MARKETING MATERIAL
9089 Wiley4 E-Marketing
Portal Revenues Selling Content Advertisements Banner Advertising Sponsorship
Traffic Figures Channel Management Affiliate Programmes Vertical Marketing
Distribution Logistics Virtual Businesses B2B Peer to Peer EDI
Operations Management MRP JIT Make or Buy Limitations of EDI EDI on Internet
Exchanges B2B Internet Marketplaces Virtual_Corporation Future Developments
C2B C2C Portals Conferences C2C Developments LLL CAI Television & Books
Computing at Home Video Wired House Teleworking Cost Savings Part-Time
One of the biggest questions facing the new knowledge industries in general, and e-commerce in particular, is how do you get value out - for your shareholders - on an operational basis. In the case of physical products, on which neo-classical economics is based, you can reach out and touch them - and see how value is added as they go through the factory. This doesn't happen with e-commerce services. In particular, if you look at the concept of diminishing returns, economic theory assumes there is a scarcity of product and that each extra unit costs more to make. Unfortunately for economists, in the case of knowledge, the more you use it the more valuable it becomes. That is a conundrum that economists have yet to grasp. More problematically, while you can see the value to the individual of being able to talk with other people around the world by e-mail, it is not immediately obvious how that personal value is released in economic or commercial terms.
The very limited objective here is, though, just to look at a few of the options available.
Reverting to the major theme of this book, e-commerce can often be seen as one channel - albeit it covers promotion as well as distribution - amongst a range of channels. Hence channel management, not least balancing these channels against each other, becomes an important function.
Again, the limited objective is to suggest just a few ways these might be managed.
Portal Revenues
Advertisement Sales
Content Sales
Banner Advertising
Sponsorship
Traffic Figures
Channel Management
Affiliate Programmes
Vertical Marketing
Distribution Logistics
The portals are desperately trying to find some way of releasing the value of their members. On the back of the initial concept, almost alone, some of them managed to persuade the financial markets they had value - though this is now much less than it was when the boom pushed their value out of all proportion - but they haven't yet found a way of doing it on an operational basis. Almost all, with the possible exception of AOL, are still making losses.
According to Forrester Research, in 2000 only 23% of US sites were profitable! They tried, in the first instance to skim off the discount the line rental companies offered them, but that was soon undercut when competitors passed this on to their customers. Now they claim that they can make money by advertising - though the same research pointed out that there was too much free content for even this to work!
■ To the best of your knowledge, what revenues and earnings (at the net contribution level if not net profit) does your ecommerce earn?
Revenue $..……
Net Contribution $……
The ultimate solution must be that customers pay for content; and Microsoft, in terms of its MSN portal, is already planning to apply such usage charges to fund new development. Unfortunately, once more according to Forrester, less that 10% of current customers plan to pay for any sort of content . Even among the 26% who had at some time already paid for content, less than half daid they would pay again! They are too used to getting it for free! E-markets have a long way to go before they can stand on their own feet - which, once again, where the e+marketing - clicks and mortar - vendors, with their existing revenue base and their ability to extend their existing profit-making activities, have the edge.
Discounts and royalties may ultimately be the salvation of such portals. In this case, when the customer comes to a vendor through one of these portals the vendor gives a royalty to the portal - in much the same way as a supplier rewards retailers for stocking their goods. In this way Amazon, for example, makes a nice living from the trade discounts it receives on its books (but not, as yet, much else it sells!).
■ What content do you have which is saleable?
■ What discounts and commissions might you be able to earn?
As hinted above, you will have seen how many websites are plastered with advertisements. Indeed they often look like the rundown parts of cities with poster hoardings everywhere. The downside is that it is often quite difficult for a customer to find any information, which presumably was their reason for visiting the site!
Paradoxically there still doesn't seem to be much demand for advertising space on these sites, the rumour is that in turn most of these ads are given away free as part of package deals with other advertising media; though US figures suggest that, there at least, this new medium might soon be worth several billion dollars per annum. Forrester Research has predicted that online advertising will increase to $40 billion by 2005!. On the other hand, they definitely get in the way of what the customer wants from the web sites. One description of them, which I like, is 'interruption marketing' - they just get in the way of the real business. Whatever you think of them, as yet only a very few sites make money out of banner ads.
Even though it is not offering much of a challenge to the domination of the existing mass media, it is claimed that on-line advertising has a number of advantages over that in the traditional mass media:
· Targetability - with one-to-one marketing, and very tightly defined groups, you should be able to offer exactly what the advertiser wants in terms of target audience.
· Tracking - what is more, the impact on these customers can be tracked, and the advertising messages optimised.
· Deliverability and flexibility - the ad is available all the time, not just when you see it in the dentist's waiting room. Furthermore a campaign can be launched updated or cancelled immediately.
· Interactivity - finally the customer can interact with the product. When they see your advertisement they can click on it and be taken through to your web site for considerably more information to be provided to them. This is probably the major advantage, not least because the very limited capacity banners on the original website can carry very little information.
■ Which of these can you offer, in terms of your web-site(s), to potential advertisers?
A whole range of different "banners sizes" are available on sites: from that of 468 by 60 pixels, which is a 'full banner', down to 88 by 31 pixels, which is a 'micro-button'.
You only have to go look at a typical web site to see the complexity of the different advertising patterns you can use. This may mean something to advertisers, but it probably just means a mess to most viewers! Within these advertisements, though, there are all sorts of other things you can do. At first bright colours were used, now animation is - supposedly to greater effect - though if it's too complicated it may take so long to download that the viewer has moved on before anything happens.
Some suggestions as to the techniques that you can use to enhance the impact, are:
· Simplicity - as I have already said these are more like posters, they can't handle much detail and the suggestion is you use no more than seven words (and make certain these load very fast indeed) - and always use bright colours and limited animation to attract attention.
· Buttons - as I have already said providing a button within your advertisement, so the viewers can click through to your website to get significantly more information, is one of the positive features of advertising on the Web.
· Following - sometimes, if you're very clever, you can follow the customer as they browse the current web sites and then other web sites; though you should be aware of harassing them - they will hate you for this.
· Rich media banners - these are a variation which allow you to complete the whole transaction within the banner. This means that the customer doesn't have all hassle of going off to another website and having to trawl through that. Instead, as long as you can fit it within seven words, you can close your sale there and then.
■ How does your own site(s) measure up against these?
One subtle form of advertising is, as with other media, sponsoring the bit of the site the customer is visiting. This enables you to take away a great deal of the aggravation that they find from having sites cluttered everywhere with advertisements, and it can look something like editorial - which is always more influential. On the other hand be careful that you don't do so much of it that you degrade the real editorial.
Another variation is that you can place your advertisement only with the customers who are looking for the specific features which your product can provide. At other times they see different advertisements.
In theory, at least, it is also possible to insert ads - called 'interstitials' - while the web page is loading, but these have fallen out of favour - quite justifiably. Viewers hate waiting for anything and feel that the ads they are seeing, while the waiting for the real content, are getting in the way - and those ads are penalised as result!
One of the greater advantages of the web should be that you can get reports of traffic through your ad, and at the various levels from websites down to pass-through of individual ads:
· Hits - website owners typically judge the success of their site by the number of hits or visits it receives, but this is the most basic measure and it can deceive. Not least you may be counting as a full hit every graphic which the page calls up to create the picture. In addition, not a few visitors to your site may actually be search-engine spiders cataloguing sites.
· Page views - this simplifies the picture somewhat, by simply measuring how many complete pages - rather elements are viewed - and this is almost as widely used as the hit measure.
· Caching - a separate problem is under-counting. When a page is called from a popular site it may be cached on the user's local server (often called a 'proxy server') - and any further users coming soon afterwards will be given this cached page, without getting near the main site and not being measured by the main site.
In exactly the same way that other media, both television and press, has its audience figures measured, this too is available for websites:
· Circulation - the hit and page figures etc. are audited by a central body, such as a ABC or Nielsen , typically the same as for other media.
