1.2 Defining E-business
1.2.1 Overview
One of the first to use the term E-business was IBM in 1997. At that time they launched their first thematic campaign built around the term. Until then e-commerce was the buzzword used. The shift in terms also means a shift in paradigm. Until then selling was the only experience that people could reproduce on the web. Broadening the approach to allow more types of business on the web created the new term e-business. E-commerce is just one aspect of e-business like e-franchising, e-mailing, e-marketing. E-Business is about using the convenience, availability and world-wide reach to enhance existing businesses or creating new virtual business. IBM defines e-business as "a secure, flexible and integrated approach to delivering differentiated business value by combining the systems and processes that run core business operations with the simplicity and reach made possible by Internet technology." IBM's E-business is what happens when you combine the resources of traditional information systems with the vast reach of the Web and connect critical business systems directly to critical business constituencies - customers, employees and suppliers via Intranets, Extranets and via the Web. By connecting your traditional IT systems to the Web you become an e-business. Most companies deploy applications on the Internet making it easier to do the things you already do.
Forward-thinking organizations are beginning to automate, organize, standardize and stabilize the services offered in order to create and maintain sustainable computer-mediated relationships throughout an e-business life cycle. At about the same time, other companies like Hewlett-Packard also started to offer complete solutions for e-business, including software and hardware bundles and e-business consulting. Hewlett-Packard launched in April 1999 a new marketing campaign "Hewlett-Packard - The E-Service Company." More and more hardware companies move their business away from hardware and start to offer consulting and software as well.
The concept of electronic business had been invented before the Internet became popular. In the 1970s E-business was already popular for financial networks, for example, which used propriety hard- and software solutions. Electronic Data Interchange (EDI) was also available long before the Internet was used for it. But without the Internet E-business would not have been possible on such a large scale. The private networks, which were used in the seventies and eighties of the 20th century, cost too much for smaller enterprises and were not accessible for private use.
The Internet is not just another application; it is neither software nor hardware. It is the environment for the business and communication of the future. The Internet combines many existing technologies into one framework. Computer networks and communication networks, like fax, telephone and pager are already integrated into the Internet. Sending a fax via the Internet is just as easy as receiving a voice mail. Not only different types of communication are possible via the Internet, but also the conversion between them is possible. It is, for example, possible to convert a fax to an e-mail or an e-mail to a message for the cell phone. This enables businesses that use different methods of communication to come together more easily. In addition to this it is also possible to translate the communication text from one language to the other on the fly. Not only between human languages like English and Russian, but also between programming and database languages. Using these interfaces it is possible to connect a wide range of different types of hard- and software, which are the basis for very different businesses.
1.2.2 Communication Gateways
Hotels, for example, all over the world use the Internet without having a direct link to it. They use e-mail to fax gateways. People may go to the web site of the hotel and decide to send an e-mail to one of the hotels. The e-mails are collected at an Internet provider where the web site is located and sent on via fax to the hotel. This is done all automatically. The hotels then can then either respond via traditional fax or telephone or can respond via the fax the to e-mail gateway. Suddenly people from all over the world can reach that particular hotel, book rooms there or ask for information at the cost of a local phone call. This is a fraction of the costs it used to be. Instead of calling or sending a fax to the hotel, which may be located in another country, all you do is call your local Internet provider to connect to the Internet and send off a request.
Although this is clearly not the best way to communicate with your clients over the Internet, it is probably the cheapest, as you do not have to invest in new equipment. All you have to do is to Internet-enable your existing devices using gateways. For many companies it is the first contact when they are unsure about an online venture.
E-business, the Internet and the globalization all depend on each other. The more global players exist the more e-business they want to do. The more e-business is online, the more people will be attracted to get direct Internet access. And the more people are online the more global players will arise.
E-business can be divided into three areas. It can be within the organization using the so-called Intranet. The Intranet uses Internet standards for electronic communication. People on the Intranet are able to see organization-specific web sites. These web sites are separated from the rest of the world by firewalls and other security measures. People from outside of the organization are not able to see these private pieces of information.
Apple, for example, built an Intranet web site to sell older Apple systems and accessories to its employees. Before that, Apple e-mailed special promotion details to employees who then ordered the products over the telephone. The Intranet web site now allows employees to obtain current information and place orders online, eliminating expensive and time-consuming phone calls.
IBM is using its "Refurbished Computer Warehouse Web" site to sell PCs coming off leases. The site allows employees to view the machines' specifica-tions and then purchase them online with credit cards or through traditional methods such as a telephone. These offerings are restricted to employees and therefore should not be accessible nor visible to the outside world.
As employees get special prices, putting these prices into the public would put pressure on the company to reduce the price for the rest of the world. Depending on the security policies of the organization or company, people may be allowed to connect over the Internet via virtual private networks (VPN) to the Intranet using encryption lines and strong authentication for identification purposes.
