their constituents well, whether they be citizens or businesses. As a result, government-to-citizen and government-to-business initiatives are likely to explode over the next three years.

For Foster, state governors and federal agency heads see the Internet as a critical channel for improving customer satisfaction, lowering costs and improving efficiencies in key areas, such as collecting taxes and issuing permits.

"Just like the private sector, these executives need an 'e-strategy' to guide them in the reinvention of government, to define specific initiatives to be implemented and to align the technical and organizational architectures to the new objectives," Foster said.

Companies on the verge of change, moving from a traditional business model of, say, a service company, face major challenges.

For one, there is the need to recognize and evolve rapidly to a 24-hour-a-day, seven-day-a-week, instant-gratification model.

As Foster noted, for decades many traditional service companies forced the customers' need for service into their 9-to-5, "We'll get back to you next week" model. This allowed them to achieve operational efficiency with their older systems, both human and technical.

The new e-service competitors will be providing "anytime customer service" and immediate service delivery to establish competitive advantage over traditional bricks and mortar companies, he said.

Another challenge is unbundling and customer self-service. By that, Foster referred to traditional service companies who value-priced their products by bundling together a lot of extras whether the customer wanted them or not.

Further, the customer often had to go through a "professional," such as a broker, agent or loan officer, to get the service.

"What is likely to emerge instead is a full range of customer self-service options. And high value, that is, high cost, services will be unbundled to the a la carte menu," said Foster.

In his own position, Foster saw four major challenges for the chief e-commerce officer of any large, established organization.

? The first is getting the existing executive and managerial leadership to understand, internalize and take action on the new imperatives of the digital economy, he said. A major, sustained change in management effort is required for them to understand it and change the culture.

? Second is determining which new initiatives can be executed through the existing legacy systems, both technical and human, and which are better implemented through a new "green field" organizational unit.

? Third is leading existing units to practice "deliberate disintermediation," what Jack Welch, chief executive officer of General Electric Co., calls "destroyyourbusiness.com."

? The last is confronting the legacy company's organizational stovepipes and forcing them to implement the horizontal cooperation and cross-pollination essential to e-business success. Michael Hentschel, managing director of TechVest International (www.techvest.com), Greensboro, N.C., is principal author of the market research report, "Portals to Profit: E-Commerce Business Models and Enabling Technologies." Published by Datacomm Research Co., Chesterfield, Mo., (www.datacommresearch.com) in 1999, it identifies 20 distinct e-commerce business models.

Hentschel classifies the models in four categories: conventional (basic, low-margin, community and brokering), competitive (services, price agent, zero-margin, subzero and free/subfree), niche (entertainment, high-margin, vertical hub, auction and virtual world) and relational (personal portal, toll-taking, biz-to-biz, keiretsu, superagent and nirvana). While admitting that not all the models are viable over the long term, Hentschel said he believes they represent important alternatives. A venture capitalist and business strategy adviser to Silicon Valley and across the United States for more than 20 years, Hentschel majored in archeology and economics at Yale, received his MBA from Northwestern University in Illinois and teaches at Duke University in North Carolina.

Hentschel spoke about his report with John Makulowich, Washington Technology's senior writer for technology.



WT: You say in your report that a successful Internet business model is one that guides an enterprise to profit with techniques that maximize time to market, competitive advantage, superior execution and market-share control, in that order. May we begin by looking at each of these in some detail?


Hentschel: Comparing successful Internet business models to the traditional models, the first element is maximizing time to market. The traditional model doesn't have the advantages of Internet time and scalability. To penetrate a large market quickly, scalability of multiple channels is the main advantage.

In addition to scalability, the venture world is putting substantial money into placing a name and a brand where perhaps there was none before, putting them in place scalably, in mass e-mails or mass communications channels. So far, none of the Internet companies has been able to do brand creation that much differently than conventional companies. You see Internet companies increasingly spending money on traditional channel-like billboards.

Maximizing competitive advantage is doing things in higher-quality fashion, for instance, keeping track of all the results that happen in databases. Not only does the customer have access to the information about their transactions at any time, which in disputes can be very satisfying, but the execution, the quality of service or product delivery, can be controlled better than before.

In market-share control on the Internet, the simple fact of being first or second is the element of being able to begin a marketplace on the terms and in the fashion you want. This is controlled by an Internet approach, by technologies that relate to the Internet. The sheer ability to maintain your marketing segment connected to users at all times, the sheer ability to control that market, is fresh and uninhibited, so to speak, by competitors that aren't in that segment yet.

In the end, the Internet will not afford more market-share control until people also employ willingly supply-chain systems that act as virtual monopolies and are put in place before the competition. Technically, a conventional or traditional business can employ these business models on the Internet. But a lot of existing brands and companies have yet not chosen to do so because they were afraid of cannibalizing their own markets.

This unprecedented opportunity that the Internet companies have had is almost unduplicated in the last 100 years, in which an unbelievable number of brands or potential brands are open to challenge or open to re-creation because the existing companies have not jumped on the Internet bandwagon.

All sorts of new Internet brands have developed in the very segments that the traditional companies always have been in. The execution capabilities of the Internet afford computerization, control, personalization, interactivity, chat and monitoring. Those companies who practice these first achieve a measure of market share that is going to be hard even for the traditional companies and traditional brands to get back.


WT: Let's turn to some of the 10 key trends you mention in the report, for example, the advent of wireless and pervasive computing when we basically become walking computers or walking databases, for lack of better terms. And where buildings are embedded with computers that monitor our conversations, actions, behavior and statements.


Hentschel: The technology exists and is coming down the cost curve where that is certainly possible and will happen within the next two years. But the communication between wireless devices such as cell phones and desktop computers and the databases of the vendors, all that is just starting to take shape. I would say the penetration there is maybe one-tenth of 1 percent. All the market opportunity is still to go there.