· Readership - in this case, again as with the other media, a panel of users is researched - though you should be aware that as yet population, and hence the sampling frames, are quite suspect
One for classic device for charging advertising space, which is which is also used for television spots, is that of paying by impressions: the number of people seeing you're ad. But sometimes you can even do a deal whereby the site owner only charges for the visitors who actually make click-throughs to your site. But be certain these are worthwhile visitors. Just occasionally you can pay for 'leads', for only those who visit your site and fill in a form - though understandably site owners are less keen on this sort of approach.
If we go back to management theory, many of the theoretical considerations before the advent of e-commerce, revolved around the cost of the channel. On the other hand many of the practical considerations revolved around control of these channels. Away from the Internet, the small company usually has no alternative but to use intermediaries, often several layers of them, since that is the only way that they can distribute their product or service away from a local area. On the other hand, large companies have the choice of a wide range of delivery methods.
Whatever the environment, however, the first level of management control is that of choosing the organisations which will become the key parts of your channel structure. Clearly the central organisation itself has some control over this choice, though not always. At one extreme, in mass consumer goods markets, where the only requirement is a logistical one - getting the product or service to the widest cross-section of the public - the main concern is typically to maximise ultimate distribution. At the other extreme, where there are very sophisticated technical products or those which have a very distinct luxury image, the supplier may be much more concerned about managing quality control in a small number of outlets. Much the same range of decisions have to be taken in the case of e-commerce. The Application Service Provider (ASP) or portal, which is subcontracted to provide part or the whole of the service, is especially important.
Perhaps the most important approach, which has emerged with the Internet, is that of affiliation. Thus, organisations try to find partners, with similar interests, who will help to drive total revenues.
For example Amazon is supposed to obtain more than 10 percent of its revenue from its affiliate programmes - and has more than 100,000 affiliate sites linked to its own site and selling its products. The exact form of affiliation can vary significantly. Products may be co-branded, or entirely presented as house brands, or the vendor may bypass existing members of the chain by disintermediating them rather than integrating them! The important point is that the host vendor provides the services that the affiliate typically can't afford to run, and in return sales by the latter improve the overall throughput of the former.
One relatively recent development integrates the channel across the original supplier and all the other members of the distribution chain: working through to retailers where they are needed. The result is a unified system. This can come about because one member owns all the others - corporate systems integration. This is a logical move for Internet service providers. Thus the airlines are now selling seats directly over the Internet in competition with high street travel shops.
Another approach is that of contractual systems, where one prominent member of the distribution chain uses its strength to manage other members' activities. This traditionally been led by manufacturers, but in the case of the Internet it is more likely that it will be the portals, such as AOL, which enforce this type of arrangement.
fig.(37) McDonald's uses franchising
The intention of vertical marketing is quite simply to enhance control over the distribution chain, in the process removing some of the uncertainties of trading. It is a strategy which is typically best pursued at the mature stage in the market - since at earlier stages it may even reduce profits. It is also arguable that it diverts attention from the real business at hand. Both of these suggest that it probably is too early for it to become a major factor in e-commerce.
The terminology can be confusing, for vertical portals are not quite the same as vertical markets. Instead they're more like speciality shops which have taken over most of the high street now that the superstores have migrated to out-of-town sites. Each of these speciality stores focuses on a range of products, classically books have been featured in bookstores - and now are featured on the vertical portal Amazon. As we saw earlier, of course, horizontal portals aim to be everything to everyone - a one-stop shop, such as AOL is looking to be.
■ What would affiliate programmes, or vertical marketing, do for your e-commerce operations?
Considering the very intangible nature of e-commerce, it may seem silly to be talking about the problems of shipping around physical goods. This is included here, though, quite simply because this has often been the most difficult problem faced by organisations moving into e-commerce. Even the clicks and mortar vendors, those with existing businesses which might be expected to have good distribution set-ups, have found that the problem of shipping small parcels to individual consumers is very different to their normal business model. Many of the new start-ups, on the other hand have trusted themselves to carriers who developed their reputation before e-commerce came along, and who now face a very similar problem. It was for this reason that Amazon had to spend so much money creating its own distribution network - since fulfilment, actually getting the product to the consumer, is just as important as having an effective web site. It is particularly true that, having very quickly placed an order on a web site, people seem to expect the product to arrive at the front door almost as quickly - as some organisations, most notably Amazon, can indeed do within a day or two. Unfortunately most organisations are unlikely even to do it within a week or two, and that invalidates many of benefits of e-commerce.
As a footnote to this section, one of the great hopes for the e-commerce revolution was that it would free businesses to do what they were best at.Thus, the separate elements were to be subcontracted to specialists in the field: production of the product put out to a manufacturing facility, advertising to an agency, distribution to a carrier. The reality has proved to be rather different. The idea that a small handful of people sitting in a central head office could use the Internet to manipulate a vast virtual business empire has proved much more difficult in practice. In theory, it is possible but at this time the skills needed, in the various contracted suppliers at least, are typically missing!
One rather different area of e-commerce is that of Business-To-Business (B2B). This, in the short-term at least, will be much bigger than all the other parts of e-commerce. Even so, many of the communications elements parallel the B2C activities which we have covered in detail. In terms of the specific B2B elements, which revolve around operations management as much as the Internet, the objectives are to:
Explore the operations management activities which lie behind EDI (Electronic Data Interchange), the method used to integrate operations across different corporations
List the benefits of EDI, and especially of Internet based EDI
Explore the new electronic marketplaces which are emerging.
KEY
CONCEPTS
Business-To-Employee (B2E) and Peer-To-Peer
Electronic Data Interchange (EDI)
Operations Management
Material requirements Planning (MRP)
Just In Time (JIT)
Make or Buy
Limitations of EDI
EDI on the Internet
Business Exchanges
B2B Internet
E-Commerce Marketplaces
Supplier Oriented Marketplaces
Intermediary Oriented Marketplaces
Buyer Oriented Marketplaces
Virtual Corporations
In general the markets in this sector are different to Business-To-Consumer (B2C) markets for a number of reasons:
1. The most important reason is that they are more complex. The typical consumer purchase will be a single item bought by a single person from one organisation. A typical operation in business-to-business is for an assembly, of a range of purchases from different suppliers and managed by a range of people. Managers need to understand all the relationships involved before they can manage the operation itself. Under all of this complexity has to be the much more rigorous form of customer relationship management needed.
2. Indeed, the relationships involved can be much more complex. We have already looked at the complex sale, and this is indicative of the wide range of people involved. But the whole relationship goes much wider, across the many people also involved in the day-to-day operations.
3. This means that customer relationship management has to go much further, where the complete operations of both organisations depend upon the relationship between them. Trust gets even more important, and needs to be based on each side learning how the other side operates.
4. The key parameter offered is not that of price, despite what many would claim, but is that of performance. With such a complex web of products and services, and the relationships between the organisations involved, the performance of every part of this is crucial - since breakdown in one part can destroy the whole. This is particularly true in terms of timeliness of performance. It is crucial that each partner delivers their offering at the time when it is needed - a week late and everything else is at least a week late.
■ Which of these factors apply to your own B2B relationships?
■ What are the implications of these for how you may do business with your suppliers, and possibly some customers as well?
The key point to note then is the interrelationship of all the various operations. It cannot be separated out to single transactions.
Business-to-business is split into a number of different sectors. Some of the sectors are very like, and parallel, those of business-to-consumer. Thus, there is the new sector called business-to-employee (B2E), which revolves around management's communication with their employees or, depending upon your interpretation, outside vendors selling direct to the key personnel in their customer organisations.
Equally there is Peer-To-Peer. In the form of communications across intranets, within the company, this probably already accounts for most of the communication involved in electronic marketplaces. Although, as we have seen, this is mainly in the form e-mail, it has considerably enhanced internal productivity. It has not got rid of paper, fact it seems to generate ever more paper, but it does mean that more and more people are better and better informed, as to what is going on in their organisation. I don't intend to expand either of these further here - in essence the relevant points have already been covered by my descriptions of the other elements of e-commerce.
