InformationWeek

At APL, part of that job means giving customers online access to company data that has been locked in internal legacy systems. Shipment booking and transaction processing applications written in Cobol 2 still chug along, but new Java and Visual Basic front-end systems allow customers to view the data from APL's HomePort Web portal. "Our IBM OS/390 mainframes look like servers on an IP network," says Liedtke. "Whatever we do at the transaction level, the customer has the same view--but with a different presentation that's customizable to them." Some customers may only need trans-Pacific shipping schedules, for example, while others only need arrival times, not departures.

As long as you're asking what business you're in, you might ask, "What business are we in that makes money?" Customer segmentation offers one means, using data mining to help identify your most profitable customers. But some companies have found riches by turning the data itself into a business. That's even more critical when your core business is turning from gold to tin due to shrinking margins, increased commoditization, and new competitors.

Take PCS Health Systems Inc. in Scottsdale, Ariz., a unit of Rite Aid Corp. and the world's largest processor of prescription drug payments. PCS helped pioneer that business, but its first-mover advantage didn't last. "Basic transaction processing became very low-margin and cutthroat," says Ben Barnes, general manager of global business-intelligence solutions at IBM, a PCS business partner. "In that business, you can only get so good, so fast, or so 24-by-7. Meanwhile, all this valuable information from the transactions was literally falling on the floor--on printout tape that the company put into a vault."

So PCS built one of the world's largest IBM data warehouses and sold the aggregated data first to health maintenance organizations to help them optimize their coverage plans, then to pharmaceutical manufacturers to help them analyze sales trends. Last year, PCS launched a Web site where the company's more than 50 million cardholders can securely check their prescription drug histories or authorize permission for their doctors to access that data to help in future treatment.

"PCS is still in the pure transaction business," says Barnes. "But now they've entered the information business by charging for the data they capture--and it's also a competitive differentiator to help sell their basic service."

The utility and energy industries are also trying to move away from commoditized businesses to information services. Natural gas pipeline provider Enron Corp. of Houston has moved into gas and electricity trading services and, most recently, into reselling broadband network capacity. Cinergy Corp. of Cincinnati is part-owner of a Web-based joint venture called The Cadence Network that helps national retail chains cut energy costs and another called Lattice Communications LLC that leases space on communications towers in the Midwest to wireless service providers. The Montana Power Co., a $1.4 billion utility in Butte, Mont., said in March that it will divest its energy businesses and take the name of Touch America, its telecom unit that operates a 12,000-mile fiber-optic network.

"Montana Power may be a pretty extreme example," says Mark Shirman, executive VP and CTO at Convergent Group, an E-business systems integrator for utilities and government. "But the point is that the Internet provides a flexible business environment for companies to get out of the lousy businesses and into the better ones. They're leveraging the fact that you're continually in front of the customer so you can sell them additional services."

Deregulation can force companies to re-evaluate their core assets and value propositions. That can mean bringing in new perspectives. Of TXU's top 30 senior executives, 18 have joined the company in the last four years, including CIO Liz Lavalley. Zureich, the president of the company's communication unit, spent most of his career at AT&T, much of it working on divestiture planning. "The power industry deregulation will make the AT&T divestiture look like a cakewalk," he says.

That's in part because Internet technology allows the delivery of so many different services to the utility's customer base. Through several acquisitions and in-house development, TXU Communications sells local calling, long distance, wireless, and Internet access services to both residential and business customers. On the drawing board are broadband access, application services for small-and midsize businesses, and MyHomeKey.com, a branded Web portal that is expected to launch this summer.

"Companies like AOL and Amazon.com spend billions on customer acquisition. The utilities already have them," Convergent's Shirman says. Customers using the MyHomeKey.com site can conduct a home energy audit, then evaluate heating and cooling products based on the results. They can purchase these appliances online and schedule installation, with confirmation E-mails sent to the supplier, installer, and customer. TXU has invested $12.5 million in MyHomeKey.com, combined with a matching stake from KeySpan Energy in the New York metropolitan area. KeySpan has similar plans for a branded portal.

TXU's move into the online home energy management business is innovative, but it's also defensive. The same deregulated freedom that allows TXU to enter new businesses allows new rivals to move in on its turf--with the Internet paving a path to the customer's home.

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