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An introduction to the profitability of world wide web based companies

Within a few years, the Internet will turn business upside down. Just another example of the arrogance and exaggeration the information-technology industry is notorious for? Yes, in the sense that Mr Grove is as keen as the next chip maker to scare customers into buying his products.

No, in the sense that, allowing for a little artistic licence, he is probably right.

  • With the proliferation of multimedia applications and the need to support thousands of concurrent video streams, highly scaleable and available multimedia servers are necessary;
  • In some, all the shops are controlled by an overall managing party and it is possible to make a combined order, selecting goods from more than one shop;
  • Most senior managers no longer need convincing.

The Internet is said to be both over-hyped and undervalued. What is more, it is doing so at far greater speed than the other great disruptive technologies of the 20th century, such as electricity, the telephone and the car. Yet, nearly five years since the Internet developed mass-market potential with the invention of a simple-to-use browser for surfing the World Wide Web, it is easy to overstate its effect on the daily lives of ordinary people.

Even in the United States, the most wired country in the world, most people still lack, or choose not to have, An introduction to the profitability of world wide web based companies access.

Everybody loves e-mail; if you are a teenage girl, chat is cool; and the ability to retrieve information about so many things is truly miraculous, even if search engines are a bit clunky. All these things are certainly nice to have, but they could hardly be called revolutionary. The Internet is turning business upside down and inside out.

It is fundamentally changing the way companies operate, whether in high-tech or metal-bashing. Some companies are using the Internet to make direct connections with their customers for the first time. Entirely new companies and business models are emerging in industries ranging from chemicals to road haulage to bring together buyers and sellers in super-efficient new electronic marketplaces.

Most senior managers no longer need convincing. That message is endorsed by Forrester Research, a fashionable high-tech consultancy. If the value of services exchanged or booked online were included as well, the figures would be more staggering still. There are two explanations: Forrester expects Britain and Germany to go into the same hyper-growth stage of e-business about two years after America, with Japan, France and Italy a further two years behind.

And just as countries will move into e-business hyper-growth at different times, so too will whole industries. For example, computing and electronics embraced the Internet early and will therefore reach critical mass earlier than the rest. Aerospace, telecoms and cars are not far behind. Other conditions for early take-off include the ready availability of the right kind of software, computing platforms and systems-integration expertise.

As both buyers and sellers reduce their costs and increase their efficiency by investing in the capacity to do business on the Internet, it is in their interest to persuade more and more of their business partners to do the same, thus creating a self-reinforcing circle.

However, even within particular industries companies are moving at different speeds. Much depends on the competition they are exposed to, both from fast-moving traditional rivals and from Internet-based newcomers.

Business Use of the World-Wide Web

But nobody can afford to be complacent. Successful new e-businesses can emerge from nowhere. Recent experience suggests it takes little more than two years for such a start-up to formulate an innovative business idea, establish a web presence and begin to dominate its chosen sector.

By then it may be too late for slow-moving traditional businesses to respond. For evidence of how far most companies still have to go in developing their Internet strategies, look no further than their corporate websites. Most managers know perfectly well that they have to do better.

Yet despite all this positive talk, three-quarters did not yet have websites that would support online transactions or tie in with their customer databases and those of their suppliers, although many were working on it. In other words, most bosses an introduction to the profitability of world wide web based companies what they should be doing, but have not yet got around to it. It is easy to understand why.

Knowing that you need a coherent e-business strategy is one thing, getting one is altogether more difficult. And until you decide precisely what your strategy should be, it will not be clear what kind of IT infrastructure investments you will need to make. They have been through outsourcing, downsizing and re-engineering.

And over the past couple of years, they have invested lots of time and money into nothing more exciting than the hope of avoiding a systems meltdown on the first day of the new millennium. So they have reason to be wary of consultants and visionaries who promise new paradigms and tidal-wave technology. No wonder many of them are asking themselves whether e-business is the most exciting opportunity or the most terrifying challenge they have ever faced. Yet most of them know that the Internet is in an entirely different category from the technology-driven changes they have either embraced or had thrust on them in the past.

Possible uses of the Internet and World Wide Web for business

The same survey suggested that the Internet has significantly changed expectations about what IT could deliver, with more than half of the top managers saying they had high expectations for the future.

By contrast, the Internet is all about communicating, connecting and transacting with the outside world. The ability to collaborate with others may be just as much of a competitive advantage as the ability to deploy the technology. Certainly the technology matters, but getting the business strategy right matters even more. And that may mean not just re-engineering your company, but reinventing it. IT IS a fact of life in the road-haulage industry that whereas for outbound journeys loads are likely to be full, on the way back there is usually not much to carry.

His answer was to set up a new organisation, National Transportation Exchange NTEwhich uses the Internet to connect shippers who have loads they want to move cheaply with fleet managers who have space to fill. NTE helps create a spot market by setting daily prices based on information from several hundred fleet managers about the destinations of their vehicles and the amount of space available.

It then works out the best deals. When a deal is agreed, it issues the contract and handles payment. The whole process takes only a few minutes. NTE collects a commission based on the value of each deal, the fleet manager gets extra revenue that he would otherwise have missed out on, and the shipper gets a bargain price, at the cost of some loss of flexibility. When NTE was first set up four years ago, it used a proprietary network, which was expensive and limited the number of buyers and sellers who could connect through it.

