[Economist] Excerpts from the Internet special

Rohit Khare (rohit@uci.edu)
Fri, 2 Jul 1999 22:26:19 -0400

A recent worldwide survey of 500 large companies carried out jointly
by the Economist Intelligence Unit (a sister company of The
Economist) and Booz Allen and Hamilton, a consultancy, found that
more than 90% of top managers believe the Internet will transform or
have a big impact on the global marketplace by 2001.

That message is endorsed by Forrester Research, a fashionable
high-tech consultancy. It argues that e-business in America is about
to reach a threshold from which it will accelerate into
"hyper-growth". Inter-company trade of goods over the Internet, it
forecasts, will double every year over the next five years, surging
from $43 billion last year to $1.3 trillion in 2003. If the value of
services exchanged or booked online were included as well, the
figures would be more staggering still.

That makes Forrester's forecasts of business-to-consumer e-commerce
over the same period-a rise from $8 billion to $108 billion-look
positively modest. ... 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.

[CTP has several idiotic quotes throughout. Notice that their only
other consultancy quote whores are Forrester, who pimp for CTP, as
pointed out later]

But what exactly does "value-chain integration" mean? John Dobbs of
Cambridge Technology Partners, a leading systems integrator,
helpfully defines it as: "A process of collaboration that optimises
all internal and external activities involved in delivering greater
perceived value to the ultimate customer." Before the Internet,
companies struggled to speed up and improve their supply-chain
interactions. The most effective collaborative tool has been
electronic data exchange (EDI), prevalent in industries such as food
manufacturing and car making, where suppliers replenish in high

But EDI, although effective enough, has several drawbacks. The first
is that it is both limited and inherently inflexible. It provides
basic information about transactions, but it is unable to adapt to
rapidly changing market conditions. Second, it is very expensive to
implement, so many companies find it difficult to justify the
investment. Third, because it is based on proprietary technologies
rather than open standards, it locks suppliers and customers
together. Last, as a purely business-to-business tool, it excludes
the end-user from the value chain.

Internet technology, argues Cambridge Technology Partners, is
everything EDI is not. It is ubiquitous and open to everybody. The
intuitive point-and-click interface of the browser makes it easy to
use. It is flexible enough to work either inside an organisation
(intranet) or outside in open (public Internet) or secure (extranet)
form. It is cheap to set up and run. And it is global.

But above all, it is the open standards of the web that give it its
extraordinary power to create new business models....

[A full-page advertisement from Sloan preens as a preeminent Web MBA
shop, listing the W3C as just one of many signs of MIT's dominance]

Watch your language

ONE of the biggest impediments to e-business is that computers are
not very bright when it comes to recognising context. Most people who
use the web have been through exasperating searches that deliver
either thousands of useless results or, even more bafflingly, next to
nothing. As Microsoft's Bill Gates says in his new book, "Business @
The Speed of Thought", a query about the fastest computer chip on the
market could easily produce information about the rapid delivery of
fried potatoes.

The problem gets even worse when businesses are trying to communicate
complicated catalogue or stock information to each other. This is
because the web's main language, HTML (hypertext markup language), is
essentially superficial. It tells a web browser how to lay out the
contents of a web page, but it remains blissfully ignorant of the

The solution seems blindingly simple: use tags to label the content,
rather than describe what it looks like. For example, HTML would
label the elements of an order for a pair of trousers as boldface,
paragraph, row and column. If they are tagged as price, size,
quantity and colour instead, a program can identify the document as a
customer order and do whatever is needed to get the trousers to the
recipient as quickly as possible.

In the nick of time to allow e-business to take off, the World Wide
Web Consortium (W3C), a not-for-profit group that controls web
standards, has come up with an extension to HTML called XML
(eXtensible Markup Language). XML not only describes the nature of
web content, it also provides a way of indexing data. Its system of
tagging data with relevant information allows applications running on
other computers to respond in an appropriate way. For example, XML
makes it clear that "The Economist" is a newspaper and not a
particular economist. By using metatagging, data that describes other
data, XML can also speed searches in the way a librarian's card index

The only drawback is that for XML to work properly, there has to be
some agreement on definitions. It may be possible to achieve this
within particular professions or industries, perhaps using an
information intermediary as both initiator and ring-master. But to
ensure that there is a shared language of business on the Internet,
cross-industry initiatives are also needed.

To its credit, Microsoft is actively engaged in just such an
initiative, which it calls "BizTalk". It is using its market clout to
bring together disparate customers, computing-industry vendors and
consortia to define XML schemas (electronic dictionaries) to describe
common business processes. For example, Microsoft and SAP have begun
defining schemas for exchanging product-catalogue information and
business documents.

Microsoft intends to incorporate BizTalk into future versions of its
Office, BackOffice and Windows programs but, perhaps unusually for
the company, it is going for open standards that will allow
integration across all platforms, regardless of the underlying
technology. As the Yankee Group's Harry Tse says: "Microsoft can win
by not controlling XML."


Scient calls itself an e-business systems innovator, rather than a
consultancy (because it does more than just giving strategic advice)
or a systems integrator (because it does not just build off-the-shelf
solutions that can also be bought by competitors). It claims to have
over 40 clients, including established firms such as First Union
Bank, Chase Manhattan, SC Johnson Wax and Gateway, as well as members
of the new Internet aristocracy such as eBay, Realtor.com and the
Internet Travel Network. ...