Personalization clearly is a major trend that is enabled by ubiquitous computing. But that personalization extends as an icon, an avatar or your own personal identity transmitted with your phone call. You have all the ability to shop on a cell phone that you have on the Web.

It may not look as pretty to you, but technically all these things are possible. If information, such as stock prices, was made clear enough to you on your cell phone, then all sorts of transactions can be done by cell phone. It is also possible to put a fair amount of communication information over cell phone bandwidth, and that will increase, too.

It is the ease with which all wireless devices can afford mobility and still contain that completely personalized identity of the user, the wearer or the talker. It doesn't matter what media. That is clearly going to be exploited here as we go along.

As long as those kinds of services are convenient and helpful, I think users will opt into those programs and allow their personalized profiles to be maintained and tracked by the businesses that treat them well, or treat them fairly.


WT: You cite three major conclusions in your report that are critical for business model developers. You include community as an economic and branding imperative, Web site transformation to the next rich media level and e-chains evolving into end-to-end virtual monopolies. Let's talk about each of these.


Hentschel: The first point is the importance of being immersive ? and immersive is one of my favorite words ? to grab the attention of the customer, keep the customer there, influence them to spend lots of time and to be happy there, so to speak.

The increasing level of rich media and multimedia and the ability to entertain while still doing serious things in the background, what I call "serious entertainment," are factors that are converging. The ability to offer almost continual stimulation is something that really only a computer can do. After a while, offering stimulation purely one-to-one, people run out of steam.

Many-to-one, however, is this ability of computers to stream interesting contents, interesting media, stimulating information to one user, literally, as if there were the many willing, able and certainly coordinated to entertain that one individual.


WT: Trying to think of a paradigm case for community and Web site transformation, the best I could come up with was deeply monitoring a stock portfolio and having a community of people who own shares in particular equities. Let's say you owned Doubleclick, and you were in a community that was discussing the prospects for Doubleclick. It seems to meet most of your notions. Would you agree with that?

Hentschel: It's exactly right. You are now taking advantage of the fact that there are large communities with diverse interests. When they focus on a topic, you exploit the ability to take the views of many to entertain every single person there. That person can choose which of the views or which of the media presentations at any time is the most interesting and the most entertaining. This is the nirvana of interactive TV.

In this case, what I want to stress is that the sites and the Internet companies that understand the value of serious entertainment have a purpose here. It isn't particularly manipulative. It is, in fact, manipulated still by the user who chooses what is most entertaining, who nevertheless is given all the information, all the input and all the stimulation to presumably make a transaction of some sort.

That transaction doesn't have to be immediate, although often it is on the Internet. It can be long term, just like any other kind of brand building.

When you have the ability to scale the many, the views of the many, or the entertainment from many sources ? whether those are many databases or many people ? when you have the ability to stream that to one person, you can keep that person seriously entertained for a long time.


WT: Please explain what you mean by an e-chain and virtual monopolies.


Hentschel: E-chains are my term for the B-to-B [business-to-business] phenomenon. The B-to-B are mostly vertical Web sites but can also be horizontal. A B-to-B is a Web site on almost any vertical level now, whether it's steel, other commodities or roofing.

Business-to-business types of what were once called extranets are now turning into portals that are a combination of very specific hubs that deal in any information that has to do with a certain industry.

The first person who puts together that B-to-B network is putting together various parts of an e-chain, an electronic chain of linkages that used to be called a network or intranet. If you put together the proper pieces of the e-chain and make them sufficiently open to the outside world to be used by a lot of people in that particular industry, people will gravitate to it, because it will be the easiest and fastest way to do transactions.

It's not really a matter of cost; the cost is already there. If you make something faster, if you make something more efficient, you will save people money, and they will flock to using those parts of the e-chain.


WT: Another term finding its way into use is "vortal," or a vertical portal.


Hentschel: I haven't used that word, but it is a very appropriate word. Vortals are another way of saying it, meaning both portal and vertical. But that ignores that there are distinct hubs, which are always vertical but do not have to be portals at all. Vortals are not really anything definable.

E-chains, to me, do not encompass just B-to-B virtual monopolies. Once a company sits on all the nodes and develops customer friendly chains, whether business customers or consumer customers, what they have really created is a chain that people want to be chained by. Very simple. And the chain itself implies a level of monopoly, because those who get there first and do it right have the virtual real estate.

Isn't this just exactly what is attacking the traditional companies today? They haven't built these e-chains, because they have not wanted to open themselves up to competitors in that industry. What is being done is over each industry, one or two alternative B-to-B or B-to-C or even C-to-C structures are being created by the Internet that really do not care who the competitors are. They are building a new layer of management into the data that is being exchanged and used in that entire industry.


WT: Where does the government fit in all this?


Hentschel: In the business school we are talking about this, about how it can apply to the government. The question becomes, what are e-monopolies good for, and could they be bad? If venture capitalists and Internet people were allowed to get a hold of the government and health care delivery, a lot of major efficiencies would happen. The government has to be the employer of last resort and may not resist change longer than most.

The first place you can apply what we have been discussing is education, with distance learning, where you scale the teaching of one teacher to hundreds and thousands of students. What the government seems to be doing now is putting computers into every classroom.

That is a completely wasteful exercise. Each student must be immersed in computer education. It has to be properly coordinated. At the moment, the computers in schools are used as information finders, encyclopedias or extensions of the library or media center. That will not cause anyone to improve the education standard.

The most likely place where government is going to let the Internet evolve is education. Other places are less likely to use the Internet properly. Bureaucracies have their own reasons to resist automation or efficiency.



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