Wharton management professor John Paul MacDuffie summed it up this way: “We’re here at a time of consolidation. Organizations are working hard to catch up to technological changes. And we’re seeing great ideas that stumbled at first now being refined: Slate, Amazon, and eBay are making money.”
MacDuffie, co-director of the Reginald H. Jones Center for Management Policy, Strategy and Organization, spoke at “Catching Our Breath: Reorienting Strategy During the Internet’s Quiet Time,” a May 1 conference sponsored by the Jones Center and the Wharton eBusiness Initiative.
Participants at the conference were clearly focused on looking ahead now that the value of web investments on many company books has been written down or written off, clearing the way for a fresh start on financial performance. Companies also have a better idea of what works and what doesn’t in e-business, and today’s tough economy is forcing them to operate more efficiently and invest more prudently.
Speaker Dan Hess, vice president for industry analysis and marketing at comScore Networks, a consumer-research consultancy based in Reston, Va., was decidedly upbeat. Even with more limited investments, he noted, consumers’ eager embrace of the web augurs a profitable future.
“Sixty percent of the U.S. population is now connected to the web,” Hess pointed out, adding that the more affluent and educated people are, the more likely they are to use it. Even more important, “once connected, people make few decisions without consulting the web.”
Online shopping continues to grow as well, according to Hess. It rose 38% from 2000 to 2001, hitting $73 billion, partly because experienced online shoppers spend more money over time, starting with, say, books and CDs, and then move to riskier purchases such as clothing and appliances.
One cautionary note for employers: The prime time for shopping is daytime, when many people are – or should be – working. “The internet has changed where and when people shop,” Hess said. “It has put the world’s largest shopping mall in front of every office worker. At least a shopping break is healthier than a cigarette break.”
Among the most successful sites at reaching distracted office workers are those belonging to merchants that started in mail order, Hess noted. A typical retail site might make a sale to 1% to 4% of its visitors. But former mail-order companies do more than double that, with L.L. Bean, for example, hitting 10% and Eddie Bauer, 8%. Compare them with Nordstrom, which, according to comScore, sells to only 1.5% of its site’s visitors.
Another growing area of web commerce – and one that is being pushed hard by merchants – is online banking and bill paying. Banks love these services because users are less likely to take their accounts elsewhere and tend to keep more money in the bank. Plus, every time users log on, banks can try to sell them more products and services.
Charlotte, N.C.-based Bank of America is one of the leaders in this area, with five million online customers, Hess said. And more than 15% of them pay their bills online, which costs banks less than processing paper checks.
Where Bank of America is getting customers to do business online, Armonk, N.Y.-based IBM helps companies to do the same thing. And that’s sweet vindication for the computer company, which only a few years ago was dismissed by ’netheads as the also-ran of the information age. But IBM has reworked its strategy to focus on e-business.
“Our CEO, Sam Palmisano, unveiled e-business on demand last year,” said speaker Dev Mukherjee, vice president for strategy, e-business on demand, for IBM’s global services division. “It’s built on the idea of bringing IT strategy and business strategy together.”
Too often in the past companies sabotaged their online efforts by separating their information-technology vision from their overarching vision, he said. The IT department, for example, might be obsessed with security and, in its efforts to protect data, inadvertently hamstring attempts to use the web as a sales tool.
Mukherjee used the example of a large media and entertainment company, one of IBM’s clients, that recently was operating 35 small data centers. Maybe that hodge-podge had grown in fits and starts, or perhaps the company was worried about its vulnerability to hackers, said Mukherjee. Either way, “if you run 35 data centers, you can’t get value out of them,” he noted. “You’ve got customer information spread through the lot, and you can’t look for cross-sell and up-sell opportunities. Today, many different applications and processes have to run across enterprises. Before, everything was in silos.”
Despite the difficult economy, Mukherjee added, some companies continue to invest in IT, especially in efforts to iron out inefficiencies. They can justify those investments via ROI because, dot-com hype notwithstanding, better IT still yields costs savings and new sources of revenue.
Mukherjee concluded his remarks with a contrarian point, at least at an Internet conclave. Business people, he said, will know the Internet has become an essential tool when they stop talking about it: “Technology becomes truly useful when it becomes invisible.”
Can This Marriage Be Saved?
Every relationship proceeds by stages – flirtation, courtship, the fight, the marriage and, sometimes, the divorce.
And as good a way as any of understanding the business world’s evolving relationship with the Internet is to compare it to a romance, said speaker Karen Francis, former president and chief executive of the Ford Motor Co.’s ConsumerConnect e-business division, who is currently on sabbatical.
She began with the early days of e-business, roughly 1996 through 1998, when executives were infatuated with the web, throwing money at it but getting little return. “Looks had a lot to do with it; we assumed it had a great personality,” quipped Francis, a former marketing director for Internet Capital Group, an e-business holding company in Wayne, Pa.
Then came the courtship, 1998 through 2000, a time of passion and excitement, Francis continued. Companies paid hefty sums for dot-coms and paired up with technology partners to roll out e-business applications.
New ventures, initiatives and alliances bloomed. In the auto industry, Ford, Daimler Chrysler and General Motors in 2002 created Covisint, an online exchange for car makers and their suppliers. “The thinking was, on the eighth day, God created Covisint.” So far, it hasn’t lived up to its early promise, she said. During the same period, Ford introduced ConsumerConnect, which tried to link with customers via the web, and then-CEO Jacques Nasser invested $50 million in the stock of Internet Capital Group.
But as anyone who follows business knows, many of the predictions and promises swirling around the web turned out to be little more than hype. “The expectations were so overblown that even achievements looked paltry,” Francis said.
The fights began, with all the “jealousies, anger and embarrassment” that characterize sparring lovers. Old-economy executives looked like stooges who had been conned by Internet hucksters. Their anger and insecurity was aggravated by the economic downturn. Companies no longer had free cash to throw at web projects, and they allocated the limited funds they did have based on calculations of return on investment, not dreams of digital dominance.
The anger has passed, as it eventually does, Francis noted, and the partners are realizing that they can’t live without each other. The web is here to stay as a business tool. Hence the marriage. But, Francis concluded, the fight, along with the tough economy, taught lessons that should contribute to the marriage’s success.