How businesses use the Web
Analysis/Commentary
Everyone has heard of online shopping. But unknown to the majority
of average Net surfers, businesses have been lining their pockets by talking
to each other on the same networks the public uses to browse, chat, and send
e-mail. This quiet explosion, which overshadows the impact of online
consumer e-commerce, is called business-to-business trade.
How do they do it? With much the same tools average websites use:
forms, e-mail, and HTML pages. The difference is on the back end.
Businesses streamline their websites for activity with a select
network of suppliers commonly called a supply chain. They do their
purchasing (procurement), billing, financial and distribution
accounting, and delivery verification on the Web.
And the investment is different. Businesses typically protect their
supplier networks with firewalls and encryption, and call their
business-to-business networks "extranets" (outside nets) and their
inner hubs "intranets" (inside nets). Instead of public highways, these
data routes resemble industrial clusters of warehouses and plants reached
by commercial tradeways.
Businesses have been using electronic communication longer than the
Web has been in existence, by means of private phone lines, but now they
are learning to use the Web. Expensive channels identified as Electronic
Data Interchange (EDI), which cost upwards to $50,000 per supplier, are
slowly being replaced by Web resources. Some manufacturers have even
begun to automate their back ends so that software does all the calculating
and checking that employees used to do.
Industries, like automobile manufacturers, are teaming up with software
giants to integrate their manufacturers with delivery points (typically
dealers and consumers). Some are learning to use middlemen to do their
brokering, to take bids and calculate selling prices. Others, more
sophisticated, forecast demand by integrating their points of sale with
their suppliers.
The rewards are huge. Cisco, an Internet hardware company, does most
of its selling online and has more sales than anyone on the Net. America
Online has recently thrown its hat into the ring with the acquisition of
the software-download infrastructure known as NetCenter. AOL hopes to download software to companies intending to automate their supply chain. Other biggies, like IBM and Excite@Home, have already moved far ahead of AOL in this respect.
According to researchers, business-to-business trade currently represents at least two thirds of commercial activity on the Net. With Europe, Asia, and the Middle East increasing their network bases, online business-to-business promises to stay ahead of e-commerce.
Already marketers are licking their lips in anticipation of new markets
and strategies. Some Internet marketers hope that companies will use their
Intranets (or fenced off Nets) to bolster employee purchases. They feel that
employees will be willing to purchase from suppliers who have entered into
custom partnerships, thus ensuring job security and their own continued
prosperity. The idea seems almost a throwback to the notion of company
store vilified during the industrial revolution of the nineteenth century.
But it might work.
Businesses are partnering up for growth and survival in an increasingly
global marketplace. Stretching like a spider web to the far corners of the
Earth, business networks need centralized conventions, and the desire for
mutual prosperity might form these centers. Partnerships leads to
"co-branding," the association of non-competitors in mutual cooperation.
In cyberspace, marketing alliances represent the equivalent of mergers,
minus the messy paperwork.
A few obstacles remain. For one, standards for Internet coding are
still shaky, hindering supply chain management. And the cost of moving to
digital media is still expensive, while real-world distances must still be
overcome. The gains, however, are enormous. Speed to market is improved, operating costs cut, payroll reduced, and above all, efficiency increased.
By investing in Internet technology, Web businesses reach out their
tentacles to the population centers of the world, stimulating
prosperity and promising growth.
November 17, 1999
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