The Rise of the Electronic Community

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The Rise of the Electronic Community

The global computer network of the Internet is beginning to make radical changes in the way consumers conduct their economic, social, leisure and professional lives. Internet-based businesses are being launched for many consumer activities --from purchasing homes, cars and college educations to planning vacations and finding jobs. These "electronic communities" will redefine whole industries, channels of distribution and even the practice of marketing. In this issue of Index Insights, James Champy, Robert Buday and Nitin Nohria show managers how to capitalize on the enormous opportunities that electronic communities offer and how to deal with the threats they present. The key to success is understanding the concept of "consumer processes" and the fundamental ways on-line technology transforms them.

If Bill Gates has his way, home buyers will conduct through the Internet most --if not all --of the convoluted steps of purchasing a home. At the click of a mouse, the Microsoft CEO will let them see pictures of thousands of homes in hundreds of communities. He'll supply an electronic mortgage application that will communicate their financing needs to lenders around the world. He'll let them buy homeowners' insurance, find a moving service, line up inspections ; handle every step of the home-buying process that can be performed via a personal computer.

If Microsoft co-founder Paul Allen is successful, sports fans will indulge their every whim while sitting at their desks or couches. With a PC and an Internet c onnection, they can already get statistics on games in progress, talk to sports fans around the world and sign up for "fantasy" games. Eventually, they will be able to purchase tickets to games ; and even sample the view from a seat before they buy it.

If Bernard Hodes Advertising Inc. continues on its present course, job seekers will conduct every step of the employment process on-line, from getting the resume written to doing the job interview. And if magazine publisher Condé Nast extends its on-line service, consumers will handle every phase of the vacation-planning process electronically ; everything in preparation for the vacation itself.

These and other companies are developing on-line services, each focusing on a single consumer activity such as buying a car, purchasing a home or planning a vacation. Such "electronic communities" are forming around groups of consumers with a common interest. The technology of the Internet gives these people an unpreced ented means of interacting with each other, and with providers of goods and services, to achieve their goals.

The companies building electronic communities have begun to tap into the disruptive power of the Internet: its ability to transform the ways that consumers achieve their fundamental interests ; economic, leisure, social, professional and others. By design or by accident, these companies have begun to discover a whole new value chain made possible in cyberspace: the consumption process, or how consumers achieve their interests.

We have studied nearly two dozen pioneering electronic communities. Their experiences all point to the same inescapable conclusion: The power of a global, interactive computer network lies in transforming the means by which consumers satisfy their critical desires. It involves conceiving of a world in terms of consumer processes rather than producer processes. A consumer process is a collection of tasks or steps that people go through to achiev e a goal. The consumer process of buying a home, for example, includes visiting real estate agents, driving around neighborhoods, obtaining a mortgage and homeowners' insurance, and getting inspections. Redesigned for cyberspace, the home-buying process can be made dramatically more efficient and effective.

Electronic communities eventually will have a massive impact on every company that produces consumer goods and services;not just information services. They will become vast, new global marketplaces in which billions of dollars in products and services will be sold. They will change the nature of strategy, the definition of one's business, what it offers, against whom it competes and with whom it allies. These communities will redefine the structure of industries, which have been organized since the dawn of the Industrial Age by the production process, the flow of raw materials into finished products. And they will eliminate companies that no longer add value in an electronic marketplace that dire ctly links the producers of goods and services with end consumers.

Companies that remain in the picture, delivering through these new channels, will have entirely new performance standards to meet. These firms will see a profound shift of market power from producers to consumers. This shift began in the 1970s with the onset of global competition and customer choice, and it was accelerated in the 1980s by the quality and reengineering movements. Communities of individual consumers will begin to exert the kind of market power exercised by technology-empowered retailers like Wal-Mart and Target in the '80s and '90s.

Electronic communities are not new. In the early days of the Internet, academics, researchers and government employees used the computer network to form their own communities of interest. (See sidebar, "What is an Electronic Community?" Page 4.) Targeting smaller and smaller consumer segments is not new, either. Specialty publications, a ple thora of cable TV channels, mail-order catalogs, database marketing campaigns and other media have given companies an improved means of segmentation. In the early 1990s, however, the advent of the Internet's World Wide Web (the graphical portion of the Internet that makes it easier for unsophisticated users to navigate the complex computer network) and the pervasiveness of personal computers in the home have given corporations the unprecedented ability of mass customizing their offerings to the individual consumer.

