Viewpoint - Ferment behind the Net curtains

Even more than the Internet, private Intranets are changing the waycorporates do business

The electronic world heats up day by day. Since mid February, Microsoft has reorganised its worldwide business units to emphasise the importance of the Internet; at least 62 companies have started up in business to focus on the Internet; former Lotus head man Jim Manzi has resurfaced as a major investor in an Internet company; and there are more Net surfers each day.

The software market is shifting rapidly from being file-centric (word processors, spreadsheets) to communication-centric (electronic mail, browsers). But can a traditional file-centric software developer such as Microsoft turn itself into a communication-centric company without significant disruption to its business?

By early December, the entire industry had begun to wonder why Microsoft had not publicly either embraced the Internet or announced a significant Internet initiative. It finally did, and since mid-December Microsoft has made big changes in its product strategy and internal organisation to catch up with competitors. In a recent speech, Bill Gates stated that Microsoft will 'embrace and extend' all key Internet standards. I would not be surprised to see Microsoft weave Windows into the communication-centric new world order in place of Sun's Java technology or Netscape.

Why the dramatic shift for Microsoft? In the US, industry growth is coming from new classes of applications built on 'communications', such as email, Internet access, and groupware. Oracle's Interoffice announcement of its enterprise communications solution in early December was one of the first major announcements in this market area.

The communications-centric world is changing consumer and business behaviour, and ultimately changing the economics of the software market. The continued devaluation of business productivity applications mirrors the maturation of an industry where Microsoft reaped the financial benefit. But today even Microsoft relies heavily on upgrade revenue and licensing fees, and it is now earning exponentially 'less per seat' each month.

The same trend has an impact on all software developers. The majority of US Internet users are spending computing dollars on Internet access today, and not on expensive applications, although file-centric applications are on their desktop as a result of software bundling with computers.

What does this mean? Microsoft's share, as well as other software developers, of computing revenue from 'new' communication-centric customers is a fraction of that generated by traditional customers.

So is there money to be made on the Internet, especially for channel partners? Probably yes, but the big money may be in 'Intranets'. Intranets are private Nets that use the infrastructure and standards of the Internet and the World Wide Web, but are isolated from the general public by firewalls. Some analysts expect more people soon to be using Intranets than those using the Internet.

Price is the key issue here. The business community is realising that the Internet is an inexpensive but powerful alternative to other forms of internal communications. Regardless of computer platform, software, or communications tools, information in the Intranet will look the same to the whole company, which can be a big cost savings.

Even the US distributors are stepping up their efforts to drive costs down through leveraging the Internet. Ingram Micro, for example, receives 15 per cent of its existing revenue through electronic ordering, with a goal of increasing this to 30 per cent within a year. It is saving money each time orders are placed or tracked electronically.

Federal Express, the largest shipping service in North America, estimates that its Internet customer service saved it over $2 million in the last five months of 1995. And the Bank of America estimates that its Intranet saved it more than $100,000 in the second half of 1995 by posting key company data for its employees on its Intranet instead of sending memos, reports and other documents.

How can the channel address this opportunity? The real money in the next 18 months will be on the consulting, development and support of customers' Intranets and Web sites. And it is worth setting up your own Web site so that your customers can do business with you electronically.

This is a confusing and fast growing market with new companies starting every day. Helping corporate customers drive down their costs through creative implementation of net technology is an opportunity not to be missed.