It's a Wired, Wired World

Not long ago, the typical corporate Web site was a low-cost pilot project in search of a mission, a constituency, and a provable return on investment.

Today, many of those early efforts have evolved into mission-critical systems. Cisco Systems Inc., for example, expects to move $1.8 billion worth of its internetworking products via its Web site in 1997. Dell Computer Corp. reports it will ship $500 million worth of PCs ordered via its Web site using a process that costs half what it does by phone. Hewlett-Packard Co. says its intranet will save it $250 million this year. And General Electric Co. executives say they expect to purchase $1 billion worth of goods using the Web this year, and $5 billion by 2000.

Forrester Research Inc., in Cambridge, Massachusetts, predicts Internet commerce will skyrocket from $8 billion this year to $327 billion in 2002 (see chart, page 66). Forrester identifies three company types currently at the center of this growth: manufacturers, chiefly in electronics and airplane parts (Cisco, Boeing Co.); middlemen, computer-related and office supplies (MicroAge Computer Center Inc., Boise Cascade Office Products Corp.); and services and utilities (QuickTrade LLC, Altra Energy Technologies LLC).

On the consumer side, sales are growing, but sometimes profits aren't. For example, cyberspace bookseller Amazon.com's sales increased more than 1,000 percent in one year-- to $27.9 million in the first quarter of 1997, from $2.2 million in '96--but losses also skyrocketed, from $767,000 to $6.7 million.

But those that have invested in Web technology for business use are getting dramatic returns on investment. Vendor-supported research should be taken with a grain of salt, as should four-figure ROIs; still, a study by International Data Corp. conducted for Netscape Communications Corp. found typical ROIs on intranets of 1,000 percent or better, and payback times of 6 to 12 weeks. Most of that was from "increased productivity," but savings also came from reduced paper and labor costs, and from uniting heterogeneous computing environments. Others have found good returns from replacing toll-free phone numbers and operators with Web pages, attracting new customers (particularly from overseas), increasing sales to existing customers, and consolidating purchasing operations.

For many companies, the next task is to bind their intranets with those of their trading partners to form "extranets." More a concept (and a marketing term) than a technical breakthrough, extranets function like closed user groups, supporting data and applications sharing among members while securing them from outsiders.

"The next logical step for organizations that have built intranets to share information internally is to make that information, or a subset of it, available to external business partners with a private Internet, or extranet," says Alyse Terhune, a research director with Gartner Group, a Stamford, Connecticut-based consultancy. While most companies are still in the early stages of deployment, Terhune says, "there are some assumed values from extranets--for example, better customer relationships, more-efficient distribution channels, and better supply chain management."

Manufacturers currently dominate intercompany Internet commerce, says Forrester. One of the most ambitious extranets under construction is the Automotive Network Exchange, which will link the Big Three automakers--General Motors Corp., Ford Motor Co., and Chrysler Corp.-- with some 8,000 suppliers. But it won't take long for wholesale and retail businesses to catch up, according to Forrester; by 2002, that sector should account for half of all business-to-business Internet commerce.

Happier customers, lower costs
Boise Cascade Office Products (www.bcop.com), of Itasca, Illinois, a $2.7 billion­a-year business with 42 distribution centers in the United States plus several others overseas, recently deployed an extranet that is already helping about 600 large corporate customers make purchases. That number is growing by about 100 users per month; by the end of the year, it will be used by 5 percent of Boise Cascade's accounts.

The extranet, which Boise Cascade calls Internet '97, is based on Web server products from Actra (a joint venture between Netscape and GE Information Services) and Boise Cascade's existing Oracle database. Customer satisfaction is a primary goal of the system, but so is reduced cost. "What we are trying to do is move more customers into more sophisticated forms of E-commerce to make them happier," says Laurie Beeson, vice president of marketing at Boise. "One way we keep them happy on pricing is by continually reducing our operating costs, which allows us to give direct reductions in prices."

In 1996, Boise Cascade spent $27 million for inbound call service--not including the cost of the operators. "When we take an order via our call center, it costs us about 86 cents a line, but when we take the order electronically it can drop to 41 cents a line," Beeson says. The electronic systems also allow Boise Cascade to customize price lists and ordering procedures to suit individual accounts, she adds. "Every item is priced differently for every customer."

Boise Cascade's approach to helping customers improve their purchasing operations makes sense, says Jim Sha, Actra's CEO. "If I have a typical 10 percent aftertax margin, I have to increase revenue 50 percent to improve the bottom line by 5 percent--or I can reduce purchasing costs by 5 percent." Purchasing operations can also be improved by order consolidation. "The National Association of Purchasing Managers says 33 percent of buying is done off-contract, which results in a 17 percent higher price," Sha says. "And there is a second cost of $75 to $150 per purchase order. If you are doing 100,000 transactions a year at $75 each, you have a huge opportunity to save money through automation."

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