The focus on consumer processes represents a natural evolution of another type: the next wave of reengineering. In the 1980s, managers discovered that PCs, local- and wide-area telecommunications networks, and other technologies enabled them to reorganize the work of the corporation far more efficiently and effectively. They could organize work not around functions like sales, marketing and finance but rather along end-to-end business processes such as order fulfillment, concept to market, and customer acquisition. The technology of the '90s now allows managers to rigorously examine the end-to- end tasks of their end customers. They can use the Internet to transform those tasks and to redesign consumer processes.

In this article, we describe a framework,the consumer process, for understanding the strategic implications of the Internet. We explain several ways that the Internet and related technologies fundamentally alter consumer processes and, therefore, transform how people accomplish their interests. We examine leading electronic communities that are revolutionizing the way consumers plan vacations, watch sports, find jobs and conduct other key aspects of their lives. We show how the new technology is already beginning to reshape industry structure, products and services, and the nature of competition. Finally, we offer practical steps to prepare for the significant opportunities and threats ahead.

New Ways to Fill Consumer Needs
Determining how the Internet wil l transform markets begins with an understanding of how consumers accomplish their interests, that is, the consumer process. A consumer process comprises the steps that a person goes through to acquire and to use a product or service that fulfills a fundamental need. Every consumer process varies by the type and number of steps, the cost and time of doing each task, and its complexity.

Yet all critical consumer processes are alike in that people have several fundamental needs in the acquisition and use of a product or service and that those needs can be addressed and enhanced by on-line technology.

1 Knowledge. Searching for relevent information to make sound decisions. This search includes discovering the alternatives, the prices at which products and services are offered, and the quality of those products and services. Consumers can now tap into a treasure chest of knowledge on-line. The advent of the Internet's World Wide Web in 1991 and consumer acceptance of such on-line se rvices as CompuServe, America Online and Prodigy have significantly eased access to and lowered the cost of using information. At any time, consumers can obtain specialized information (magazines such as Consumer Reports) and access to specialists of every type, e.g., lawyers, career counselors and financial advisers.

2 Interaction. Needing to communicate with a provider of goods and services. In complex, multiple-task consumer processes like finding a job, buying a house or locating a college for one's children, this has always been critical. The inability to provide interactivity has long limited the usefulness of the mass media in accomplishing consumer processes. The interactivity of the Internet turns the new medium into two-way or multiparty conversations.

3 Networking. Finding and talking to others with similar consumption needs or experiences. Earlier attempts at networking have included the buying cooperative, support groups and alumni associations. One of the early e lectronic forms of networking was the ham radio. In the world of global computer networks, networking takes on a whole new dimension because the constraints of time and geography vanish. In the early days of the Internet, it was the capability of networking that drove its rapid use among researchers, scientists and government officials.

4 Sensory experience. Using sensory input such as sight and sound to arrive at a consumption decision. Technol-ogies such as virtual reality are advancing to the point where people will be able to enjoy nearly full-sensory experiences on-line. Selling a home through an electronic medium depends in part on how well the technology can supplant the in-person visit. The more we can see the inside and outside of a house and its surrounding community, the more electronic browsing we can do, and the less traveling we need to do. Eventually, some electronic experiences will surpass real life; virtual reality technology, for instance, would let car buyers take a test d rive far beyond the dealer's neighborhood.

5 Ubiquity. Having the things you need at the time and place you need them rather than at the provider's convenience. The Internet and on-line technology are making accessible all sorts of information and services at convenient times for consumers. For example, sports fans no longer have to wait for tomorrow's paper to get the box scores on tonight's game. Having access from one's home to a global computing network greatly accelerates a trend in which information technology has been improving consumer access for years, as with automatic teller machines and phone banking.

6 Aggregation. Bringing together a number of required goods and services in a consumer process. When city dwellers in the United States began their exodus to the suburbs in the 1950s, they at first found the process of shopping a major inconvenience: The stores weren't located near each other as they had been downtown. In response, real estate developers constructed l arge suburban malls, achieving a form of aggregation. Similarly, the builders of electronic communities are aggregating products and services that address each step of a consumer process. For instance, both Microsoft and the National Association of Realtors have electronic communities aimed at letting home buyers conduct this process on-line. Until the advent of the Internet, the products and services that addressed each step of a consumer process couldn't be delivered practically or cost effectively to the home of a consumer. This, then, is the cyberspace equivalent of one-stop shopping. Unlike the shopping mall, however, there are no space limits on-line.