The second area is the business-to-business (B2B) deals that are done over the Extranet. The Extranet consists of two Intranets connected via the In-ternet, whereby two organizations are allowed to see confidential data of the other. Normally only small parts of information are made available to the partner, just enough to enable the business. Business-to-business networks have existed long before the Internet. Many organizations have had private networks to talk to their partners and customers. But maintaining them was very expensive. Through the usage of the Internet the costs have been cut dramatically. In order to keep the business transactions private virtual private networks (VPNs) are used in most cases.
Thirdly there is the business-to-consumer (B2C) area. This is the most prominent one, which most people already have seen on the Internet. The web sites of Quelle, a German Fashion retailer, Discolandia, an online compact disc shop, and Megazine offer goods and services to anybody who comes to their web sites. Traditionally this is what most people know as e-commerce; selling products on the web, but as we will discover in this book, there is more than just this.
No matter in which of the three areas you want to do business, you should ask the right questions, before going online. Just having a web page or the infrastructure for the Intranet, Extranet or Internet is no help. You need to decide on your target group and think about the processes, which could be done electronically.
Technically there is no difference between the Intranet, the Extranet and the Internet. The Extranet and Intranet are subsets of the Internet, which can be viewed only by certain groups. Therefore the book does not make a distinction between these three forms of networks. The electronic business that can be conducted is basically the same. With a restricted group it is easier to force certain technical standards, but otherwise they are very similar. I will write about differences whenever appropriate.
1.2.3 E-business Statistics
While listening to presentations, talks or reading books about e-business you will hear or read about statistics on the Internet, its users and the prospective business. There are many problems with these statistics, so I tried to avoid them in this book and tried to concentrate on the things that really matter.
If you look at the numbers of online users, you will see that they are going up. Depending on which statistics you believe the numbers are increasing either faster or slower, but the tendency is clear, they are growing. The same applies to business. Every day more business is done via the Web. But how much exactly nobody knows. Even if somebody would know for a certain moment, it would already be false in the next. With millions and millions of servers and clients connected to the Internet it is almost impossible to get precise data. There is no precise definition what an Internet user is or what business on the Internet means. An Internet user can be anything ranging from a browser window, a cookie session over to a real person or a web proxy. It all depends on your view of the world. If I connect from work to a certain web page I have to use a web proxy server which relays my request and saves the pages in a cache, just in case somebody else in my company needs the same information. The web server sees the proxy address only, so those 6,000 people working at my company site can appear to be one.
Although many people use statistics to show how successful the Internet is, I don't want to use them in this book. Figures for such a fast changing medium look outdated immediately, even if they were correct. There is no doubt that the Internet is a success and can be used in a highly successful manner for your company, as well. Therefore the book contains a lot of real world (or even better cyberworld) examples from the Internet with companies that are successful or have failed.
Once you have built up a web site it will be useful to create statistics on the use of the web pages, but those statistics will help you only with your web site and will never give you an idea on the Internet as a whole.
The Internet is the first mass media that allows interaction. Radio, television, newspapers, catalogues deliver information to your home, but there is no way of direct communication back to the others involved in a certain process. You can send an order back to the catalogue company or send a letter to your newspaper, but this is not what you get when you go in a shop or walk into the newspaper office. There you get an immediate reaction on behalf of your request and this is what the Internet does. It moves everyone together, every piece of information, every service and every business to be instantly available anytime. The dream of the global village becomes true.
The winners of the Internet today are the UPS' and Federal Expresses of the world. Due to the fact that many products on the Internet are not digitized yet, someone needs to ship the products from the online merchant to the customers. This will change in the future, as books, music and videos, which are the bestsellers so far, are digitized easily. The problem with a digital video, for example, is the copyright issue. It is too easy to copy it without paying for it. Therefore new methods of shipping digital products will be needed. We will see later on in the book how this could be done.
1.2.4 Strategies for Digital Business
Just going online, because all competitors are, is the wrong strategy. There are many reasons to go online, so choose one or more to be your primary goals. Otherwise it will be difficult to measure the success of your online venture. See what you competitors are doing and look out for new competitors that are now closer to you through the Internet.
In order to set realistic goals for your e-business, it is necessary to find out what portion of the overall business will be conducted via the web in the next twelve months and two years. Although you are most likely not getting the figures right, as the Internet is moving far to fast to be able to deliver reliable forecasts, these figures can indicate a trend. Where do you want to be then? Do you want to go fully digital and use the Internet as the main channel for the business, or is it "just" the fourth channel for your business. This leads to the question of how fast you are planning to grow your company. Many Internet start-ups have managed to grow very fast in very short time. In order to do so, you need a working Intranet based on the same key technologies as the Internet (e.g. TCP/IP). Only if your business is fully digitized you are able to grow at such a rate, as eBay or Yahoo have grown in 1998 and that was more than a thousand percent. This is essential because the design of the electronic business and the support infrastructure must be able to handle growth effortlessly over time. Otherwise, the company may lose valuable time and money re-engineering a site after a few months.