By moving to the web, NTE has been able to extend its reach down to the level of individual lorry drivers and provide a much wider range of services. Before long, an introduction to the profitability of world wide web based companies will be able to connect to the NTE website on the move, using wireless Internet access devices.

There are plenty of other perishable commodities that the Internet can help to make better use of. A good example is advertising space. Even worse, to get rid of these remnants they usually have to go back to customers to whom they had already sold space at a higher price, so they risk spoiling the market and losing goodwill, says Neil Cohen of Adauction.

What attracts publishers to Adauction.

  • In some, all the shops are controlled by an overall managing party and it is possible to make a combined order, selecting goods from more than one shop;
  • Infomediaries, by linking buyers and sellers via the Internet, can achieve similar savings for both in markets where they might otherwise miss out;
  • The site is aimed to attract their target audience 21 to 30 year olds and keep them coming back.

In the past few weeks the company has branched out into print media, and within a few months it is likely to hold its first auction for broadcast slots. It is too early to say whether notoriously conservative mainstream media sellers and buyers will flock to Adauction. That may be why the auction model seems to work there, despite competition from full-service web advertising networks such as DoubleClick.

Whether sober Chemdex Corporation ever gets around to becoming a virtual coffee machine for biologists and lab technicians to gather around and swap the latest jokes about cloning, it is certainly serving a community and offering a commercial opportunity.

Founded within weeks of Adauction, Chemdex provides a one-stop shop for academic researchers and companies in the pharmaceuticals and biotechnology business to purchase all their supplies. They found the market inefficient and fragmented.

Scientists were taking up valuable research time struggling to purchase their supplies, using dozens of frequently out-of-date catalogues and making many fruitless telephone calls. Suppliers were hamstrung by the logistical inefficiencies inherent in paper-catalogue distribution. For researchers, it has created chemdex. For business customers, Chemdex has developed its own procurement and integration software to complement its website.

This means firms can purchase through their own intranets and get the cost benefits of automated approval and consolidated invoicing and billing. For its suppliers, Chemdex has an introduction to the profitability of world wide web based companies another range of software that offers supply-chain automation as well as support for their reporting and decision making.

At present, Chemdex is handling about 2,500 transactions a day, but it expects that number to grow to 30,000 a day over the next two or three years. With more than 2,500 life-science companies and research institutes, and over 250,000 lab scientists in America alone, that does not seem over-ambitious.

Ms Lief of Forrester Research identifies three new business-to-business market models. First, there are aggregators, such as Chemdex, which help buyers in fragmented markets select products by providing up-to-the minute price and product information and a single contact point for service.

Next, there are online auctioneers, such as Adauction, which offer a reliable channel for sellers to dispose of perishable or surplus goods or services at the best possible prices, and for buyers to get bargain prices without taking a leap into the unknown. Ms Lief argues that over time these distinct business models will tend to merge. For example, MetalSite, which creates a market for buyers and sellers of surplus and secondary steel, is already both an aggregator and an auctioneer.

What all these new businesses have in common is that, in one form or another, they consolidate buyers and sellers in markets that are fragmented either geographically or because of the absence of any dominant firms. Initially, infomediaries were mainly a consumer phenomenon, typified by early Internet successes such as Yahoo, Amazon. But many people now believe that perhaps the most profitable pure Internet companies, as well as the most influential, will be business-to-business infomediaries, which will have the ability to reorganise entire industries.

First, it shifts power from sellers to buyers by reducing the cost of switching suppliers the next vendor is only a mouse-click away and freely distributing a huge amount of price and product information. But buyers can feel overwhelmed by this new power in their hands. Sellers are in no position to offer disinterested advice. That opens up opportunities for a third party: The second fact is that the Internet reduces transactions costs and thus stimulates economic activity.

A banking transaction via the Internet costs one cent, compared with 27 cents at an ATM or 52 cents over the telephone. But such savings may be available only to large businesses, such as banks and airlines, that reach customers directly. Infomediaries, by linking buyers and sellers via the Internet, can achieve similar an introduction to the profitability of world wide web based companies for both in markets where they might otherwise miss out.

The third fact is that the speed, range and accessibility of information on the Internet and the low cost of distributing and capturing it create new commercial possibilities. Infomediaries, sitting in the middle between buyers and sellers, are uniquely placed to collect information, add value to it and distribute it to those who will find it most useful.

  • Founded within weeks of Adauction, Chemdex provides a one-stop shop for academic researchers and companies in the pharmaceuticals and biotechnology business to purchase all their supplies;
  • The infrastructures of those solutions are based on some common ground but with different approaches;
  • With the ability to unleash legacy data on the Web, it then comes down to the issues of manageability and serviceability to account for a successful site;
  • Because these technologies are inherently platform-independent which allows new types of server architectures to be easily integrated into the HTTP service;
  • They found the market inefficient and fragmented.

They can create a virtuous circle by using information to attract more buyers and sellers, and learning more about them in the course of their business transactions.

For example, infomediaries such as Chemdex are trying hard to gain a dominant share of supplier listings because that is likely to attract a dominant number of buyers.

Mr Finnie puts it this way: By declaring a distinct focus area, the infomediary attracts buyers and sellers whose primary interest lies in that area. By sharpening their focus, infomediaries can provide a depth of information. On the friction-free web, suppliers would be able to reach their customers direct without having to bother with greedy middlemen.