7 Customization. Tailoring products to the individual's need rather than creating them to be one-size-fits-all. It's the difference between waiting for the TV program that broadcasts home sale listings, and then waiting for a suitable home to pop up, and being able to find a home on the National Associa tion of Realtors' home-buying electronic community, where home shoppers can specify 45 criteria, from the number of fireplaces to the size of the garage. Consumer processes that pose great "matching" problems obtaining a difficult-to-find good or service that meets a customer's particular needs can benefit dramatically by the computational power of an electronic community.
These consumer needs are often intertwined and, therefore, difficult to separate. By looking at them separately and in combination, however, one can begin to analyze the process deficiencies from the consumer's point of view. After mapping out all the tasks in the consumer process as it exists today, the next step is to understand how the Internet and on-line technology can enhance the seven fundamental consumer needs.

Consumer processes that can be enhanced along multiple needs are some of the best candidates for an on-line world. Activities that are fragmented, require specialized knowledge, need personalization, benefit from firsthand experience and demand anytime, anywhere availability stand to gain the most from the new technology.

The following three electronic communities travel planning, sports and employment, illustrate how the Internet and on-line technology can address these needs and, therefore, transform a consumer process.

A New Itinerary for the Vacation-Planning Process
The travel industry is a $170 billion business in North America and Europe alone. For consumers, the process of planning a vacation and making arrangements can be daunting.

A whole industry has arisen to handle aspects of this fragmented, time-consuming, complex process. The providers of travel-related services include industries that transport, house and feed travelers (airlines, cruise lines, hotels, restaurants); businesses that make reservations (travel agents); companies that organize and run vacations (tour operators); and organizations that advise consumers on destinations (travel agencies, t ourist bureaus and media such as magazines, newspapers, books and TV).

Each segment competes for consumers' attention, but none handles all aspects of the vacation process,i.e., the aggregation problem well. The knowledge capability may be even more lacking. Travel providers are known for giving biased information to consumers: Their advertisements and tour packages are designed to sell their core offerings, be they airline seats or hotel space. Airlines don't generally advise tourists to take trains; hotels don't tell people where to camp. Travel agencies, although once removed from the ultimate vacation providers, generate their fees from those providers and thus are motivated to push that which generates the highest fees. Magazines, newspapers and travel guidebooks fill the need for less-biased travel information but they don't book reservations.

Enter Condé Nast , publisher of one of the industry's most respected magazines, the Cond é Nast Traveler. In the early 1990s, the magazine's parent company, Advance Publications Inc., began exploring the on- line media. Condé Nast decided its magazines for travel and cooking were the best launching pads to enter the world of electronic communities.

The electronic community it established in 1995 on the World Wide Web is transforming the vacation-planning proc-ess. Via their PCs, travelers can roam hundreds of destinations and lodging establishments in minutes, talk to other travelers about the reputations of these places and get important travel news before departing. In the near future, they will even be able to book reservations all without the help of travel agents.

By taking advantage of the properties of electronic technology and its media assets, Condé Nast is greatly improving the quality, speed and convenience of vacation planning. One of the most difficult aspects of vacation- planning is deciding where to go. The community helps travelers at the outset to define and customize their plans by prompting them to indicate the experience they desire (e.g., "romantic") and the amount they want to spend. By offering at the click of a mouse access to write-ups and photographs of more than 250 locations around the world, the community also helps consumers become more knowledgeable than they could otherwise become by reading any single magazine or book or by visiting any single travel agency. (Condé Nast also has access to information from its parent company's Fodor travel books.)

To keep track of world events such as terrorist attacks, political upheavals and weather patterns that can derail the best-laid vacation plans, Condé Nast also has a daily news service. (Its parent company also owns a major newspaper chain.) The most heavily used part of the community, it provides up-to-date news that travelers can peruse before they embark. Perhaps most important, the service allows vacationers to network with each other and to compare note s on destinations and accommodations.

