Ebusiness still suffering from growing pains

Just as most couples survive their initial rows, so ebusiness and its users are patching up their differences and learning to live with one another. They can scarcely afford not to.

The relationship between ebusiness and the organisations which use it is rather like a young marriage. The courtship and honeymoon period occupied the late 1990s, when a fancy website and a name ending in dotcom was the eligible bachelor which every suitor wanted to marry before its competitors popped the question first.

Then last year came the first tiff: the user organisations suddenly woke up to ebusiness's faults and ran home to mother - or, rather, conventional channels and bricks and mortar investments.

All those promises - I'll do the washing-up, I'll install an e-procurement system, etc - went by the board (or were vetoed by the board). In late 1999, a survey from Byline Research found nearly half of medium-sized to large organisations expected to implement an e-procurement system within a year. Repeating the survey 18 months later, Byline found a third of these had not even started, and most of the rest had implemented only partial solutions.

But it would be wrong to assume that the marriage is headed for the rocks. Just as most couples survive their initial rows, so ebusiness and its users are patching up their differences and learning to live with one another. They can scarcely afford not to.

IDC's survey eWorld 2001 estimates that more than $5tn will be spent worldwide on developing ebusiness over the next four years.

This year companies will spend more on website infrastructure than they spent in five years preparing for the millennium. And over the next four years, the number of websites will double, ecommerce will increase by a factor of 10, and spending on web applications will grow to four times the figure for the previous four years.

Gartner predicts that a quarter of the world's top companies will be complete or hybrid ebusinesses by 2005, while another research firm, Jupiter Media Metrix, estimates that in the same period business-to-business (B2B) ecommerce will grow from three per cent to 42 per cent of world trade.

Dotcom debacle

The dotcom debacle has left investors confused and wary, but has not dented the value of ebusiness. "The dotcom stock crash has made people lose sight of the fundamental reasons why companies invest in ebusiness strategies," said John Gantz, IDC's chief research officer. "But the woes of [hi-tech stock exchange] Nasdaq in no way mean the end of ebusiness."

Andrew Chalmers, chief executive of web solutions consultancy Key MS, said: "Ebusiness will become a core requirement for business, not an IT, marketing or peripheral programme. Business process itself will become fully ebusiness-driven, meaning that it will occur over IP networks on which the business will be completely reliant.

Just as businesses today can't operate without telephones, within a short time they will simply not be able to function if ebusiness communication channels (internet, extranet, intranet, interactive TV and wireless) are not open and functional."

Soon we may not be talking about ebusiness at all. "The ebusiness market per se will have disappeared within three to five years," said Eddie Short, associate director at DMR Consulting.

"Ebusiness is very much an enabling revolution, opening businesses to new digital channel technologies. Within three years most leading tools and solutions will be multi-channel capable, allowing firms to focus on business issues, such as cost reduction, customer relationship management and the supply chain," he added.

This will correspond to a more 'grown-up' attitude. "The main business driver will be the need to generate return on investment from digital spend," said Brian Gunn, chief executive at full-service consultancy Nettec. "Rather than being driven by the need or desire to establish a digital presence, organisations will continue to get smarter at defining how they can use digital technology to improve the bottom line."

Resellers, too, will have to stop thinking of ebusiness as something self-contained. "Resellers will have to do a much better job of explaining the 'positioning' of ebusiness solutions, in the context of what they've been delivering to customers historically," said Sean O'Reilly, vice president of marketing and sales at iFuel, an aggregator of application services provider (ASP) offerings.

"The tendency has been to focus on ebusiness solutions as a totally new departure, with little or no appreciation that customers like to see a logical integration with their existing systems - accounting, billing, procurement, etc - and will move forward in careful, measured steps, particularly with smaller and medium-sized companies," he explained.

The role of the systems integrator will become critical. Legacy integration can cost up to four times as much as the front-end elements of an ebusiness system, according to knowledge management software vendor Information Builders. And integration problems will occur in spades as businesses, and entire supply chains, become linked together.

Greater collaboration

"Cross-industry collaboration will be the dominant theme from 2002," said Chris Baker, managing director of software and integration services firm SeraNova. "That's both collaborating on hard data formats, such as in eprocurement and e-forecasting, and, increasingly, in processes where unstructured data is key, including product introduction and project management."

Marcos Gonzales-Flower, European director of strategy and business development for integration solutions vendor webMethods, describes a typical scenario: "The key to the future of commerce will be process automation across corporate borders and the transparency of information. That means the ability of all the participants in a value network to see how an event entering the network affects them the instant it occurs.

"For example, when a washing machine is purchased, every supplier associated with it is instantly aware of the requirements that will be placed on them, from the washing machine assembler to the iron ore provider."

Gonzales-Flower believes that business-to-business e-marketplaces will polarise into two distinct types. Industry-backed e-markets will predominantly deal in commodity products as a way to shift over-capacity or over-production, like a spot market.

These will operate for the benefit of the participants, who will also be the main shareholders. Independent e-markets, by contrast, will become electronic dating agencies, where organisations can locate possible partners and engage with them electronically.

Supply chain collaboration sounds like a business dream but a technology nightmare. "As the level of business interoperability increases, so will the one challenge which organisations continue to underestimate: integration," explained Mark Payne of ecommerce consultancy Tanning Technology. "Greater collaboration means greater integration, and the tools and technologies aren't keeping pace with business needs."

Channel companies will find themselves providing the glue which binds ebusiness chains together - especially as they increasingly include small to medium sized enterprises (SMEs), which traditionally buy from resellers. SMEs have been understandably wary of investing in ebusiness, especially since the burst of the dotcom bubble.

