PERSPECTIVE - Surf's up

Four million people in the UK access the internet for the first time every year. With statistics like these, the channel would be foolhardy to ignore the online opportunity.

If businesses really want to know if they should be getting onto the every year. With statistics like these, the channel would be foolhardy to ignore the online opportunity. internet, it's not a question of finding evidence, it's more a matter of how much do they want? Dell is proof enough on its own, selling $14 million worth of systems a day over the Net, with that figure expected to rise to $20 million by the end of the year. Intel is selling $1 billion worth of product via the Web each month. Look elsewhere and it's clear that the rest of the industry is hot on their heels.

The government is anticipating a massive expansion of e-business in the UK and is aiming for 25 per cent of its own transactions to be conducted electronically by 2002. According to an NOP survey of households in the UK conducted in December 1998, 10.6 million people have access to the internet. During the four-week period of the survey, 1.2 million people used the Web to look for a job, 1.9 million used it to look for travel information, and 2.9 million used it to look up company information.

Every day, 10,900 UK adults try the internet for the first time - that's four million people a year. In the second half of 1998, 1.3 million UK users bought something over the internet, making a total of 4.8 million purchases and spending £470 million between them. Next year, that figure is predicted to rise to more than £6 billion. Across Europe it will be £20 billion.

There are many online success stories but it's the IT industry that's leading the way. This is only to be expected, says Mike Arnbjerg, market analyst at IDC Europe.

'In many industries the internet is starting to be used for certain types of communication and business traffic, and it has almost taken over in the IT sector,' he explains. 'It is the closest sector to the internet and is using it, not necessarily to block out any other channel, but to do things differently.'

Simon Marvell, partner at systems consultancy Insight Consulting, adds the move to electronic trading will be by far the greatest business change over the next few years. 'Many organisations will need to re-invent themselves to prosper in the digital world,' he says, resellers and distributors in particular.

The channel will need to add value to its service or it will be bypassed, as producers find it increasingly easy to deal direct with the customer.

Consumers and business users will be able to make enquiries, place orders, monitor progress and settle bills with much less human intervention than is currently the case. Technology will allow products to be tailor-made to customers' exact requirements, while advanced just-in-time production systems will allow inventories to be reduced to a minimum.

But there is an upside - these changes will make business even more dependent on technology than it is already. Failure or corruption of the centralised electronic order capture system or the inventory management system will literally stop a business in its tracks, Marvell believes.

'In the digital world, no systems will mean no business,' he says. 'To address these risks, security and resilience will have to be designed into electronic business services from the outset in a way that is rarely done today. Security and business continuity management will be fundamental to the re-design of business for the information age.'

The market is certainly different now and vendors have had to react - so has the channel. There may not be a deliberate effort to cut out the middle man - there is no conspiracy here between the vendors and the users - but that's the effect the internet is having on the channel. And, as ever, the internet must be viewed as an opportunity, not any kind of a threat.

Businesses in the channel are having to use the internet as a way of allowing customers to make enquiries, build quotes and place orders - it smoothes out the processes and cuts the costs. Computer 2000 is reputed to be doing something close to 10 per cent of its business online and it's claimed the distributor takes 40 per cent of its orders via online systems.

But electronic trading is something that vendors, distributors and dealers have to do. It does not affect the fundamental value proposition of the reseller - that of the experienced and knowledgeable adviser with the technical understanding to install, integrate, configure and support an IT system.

More importantly, there is an enormous opportunity available to the industry as businesses start to add electronic layers to their existing communications and distribution models. And that's what they are - additional layers, not replacements for the old routes.

Most companies will not know where to start - they will need an IT infrastructure capable of supporting their e-commerce system, applications that deliver the service to the user and also properly designed sites that will appeal to customers.

There is no question that this will have to happen in every sector in due course, says George Evans, managing director of e-commerce specialist service provider, Making Markets.

'All businesses will have to be e-commerce enabled,' he predicts. 'Not being able to take Web orders will simply not be cost effective. We can look back to the early 70s when businesses had to become computerised. It took 10 years, and there were trailblazers and stragglers, but it's unthinkable now to operate any form of business using manual systems.

'The same will become true of e-commerce,' Evans says. 'It may take three years or even 10 years, but eventually the swing will happen and the majority of business and private purchases will be done via the Web.'

As online trading develops, systems will need to become more intelligent - they will need to know the customer's buying patterns and preferences.

There will have to be seamless links to back-end accounting systems so that online orders can automatically generate picking lists, invoices and statements. Vendors of financial and ERP systems, of supply chain management and of CRM, data warehousing and knowledge management applications are falling over themselves to address the market.