When Condé Nast connects to a travel industry reservation system, which it plans to do this year, its electronic community will have aggregated and addressed the critical steps in the consumer process of vacation planning. In this redesigned consumer process, entities such as travel agents that intermediate between ultimate consumers and ultimate producers can be displaced ; as can other intermediaries, depending on whether Condé Nast capitalizes on the networking and interactivity needs of travelers. Because travelers can talk to one another, Condé Nast could play tour organizer by creating electronic affinity groups. It could, for instance, have a bulletin board for all Civil War history buffs who like bicycling and then let members electronically organize their own Virginia biking tour.

Condé Nast's service also offers ubiquity, a critical need after a vacation is planned. While on vacation, a traveler with a laptop compu ter can dial into the service, using it to get up-to-date news and make other "mid-course corrections" in his or her vacation.

While Condé Nast's printed publication is a tiny business relative to other segments of the travel industry, the company brings much power to the world of electronic communities. It is recognized as being excellent at the front end of this consumer process. Its magazine is highly regarded in helping travelers decide on destinations to pursue. In the electronic realm, it can intercept consumers at the first stage of the process.

Condé Nast is not alone, however, in eyeing the on-line travel market. Microsoft, American Airlines, United Airlines and others are planning or are already operating similar on-line travel services. American Airlines' Internet service, Travelocity, already lets travelers book reservations.

A New View for the Spectator Sports Process
The consumer process of sports enthusiasts includes getting the re sults of games, watching broadcasts, attending games, talking to other fans and betting. In the non-electronic world, different media and means cater to those needs. Television news and newspaper sports sections announce results; live broadcasts are the preserve of TV and radio; and getting tickets to games is done through box offices and ticket agencies. Given the thirst for continual information and the size and attractive spending demographics of the audience ; the consumer process of sports fans is ripe for an electronic community.

That's the way Starwave saw it. The Bellevue, Washington, brainchild of Microsoft billionaire co-founder Paul Allen focuses on consumer processes related to sports, entertainment, outdoor activities and parenting.

In November 1994, Starwave launched the first of four electronic communities, a service for sports fans. Allen teamed with cable sports broadcaster ESPN, and the following April ESPNet SportsZone made i ts debut on the World Wide Web. Fan interest in the community has skyrocketed since. SportsZone has become one of the most popular places on the Internet. Advertising dollars are in the millions. A subscription service priced at $4.95 a month and offering more extensive content (such as video highlights and a wider range of columnists) has 140,000 paying customers, according to one industry estimate. Starwave predicts membership will surpass the subscription base of Sports Illustrated (3.1 million) by 1998.

What is the key to the explosive growth of this service? The electronic community had surpassed all other media in the key dimensions for sports fans: knowledge, networking and interaction. In the area of knowledge, ESPNet SportsZone is a sports fan's dream. It provides game accounts, scores and statistics for 40 sports worldwide, updated continuously. (Allen also owns a major sports statistics provider.) A fan, for example, can get a baseball player's entire batting history and numbers on how he hits on rainy Tuesdays against certain pitchers. The volume of statistics, updated daily, can't be matched by print or broadcast media. In the area of networking, fans can engage each other in organized discussion groups and even "fantasy" games, choosing teams and then playing each other. And in interaction, the service lets fans talk back to the community's host through such venues as polls and on-line interviews with leading sports figures.

Starwave's Allen possesses the assets and relationships to improve aggregation as well ; that is, addressing many steps in a consumer process. In a precursor to a future in which the community carries broadcasts, SportsZone last September aired the first live radio broadcast of a baseball game over the Internet. Significantly, Allen also owns 80% of TicketMaster, the nation's largest ticketing agency, which holds exclusive rights at many stadiums and arenas. One can imagine that in due time, an ESPNet SportsZone user will be able to go on-line to che ck the night's baseball scores and to buy tickets there and then. In fact, TicketMaster is working on a computer system that will let ticket buyers view a seating chart and then click on seats to try out the view from that part of the stadium.

