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SEARCH ASIAWEEK From Our Correspondent: Debunking Internet Myths A new study throws out some commonly held assumptions on doing business online By ALLEN T. CHENG June 15, 2000 Web posted at 2:30 p.m. Hong Kong time, 2:30 a.m. EDT "E-business: Revolution, Evolution or Hype?" That's the name of a recent study from the Australian Graduate School of Management's Center for Corporate Change in Sydney. You don't even need to read it to guess what's inside: This is a major exercise in debunking myths associated with the Internet phenomenon. And, boy, does this report demolish those canons.
Here are a few assumptions overturned: Brands will die -- The Internet represents a major threat that will make brand-strength weaker than ever before. This isn't necessarily true, say the authors. In a busy, over-communicated world, the Internet provides no guarantee of customer attention or lower search cost. Users will likely continue to gravitate towards brands as a way to simplify choices, reduce search costs and build trust. This view is reinforced in a Boston Consulting Group study last year called "The State of Online Shopping." Its conclusion: "The brand is everything and everything is the brand." Middlemen will die -- In every industry, from retailing to insurance, the key impact of the computer-network revolution is to remove the middlemen. The authors say they have seen few successful examples of doing away with intermediaries as a result of e-business investment. This has nothing to do with whether profits are possible. Rather, it has everything to do with the difficulty of working out how to move into a new distribution channels without jeopardizing existing relationships. Take for example Compaq in Australia, which tried to sell through its existing reseller channels as well as via the Internet. When the distributors heard of this, leading retail chain in the country protested by stopping the sale of Compaq products. In the end, Compaq reversed that policy. However, the debacle cost the company A$100 million. An increase in the number of e-business middlemen or "informediaries" is just as plausible as any predicted demise. EDI is the "wave" -- Things have not worked out as predicted. The reality of developing and maintaining electronic data interchange (EDI) linkages between companies was not as easy or as profitable as advocates believed. For many small to medium enterprises, it was easier to rely on the fax and phone for business communication. For large, higher-volume firms with strong bargaining power, EDI was and still is a key part of their strategy, raising operating efficiency levels to new heights. Being first is the key -- There is no guarantee that pioneering firms like Amazon or eBay will be able to maintain their lead position as the market evolves, the authors say. Information technologies, by themselves, will not produce sustainable competitive advantage and pioneers must be careful not to develop the "wrong" resources. Provided there are no high switching costs, early followers are often well positioned to exploit their existing resources and core competencies. In many cases, they have complementary assets (e.g. their own brands) that will be their basis of competition. Lower prices -- Reduced information exchange and coordination costs will enable firms to spend less winning new customers. While the cost of getting the right item to the right customer has got cheaper, there is no guarantee that this will result in lower prices, say the authors. Speculation about whether prices will go up or fall is something of a red herring. "There is a real potential for revolutionary change," says Tim Devinney, a co-author of the study and a professor at AGSM. "But it is not yet clear where that change will take place." One area where the Internet was thought to be truly revolutionary was in business to consumer interactions, but recent academic studies seem to indicate otherwise, he says. Take online grocers which have set up shop worldwide. In the U.S., they include Peadpod Inc., Netgrocer Inc. and Streamline. In Hong Kong, there's AdMart. No research exists on the percentage of households that shop for groceries online, but in the U.S. less than 1% do, according to the authors. "Empirical evidence suggests that, in reality, this often-mundane repetitive task is seen by many as one of life's small rituals and social pleasures and they have no intention of giving up the physical shopping experience," the authors write. "Additionally, many products and services we purchase are 'experience' goods and have to be seen, felt or touched by customers before they can be appreciated." The report concludes (and many analysts tend to agree) that the truly revolutionary impact of e-commerce lies in business to business or B2B transactions. The reasons are obvious: • Companies, in particular large ones, are generally better equipped to communicate electronically. The early popularity of corporate Intranets arose primarily from a realization that the critical mass of users lay not in the general community but in the large numbers of internal staff with desktop PCs. • Companies are more cost-conscious, since every dollar saved in procurement is equal to a dollar of new profit. • Many business transactions are already conducted at a distance, by fax, mail or EDI. These can easily be translated to the e-business realm. "As we enter a new phase in e-business development, predictions of a surge in B2B e-commerce are far more likely," says Devinney. "This will shift attention from shaky business models adopted by startups (for example, Amazon and E*Trade) toward more established firms, particularly branded goods suppliers and physical retailers." This isn't to say that startups don't have a chance, says Devinney. What the report states clearly is this: outfits that cater to the B2B segment or help existing brick and mortar companies convert to e-business stand a far better chance of survival. Startups take note. Write to Asiaweek at mail@web.asiaweek.com
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