The expectations within the company need to be set right, otherwise the online venture will not maximize your revenues. Other than expected in the early years of the Internet, it takes much longer to get an return on investment. Therefore your company needs some good financial backing, otherwise you may not succeed on the Internet, which will also have implications on the rest of your business. Amazon.com took five years until it could get back the investments it made up-front.
If the Internet is used for cost-reduction, it is necessary to measure the costs for every single item up-front, which may cost more than using the Internet. The re-engineering of the businesses processes will help more than using new technology in most cases. In many cases less staff is required to perform a task. With the free time of the staff it is possible to implement new business processes without additional cost.
Table 1.1 contains a short list of good reasons why a company needs to go online. In the following subsection each of these reasons is explored more in-depth and online examples are used to verify the reasoning. There are more reasons to go online, of course, but most companies will have one or more of the above reasons, why they want to go online. But be careful, do not let your competitors drive you to this decision. Be there before the competition or take your time to develop a full business plan.
Once you have decided on the goals, you need to find criteria for measuring the success. Cost-reduction, for example, may not be really measurable. If a printer manufacturer is offering printer drivers on its web page, measuring the cost-reduction may be difficult, as the company may not have measured the costs before the introduction of the online service. Sending out floppy disks and CD-ROMs would have cost more, but were part of the price for the printer. Measuring now parts of the product separately may become difficult. Although measuring the cost-reduction may not be possible, the introduction of the online service will reduce costs for further products, as they require your company to put a price tag on parts of a product.
1.2.5 Strengths and Advantages of E-business
The strengths of e-business depend on the strengths of the Internet, which is the preferred infrastructure today and in the future. The Internet is available all over the world, twenty-four hours a day, seven days a week. It is simple to use and the transaction costs for the end user are low. The costs are also extremely low for the vendors on the Internet, compared to traditional distribution channels. The Internet allows two-way communications and is built around open standards. The two-way communication allows for direct feedback of the customers and the open standards mean interoperability between companies, web sites and services. It is fairly easy to integrate processes, services and products, once they have been digitized.
Using the latest software from BroadVision and others, it is possible to customize your entire web site for every single user, without any additional costs. The mass-customization allows us to create web pages, products and services that suit the requirements of the user. A customized web page does not only include the preferred layout of the customer, but also a pre-selection of goods the customer may be interested in. Internet pricing becomes irrelevant, as all prices drop to the lowest possible level. The only chance to distinguish the products of your company from the ones of your competitor is to add services that increase the value of the product without increasing its price (or just slightly).
Although many people are afraid of security breaches on the Internet, it can be made very secure through encryption, digital signatures and firewall software and secure procedures. This will allow companies to offer private information to their customers and business partners without having to fear that an unauthorized person is able to see that particular information. Banks, for example, are able to allow customers to look at their account balance in real-time without having to worry that a hacker will be able to break into the bank's computer system. This is achieved through the use of the above-mentioned security components, which allow trade on the Internet to expand.
Companies need to protect their customer profiles, as this information is very private and should not be passed on from one organization to the other without written consensus from the customer. The customers should never get the feeling that they are followed around on the web site and that every click is saved into a database. Providing a link to the privacy policy from the home page is a must for all electronic entrepreneurs, but only few have done it so far.
A web site is a good opportunity to reduce the cost of labor. By using a web site to answer questions of customers, one is able to reduce the number of calls to your service number and one is able to offer twenty-four hours of assistance. Your call center will be reduced and the people, who are now without any job, can be reused to build up an online database, which helps customers to find even more answers online. This can go so far that only one or two people are left to talk to customers on the phone and they get their answers from the company's web pages.
Companies who want to invest in electronic business are not restricted to the publishing, entertainment, information and software industries, as one could imagine. Every company will need to invest, as electronic business is more than just selling things online, it means moving processes and communication online, and this affects every company.
Today many work and communication processes have to deal with media breaks. This costs a lot of time. Consider someone calling a shop to order some products. The shop assistant will write the order down and pass it on to the person who is responsible for booking it. This person may type in the order and send out the goods. This simple process already has two media breaks: phone to paper and paper to computer. The information did not change, but the medium that carried the information did. Electronic business drives the information onto one digital platform, which can be shared by all the participants in the business process without having the risk of losing parts of the information in a conversion process. Digital information is not only more convenient, but allows also new applications, which were not possible beforehand.
Online tracking, for example, has become quite successful. This application could only be implemented because all relevant information were available electronically.