New Recruits for the Employment Process
There is perhaps no more critical, fragmented and convoluted a process for consumers than looking for a job. The industry comprises companies that perform executive searches, placements and recruiting; media that communicate job openings; government and educational institutions that publish openings and help place job seekers; and career counseling, resume writing and other services that enhance a job seeker's chances of getting the right job. This is a process that suffers from lack of aggregation (it's highly fragmented and time-consuming), lack of knowledge (many job seekers are blind to new career opportunities) and lack of customization (it's difficult to find the right company, job and culture).

A number of companies have targeted some or all of the job-seeking process for an on-line world. Two companies in particular, Bernard Hodes Advertising and Mainstream Online, illustrate how the industry is being reshaped around the consumer process of finding a job ; and away from the internal processes of separate companies focused on each step of the employment process. Bernard Hodes provides a vivid example of how a firm can totally redefine its business when it organizes itself away from its old producer process and instead around a consumer process.

Bernard Hodes is the nation's largest ad agency specializing in recruitment ads. The firm, a $200 million unit of the global communications company the Omnicom Group, used to think its business was creating effective recruitment ads for its clients and placing them in newspapers around the country. That was until four years ago, when Hodes' Palo Alto, California, office began investigating the world of electronic employment searches. The company initially discussed with commercial on-line services such as Prodigy a way to distribute its clients' job postings. The financial arrangement, however, wasn't attractive to Hodes. In November 1993, executives from Hodes' Palo Alto office got wind of the advent of the World Wide Web. They quickly built a Web site called CareerMosaic . At first it was the electronic equivalent of a recruitment brochure, according to Bruce Moore, vice president of systems and planning of CareerMosaic.

After adapting the ads and brochures it designs for high-tech companies for electronic placement on the Internet, Hodes soon realized that its Internet site could do more than just show job seekers the electronic versions of paper brochures: It could list job openings, collect resumes on-line and match them with openings. More than 400,000 job seekers each month peruse CareerMosaic, which contains openings from around the world. The initial handful of participating employers has t urned into more than 200, including AT&T, Dun & Bradstreet, Microsoft, Chemical Bank, Dell Computer and Arizona Public Service Co.

CareerMosaic is, in effect, reshaping the job-finding process. In its electronic community, it has subsumed the tasks of the newspaper (publishing want ads, which in 1991 was a $3 billion business in the United States) and the employment agency (matching people to jobs, a $25 billion market in 1993). By combining the steps in the job-search process, it is enhancing aggregation. By providing links to career advice and company information, it is improving knowledge. By matching skills against job openings, it is enhancing customization ; putting the right people in the right jobs.

Mainstream Online (MOL) , a two-year-old unit of a New York-based outplacement and career consultant, is focusing on the early stages of the job- seeking process. MOL ; based in Kirkland, Washington ; formed an alliance with Microsoft to be the aggr egator of a range of employment services. The company's on-line career center features content from more than 50 companies that provide career advice, industry and corporate information, resume writing advice and other services. (MOL has other communities focused on the consumer processes of employers and entrepreneurs.)

MOL's thrust is improving aggregation and knowledge ; particularly at the beginning of many people's job-search process, the identification of a new career. Microsoft's vision of MOL's employment community is to be a one-stop shop "where job seekers have the best and brightest of services available," says Dan Cahn, chief operating officer of MOL.

The Strategic Choices for Managers
These examples provide powerful illustrations of how the new technology is altering the fundamental ways consumers achieve their interests ; as well as how it changes the nature of one's business. Through its electronic community, Condé Nast becomes a travel agent and p ossibly a tour operator, in addition to being a publisher. Paul Allen has already become a newspaper sports section, ticketing agency and pollster. If he gets broadcasting rights to professional games, and if telecommunications advances permit him to transmit full-motion video, his Starwave firm could become another broadcaster. (This must also have been factored into his alliance with ESPN, which already owns the television rights to many games.) With CareerMosaic, Bernard Hodes has ventured far outside the ad agency business. It is an on-line employment agency with particular strength in helping companies communicate effectively to potential employees on-line and off- line.

Mastering the new markets of cyberspace demands totally new ways of looking at customers and how to increase value for them, at the structure of industries and competition, and at one's place in the emerging value chains defined by consumer processes. Managers will have two sets of decisions to prepare for this new electronic mar ketplace: deciding where to play and how quickly to cannibalize ; or even kill ; the existing business. There are three broad sets of opportunities.

