Internet and World Wide Web III

BUSINESS USES OF THE INTERNET

Although there are scores of specific Internet applications that benefit businesses, they can all be grouped under two broad categories: (1) information exchange and dissemination, and (2) facilitating e-commerce.

INFORMATION EXCHANGE.

The information exchange function is the broader of the two and includes such diverse applications as:

• e-mail and other person-to-person communications, e.g., computer conferencing
• online marketing and brand building
• employee recruitment
• investor and public relations information distribution
• intranets for employee knowledge sharing and collaboration
• extranets to enable outsourcing and supply-chain integration

The economic value of these applications is difficult to measure, but for large organizations they have the potential to save millions of dollars in costs, and depending on the application, to stimulate sales as well. Only a couple of the possibilities will be discussed here.

The internal information management and knowledge-sharing abilities of corporate intranets can be substantial. Intranets, which are corporate information networks based on Internet technology but are usually restricted access sites available only to select users, allow central storage and versatile dissemination of diverse information, including corporate handbooks and manuals, customer or marketing databases, employee databases, project discussion boards, and other internal documentation. Intranets are substantially more efficient than circulating paper copies of documents, both in terms of immediacy of information and, in most cases, maintenance costs. Because they rely on simple, Web-based client/server technology, they're also typically easier to implement and use than proprietary databases.

The extranet, which enables supply-chain integration and automation, is an especially powerful use of the Internet, and one that is increasingly being adopted by large corporations. Although there are many variations, supply-chain management is generally a hybrid of data exchange and electronic commerce that allows companies to better coordinate their procurement and distribution practices with those of their suppliers and clients. Based on the efficiency principles of electronic data interchange (EDI) and just-in-time inventory, this coordination can afford several benefits. The streamlining effects can include eliminating paperwork, reducing staff hours, and improving data accuracy. Web-based ordering systems likewise tend to be easier to use than their old-line counterparts, which also contribute faster and more accurate results. Such automated systems can also provide management with more timely and detailed information about corporate purchasing habits and needs, allowing better resource planning and even providing a blueprint for cost control. Extranets can also be established to provide customer service and other external communications functions.

As an information source, the Web is also a particularly efficient means of comparison shopping for business procurement. With relative ease, a procurement officer can find price quotes from several vendors, some of which may not even be aware the other exists. The buyer can then use this information to either choose the low-cost vendor or to gain concessions from established vendors. The downside to this, of course, is when companies are on the receiving end of this informed negotiation, which usually leads to tighter profit margins.

E-COMMERCE.

There are also multiple facets to e-commerce, although they are much more closely integrated than information-exchange functions. Specifically, businesses may focus on one or more of these aspects of commerce:

• preparing customers for the sale
• facilitating the actual transaction
• managing any follow-up to the sale

It may not be feasible or profitable to do all three in equal proportion, or even at all. For example, the most logical commerce-related application for Federal Express and similar companies is delivery tracking, which is done after the transaction is completed. It also makes sense to provide pre-transaction services, such as account set-up and drop-off center locators, on the site. However, in this example the transaction itself is more difficult to accomplish. It consists of two main parts, dropping off a package and arranging for payment. The latter could easily be done over the Internet, but it's less clear how the company would profitably obtain the packages for delivery. Federal Express offers pick-up services, but it's uncertain whether it would be profitable for the company to pick up the majority of the parcels it carries, which are traditionally dropped off at local retail centers.

In other trades, of course, the Internet may well be the ideal locus of transaction. The case is particularly compelling for products or services that can be delivered online, such as software applications via high speed connection, musical recordings, or databases. But strong—if not initially profitable—business models have also been adopted in many other fields, notably by booksellers such as Amazon.com and auction houses like eBay, not to mention vendors that electronically service the mundane but lucrative business-to-business supply chain.

Thus, while e-commerce is commonly the more celebrated business application, as noted above it isn't the appropriate model for all types of trade. Companies contemplating a new e-commerce initiative would do well to consider this maxim: all e-commerce is not the same. Internet-era mythology holds that (1) competitors big and small are all on equal footing on the Internet, and (2) anything and everything can be sold online.

Equal footing is only possible in the limited sense that minor players in some line of business can, assuming they have the funding (in 1998 the median development price for a mid-sized Web site was estimated at $100,000 and rising briskly) and technical resources, build Internet sites that are as good as—or better than—those of their major competitors, as measured by site convenience, functionality, marketing tactics, and so forth. However, this doesn't mean that the smaller company will be any more effective in the larger sense. The smaller company must also have a cost-efficient system for order fulfillment, a powerful marketing operation that ensures potential customers are reached, and many other supporting capabilities in order to succeed. For instance, say a small Internet-only start-up wants to sell high-end home appliances online. They may create the best site in the business, but will they be equipped to serve a national market? Probably not. For such large and expensive products, traditional retailers like Sears, Roebuck and Co. and the so called appliance superstores have tremendous competitive advantages in the online arena as well, not the least of which is an established and already profitable physical distribution system. That's not to mention that the marketing model may be off target; Internet transactions may not appeal to potential buyers of expensive appliances, as these people might value the ability to see the product in the showroom and talk with sales staff. While that conclusion in this example is arguable, there are clearly some product and service transactions in which customers place a high value on in-person contact and immediate fulfillment (real life examples being health care, video rental, and grocery shopping), and these so far haven't been good candidates for an Internet-only approach.

The point here is not to deny the Internet's revolutionary implications for the business world, or to suggest that its entry barriers can't be significantly lower than in traditional industries. Instead, the lesson is that many traditional business principles and practices still apply to successful e-commerce. Market research, customer service before and after the sale, cost-benefit analysis, and return on investment all have essential roles in fashioning an Internet commerce strategy.