At the other extreme, in large organisations, there is already extensive use of electronic communications to, in effect, integrate their operational activities. This is very effective, but also very complex. It is the province of what used to be, and still is, called EDI - Electronic Data Interchange. The advent of the Internet, in this instance, has really only extended the range of channels that are available for this type of communication.
Technically EDI is a means of standardising communications between organisations, specifically in terms of the standard documentation they transmit to each other. It covers routine business documents, which in this case are transmitted over secure telephone links (or extranet). Typically it involves orders, invoices, payments and delivery information - the operations which are at the heart of the purchasing procedures which exist between bilateral organisations. The key thing about the EDI is that these are translated into a standard format which can be understood by the computers in each organisation. It means that nobody has to interface these communications, to change the data to make it suitable for use by their own computer systems. As soon as one of the parties issues new documentation it is incorporated in their partners' systems.
In fact EDI predates e-commerce by several decades. It is arguable that has been around, in a variety of forms, for up to 30 years. In fact its development parallels not so much that of the Internet but that of computerised stock and production control systems.
■ Do you deploy classical EDI?
(If the answer is yes you will probably want to skip much of the rest of this
chapter, since it is likely that you already know more than the content
here offers!)
On the other hand, if you have not yet been exposed to full EDI, it is worth taking a diversion, at this time, to look at some of the complexities of operations management - since it is this, rather than ICT, which will determine how, or even whether, you use EDI.
At the most basic level, methods of inventory control vary in sophistication from the simplest of manual systems through to the most complex of computerised systems (and, of course, it is at the latter end of the spectrum where EDI operates!).
Thus, one of the simplest, and most effective, is to have two 'bins' of a product (or service). When the first 'bin' is empty it is replaced by the second, full one; and another bin of product is put on order. If the requirements of such a 'component' represent a very small part of the overall cost, this approach may be the easiest to implement; and may well be the most effective. It is the area where, perhaps, the new 'exchanges' (or catalogue suppliers) may work well.
A rather more sophisticated version of this simple system, which (as the 'Kanban' system) has been very effectively used by Japanese manufacturers, is to provide a card with each 'bin' supplied. When the bin is empty the card is returned - and automatically generates an order on the supplier.
Indeed, the traditional standby, before computers came along, was to have a card for each product; though, unlike the 'kanban' system, these were usually held centrally - by the purchasing or inventory control departments. Each stock movement was duly recorded on one the relevant product/component card (in, as goods were received from the supplier, and out, as goods were despatched to the customer), and the resulting balance adjusted.
These have now been replaced, almost universally, by computer-based equivalents. The term 'stock control' used for these is, incidentally, usually a misnomer; since in most cases it is in reality only stock recording. As with the card systems, it merely states (based on the movements in and out) what the balance of stock is. In the more sophisticated versions it will also allow for on-order and back-order items. All of these are records of what has happened. The stock control, the decision of when and what amount to reorder, is the responsibility of the humans using the information; albeit that the computer may help by providing a reminder when the stock falls below the minimum or reorder point, and provides assistance with some of the calculations such as Economic Order Quantities' (EOQ).
In the service industries it usually also shows the 'slots' (usually time based, even in terms of theatre bookings) available at some time in the future. Despite the seeming sophistication offered by the computer, something like this lies at the heart of the operations control systems of many, if not most, organisations. You can start to see why EDI may be a step too far for these!
The most sophisticated computerised systems are those which track all the components, of the product or service - possibly running into hundreds in number, which come together to make a technologically sophisticated product or service; where the demand of these components is 'dependent' (that is, the decision to make one 'assembly', say, automatically generates a demand for a range of components, each in different volumes).
The starting point for such systems is usually a 'Bill of Material Processor' (BOMP)' package, which is a tree structured database recording what components go into each sub-assembly; which in turn goes into ever larger assemblies that make up the final product - be it the food mixer or the 747 airliner or a financial services offering. It will show, for example, that the final product such as a washing machine uses 25 screws of a particular type; 10 in the drum assembly, 4 in the timer sub-assembly and 11 in the final assembly process.
Materials Requirements Planning also allows for the time taken at each level of assembly, thus offsetting the orders for each 'kit' of parts. In this way, it will also know what are the starting dates of each of the preceding operations for a product to be delivered on a certain date; and this is the basis of its 'master schedule' (together with the 'planned orders' for individual components, derived from it) which ultimately leads to the output of that product. The advantage of MRP, in theory, is that work can be accurately scheduled, so that there is no waiting between stages. Most other systems have large stocks of in-process inventory, which wait between the various stages until the kits of parts (and the machine and manpower resources) are available for the next stage. This increases inventory and also results in long, and unpredictable, leadtimes.
To be fully effective, in many of the larger organisations, EDI has to be able to handle such complexities - and its managers have to be skilled in MRP and beyond.
One development in inventory holding, pioneered by Toyota in the 1950s, is JIT. In this approach components are delivered, from the suppliers, direct to the production line just as they are needed (or at least only a few hours before). In this way, almost no stocks are held by the manufacturer. It is, accordingly, a very efficient method of holding (or perhaps more accurately not holding) inventory. In the case of the electronic services offered by many e-commerce operations, this may be even simpler to organise.
It does, though, have a number of hidden disadvantages for 'hard' physical products - especially those interfacing with other organisations through EDI - though perhaps not for 'soft' services. Of these the most important is the lack of flexibility. It demands 'flat scheduling'; which means that the production runs must be forecast exactly several weeks in advance; since the comparable production runs by the suppliers will take place some time in advance of the final assembly and their plans must allow for this. Changes in plan are not possible in the short term - though, if the key components are produced in-house and flexible manufacturing (especially reduced set-up times) employed, this disadvantage may be minimised. Equally, the much vaunted inventory savings by the manufacturer may sometimes come about simply because the suppliers are holding buffer stocks instead.
A final comment is contained in a quote made to me by a senior manager at Toyota; "JIT is straightforward, indeed easy, when you get everything working correctly. Mind you, it took us several decades to achieve this!" This was delivered as a joke, but it contains a great deal of truth. It undoubtedly took Toyota many years, probably decades, to achieve the many benefits they now gain from JIT. Those Western manufacturers trying to install JIT over a weekend may like to reflect on this fact!
EDI, certainly promises great advances in JIT - but as the Toyota quote suggests, this may be a far from easy path to greater productivity!
In recent years an important trend, has been to buy out all those items which can be purchased elsewhere. Only those items which cannot be bought elsewhere, and hence represent the special expertise of the organisation, should (according to this new philosophy) be manufactured in-house. More realistically applied, the new approach compares the 'cost' (and preferably of all the factors - not just manufacturing cost) of producing in-house with that of buying-in, and places the business wherever it will be most efficiently handled. This is a hidden assumption behind much of EDI!
The following factors, it is suggested, should be taken into account in this decision;
· Quality - it may be that the quality produced by the outside supplier is higher than that which could be produced in house; this should be true if a supplier specialises in this element of the product or service.
· Capacity - the need for outside supply may be forced by the lack of internal capacity. On the other hand, the organisation will need to be convinced that external supplies can be guaranteed; and will not be 'cornered' by competitors when industry-wide demand increases.
· Labour - the impact on the organisation's own staff (who are 'stakeholders too) may be critical.
· Scheduling -The degree of control (as well as the proximity) of in-house production allows a much easier response to crises. Conversely, the use of outside suppliers demands tighter control of supplier deliveries (as is the case with JIT) and more progress chasing - or higher inventories.
· Skill - again, the supplier may have greater skills available. On the other hand, any organisation would be foolish to contract-out operations which are the key to its own competitive advantage.
· Cost - only when all the other factors have been satisfied does cost come into play (the reverse of what happens in most of such decisions). Unfortunately, in practice, it is not easy to compare costs on a like for like basis.