Yet everyone from the Government to major vendors believes that getting SMEs to use ebusiness technology is essential to the nation's future prosperity.

Nick Kington, UK marketing director of SME software developer Actinic, said: "The future growth of the market will depend on vendors and the channel collaborating to communicate the benefits of ebusiness into the mainstream SME market, and providing SME owners with the right advice and tools to enable them to take up the opportunity simply and easily."

More channels to market

The reality is that ebusiness is not about dotcoms, but about opening up another channel to market, just like the fax and telephone have done previously. SMEs must be persuaded that implementing ebusiness is secure and not as complex as they believe.

SMEs will form a major market for ASP services, and some resellers will soon reinvent themselves as ASPs, or add ASP offerings to their portfolio. There are two schools of thought on how resellers should respond to the opportunities offered by ebusiness growth.

Some believe in expansion and diversification. Systems integrator BSG has added to its portfolio to provide a full range of ebusiness services.

"The remit of resellers and other channel players will have to broaden," explained Nick Harper, ebusiness strategist at BSG. "For example, BSG has restyled itself as a full service provider, offering straightforward systems integration, along with web design and a full range of ASP products."

Others argue that channel companies will have to go for the narrow but deep approach. "My feeling is that specialisation will be more and more important," said Jonathan Wagstaffe, managing director of reseller and consultancy Connectology. "The market will be for proven, specific solutions delivering business advantages to clients, and channel organisations will need to show that they can do that in their particular space."

The poor old box-shifter is in for a rough ride. "The reseller channel will continue to be marginalised in ebusiness," said Short. "Dell has continually humiliated the other leading hardware vendors, which must match current Dell and Cisco propositions or die. That will leave resellers trading in the margins."

Ebusinesses of the future will have to do a better job of integrating their delivery channels - web, phone, mail, store - and reusing information and business functions across their different product lines. A key to this will be obtaining a single, consistent view of each customer, believes Robin Carmichael, an industry consultant at software and services company Candle.

"This goes far beyond the implementation of a CRM [customer relationship management] package and requires the synchronisation and real-time update of customer data, not just within an organisation but potentially across its whole supply chain," he said.

"Today, CRM initiatives are largely focused on a solution for a limited number of front-end delivery channels, in many cases just the internet. This will have to expand in the next five years to provide a clear view of the customer, whatever the service or the means of delivery," he added.

Many trends will help make ebusiness more viable and affordable - the rise of interactive TV, increasing availability and falling costs of broadband access, the advent of third-generation mobile services, growing confidence among consumers, increasing use of ASPs, the maturing of Wap, Bluetooth and other mobile access technologies, the spread of XML as a lingua franca, and so on.

Yet there remains a gulf between what organisations expect from ebusiness and what they are currently equipped to deliver.

"Many companies have high expectations for ebusiness, yet most aren't equipped to reach their goals," according to IDC's eWorld 2001 report. "While two in five websites can take orders, less than one in 10 can handle payments over the web. Companies expect to double revenues from online sources this year, but less than a fifth of commerce sites are tied into the traditional order processing system."

It is time for ebusiness to grow up. "In the future, ebusiness will become more and more a part of the fabric of business," said Nettec's Gunn. "The need is for a pragmatic, value-added return on investment-based solutions that can be evolved and grown as business needs evolve and grow."

RESELLERS BITTEN BY ASP CONCEPT

The service provider model is tipped to be a major ebusiness growth area, with services offered on a commodity basis over a remote network.

Commodity means cheap, because the same off-the-peg service or application can be provided to many customers. And remote means flexible; it can be turned on or off at will.

At the base are specialists offering the basic building blocks of systems, such as networks, storage, internet access, hosting and so on. Above them sit ASPs, which rent specific applications and offer support.

Many businesses will buy all their outsourced computing from a single company - usually an ASP - which will subcontract infrastructure to other service providers. ASPs are expected to consolidate and offer a range of applications, otherwise they will have only price to compete on.

The ASP concept is only 18 months old in Europe, and many businesses are still nervous about losing sight of their software and data. IDC analyst Euan Davis believes it may take three to five years before the concept becomes established. Initially, users are likely to be SMEs, startups and self-contained branches of larger firms. This will provide scope for resellers to become ASPs, claims Shanker Trivedi, UK and Ireland vice president at Sun Microsystems.

"I can't see the managing director of BT presenting to the managing director of a small business in Rotherham," he explained. "But I can see the managing director of a local computer services firm which represents BT making the pitch. The trust has to be based on someone local whom the SME knows and has already been dealing with. So I don't think there will be a disintermediation of existing channels."

ASP sales are expected to grow as businesses get used to the idea. IDC predicts that spending on ASP services in western Europe will grow from $155m this year to $5.5bn in 2005. Davis believes that ASPs and storage service providers will prosper; the upsurge in email usage and ebusiness are creating a huge demand for storage.

CONCLUSIONS:

• Within five years ebusiness will cease to exist as a separate market.
• Ebusiness will embrace multiple channels including interactive TV, Wap and third-generation mobile phones.
• Supply chain integration and cross-industry collaboration will be critical.
• Many resellers will become ASPs or begin reselling ASP offerings.
• The box-shifter could finally be killed off.

Appearing in this article:

Actinic (01932) 871 000
BSG (020) 7880 8888
Candle (01276) 414 700
Connectology (01844) 218 383
DMR Consulting (01784) 228 300
IDC (020) 8987 7100
Fuel (01895) 444 420
Key MS (01342) 410 223
Nettec (020) 7514 9500
SeraNova (02476) 430 270
Sun Microsystems (020) 7628 3000
Tanning Technology (01932) 871 234
webMethods (0118) 963 7455