ELECTRONIC COMMERCE - REALITY OR HYPE?
Looking out on the business horizon, do we see a tidal wave of discontinuous change called "electronic commerce" (EC) or is it just a fog bank? Although EC is a vague, process term, we could imagine a customer electronically - informing themselves; ordering without paper or human help; and paying by one of several electronic options. Enhancements might include: e-mail dialogue or teleconferencing with a vendor's real people; customized product/service design input by the customer ("pro-sumption"); pre and post purchase use of special shopping/educational services; etc.
Any EC scenario would be a big value-subtraction event for traditional intermediary businesses like agencies and wholesalers. But, this stuff won't happen soon, will it? The "experts" have forecasts, but maybe we should also develop our own informed opinion.
By tracking the eight trends below, we might make better guesstimates about the size, formation and arrival time of the EC tidal wave to our businessí beach. Because these factors are mutually interacting, compounding and exponentially growing, perfect forecasting is impossible. But, if we don't keep trying to see the future, then our business might not be in it.
TRENDS TO TRACK
1. Semiconductor performance curve.
2. Connections to the World Wide Web
3. Flow of talent and money towards solving all problems that might hold back EC.
4. Software development for easier user-interfaces and universal connectivity.
5. Digital literacy rate increases.
6. Customer expectations for just-in-time (JIT), electronic self-education.
7. Customer expectations for functional discounts for electronic, self-ordering.
8. Bandwidth availability dates and costs.
SEMICONDUCTOR POWER GOES VERTICAL
The chart shows the performance curve for the number of transistors or bits that have been etched on a quarter-inch-square silicon chip for use in dynamic random access memory (dram). The graph starts with the first, thousand bit (210) silicon chip invented by Intel in 1970; it concludes with the presently produced 16 million ("mega") bit chip (224). 64 Meg chips are expected to be produced in quantity in '97; a 256 Meg prototype is working; and, a consortium is on schedule to produce a billion ("giga") bit chip in 2002.
Similar, "going-vertical" curves exist for all types of silicon chips - microprocessor, media, laser, sensor, modem, etc. These chips, in turn, exponentially potentiate many infotech hardware applications while collapsing their costs. Our infotech investment over the last 25 years was just a warm-up for what might happen over the next three years!
WWW CONNECTION RATES ARE "VERTICAL" TOO!
The activity curve for WWW hook-up rates for - servers, web sites, information content, traffic and users have all gone (graphically) vertical like semiconductors - just this past year. In theory, if N people have phones, then N x (N-1) connection possibilities exist. The web, however, allows for - multimedia; many to many publishing for close to free; and whatever 1000 new web tools over the next 12 months will allow. The faster the curve rises, the more compelling it becomes for others to join the possibilities party.
As connection rates and benefits soar, the hook-up costs are plunging due to the semiconductor economics effect. There is also a huge, sunk investment by corporations in "desktop productivity." An estimated 15 million (corporate) people could web-u-lize tomorrow for the "additional cost" of free web browser software. Another 30 million business PCs need both a browser and a $15/month Internet on ramp account. No wonder the "intranet" explosion for internal corporate information sharing has started. It will transform how all internal and inter-company communications will be done over the next 3 years regardless of EC developments.
If every business person who matters is on the web within 3 years, then wouldn't it become one big electronic publishing, information distribution channel with direct, registered "push/pull" relationships between all producers and final, repeat customers? Couldn't new global customers be found through better search engines and virtual - trade shows, malls and magazines? Wouldn't this drastically reduce the traditional information relay and marketing activities of intermediary businesses and their salespeople? Low cost physical distribution centers would still exist, but current staffing and markup structures would be drastically downsized and altered.
What third-party information services will suddenly appear to provide total just-in-time, educational solutions to end-users in every channel? Whoever figures out how to first and best harness the collapsing costs, exponential connection rates and global reach of the web's potential will do well at the expense of traditional channel players!
SOFTWARE SOLUTIONS AND FINANCING
Many business leaders over 45 years old are making wrong assumptions about on-line activities. They all went through school before digital literacy was required, and many have not gotten PC fluent to do delegatable,
desktop productivity tasks. They might naturally conclude that: 1) Everyone else is equally cyber-reluctant. But, the under 32 crowd went through school wired, and they are ready to lead their companies into the world of electronic commerce if someone would let them. And, 2) the time required for getting PC fluent and the benefits for doing so will remain constant over the next few years - no way!
About 75% of all of the software currently being written is aimed at making graphic user interfaces(GUI) and back-end interoperablility for the Internet Grandma friendly. Meanwhile, there are daily announcements about more and better web services for users to exploit. Any CEO who isn't already personally interacting with custom news filter services and search engines on the Internet is an incipient corporate liability. This is an activity that can't be delegated, and learning how to use a web browser for the task takes a few minutes.