■ Which of these are most important in terms of your own make or buy decisions?
The basic make or buy decision is, therefore, a complex one. As a result it is often taken on the basis of principle (or dogma) rather than clear facts!
Indeed, the message overall is that EDI - which has to be based on much more that dogma - is a very specialised form of B2B, and managing it is very complex indeed so - before you get involved with it - you have some very serious planning to undertake!
Despite all these complications, EDI can make a tremendous impact on the way large organisations manage their business relationships. On the other hand, precisely because of these complications, it probably, as yet (and for some time to come), relates to less than 1% of all organisations. The communications may be standardised, but they are still very sophisticated - and the interfaces with their computer systems are even more sophisticated. Finally, the operations management systems that their computers run are even more complicated.
For EDI to work, the two organisations - for the essence of it is a bilateral relationship not a multilateral one - there has to be a common set of standards concerning the electronic interchange of data. Thus, in particular, the operational systems of a customer are integrated with those of the vendor. This is much more - in terms of the complexities involved - a problem of integrating production control systems (indeed up to the level of ERM, Enterprise Resource Management). The electronic communications element, which is typically direct (or by an extranet) rather than by Internet, is for once just a minor part of this. Thus, the benefits depend upon very sophisticated use of stock/production control in the organisations involved. To make them work you typically have to spend many millions of dollars getting these internal systems working before you can extend them outside the organisation.
Indeed, even though there is now agreement in the US for a (standards) system called EDIfact, this standardisation poses major limitations for most organisations. Not least, significant investments are needed, and maybe even a restructuring of the whole business. The result is a long start-up time. Because it is not simple Internet, but relies on dedicated lines, the communication costs may - for once - be quite expensive, and the overhead cost of running EDI type production control systems should not be neglected. But, I repeat, all these concern very sophisticated production control systems, with correspondingly valuable outcomes for those organisations which can afford them.
Clearly achievement of the full benefits of such EDI systems requires very close integration of the partners internal systems. On the other hand, in recent times an attempt has been made to bring in other vendors, who don't possess the same degree of sophistication - by offering a very simple form of link through the Internet.
In essence such systems are little more than extensions of e-mail, though in a more proscribed format, so that they may be more easily entered direct into the vendor's computer systems. Indeed Microsoft Outlook is often now used for such systems. In addition, organisations can use their own extranet to convey their own format of data. Finally, they can use outside suppliers, who host EDI type systems for a range of organisations. Thus Netscape Enterprise offers such a standardised system for exchanging data.
These may be less sophisticated systems, but the most important point is that they are much cheaper. The entry cost can be as little as one 25th of that of a specialised EDI solution. As a result, investment can rapidly be covered, by the cost savings, very fast indeed - with payback in weeks rather than months and years. Equally it can be implemented by small companies without the massive restructuring or cultural upheavals that might otherwise be needed.
As Internet based EDI tends to be even more standardised than the more sophisticated systems, it can also reduce switching costs. Traditional EDI systems have tended to be specific to one supply chain. This means that, when switching between suppliers, significant 'switching costs' may be involved. To a large extent this is obviated when a standardised Internet solutions is used.
It also means that EDI becomes just the tip of the iceberg, in terms of communications between the two organisations. The Internet - and web - connections between the two organisations will probably expand almost exponentially. This may result in problems of management control, but it does mean that the amount of information available to both sides is dramatically increased.
At the end of the day it is claimed that transaction costs are significantly reduced, but as you have seen - from all the above - that probably is the least of the benefits.
More recently a number of organisations, often the software suppliers involved, have produced what they describe as exchanges - in theory reflecting the idea of commodity exchanges. Thus, they offer to act as intermediaries, again using standardised approaches - though as these are vendors of quite sophisticated software, the standardised approaches can in turn be quite flexible and sophisticated in their own right. Using this sort of approach, the members of the exchange can interchange data for their own production purposes. On the other hand, the emphasis so far seems to be have been put on obtaining bids for supply, in a competitive process. This owes much more to auctions than it does to EDI and eBay is even now attempting to enter this business. Indeed the philosophy is almost the reverse of EDI. Thus, EDI is based upon considerable co-operation between the partners. This is needed for it to work at the operational level within these organisations. The exchanges, conversely, emphasise aggressive competition to lower prices. The core emphasis is on cost between the organisations. The exchanges may well suggest that - ideally - members should restrict the list to those organisations which have met the most stringent standards, but the at the end of the day price is almost all that matters. We should see the sophistication of these operations improving over the years, but there is a long way to go yet.
■ If you want to learn more, you should visit the web-sites of the main vendors - such as SAP?
(60) eBay is making strenuous attempts (through its German subsidiary) to break into the business exchanges market
http://www.marktplatz.ebay.de/uk/business exchange/
The Internet is an ideal way for vendors to obtain feedback from their customers. The easier you make this process, the more likely it is to happen. It is an essential part of building business relationships - as well as debugging potential and actual problems. It also is very easy way of providing self-help for customers, who can often solve their problems by searching a technical database without waiting for specialised staff from your organisation to assist them. And, for example as used by Dell, it can also offer an ideal vehicle for mass customisation. The customers can specify, and in effect create shop-floor orders, for their own products which are immediately passed to the factory floor for production. In the process customer profiles can also be created, which allow vendors to know much more about their customers' needs.
In this environment the particular emphasis will probably be on reducing costs, which is what drove Dell computers in the first instance. But it may also result in enhanced coverage, and in particular interactive marketing - as I described in the business-to-consumer markets, so I will not cover them further here. Except, that is, to emphasise that this is as much an information provision process as and actual order taking one. Most transactions probably will revolve around the search for information - and the price may be the last element to be asked for. So the whole range of information from product specifications through to delivery status, may well have to be provided to customers in this way.
The emergence of business to business communications, and in particular EDI, has often dramatically changed the power relationships between suppliers and purchasers. So, for the sake of completeness, I will now have a look at the various marketplaces which have already emerged, or are in the process of emerging. Thus, the first key factor which defines how the operation works is whether the process is orientated towards selling or buying. Thus, in the short-term, the main thrust may be from vendors trying to push their products - to make them more easily available to customers. This is what we have mainly seen, in business-to-consumer markets, in the form that Amazon has refined.
On the other hand, the shift in power has not all been in one direction, where a range of models have emerged:
The most common model is still that where the supplier controls the marketplace. In essence this looks very much like the normal distribution chain - though it here is in the form of an electronic marketplace. It is often a single level marketplace, with disintermediation. In other words the supplier sells direct to the end-user. As suggested above, this is very much the same as the business-to-consumer marketplaces we looked at earlier, especially those relating to the catalogue operations of the clicks and mortar companies. The classic example, yet again, is Dell, which reportedly does not distinguish between its sales of PCs to domestic consumers or to industrial conglomerates.
The essence of this is maintaining the relationship over time - through devices such as clubs. But many organisations, even those in the business to business marketplace, still look at it as a series of one-off transactions - and accordingly lose much of the benefit.
It also means that large organisations which place repeated orders face the cost of having to input each of these every time! To avoid this, profiles can be produced so that individual purchasers, often the managers and professionals at their desk in the customer company, can order standardised packages of goods - and can at the same time get an overall quantity discount. In this way, a staff member who needs supplies of stationery, for example, can open up a window on their PC and order direct from an authorised wholesaler. This means that the supplies can be strictly controlled to meet the company's standards (and agreed prices!).
One thing which it is often overlooked, is the amount of trust that organisations then place on their authorised vendors. If you are allowing these vendors direct access to your staff at their desks, you must trust them not to abuse the relationship. This means that a great deal of work must be done before such an agreement is made, and afterwards in the form maintaining the relationship.
As a result, a number of new infomediaries are being created which manage this interface for the buying organisations. Typically what is being handled is a minor transaction which will not be central to a company's business, but even them it might severely impact the business if it goes wrong. As a result, these intermediaries will claim that they can:
1. They're much more effective in searching for the vendor's needed, and in particular in terms of providing information about them.