Developing the technology infrastructure. Building the technologies and the networks for electronic communities is already providing significant opportunities to technology firms. In fact, the Wall Street darlings in these early years have been infrastructure players like Netscape (providing access to communities on the Web) and Sun Microsystems (providing the computer programming languages and hardware for communities and other Web sites). Other opportunities lie in developing the technologies that will be linked to or operated through the network. For example, to improve medical service, doctors are beginning to use the Internet to transmit X-rays to specialists anywhere and anytime. Doing so, however, requires advances in X-ray transmission and viewing technology.

Sticking to one's product niche but redefining the performance standards. Letting someone else build the electronic community while becoming superb in delivering one's product is also a viable strategy ; as long as the product is still needed in the redesigned consumer process. The tasks of the newspaper in collecting and printing want ads, home listings and job postings can be subsumed by others in an on-line world. The task of providing financing to home buyers can't be eliminated or subsumed by others; no matter how well the home-buying process is redesigned, mortgage lenders (as well as home insurers and inspectors) will always be critical in an electronic home-buying market. Electronic communities will become a powerful new marketing and distribution channel for vendors of consumer products and services. Such communities will greatly reduce many selling costs, open up vast new markets and accelerate marketing processes. (See sidebar, "The Dynamic Electronic Market-place: New Rules for Getting to the Consumer," Page 12.) Vendors selling through these new channels, though, will face heightened competition and consumer expectations. Competition will grow exponentially in marketplaces where consumers are empowered by knowledge and can easily find alternatives. The degree to which a community fosters networking ; the ability of consumers to talk to one another ; will provide another big incentive for vendors to improve their offerings. Managers will have to ratchet up their performance improvement standards in cost, time and quality. For many companies, electronic communities will be a dynamic, powerful, yet unforgiving marketplace.

Becoming the community developer. Over the next 10 years, big money will be spent and big battles will be waged by corporate titans in media, financial, consumer services, consumer products, retailing, technology and other industries to build the new marketplaces of electronic communities. The big winners will be first movers that pick their niches carefully, redesign con sumer processes effectively and bring core assets to the community. Many failed attempts will have targeted consumer processes that weren't broken ; or weren't broken enough to greatly benefit from an electronic community. The most attractive consumer processes are those in which several of the seven consumer needs can be improved greatly.

After careful analysis of the right electronic communities to pursue, community developers must redesign the consumer process, not just automate the way it flows in the physical world. As with reengineering the business processes of a company, redesigning the consumer processes for an electronic community involves taking out time, costs, errors and hand-offs wherever possible. The best real estate agents know to begin the search for a home with a trip to the bank to determine what their customers can afford. An electronic home-buying community might begin by having consumers fill out an electronic mortgage application, which then would be submitted electronically to all lenders in this virtual community. This would save considerable time and frustration when consumers find their dream home isn't one they can afford.

Redesigning a consumer process effectively also requires addressing every step that can be addressed on-line. If Bill Gates' electronic home- buying community aggregates all the services necessary to complete the transaction ; the home listings, mortgage, insurance, inspectors and so on ; and the community built by the National Association of Realtors provides only electronic home listings, Gates has a major advantage. Gates will have won the battle for "breadth" ; addressing more steps in a consumer process.

The dimension of "depth" is just as important. Depth refers to the effectiveness of an electronic community to address any one step in the new consumer process. In any consumer process, some steps are far more important than others. The builder of the employment electronic community that has the g reatest inventory of jobs and best matches skills to jobs will gain the most consumer satisfaction. The most successful electronic community developers will bring core (and sometimes proprietary) assets to the most critical steps in the redesigned consumer process.

The National Association of Realtors' electronic community has a big advantage going in: Its realty members have 90% of the homes listed in the United States. Gates and other home-buying communities must find a way to quickly build a large inventory of home listings. Paul Allen's TicketMaster, sports statistics company and alliance with ESPN are core assets in the sports community. His competitors in the on-line sports world ; Time Warner (owner of the largest sports magazine, Sports Illustrated), sports TV broadcasters and newspapers ; lack the ticketing machine. In a world of electronic communities, the framework to use for mergers, acquisitions and alliances is the redesigned consumer process.

