Managing revolution: Virtual certainty of web delivery - The inflated price of technology shares has encouraged managers to wait until the bubble burst. But www laggards are bound to lose out

Managing revolution: Virtual certainty of web delivery - The inflated price of technology shares has encouraged managers to wait until the bubble burst. But www laggards are bound to lose out - The bubble in internet share prices was worrying in two ways.

by ROBERT HELLER
Last Updated: 31 Aug 2010

The bubble in internet share prices was worrying in two ways. First, its bursting is bound to spread financial loss and decay in its wake. Second, the doom-mongers, whose numbers were growing weekly, provided managers with an excuse for inaction. The laggards are still in the majority, but their caution could prove their downfall.

The number and variety of internet businesses are multiplying all the time. That means an exponential increase in predators seeking to strip slices off every cash cow in commerce - or even rustle the whole beast. Some of them must succeed.

What's happening in the marketplace may be only the tip of the iceberg. Traditional businesses may need to reinvent themselves in whole or in part. Take Pirelli, as old-line an industrial giant as Italy has to offer. Its latest news is the launch of several significant high-tech projects (for instance, as a partner in optical technology with Cisco). e-Pirelli will attack mature businesses from the inside. According to The Wall Street Journal: 'The group has just kicked off 20 different projects aimed at radically changing the company's internal processes and improving profitability. The projects aim to revamp activities such as purchasing, sales, logistics and R&D.'

An online order manage- ment system, for instance, is being rolled out to cover all cables, and is projected to generate dollars 400 million of external business. By the end of 2000, Pirelli expects nearly one-sixth of its dollars 6.5 billion turnover to come from the net. These are big numbers. Any increase in sales won't come from expanded world demand, however. It has to come largely from competitors - and the odds are overwhelming that web laggards will lose out.

They face a double whammy from a vigorous assailant both lowering its cost base and exploiting a new route to market. Some sceptics, of course, think that the route is oversold. Even those who try internet shopping - goes the argument - will tire of its remoteness and inefficiencies and return to the familiarity of stores. In fact, online retailing may well be slowing, they say. What they forget to add is that its growth still easily outpaces that of retail business generally, and will continue to do so.

The established leaders will widen their net, so to speak - improving their techniques for snaring new customers while getting the old ones to spend more money. Adventurous newcomers will continue to invent ingenious new ways of doing old business. Stewart Alsop, the veteran infotech columnist for Fortune magazine who (significantly) has joined an e-venture capital firm, lists some of the latest challengers in passing. They range from the possibly ridiculous to Webvan, which is building a network of warehouses and vans to take internet orders into American homes with greater speed and efficiency. Its customers were valued by the stock market in early March at dollars 85,000 each. That makes lastminute.com's lunatic pounds 29,000 (at the peak) look cheap. But however over-valued Webvan may be, the fact remains that the trend for home delivery, which the web has plainly accelerated, is not going to stop growing.

The numbers on web usage are as mind-boggling as the share valuations. e-Bay has 10 million customers for its auction site. That's a threefold increase in a matter of months. At a rule-of-thumb valuation of dollars 2,000 a customer, customers alone make e-Bay worth dollars 20 billion (against a dollars 28 billion market cap). But the thumb, like all other metrics, has become unreliable in the new age. What matters is whether the internet provision is (a) cheaper and/or more effective than conventional equivalents; or (b) extends choice into wholly new areas where a large, growing and profitable market can be created.

These internet truths have always applied to new technologies. Innovations like the digital watch do what can already be done (tell time) with vastly better cost/performance ratios (category a). Mobile phones let you communicate with anybody, anywhere, from wherever you are, and in wholly new ways such as internet connectivity. In other words, they let you do things that were impossible before (category b). And although they have not replaced landlines and the rest, they will.

M ost of the internal web applications being installed by companies easily fit into category a. That also applies to the giant bazaar sites for supplies being constructed by firms such as the motor industry colossi. Category b innovations are always rarer and harder to identify. Take the fast-growing 'cyber courts', which offer e-mail arbitration to potential litigants. They are evidently cheaper and faster than the terrestrial courts, but is this a new market or a new version of an old one?

To users, that hardly matters. Whether in retail, B2B or internal services, overwhelming evidence shows that ultimately they purchase genuine benefits. Whether that includes one Scottish web site, which provides alibis for adulterers and other deceivers, is a moot point. But I'd say it's definitely category a.

Robert Heller was founding editor of Management Today.

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