2. They offer quality control, probably not over the product itself but certainly over the information and warranties to the provided with it.
3. Finally they will claim that they can be more professional in targeting the company's needs with potential vendors.
These extend the services, hinted at above, to provide a standardised trading platform which offers a credible information source for buyers and sellers - and in fact goes beyond this to be give expert advice for both of them. This category includes the gatekeepers, such as AOL, and ISP providers such as BT. The main activity at present revolves around search engines, finding commercial information for companies. Yahoo! and Altavista are examples of this, as well as other more sophisticated search engines which search out the best deals among suppliers - typically in terms of prices quoted.
The large purchasing organisations can also reverse the model, placing their own business out to tender. But more important, following the EDI model, they can create a marketplace which integrates their various suppliers. This can be wider than a single organisation. For example Ford Motor Company started such a marketplace. More importantly, a number of other motor manufacturers, most notably General Motors, have subsequently joined in as well. In this way quantity discounts can even be shared between competitors in the same industry - a very unexpected benefit of e-commerce.
■ Which of these marketplaces might be of use in your marketing activities, and how?
The idea here is that it is not buyer oriented or supplier oriented, but it is an overall integration to produce a virtual business. Here a business may consist of just a handful people sitting at their desks, in a very small head-office, bringing together suppliers and vendors around the world - to create products and services which the virtual business never sees, but from which it creams of a significant level of profit! These 'extraprise' organisations can be seen as a network of people, resources and ideas connected across the web or Internet.
They offer:
· Excellence - where each partner is excellent in its specific field, so that overall offering can be excellent in all respects
· Utilisation - from the other side of the equation, the partners own facilities and resources can be used to the full, with obvious profit implications.
· Opportunities - and in addition the synergistic combination can seek out new opportunities which are simply not available to the individual partners.
But it's not that easy in practice! Problems can still occur:
1. The availability of good, indeed almost perfect, information means that the conditions for a commodity market can easily be created - squeezing the partners' profits. In other words, the partners, despite the best intentions, may use the resulting information to squeeze the best deals out of each other - to neither side's real benefit.
2. Cannibalisation of the value chain may also occur, with partners seeking out the weak elements to incorporate into their own operations.
3. Finally the IT investment, demanded across the entire chain, may be very expensive if a tightly integrated network is to be created.
Perhaps the necessary trust is still in too short supply, for very few successes have been recorded in terms of genuinely virtual businesses of this type!
We will finish by looking at some aspects of e-commerce, covering knowledge services in particular, which presently do not feature as large markets - but which may come into their own over the next decade.
The most important of these are Consumer-To-Business (C2B) and especially Consumer-To-Consumer (C2C). At present the former is largely confined to auctions; and indeed to one company, eBay. In future, though, the biggest potential is likely to emerge from the latter, especially from C2C networking. With billions, perhaps trillions, of transactions taking place - through 'affinity networks' - between individuals, this has the largest volume potential of all. Its commercial potential will, though, be especially subject to the issues we looked at in the section on 'making money'!
Related to the C2C market will be the longer-term developments in the home, especially in the contexts of home-working at one extreme and new lifestyles at the other.
In both cases, the objective of this chapter is simply to bring these potential developments to your notice - so you will be aware of the potential, and especially the threats, which you may face you later in the decade.
KEY CONCEPTS
Affinity Group Hosts/Portals
C2C
Email Networking
Electronic Conferences
Life-Long Electronic Learning
Computer Aided Instruction (CAI)
Certification
Television & Books
Web Videos/Movies on Demand
Wired Houses
Teleworking
Self-Employment
Mobile Comms
Wideband
The only major offering currently available, or at least widely available, in the category of C2B is that of auctions. Of these eBay is by far the most dominant, though in Europe QXL now also claims a position - though it is not yet as financially secure.
From the point of view of marketing, auctions look very much like their traditional counterparts. In the main they are much like the Dutch auctions which have long ruled the flower markets in Amsterdam; and they do seem to generate significant amounts of usage. eBay claims to have nearly 10 million registered users, bidding for some 3 million items, and each user spends nearly 2 hours on-site every month, a lot more than Amazon's equally loyal clientele. Partly this is a function of cost - eBay charges 7.5% compared with over 25% for some offline auctioneers. The main difference is that, as yet, the traditional business controls imposed by auction houses (for example in vetting buyers and sellers) are largely missing. Thus, the biggest problem, which eBay admits to, is that of fraud - but it's only answer to this, with which it seems quite happy, is caveat emptor! From a business point of view the nice thing is, as eBay claims, once you build the software the whole thing runs itself. It is the sellers and buyers who do all the work - the home site just creams off the 7.5% commission.
It is important to note, however, that eBay now has wider ambitions - even aiming to add on a 'business exchange'! In the C2B sector it has a customer base which it might be able to leverage to gain the type of customer-based business from which Letsbuyit.com failed to make money.
■ At present the best way to learn about C2B is to visit the eBay web-site.
fig.(59) EBay's main business focuses on auctions of collectables
In many respects, this is as yet an untapped market - at least in commercial terms. As will see later there may be a considerable amount of potential for the means of unlocking this potential; though it has not yet been discovered, or at least exploited.
In particular, it is not yet clear how this marketplace might develop, though it should be obvious that the ultimate potential could be very large indeed. One of the things that will be needed, though, is a range of intermediaries who will host the various activities.
It is true that many of the activities will be bilateral, or even a multilateral, and organised by the individuals involved. The new eBay approach does not address this, though the AOL user groups might develop into something like this. But eventually it seems likely that there will be specialist organisations who will act as intermediaries in these types of transactions. Thus, they will host the communications, the exploration of potential, in the first place. They will then manage the exchange of information, for a price (both to be paid to the originator of the information, and to the intermediaries for their services). Finally, they will arrange for payments to take place in order for the information to be bought and any physical items, or services, to also be bought.
Having said all of that there is as yet - apart from the portals who would claim to be able to do anything you want - nothing which is currently designed to offer this sort of service. But, watch this space!
Currently, 'email' - memos in organisations and correspondence between individuals in the home sector - probably represents the major C2C use. Certainly in terms of numbers of users, if not volume of transactions, such person-to-person communication has the greatest penetration of all.
Indeed, it is fair to say that too much stress, and certainly too much hype, has been laid upon the e-commerce elements to be found on the Web. The reality probably is that the greatest impact has been achieved by development of the infrastructure which supports emails. Written communication has long been the backbone of business, and even of private communication. Email can be seen as the latest extension of this. As such, it's is the most important new form of human communication to emerge since the telephone, yet remarkably little attention has been paid to its new rules. So, the reality is that the greatest impact - so far - has come from such widespread use of emails - especially as a means of communication in the business environment - unadulterated by commercial pressures.
On the other hand, we are ill-prepared for it. Our education system still emphasizes the teaching of the three Rs, where in real life our pupils now have to go far beyond this to use the much more sophisticated technologies which the Internet and other electronic communications make available. It is true that the basis is still the word, at the moment printed or typed and soon verbal (with audio input starting to escalate), but a much wider range of communications routes are also now available
In this, almost trivial, context it is worth putting some effort into designing your e-mail formats - in a way similar to the that you design your business letterheads. On the other hand, very few of us bother to do this, but - for example - you can very easily incorporate far more, especially in your sign off lines, Not least these should contain your web site address, where your recipients can find out more about you, as well as your own Internet address. But even so, and perhaps just as important, it should also contain your telephone number (and preferably also your address). So many communications over the Internet fail for one reason or another and such traditional backup relieves an awful lot of frustrations on the part of people who can't get in touch with you when this happens. As I have said, this may seem trivial, but - with the growing flood of emails - such details may cumulatively create more impact than you advertising in the mass media! Perhaps as important, the recipients of your emails will judge you by this!
