Patterns and Effects of the Internet on Companies

The author speaks of the volume of discussions about the Internet, and feels that there is an inordinate amount of attention and "gushing hubris" over the new technology and its potential to transform everything. In reality, businesses responded in essentially one of two ways:

  1. They slowly integrated the Internet into their existing ways of doing business, generally replacing similar items (such as proprietary networks)
  2. They modified work practices, business strategies, and their product offerings (including the core good and ancillary services) to leverage the capabilities of the technology.

While it seemed that everyone was getting a presence on the Internet, the more important question is the degree to which the new technology impacted their existing business operations. This chapter focuses on the period of the internet's early adoption by the commercial sector.

Stages of Adoption

The author indicates that there are discernable phases of adoption of the Internet, though it's important first to understand that many industries had become "extensive users" of computer and telecommunications technology even before its advent - and where private networks had been used, they had already transformed how firms functioned. The main differences between the Internet and private networks are that it is easier and cheaper to use, and that an increased number of individuals (including suppliers and customers) had access to the same network using standard methods of accessing information.

Before adoption would take place, there as a period of discovery, during which time the sites created by businesses largely duplicated their printed collateral in the new medium. This was the first phase.

The second phase is marked by a business's experimentation with the Internet as a means of conducting business online. In this phase, the Internet is not a replacement for other channels, merely an additional channel (e.g., a retailer does not close down their stores in favor of doing business online, but does both).

Then third phase is the use of the Internet for internal business practices. In most instances, the internet replaced "legacy" systems and networks designed to handle the same tasks. In businesses that had no such legacy systems, the Internet was used to do the same sorts of tasks they would have done using such systems.

Companies went through these phases at differing speeds, depending on the structural pattern of a specific industry, the nature of a product or service rendered, and the methods by which each businesses operated before the advent of the Internet.

Business-to-Business Commerce

The author categorizes B2B transactions as being fairly routine transactions: a company's vendor transactions are merely the transmission of information (how much of what item on what date to what location) and payment transmitted in return. Much of this had already been computerized to save the expense of labor, and to take advantages of the efficiencies of mechanization.

The Internet helped to standardize information exchanges: the use of internet-based systems entailed standard protocols, transmission methods, and even data formats that would no longer need to be painstakingly negotiated.

It also made the sue of such systems feasible for smaller players, who previously could not afford the overhead to support such systems, as well as for less frequent transactions by even larger firms (such as ordering office supplies), where it was previously inefficient to automate such processes.

The Role of Customers

One of the more dramatic changes the Internet brought was to establish a network to which customers were a party, giving them equal standing with customers in the B2B sphere. A business could encourage (or compel, if they had sufficient channel power) customers to use the internet for various interactions (ordering products, receiving support, etc.) and, generally, reap the benefits of the operational efficiency of automating those tasks.

This also provided the opportunity for disintermediation, which has been highly successful in some industries (customers book their own travel without a travel agent) but not so successful in others (customers are slow to accept the Internet for banking, grocery purchases, and other transactions).

Internal Business Operations

Primarily, business operations conducted over proprietary networks were moved to the internet - or more precisely, an internal "intranet" that used the same technologies, that was often made acceptable across multiple locations, and possible via an internet gateway (extranet). Largely, this pertained to inventory and the flow of goods through a manufacturing process, or the management of customer information in the service industries.

However, the technology had a greater impact on office workers not involved with the core business functions. Their tasks generally involved accessing and creating information (which could be moved from paper files to digital ones) and communicating it to others (which could be done via e-mail or internal Web sites).

As a secondary effect, this mean that competence using computer systems and networks became requisite to a wider array of roles: virtually all white-collar employees are expected to have a basic degree of computer literacy.

Even more significant was the facilitation of collaboration, enabling employees to work more closely with one another, across the company's various locations. This same propensity has facilitated outsourcing of work to overseas locations, and round-the-clock activities that are done by using the internet to share work across various time zones.

This is considered to be one of the most significant changes brought about by the Internet, but the author suggests that at this early date the consequences remain highly speculative, and relegates this to "study by future students of the Net."

Economic Effects

In terms of labor, there is debate over whether the number of jobs created by the internet balances out the number of jobs eliminated by it. The author suggests that more jobs were created than lost (as evidenced by labor statistics), and that the jobs that have been created have been higher-income jobs than the ones that have been eliminated, so the overall impact on the domestic economy has been highly positive.

Otherwise, the economic impact of the Internet is difficult to measure. For example, e-commerce is presently negligible, and it's doubtful how much of this economic activity is "new" as opposed to being merely shifted from other channels. This, too, may bear closer inspection in the future, when there is more evidence from which to draw a more reliable conclusion.

The Brokerage Industry

The author suggests the brokerage industry as a bellwether to suggest the future impact of the technology on other industries.

In this industry, the emergence of the Internet and the ability for individuals to manage their accounts online has had a significant impact:

The changes have been regarded by some as "revolutionary," though the author seems to regard them as a natural evolution of the industry, at a faster pace, as a result of the technology facilitating trends that were already in motion.

Changes in the Information Balance of Power in the Marketplace

Another fundamental change came from the availability of information online that was previously unavailable, or very difficult to obtain, through other channels. This effected a power-shift in many industries.

The example provided is that customers have leveraged the information available to make more informed buying decisions and compare the alternatives among providers.

Meanwhile, the retail industry has a wealth of new information about consumer behavior that they are only beginning to compile and exploit.

Effects of the Internet on the Public Sector

Much is said about government sponsorship of the internet - but very little about its use. Government has lagged the private sector in the use of the technology to support its operations, and seems to be avoiding the use of the medium to communicate with and serve its customers (members of the voting public).

New Economic Opportunities

In addition to the use of the internet by existing industries, the technology provided innovative economic opportunities. The author suggests that there were three distinct patterns.

First, new niche firms emerged to translate economic functions into business opportunities - companies such as e-trade, Amazon, and Netflix emerged to offer online services in traditional industries (brokerage, book sales, and video rental) without having had a brick-and-mortar precedent.

Second, businesses began to branch out, with new media facilitating their expansion into other sectors. For example, Apple computer introduced iPods (well in line with their existing operations), but branched out into entertainment sales (music and video) through an online channel, eventually overtaking other firms in this new industry sector.

Third is the emergence of business services, facilitating the ability of others to do business in the new medium. eBay is cited as the prime example of this - the company does not have a product, but enables others to conduct e-commerce through its online channel.

In all three instances, firms leveraged the capabilities of the network to enter an industry sector (or create one) in which there was no brick-and-mortar precedent. There has been much more failure than success in this area, and the ultimate fate of Internet-only firms remains unclear.

Convergence of Business Practices

As demonstrated, there are two basic approaches to doing business on the Internet: either a company uses the Internet as an additional channel to support its existing business, or a company uses the Internet to create or enter a new line of business, without a brick-and-mortar precedent.

It is suggested that there are some efficiencies that will be maintained from the old, and certain discoveries made by companies who have no precedent to draw upon, and the neither side is clearly superior in all regards. Instead, best methods are discovered by both approaches, and the future of the Internet will be a convergence of the best (most successful, most efficient, etc.) practices from the old and new worlds.

Analysis of Patterns and Practices

There's a great deal of verbiage that basically comes down to this: we are not presently able to study patterns of internet business as we are those of traditional business, largely due to the novelty of the industry. Also, those who enjoy success are presently being very tight-lipped about their trade secrets. Finally, we don't know which of these practices will stand the test of time.

And so, the task of analyzing these patterns is left for the future.