Scient has recruited an impressive multidisciplinary team of nearly
250, including some of the brightest and best from IBM. But some
potential customers may find the firm's arrogance, even boastfulness,
offputting. Its breathless publicity material conveys the flavour:
"All you really need to win is this: Extremely fast implementation of
astonishingly innovative systems built on breakthrough strategies
supported by an infrastructure designed for extensibility and
iteration. That is precisely what we do. We are Scient. We work with
people who plan to win." Blue-chip clients might want something more
tangible to convince them.

Agency.com, based on Broadway in New York's Silicon Alley, goes for
an altogether softer sell for what seems an altogether softer
product-something it calls "interactive relationship management".
With its slogan, "It's not the medium, it's the relationship,"
Agency.com has the air of a touchy-feely creative ad agency. Its
co-founder, Chan Suh, talks so elliptically that he could be mistaken
for an unusually gentle therapist. Because the Internet encompasses
everything, he says, a holistic approach is needed when working with
clients. Yet behind the waffle is a company that has helped to build
websites and intranets or extranets for some of the most demanding
corporate customers in the world, including Unilever, Nike, British
Airways and Compaq Computer.

Sitting somewhere between the heavyweights such as IBM and the big
five accountancy-cum-consultancy firms on the one hand, and the new
e-business boutiques such as Scient and Agency.com on the other, is
Cambridge Technology Partners. It came top when Forrester Research a
few months ago set out to discover which firms had the best blend of
consulting, web development and systems-integration skills to help
clients become e-businesses. Forrester concluded that most of the web
developers lacked the sophisticated technical skills needed for
systems architecture, code development and business process
re-engineering, whereas the big five had been more concerned to make
their clients year-2000 compliant first before moving on to
e-business (although that is now changing).

The exception was Cambridge Technology Partners, a company founded
eight years ago that has grown fast throughout its short life, first
on the back of the client/server computing revolution and more
recently by specialising in a speedy, fixed-cost ERP deployment
service. Conscious of the ambivalence a good many customers have felt
towards ERP and the difficulty of extracting any competitive
advantage from it, Cambridge has developed the concept of extended
resource planning (XRP).

Live and let live

Cambridge's founder, Jim Sims, argues that companies should see their
existing ERP systems as a backbone for web-based applications that
extend into the systems of customers and suppliers, thus creating an
integrated value chain-the foundation for e-business. The key to
achieving this, says Mr Sims, is to be religious about the open
standards and architecture of Internet computing but agnostic about
technologies. The message is clear: compatibility among different
systems is vital to e-business. Dominant software vendors who try to
control the customer should be given the brush-off.

[Yikes! I've never seen the Economist so credulous...]

There is nothing flashy or extravagant about Cambridge Technology.
What it offers is a clear idea of what e-business means, combined
with a highly practical approach to building on legacy systems.
According to Forrester, "The firm is well-suited for large,
integration-intensive dynamic trade initiatives and commerce-centric
consumer sites." Gulp.

One of the biggest projects Cambridge is currently working on is a
web-based procurement system for the partners and customers of Lucent
Technologies, a giant telecoms-equipment firm that was spun off from
AT&T about three years ago. What makes this project particularly
interesting is that, as traditional voice traffic has converged with
data, Lucent has found itself increasingly locked in competition with
Cisco Systems, the dominant data networking company and one of the
most complete e-businesses on the planet. Being able to match Cisco's
speed and customer service is critical for Lucent.

Despite the daunting complexity of Lucent's product range and its
remarkably diverse customer base, its website went live within six
months of the start of the project. Nina Aversano, who is leading
Lucent's e-business strategy, says she picked Cambridge because it
was neither too big nor too small. It had experience of legacy
systems and how to build on them seamlessly, it knew a lot about the
needs of business-to-business customers, and it could work fast.

[WTF is this? Lou Skywalker??!]

In a presentation to Wall Street analysts a few weeks ago, Lou
Gerstner, the boss of IBM, described the new "dot-com" companies as
"fireflies before the storm-all stirred up, throwing off sparks". But
he continued: "The storm that's arriving-the real disturbance in the
force-is when the thousands and thousands of institutions that exist
today seize the power of this global computing and communications
infrastructure and use it to transform themselves. That's the real


Mr Gerstner could not resist adding that although, perish the
thought, IBM should not be considered an Internet business, about a
quarter of its revenues of $80 billion was coming from
e-business-related sales. Put another way, IBM's Internet revenues
and, even more to the point, its profits, dwarfed those of all the
top Internet companies combined. Taking the financial results of the
top 25 Internet "standard bearers" together-the AOLs, eBays, Yahoos
and so on-they collectively generated about $5 billion in revenue and
lost around $1 billion last year.


Ultimately the Internet will change our ideas not just about how
businesses behave, but about what they actually are. The search for a
new name is already on. Varda Lief of Forrester Research calls it
"dynamic trade", which she defines as "the ability to satisfy current
demand with customised response". Tom Siebel, the founder of Siebel
Systems, a business software firm, talks about the "para-enterprise";
Gajen Kandiah of Cambridge Technology Partners describes it as "the
new business ecosystem".

E is for ecosystem

That makes it more important than ever for companies to understand
what their "core competences" are, what makes them special, and how
they can maintain that competitive advantage. They must then find new
ways of working with partners to provide customers with a range of
services that knit together so seamlessly that they amount to more
than the sum of their parts.

Mr Kandiah of Cambridge Technology Partners argues that for
businesses to be part of an ecosystem, they need to agree on how they
want to go about tackling their target audience so they can
collaborate in depth.