Receiving emails from customers you might also like to consider some techniques which can improve service. One, for emails directed at specific addresses on your site, may be to use an 'auto responder', which automatically sends out a detailed reply; for example enlarging on the information provided on the main website . This saves effort on your part and, more importantly, it speeds up the response to the customer. In any case, your should always send (again via an auto responder) an immediate confirmation of receipt and an indication that you are dealing with it. It is suggested that this should also contain the URL of the website which details FAQs (the answers to Frequently Asked Questions), so that the customer can see if their problem has already been solved - even before you reply formally.
■ The very practical exercise you can now undertake is quite simply to review your own email options - and 'design' the most effective sign-off lines. You can also look at using an auto-responder to provide immediate acknowledgement of messages received.
A particular form of email is an electronic computer conference, or bulletin board - sometimes also referred to as message boards, or discussion forums. These are addresses on which you can leave (pin) messages for other people to come and look at them: hence the concept of the bulletin board. These conferences have become much more sophisticated over time. They're very effective at sharing communications, not least because the sender of the message only has to send it to one site for it to be made available for large number of people.
So far I've been talking about what can be described as formal conferencing, though one very vital aspect of electronic conferencing, which has a life of its own, is the chat room - often, unlike most other Internet activities, in real time. There is no formal agenda, for these people just get together to chat - much as they might the cocktail party (if they still exist) - and gregarious people seem to like them, even if a frisson of sexuality is what powers at least some of them!
The technology is now becoming ever more sophisticated, extending - as mentioned above - to real-time audio communication (with whiteboards, which mean that while talking you can also draw diagrams which are transmitted across the conference), and in particular - more generally in the medium term - videoconferencing. At the moment the latter is fairly crude, limited by line speeds, but - as the DSL and cable modem systems become more widespread - use will improve dramatically. It is argued that, within ten years or so, very large screens, which occupy almost a whole wall, will be available. These could be plasma or liquid crystal, or just projected, but the point about them is that - especially if they employ three-dimensional techniques - it will look as if the person you're talking to is sharing the same room. When this happens videoconferencing, or just video-phoning, may escalate rapidly. It will add a new dimension to social contact. You will be able to regularly meet all your friends and family - even if they are on the other side of the world!
Accordingly, a growing aspect of such communications is that of the more sophisticated forms of audio- and visual-teleconferencing; which allow meetings to be personally 'attended' by participants from anywhere in the world. The technology is now in use by a number of organisations for their internal communications and it has now been reduced in price to such an extent that the long promised video-phone may soon become viable for even domestic use. Its (synchronous) use over the Internet, however, flies in the face of the (asynchronous) packet-switching approach this uses. Accordingly, it will require careful design, a suitable set of software (such as CU-SeeMe, which is the most widely used at present) and high bandwidth, before it becomes more generally viable. Even now, though, I do most of my radio interviews down and ISDN line without ever visiting the studio. I suspect that quite soon I will do the same for my television work!
The inevitable problem for person-to-person communication is, as it was with the telephone when it was first launched, that you need the person at the other end of the line also to have a video phone. In fact for any type of real-time communication you also need the person on the other end of the line to be there, even if it's just to tap messages into a keyboard! It's another of those technologies where there is a takeoff point, beyond which it is worthwhile having but before which you may have no one to talk to. One of the main advantages, perhaps, of ordinary emails - which we often forget about - is that they are asynchronous and you can leave them for recipients to pick them up at their convenience. You never get an engaged signal or have to rely on a dumb answering machine.
■ Using your existing marketing knowledge, and the e+marketing knowledge you have now acquired, review how the effectively various conferences you administer operate. How may they be improved?
fig.(21) AOL runs literally hundreds of conferences
This is a very speculative area, so the simple advice I will give is to keep your eyes and ears open. As yet there has been very little happening, but the potential is such that, maybe very soon, developments will occur. If you are to get on the bandwagon, when these do occur, you will have to recognise the symptoms which will proceed such developments. Unfortunately I can't even help you by telling you what those symptoms may be. This is the ultimate example where environmental scanning is essential!
To give you a few further suggestions, though:
Thus, I've already suggested that meeting the needs of the new lifestyles, and indeed being central to them, may be one of the big new markets on the Internet. Another one, in the short to medium term, which is almost guaranteed, is that of education.
Once more, though, you have to beware the hype. You will find that many educational providers, both public and private but especially the institutions that like to think they're at the leading edge of technology, will offer you computer - Internet -delivered courses. Unfortunately, the problem isn't just the computer technology - as governments are wont to suggest. As I have already said, that can do anything you want it to - and we in the Open University have spent literally tens of millions of dollars (perhaps even hundreds of millions) exploring this and developing solutions.
The real problem here is the technology of distance learning, something we at the Open University are well aware of - it is our livelihood. As yet we have not found a cost-effective means of making the best use of the interactive capabilities of computer education over the web or Internet. Our current material can be equally well delivered by the mailman, and such printed material is much cheaper to support. Even so, as an indication of the investment levels needed, it still costs the best part of one million dollars for each major course. We do use electronic communications for some parts of our business, including general communications and submissions of the student exercises. In particular, we make considerable use of electronic conferences to bring students together. Distance learning students often feel isolated, and giving them an electronic conference - so they can talk with fellow students - helps to ameliorate this. Paradoxically, though, the greatest advantage is that such computer conferences typically stimulates them to set up a self-help group in their local neighbourhood, where they go to meet face-to-face in the local bar. Indeed, one of the great counter-intuitive facts about electronic communication between individuals is that it works best if the individuals can - from time to time - actually meet face-to-face; rather than, as normally recommended, when they are so remote that they never meet!
The real problem is that the main providers have not yet managed to productively incorporate Computer-Based-Teaching (CBT) or, as it is often now called, Computer Aided Instruction (CAI) into their offerings. Thus, even in our own Open University material, what you typically get is large chunks of text which could be in any textbook (though in fact, even so, it is especially developed so that it is focused on the specific job in hand - which makes the education content more powerful). Between these slabs of text we insert activities, which the students complete, to consolidate what they just learnt.
We now increasingly use PC-based systems to also allow them to test themselves, usually on the basis of multiple choice questions, to see how much they know. We then provide a degree of feedback; explaining whether they are right or wrong and, if wrong, what the real answer was. Truly effective Computer-Aided-Instruction comes, though, when this feedback is used to manage the progress of the student. Thus, in theory at least, depending upon how well they have learned the lesson you may allow them to skip the next unit - because they already understand enough. Perhaps more likely, they may have learned it so badly that you have to return them to the beginning of the previous section. This all about managing the student's individual progress.
Some software for doing this is available, in crude form, but as yet it needs to be significantly enhanced. More important - and this is a killer - you have to put very much more effort into developing the material content it uses - typically providing at least three times as much (where you have to cater for all the alternative answers!) and in particular the interactions with the management system. This is where most systems currently are held up. CAI is not a cost-free solution!
Our own forecasts suggested that the people to get round this problem - and produce the most popular education programmes using technology very similar to that now available in the games market - would either be the IT multinationals (especially Microsoft) or the Hollywood studios. The logistics of it are very much like making a movie - and in fact the most expensive part is indeed making the moving pictures which illustrate the programme. In fact, to our surprise, this does not appear to have happened; yet.
In general, the first problem - and possibly the most insuperable in the shorter tem - for the individual and for the many small providers, will be the vast choice available. It will be difficult to trawl through the literally hundreds of thousands of offerings to find one which matches your individual needs - even with the new artificial intelligence agents - let alone find guaranteed quality. In the case of education it is not just your money you may waste but your time, and that is often much more valuable. So we're likely to see the emergence of various initiatives to host certification authorities. In the United Kingdom the government's eUniversity goes some way towards that, though it is taking much longer to set up than most people allowed for.
■ A personally useful exercise would be to trawl the Internet to see which providers of distance-learning in general, and of electronic delivered material in particular, might have offerings which would be of interest to you. More important in the context of this book, compare them - but not in terms of how pretty their web-sites are, but of how effectively they deliver the education they offer.
