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January 4, 1999

Web Commerce
E-Business Work Starts

Setting up a Web commerce site or intranet was just the beginning; now comes the heavy lifting

By Clinton Wilder

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f 1998 was the year of Electronic Business Hype, 1999 may be remembered as the year of Electronic Business Hard Work.

Virtually every company now has a Web site; most have intranets, and a growing number are doing business with customers or suppliers via extranets. But most still haven't fully integrated their legacy systems and business processes with online operations. That will change dramatically this year.

"Web-to-ERP integration, fulfillment, building the right linkages--most of that heavy lifting is still to come," says Allen Bonde, director of advisory services for the Extraprise Group, an E-business consulting firm. "The media have paid a lot of attention to a relatively small number of companies doing big things in E-commerce, but it's not having that much of an IT spending impact in most companies."

Indeed, only 9% of the average IT budget is slated for E-business or Internet projects in 1999, according to an InformationWeek Research survey of 300 IT executives. Only 7% of respondents rate E-commerce software as their single most strategic investment this year, well behind the big two: year 2000 conversion and testing (19%) and enterprise resource planning implementation (11%).

But factor in Web development tools or products (9%), Web- and intranet-to-legacy tools (8%), virtual private networking (6%), Web server software (4%), and extranets/supply chains (4%), and 38% of IT managers say that E-business, in one form or another, will be their most strategic spending area this year.

The fact that such spending is so fragmented points up a key characteristic of E-business: It's hard to get your hands around. For example, budgets usually have very different areas for buying online transaction server software from the likes of Open Market or InterWorld; for hiring a networking consultant to optimize the performance of Cisco IP routers; and for engaging an Internet design firm to spruce up a Web site. Yet all are critically important to doing E-business. Companies then have to worry about training supply-chain partners on how to use their extranet, advertising their Web presence and capabilities, and upgrading their server capacity.

All of this takes time, people, and money. And while year 2000 and ERP may occupy center stage, many in IT say E-business will begin to draw away attention and dollars as 1999 rolls on.

"After year 2000 gets solved, this is going to take off like a rocket," says Cathy Hotka, VP of IT for the National Retail Federation, the nation's largest retail industry trade association, in Washington. "And the focus will be more on business-to-business. That's where the efficiencies will be found and the most significant process improvements will be made."

E-business is expected to be a major focus at next month's meeting of the NRF's IT Council, a group of IT executives from 40 of the country's largest retailers. "I'll be very surprised if that doesn't result in a major industry initiative, possibly an effort to standardize extranets," Hotka says. "What level of resources [to be devoted] will depend on the unpredictable factors of Y2K, but the amount of energy and money is going to be huge."

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Web Plans
Few in other industries dispute that assertion. According to the InformationWeek Research survey, E-business projects planned for 1999 include deployment of Web development tools (cited by 86%), Web server software (82%), E-commerce software (63%), and Web- and intranet-to-legacy tools (60%). Only 30% overall (but 43% of companies with more than $1 billion in revenue) say they do commerce on the Web today; 39% (55% of large companies) say they have an extranet or Internet-based supply chain.

Companies that moved out in front on E-commerce are finding that their success begets more spending. The Internet FYI extranet of Toshiba America's electronic- imaging division, launched 18 months ago, is now used by 1,200 employees of 325 U.S. fax machine and copier dealers and 23 Latin American distributors, as well as by hundreds of users within Toshiba.

"It's changing our whole business model," says Lisa Richard, the unit's VP of strategic business planning. "Information that used to take time to provide, like a dealer's entire sales history for the past two years, has become so instantaneous that it has set a whole different expectation level. Once you set that standard, you better keep it up because users just get hungrier and hungrier."

The Toshiba unit has the supporting infrastructure pretty much in place: a Digital Alpha server running an Oracle database, which exchanges files with a manufacturing application on an IBM AS/400. The Web front end processes the dealers' orders, while the AS/400 allocates and updates inventory, sends the orders to the warehouse to be fulfilled, and generates the invoice.

Among the nearly 50 additions scheduled for 1999 are online records of commissions for Toshiba sales reps, an online catalog of collateral marketing materials for dealers to order, and a link to Toshiba's financial services arm to enable online leasing applications. "We used to spend heavily on AS/400 application development, but now the focus is almost entirely on applications that directly touch the user," says Richard. "That is a huge shift in investment."

In August 1997, Toshiba had the only dealer extranet in its industry. But it's not alone anymore. "We were first. You would think that was enough," jokes Richard. "Customers now expect that we will continue to make all kinds of information available to them." And that points up what will probably be the biggest driver of E-business spending in 1999: competitive pressure.

"A company that has a more streamlined process for customers or suppliers to access their inventory data has a competitive advantage over the company that still has to warehouse tons of stuff," says Jim Balderston, an analyst with Zona Research. "That gets management's attention, and when that happens, IT will get pulled off of a lot of other projects to 'make it so.' It's easy to say you can't focus on this because of Y2K, but if people wait, they may find themselves behind in the race."

Because of that potential squeeze on internal resources, Balderston predicts many companies will turn to outsourcing--whether to Internet service providers for Web hosting and development or to full-blown integrators. But that means hefty spending, too.

High Priority
Apparel maker Esprit de Corp. in San Francisco began selling clothing on the Web less than three months ago and doesn't yet have an intranet, but CIO Janet Damen calls E-business "one of our higher priorities for new projects" in 1999. Much of that will come on the supply-chain side: expanding Esprit's extranet-based order-processing capabilities for retailers, and sharing more information online with transportation companies and suppliers.

E-business "is where all the opportunities for competitive advantage will be," says Damen. "We need to be in a position to capitalize."

As with just about everything in IT this year, year 2000 preparedness is the wild card in determining how much will get spent on E-business. But while year 2000 compliance will be needed to keep businesses running, ramping up E-business will be just as necessary to a company's long-term survival.

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