The Rise of the Electronic Com munity Developer
The reconfiguration and digitization of consumer processes will create enormous wealth-creating opportunities for the fastest, boldest and best capitalized of companies: those that first and most effectively redesign consumer processes for an electronic world. The most successful developers of electronic communities will wind up building huge businesses ; ones through which billions of dollars of goods and services are marketed and, in some cases, delivered. While they will not necessarily have to handle physical distribution of any product sold through the community, they will become big-time brokers, collecting a toll from anyone who sells through the service.

From the experiences of the early electronic communities in business-to-business markets, we know that such services are major opportunities. American Airlines' Sabre Group, which processes 44% of U.S. travel agent bookings, is a $1.5 billion business with operating margins of 24% in 1994 ; many times those of th e airline itself. Bloomberg's 15-year-old electronic community for financial traders is a $600 million business whose market capitalization approaches that of century-old Dow Jones & Co.

The early signs indicate that some of the biggest players in consumer electronic communities will come from outside their targeted industries, particularly technologically sophisticated firms like Microsoft and Starwave. The most lucrative communities will be built around consumer processes that are the most critical, costly, fragmented, broken and time- consuming. Thus, we see major opportunities in health care, employment, and home and car repair, among many areas.

Those who choose to develop electronic communities may be confronted with the dilemma of having to cannibalize their existing businesses. The newspaper business illustrates this issue most dramatically. To understand the impact of electronic communities on its business, the paper would analyze its readers' consumer processes. What are readers of classified ads trying to accomplish when they read this section? They are attempting to find homes, cars and jobs. Are there many steps other than reading the newspaper that job seekers must take to accomplish their interests? Clearly, the job-seeking process would benefit from aggregation. Do job seekers need specialized information at certain steps of the process? If they do, there's a knowledge problem.

In going through this type of analysis , newspapers will see that they must build electronic communities in employment, home buying and used cars to at least protect their classified advertising business ; which can represent one-third of total revenue. In doing so, they will take on many of the duties of recruiters, real estate agents and used- car dealers ; thus potentially putting their business relationships with these entities at risk. In the long term, however, newspapers have no choice but to create electronic communities or to ally with community developers if they wan t to protect their classified ad revenue ; particularly as other players such as Bernard Hodes, Microsoft and the real estate agents association dramatically improve the way people find jobs, buy cars and purchase homes.

Many other businesses will face the same stark choice ; either to make their existing products obsolete through the development of on-line communities or to watch as other entities do it for them. The time to explore the options is now. The number of Internet users worldwide is projected to soar from an estimated 10 million in 1995 to 170 million by 2000, according to a recent study by Morgan Stanley & Co. Well-capitalized companies such as Microsoft are moving quickly to stake out territory in consumer markets. And technological breakthroughs in such areas as communications bandwidth are just over the horizon. The ability for consumers to have a nearly full-sensory experience on-line promises to transform critical consumer processes like finding work, buying cars and homes, and others that depend on seeing and experiencing.

In light of these developments, executives and their companies have three imperatives: 1) to move into action by rapidly exploring this powerful new channel, 2) to be ready to cannibalize or redefine their products and services and 3) to change their market orientation from producer to consumption processes. This applies to every organization whose products and services will touch the consumer processes redefined by the digital world.

While most of today's electronic communities involve information- intensive processes (and processes whose output is information), the longer- term effects of the consumer process revolution will be much more pervasive. Eventually, electronic communities will redefine the shape and delivery of all consumer goods and services. Everyone will have to reorient around consumer processes.

See related sidebar "In Electronic Communities, Marketplace Power Shifts to Consumers"

Copyright 1996 CSC Index, Inc. All rights reserved. James Champy is chairman and chief executive officer of CSC Index. He is the author of Reengineering Management: The Mandate for New Leadership and co-author of Reengineering the Corporation: A Manifesto for Business Revolution. Robert Buday is a principal of CSC Index. For the last year he has been researching electronic communities and new media. Nitin Nohria is an associate professor at the Harvard Business School and co-author of the Harvard Business Review article "What Ever Happened to the Take-Charge Manager?" Champy and Nohria recently co-edited the book Fast Forward: The Best Ideas on Managing Business Change (Harvard Business School Press). Errol Yudelman, Mark Bamford, Robert Morison, Linda Peters, Eric Marcus and Ryan Jesser of CSC Index also contributed to this article.

InformationWeek http://techweb.cmp.com/iw

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