■ A good starting point is with my own Open University, which is a world-leader in distance-learning. You can find it at:
The ubiquitous PC may not remain unchallenged for ever. Thus, digitisation of television, which is growing rapidly and will be widespread within the next decade, will also make significant steps in terms of education - not least because of the hundreds of separate channels which may available. Some of these, such as Discovery, already verge on being education deliverers - and many more may enter this market. For example the BBC's Learning Zone is very much directed towards this. Indeed, it is arguable that television is already the main source of education amongst the mass of the population. You tend to think of it just as 'the box' sitting in the corner, maybe providing light entertainment, but you don't notice just how much information it provides you with - even if you only follow the soap operas. The most ignorant person in our present day probably knows more about the world as a whole than the best-educated person in Victorian times.
Until quite recently I thought that electronic books would not have a great impact. But I have had a rethink on this, since we're getting close to the time when devices the size of books, with screens that look very much like books and in many respects - apart from that lovely smell of new printing ink - will work just as well as printed books. The key thing about this is that, when this happens, you will be able to take an electronic book with you just as easily as you might have done previously a conventional one, and read it as easily on the train. But then we will also start to see the benefit of hyperlinking to other knowledge bases available. These will then become available, when you want them, from within that book (be it a novel or a reference book).
To give an indication of longer-term developments, I will explore something which is not at the moment in the mainstream for most managers or their organisations - that is the development of personalised computing in the home. In recent years this has been somewhat confused by the battle - not least in terminology - between the Internet and the superhighway. The concept of the Internet, at least in the business environment, was well understood. It was a surprisingly anarchical answer to one-to-one personal communication. The superhighway, on the other hand, was picked up by the television channels, especially in the United States. To put it at its crudest level, they saw it in terms they recognised - as being 1000 channel TV. This is at the opposite end of the spectrum to the one-to-one anarchy of the Internet. The split is also at the heart of AOL Time-Warner. AOL is Internet anarchy and Time Warner is 1000 channel superhighway. It will be interesting to see how, or even if, the resulting conglomerate prospers!
This split has somewhat bedevilled home computing, or rather the home superhighway. But the technology of the two, though not the philosophy of the two, has converged. The newest games stations have very sophisticated Internet capabilities built into them - and increasingly the digital televisions that are being bought have equally sophisticated communications facilities. So far they mainly may be used as a means of placing orders against a home shopping channel, but the technology is there.
Ultimately, though, the home communications element will grow. The Internet is potentially, for all of us, a way of creating the global village that Marshall McLuhan dreamed of decades ago. It really is as easy, and in particular as cheap, to talk through the Internet to someone on the other side the world as it is to do the same to someone on the next desk. I myself run one computer conference with something over 600 members whose participants include people from the depths of Siberia and the North Slope of Alaska as well as most of the developing nations. The interesting part is that when I am conversing with them I really don't know whether they're in a mud hut or a penthouse on Park Avenue.
As I have said, much of the technology has emerged already. You can obtain television pictures, not least from web cameras, and this even extends to video-conferencing on your own desktop PC. As yet the pictures from these webcams are quite crude but in the not too distant future, when high speed communication is available through all the stages of the communications link right to the office or the home, they will be as good as any you now see on the entertainment channels.
Equally the Internet communications facilities on digital televisions are already as comprehensive and sophisticated as those on the PC. The difference, then, is in the philosophy, behind the promotional strategies for each - and of providing the content. Thus the Internet for the office is very much driven by the user, and is focused on communications capabilities - one-to-one. The digital television though is very much, so far, seen as an access to the entertainment channels. You will no doubt see the two converge, but at the moment there is a distinct difference between them.
■ What impact will such video contact have, in terms of both your work and your private life?
But, as the technology converges - and as, at a slower rate, so do the philosophies - the computers themselves will become invisible. They will disappear into the fabric of the house. This will be particularly true where there is wireless technology, such as Bluetooth, enabling the whole house to be covered by just one server. Every device will then contain a (Bluetooth) chip so it can communicate with the server. This means that all the services within the home may then be easily controlled. It also means that you can be in communication with the rest the world wherever you are in the house - and even outside it, as you move through other Bluetooth domains.
One result will be that the preoccupation with the PC, and with all its related technology, will disappear. It will no longer even be seen. I like to give the analogy of the aristocracy in the older days. They had many servants, as we will now have many computers, but they never noticed them. They were just left to their own devices, to serve you when you needed them. Now you will, possibly literally, click your finger and your computer servant will do as you will!
■ What implications does this have in terms of the changes you will need to make to your own house?
The communications capabilities though will enable us to change our way of life. Some of us may decide to decamp to the hills of Nepal. It will be just as easy to locate your office there as it will in the middle of London. Even now some of my colleagues spend the summer in Tuscany, writing their books in that very pleasant environment. On the other hand the seductive concept of the 'electronic cottage' - with you working at your desk looking out into a beautiful forest glade - is unlikely to be a reality for most people. The view from your window will still be that of suburbia! But, some of us may instead choose to visit the hills of Nepal electronically - while sitting comfortably at home in that suburbia - saving ourselves all the hassle of long flights to those exotic destinations.
The ultimate outcome of the dramatic changes in communications may well be the we will spend more time working at home. I already spend most of my time working at home, although I live only half a mile away from the Open University where I also have an office. It's a pleasant life. But there are still problems. Paradoxically, the IT technology is not the main problem. These days, or very soon, most of us in the developed world will have a fibre-optic link pass our front door. Even in the Third World it is now possible for relatively simple equipment to send signals via satellite - even in the remotest part of Nepal. In fact, paradoxically, the real problem is the physical structure of our housing. At home that I am very fortunate in having many more office facilities that other teleworkers - including, in particular, an office which is 20 feet by 20 feet.
Realistically, for one person to work at home, you will need at least something which is the size of a double bedroom. Unfortunately the current norm for most workers is the three-bedroom house. So the problem is really how to find the equivalent of that double bedroom. The spare bedroom, even in four-bedroom house, really won't do. What is probably needed is the equivalent of the second bedroom in a five bedroom house! As you will appreciate, the difference in capital value of a five bedroom house, versus a three-bedroom one, is possibly an order of magnitude. Few people can afford to make this upgrade, and in any case it probably takes, in the UK at least, something like a century for the housing stock to turn over. So, even if, supported by our employers and government, we wanted to work at home it would take a number of decades before this was achievable. Incidentally government may well want us to do this, since cutting down on our travel to work would substantially reduce the increasingly heavy load on the transport infrastructure.
■ How would this change your life?
■ How would you need to change your home?
Incidentally the picture is a lot less clear about the supposed cost savings to be attributed to teleworking. It is generally true that the cost of space in the home is much less than that in the centre of the city, possibly to the tune of some thousands of dollars, but on the other side of the equation there are other support costs. As we have seen, the romantic idea that you can work on the kitchen table with the children playing around you just isn't true. Equally you will, as soon as you start to work at home for a significant period, realise just how much support is available to you in the office - you may even have to learn how to make your own coffee!
There is also a social price to play - in that homework can be very isolated, or at least can feel isolated. Homeworkers may have their family, though even they may prove more of a hindrance. But most teleworkers also they still will need a place in a central office. This means that it is much more realistic to expect, even if all the other problems are sorted out and space made available in the home, that they will probably work at home three days out of five; and the other two will be spent in the office 'socializing' or 'pressing the flash'.
In terms of physical space considerations, incidentally, the best guess at this stage is that the new boom industry will be that of converting double garages, or even conservatories, into home offices. So the big growth areas of the construction industry in recent history will have to go into reverse. On the other hand, it is reasonable to assume that, even if only part of the time is spent working at home, the family will then only need one car. As a result the double garage may be sufficiently empty to slot in a new (factory-built) pod - which is the new home office.