Huge investment dollars from many sources are flowing into funding GUI/EC solutions and web services/benefits. The prospect of selling all global buyers their tangibles and information services for 10 to 100% off traditional prices in a faster, more convenient and customized way is one reason. And, the benefits of using Internet protocol and browsers for corporate communication (intranets) is another.
The most important ingredient, though, is the sweat equity contribution from every cyber-talent on the planet. Because of inexpensive global connection costs, shareware, freeware and open standards, everyone can contribute to the digital goldrush. An unprecedented self-organizing, collaboration phenomenon is occurring. It all adds up to a self-fueling, upward spiral.
DIGITAL LITERACY AND EXPECTATIONS
As digital barriers drop and benefits rise, will the masses get on-line too? Besides wanting to be cool, consider fear and greed motives. Some fears: employability - get wired or fired; biggest business partners demand it; our children need PCs, modems and on-ramps at home for education; etc.
Greed? Over the next 12 months, everyone will have read or heard about how we can get 5 to 40% off normal prices for cars; airline tickets; term insurance; software; CDís; etc. - if only we can "get on the web and do an encrypted credit card purchase." Out of curiosity and value-shopping necessity, we will go to new cyber-shopping centers in town. Their cyberguides will help us make purchases for a small fee.
After experiencing the ease, savings and other thrills of shopping and surfing at high bandwidth, could digital literacy rates explode?
SHIFTING CUSTOMER EXPECTATIONS
If we get turned on in our personal lives to both buying stuff and getting educated about anything - faster, more conveniently and less expensively through the EC channel - how long will it take us to demand this option from our business suppliers? Won't we prefer to educate ourselves about whatever we want, whenever we want (7 days x 24 hours)? Who wants to go through an intermediary if it is slower, often inconvenient and costs more? Won't we want the functional discount for entering orders directly into the vendors' computers? Salesreps?- sure, but only when we want them for an unbundled consulting fee. Miss them? Sometimes, but competitive necessities will force us to shop in the most efficient, low cost way, especially for repeat purchases of commodity goods that are the majority of our buying budgets.
If we in turn don't offer our best customers the EC option, won't one of our competitors? How do we phase/step our way toward a web channel solution that must be ready in 12 to 36 months depending upon the type of products and customer base that we have? How do we downsize and transform the outside and inside sales people who will be substantially by-passed for faster answers and bigger, functional discounts? What new customer needs will emerge that we can fill by re-skilling ourselves for unbundled fees? What new pricing model for goods and services will we co-evolve with our customers?
Lots of tough questions! But, we still have time to work on answers and new solutions because of temporary bandwidth shortages caused by just-ended, telcom regulations.
BANDWIDTH CONSTIPATION PROBLEMS
All of the pieces for the EC puzzle are apt to fall into place before there will be universally abundant, visually compelling bandwidth. There is current gridlock on the Internet and lots of busy signals for the dial-up-on-ramp crowd. We will see about 6 to 12 months of web-snarls and lots of told-you-so, Internet hype backlash.
For competitive and technological advancement reasons, bandwidth capacity will explode over the next 12 months and costs will start plunging. By mid-'97, 28.8 modem, dial-up service will be good to excellent. Corporate users will be able to subscribe to a range of direct access bandwidth services for different fees - like the bulk mail to FedEx range of options. It may be 2005 before most homes in the US are wired for broadband digital delivery, so we will make do with 28.8 modems at home and do the heavy graphics stuff at work, the cybercenter or the library.
What are our best customersí expectations about bandwidth and EC? Why not do a quick initial survey? Don't be surprised to find significant initial interest that will then grow rapidly over the next 12 months.
Surveying should help us to: be the first to correctly see and even shape customers' emerging EC needs; then, be positioned to seize that opportunity at the ripe moment. Inexpensive, flexible-thinking experimentation will be key. We don't want to spend big bucks too early on the wrong solution. Venture backed startups average 2 to 4 major model overhauls in the first two years of their existence. Few get the right solution for a new world opportunity the first time, especially if they are immersed in additional businesses and thinking.
Do the eight trends add and multiply to something big? We need a vision team to keep watching the trends and debating open-minded, new paradigm possibilities. Look for leading-edge suppliers and customers to add to that team. We need to start cheap experiments to fall forward and learn by doing. It takes time to: build a first surfboard and practice on little waves; then, build bigger, better boards and skills to be ready for a tidal wave. Letís surf this wave rather than trying to resist or ignore it.
Article 7.5, Distribution Opportunities # 14
Merrifield Consulting Group, Inc