And this is where the opportunity lies for the channel - in specifying, installing, integrating and supporting the systems that run the user organisation's e-commerce and online information systems. But can resellers deliver all of what is needed? At the moment, almost certainly, they cannot.

There have always been specialists - in networking, in financial applications, in niche markets, in development, in support and training - and the internet won't change all that in any way. For the technicians, there will be the need to manage the back-end systems and the bandwidth.

Developers and applications specialists will still be needed as well - they will just have to know exactly how the system can work across the internet. Someone will have to design the front-end and someone will have to be on-hand to sort out any problems that arise.

It is certain that problems will occur and, as customers start to see their Websites working for them and as they become more dependent on them, the need for guaranteed uptime and quality of service, as well as good service and support will become even greater. The internet, instead of cutting the channel out, has the potential to make resellers and service providers more important than they have ever been to the user.

The importance of becoming e-commerce enabled is growing by the day. IDC says there were 4.9 million internet users at the end of last year in Europe. Dixons with Freeserve, Mitsubishi with Menet, Sage with a programme for its users and now Microsoft and BT are all offering, in effect, free connection to the internet. Consumers are coming, driven by the chance of getting something for free and by curiosity, Arnbjerg believes.

That means the commercial potential is rising all the time but it is not this that is driving the need for commercial organisations to become electronic traders - their customers are demanding it.

Arnbjerg adds that pronouncements such as the one made recently by BT - that it intends to conduct 90 per cent of its purchasing over the Web by the end the year - means suppliers have to get their act together: they have to be able to sell online.

Evans says the Web is becoming more pervasive in the channel every day and that the need for distributors and vendors to reduce their cost of sale means a large proportion of the down channel communications will be internet-based. Indeed, this is already happening.

'During our recent focus group sessions with small and medium sized resellers, the majority stated that the time they spent getting vital channel information from the Web was increasing,' he says. 'They say they are happy to be made aware of a special price offer over the internet, but they still want to talk to a human, prior to placing the order, as they feel there is still room for negotiation.

'The days of seamless order placement over the Web without any human intervention is still some way away, except for the very large companies that have a predetermined special contract price,' Evans adds.

There are many creative ideas springing up every day by organisations and entrepreneurial individuals in the channel to exploit the internet as a cost-effective communication medium. Some services seek to allow the user to personalise and filter content to meet a specific need, while creating a market and meeting point where information can be shared or exchanged.

The challenge for the service provider, says Evans, is to generate sufficient revenue from these concepts while building the infrastructure to maintain high levels of accuracy and freshness of the information supplied.

In other words, the revolution, while it's happening, won't happen overnight and it will require considerable effort and faith in the idea to make it work. Some organisations, in spite of the overwhelming market data available, will still be difficult to convince. The use of technology is also raising expectations, Evans believes.

'After decades of being sold on the idea that "only 50 per cent of my advertising is working, but we don't know which 50 per cent", advertisers are looking to use the internet as an effective medium and they are looking to the technology to supply high levels of feedback and quantifiable ROI,' he says. 'That feedback has to be far more detailed than mere hits on a site.'

While there will be pioneers in every market, there will remain a large number of people who will need to be thoroughly convinced of the benefits before they commit totally to the internet. Their level of commitment may depend on their scale as much as the market in which they operate.

'For the global players there are vast economies of scale to be achieved in branding and product positioning through internet services,' says Evans.

'The challenge is to generate traffic and easy navigation of the rich content that exists on the Web.

'The next generation of Web authors are the unsung heroes of this generation, producing fantastic cameos of rich content that few people ever see. Search engines, personalisation and navigation need to reach new highs of effectiveness for the medium to be wholeheartedly accepted as the universal knowledge base.'

For these reasons, Evans believes it will take some time before the whole market fully embraces e-commerce and that will mean the channel will have to make the transition slowly. The statistics might be screaming at us to get onto the internet today, but users may not move all that quickly and resellers must be cautious about what skills they develop in the short term. They may need to concentrate on other areas for some time and be prepared to help customers make the transition.

'Most businesses are not prepared to throw out their business system in favour of an e-commerce enabled one,' he adds. 'There will be an increasing shortage of companies with the skills needed to connect e-commerce front-ends to legacy systems.'

So be warned. It's all very well jumping on the bandwagon but unless companies are sure of the direction they're going to head off in, then the dangers of the wheels falling off mid-journey are great.

The industry may be awash with the latest Net-related buzzwords, but many customers remain reluctant to commit investment until ROI has been proved.