This is a rather different phenomena - though, maybe, linked to teleworking. The result may be that - even without teleworking - we will have a portfolio of jobs. Increasingly the barriers between companies in the outside world are dissolving. This development started with the move to re-engineering in the 1990s. That was largely a cynical move, by the large corporations, to shift costs out of the company itself. Its prime aim was, indeed, to reduce them - not least because there was pool of unemployed person willing to beat down prices. The boot is now on the other foot. We're moving to a significant skills shortage. This means that employers will become increasingly desperate to recruit personnel. The problem is that those displaced personnel are now very happy to work as contract workers, or part-time employees. They see many advantages, not least in the skills shortage they can set their own rates. This means that many individuals will start to sell their skills to different employers at the same time, so they may have a portfolio of jobs spread across a number companies. This may, over time, become quite a stable portfolio. They may still choose to mainly work for one employer, but even this may be as a freelance. The rest of their time may well be spent working for a range of employers - on one day a month contracts, or even on a contingency basis. The most interesting aspect, however, is that the group most likely to adopt this way of life will be the older workers - those aged 50 years or over. They have the financial reserves which make it possible, and increasingly subscribe to the idea that work should be something you enjoy, or at least find fulfilling! Although teleworking is not essential for this to happen, it will of course significantly enhance the process, and accelerate its introduction.
Although this book is largely about the concerns of management, it still worthwhile recording some of the other uses the Internet will be put to in the home.
As I said earlier, one of the aspects that Hollywood was expecting to emerge was movies on demand, or at least 1000 channel TV. No doubt something like this will eventually emerge, although the form it currently is taking is more like several hundred copies each of a few blockbusters, rather than 1000 different films. This is so that you can find one that will start within the next five minutes or so, for an impatient audience, rather than adding to your choice.
Also as a result of the increasing number of channels, which was already happening quite simply as a result of the penetration of cable channels in the United States, there are more and more specialist channels. Some of these have made a significant contribution to knowledge. Discovery Channel, for instance, is one which competes on its own terms with public service broadcasting.
fig.(21) AOL offers the link to movie channels
Again, not necessarily as result of the Internet but more a result of the proliferation of channels in general, the news services may well benefit. Already I quite happily sit glued to my television set watching the speeches of US presidents, as they deal with crises round world. And I watch these in real-time, as they are taking place in press conferences in Washington or Tokyo, or wherever the action is at.
There has been a lot of hype about mobile telecommunications. This, I suspect, derives from the very rapid growth of mobile telephones. We now all have to have at least one - so we are never out of touch with the world - rather than from e-commerce. When you think back, these mobile phones make a lot the sense - though that probably isn't why people buy them! Having just one fixed telephone in your house means that your access is limited to that. Being able to carry telephone with you everywhere is a major boon.
This is not, though, to say that Internet facilities will proliferate on such WAP phones in the same way. The court is still out on this; and those companies which paid such high prices in the auctions for the new wavelengths may find it difficult to recoup these costs!. There is only a limited amount of information that can be put onto the sort of small screen that we now carry in our shirt pocket. On the other hand, some form of mobile book or digital assistant, which has a larger screen and audio input, may be a very different proposition. So look for the expansion of mobile book - publishers should especially take note of that.
But many of the most dramatic uses of the Internet, especially those revolving around video communication, which will take off when the facilities are available, will depend upon the presence of a high-speed line. These are becoming available on many, if not most, telephone exchanges. The missing link is that between those exchanges and the home; the so-called 'local loop'. DSL or ADSL are protocols which enable existing telephone lines to take transmissions at speeds as high as 2 mbps.
This is sufficient to get fairly crude television pictures down the line, and these can be easily upgraded later by fibre optics, to ultimately produce the high-quality television pictures which will soon be required. The other access can be through cable modems. In this case your cable supplier simply allows you to tap into their coaxial network. This allows even faster transmissions speeds. Unfortunately these must be shared with the other users on your spur, which means that transmission speeds may be limited by their growing share of usage. The more users there are the slower the speed of the individual line. Again, though, replacing coaxial cable with fibre optics will remove this limitation.
So, by whatever means, the line into the office - and in particular the line into the home - can, and soon will, be upgraded to handle anything we might want in the foreseeable future. As I have already said will be the same for the computer equipment.
Overall, the emphasis will be on convergence and invisibility. In other words we will start to see, if that's right word, these services disappearing into the fabric of our homes, and of our lives. We will not worry about the technology, or how it gets to us. Televisions would have been seen as miraculous by our predecessors less than a century ago, yet now our main technical problem is how to handle the timer on our VCR. We take the technology, which delivers moving pictures from the moon to the corner of our living room, for granted. The Internet, and with it e-commerce, will soon fall into the same category.
■ Once again, think a while. How will these changes affect your working life and your private one?
It may seem as if my suggestion, at the beginning of the book, that 'e-commerce follows most of the marketing rules that have been established in conventional markets' may have been overtaken by all the differences listed in the 60,000 or so words you have read since! The truth is somewhere between the two extremes.
So, the first statement I must reiterate is that e-commerce marketing builds on that you will have learned for conventional markets. Your starting point, before you consider anything else, still must be traditional marketing theory and technique! The second, and the justification for the e+marketing of the book's title, is that the major part of e-commerce concerns organisations moving into this sector from the more traditional ones - where they will already be deploying a rich mix of marketing activities.
On the other hand, there are some significant differences - which you ignore at your peril.
The main difference has, though, little to do with the ICT technology; which is at best seen as an enabler, and soon will literally disappear into the fabric of our buildings! It is, instead, the recent recognition of the importance of Customer Relationship Management (CRM). The value of e-commerce, in this context, is that for the first time it allows the possibility of genuine one-to-one marketing - even in mass markets! So, the main lessons to be learned are those of (one-to-one) CRM - such as lifestyle and permission marketing.
But, in addition to the relationships with individual customers, we will also have to deal with the electronic communities to which they belong - and with which they communicate in ever more complex networks. Maintaining relations with all of these will demand a rich new mix of skills - not least in database management.
In terms of the specific elements of the marketing mix, the most important thought to remember is that much of what is described as e-commerce is in fact just one element of the overall marketing mix. The balance of all the elements in the mix is what matters!
Within the mix, however, the segmentation and positioning aspects are just as important - though here they may relate to segments of one individual! The marketing research associated with this may be much less effective, in terms of group averages, since the sampling frameworks are not yet available. But this does not matter where the information is available, instead, about the individual. Even so, branding may be even more important, where so much of the offering is otherwise intangible. Pricing should be on a premium basis, where the matching of individual requirements is central to activities and there is little opportunity to create any economies of scale, but in reality commodity pricing still rules.
To service all these new markets, a whole range of new providers are emerging - ranging from syndicators through ASPs to portals. But all of these will have to make their services easy to use - in terms of ease of navigation backed up by guaranteed content.
The most obvious lessons are to be learned in the e-Retail sector, and especially from direct marketing and catalogue selling. The rule of thumb lessons previously learned in this sector, from the techniques of direct mail to the management of clubs, are those that are most applicable to the new field of e-commerce - even though they have previously been overlooked by marketing academics.
The biggest problem for participating organisations, in all e-commerce sectors, is still how do you make money out of it? Advertising does not seem to be the way, for most organisations. Acting as (paid) interrnediaries in C2C is some way off. So, for the time being the best suggestion seems to be earning commissions or royalties for your services - but in a market where so much is still free this will be no easy matter!
Much of Business-To-Business (B2B) will follow much the same pattern as B2C, for most organisations. For a few, of the larger organisations, EDI will allow significant productivity gains - but the drivers here will still be those of operations management rather than of e-commerce.
Ultimately, the Customer-To-Customer (C2C) sector will be the most valuable, with affinity groups probably lying at the heart of marketing activities, but this sector still has a long way to go. In the medium term, selling lifestyles (or perhaps just managing them) will be important - but before that distance-education will probably become the largest industry in this sector.
Finally, the greatest impacts will come when the radical changes in society, such as teleworking, filter through. Then all our lives will become quite different. But that will take a few decades longer!
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