Digital Economy
Chapter II
ELECTRONIC COMMERCE:
THE LEADING EDGE OF THE DIGITAL ECONOMY (8)
The resurgence of the U.S. economy coincides with the growing use of the
Internet, including the rapid growth of electronic commerce (e-commerce). In
ever greater numbers, people are shopping, looking for jobs, and researching
medical problems online. Businesses are moving their supply networks online,
participating in and developing online marketplaces, and expanding their use of
networked systems to improve a host of business processes. And new products and
services are being created and integrated into the networked world. This
chapter explores activities at the leading edge of the digital economy.
We live in an increasingly wired world. The remarkable growth of the Internet
in recent years shows no signs of abating. According to Nua Internet Surveys,
during the past year Internet access has grown significantly in all regions of
the world, rising from 171 million people in March 1999 to 304 million in March
2000, an increase of 78 percent (Figure 2.1). (9)
The United States and Canada still account for a large proportion of worldwide
online users; but for the first time, they now account for less than 50 percent
of the total (Table 2.1). Over the past year, Internet access in the United
States and Canada grew by more than 40 percent; over the same period, Internet
access in all other parts of the world more than doubled.
+------------------------------+--------+--------+----------+----------+
| Table 2.1 |
| |
| Number of People Online |
| |
| (in Millions) |
+------------------------------+--------+--------+----------+----------+
| | Mar-99 | Mar-00 | level | percent |
| | | | | |
| | | | increase | increase |
+------------------------------+--------+--------+----------+----------+
| Africa | 1.1 | 2.6 | 1.5 | 136 |
+------------------------------+--------+--------+----------+----------+
| Asia/Pacific | 27.0 | 68.9 | 41.9 | 155 |
+------------------------------+--------+--------+----------+----------+
| Europe | 40.1 | 83.4 | 43.3 | 108 |
+------------------------------+--------+--------+----------+----------+
| Middle East | 0.9 | 1.9 | 1.0 | 111 |
+------------------------------+--------+--------+----------+----------+
| Canada & US | 97.0 | 136.9 | 39.9 | 41 |
+------------------------------+--------+--------+----------+----------+
| South America | 5.3 | 10.7 | 5.4 | 102 |
+------------------------------+--------+--------+----------+----------+
| Source: Nua Internet Surveys | | |
+------------------------------+--------+--------+----------+----------+
The amount of information available online to people with Internet access has
also grown very rapidly. A recent study by Inktomi and the NEC Research
Institute, Inc., for example, indicates that in January 2000 the World Wide Web
contained more than one billion unique pages, (10) compared to 100 million in
October 1997. (11)
CONSUMERS IN THE NEW ECONOMY
Consumers today--wherever they are in the world--go online to shop, learn about
different products and providers, search for jobs, manage their finances,
obtain health information and scan their hometown newspapers. While many of
these activities are not captured by official output and productivity measures,
a growing body of anecdotal evidence suggests that the digital revolution is
improving many people's lives.
Business-to-Consumer Electronic Commerce
Individuals with Internet access increasingly approach the Web as a market
space. (12) People online do research before they buy, make purchase
commitments, arrange financing, take delivery of digital
products, and obtain followup service. The "commerce" in e-commerce encompasses
all of these activities. However, when measuring business-to-consumer (B2C)
e-commerce in particular, it is the commitment to purchase--the transactional
component--that both buyers and sellers can easily identify and quantify. This
transactional component is the focus of most current e-commerce measurements.
In March 2000, the U.S. Bureau of the Census released the first official
measure of e-retail, an important subset of business-to-consumer e-commerce.
Census found that during the fourth quarter of 1999, online sales by retail
establishments totaled $5.3 billion, or 0.64 percent of all retail sales. (13)
By contrast, private estimates for consumer e-commerce in the fourth quarter of
1999 ranged from approximately $4 billion to $14 billion. However, many private
estimates of B2C e-commerce include the value of a wide range of consumer
online purchases such as airline tickets, hotel rooms, and shares of stocks
that are not captured in The Census Bureau's survey of retail establishments.
When these private estimates are adjusted to cover only those purchases
included in the retail measure, the Census Bureau estimate of $5.3 billion
appears to fall in the midrange. For example, Forrester Research estimated
fourth-quarter online sales at $9 billion, but when travel and event tickets
are subtracted--both categories that are not part of the official definition of
retail sales--the Forrester estimate falls to a comparable $5.5 billion. (14)
Prior to the 1999 holiday shopping season, some analysts expressed concern that
if online retailers experienced the problems filling orders that had plagued
many of them in the 1998 online holiday season, consumers might turn away from
online shopping. Private surveys conducted shortly after the holiday season
indicated that such problems were minimal and that online customer satisfaction
was high. (15) Nonetheless, some analysts believe that delivering goods ordered
by consumers from e-retailers will prove to be more costly and complex than
currently appreciated. (16) The ultimate size of online consumer sales will
depend on resolving these fulfillment issues, along with other important
matters such as taxation, consumer protection, privacy, intellectual property
rights, security, and network reliability.
Online Pricing
In the consumer realm, the most significant impact of e-commerce may be on the
pricing of goods and services. Potential buyers can check the price and
availability of products from a variety of sites in far less time than it would
take to conduct store-to-store comparisons in the world of bricks and mortar.
Furthermore, online digital shopping spaces can be perused for consumers by
software specialized to operate as digital shoppers. Such digital agents, known
as "bots," cruise through numbers of Internet sites almost instantaneously,
searching for the most favorable price and feature combinations.
One would expect that this ability to easily and cheaply gather information on
prices and product characteristics would force Internet retailers to charge the
same low price--one that would approach their cost--on the same or comparable
products. One might also expect these online prices to influence prices charged
in physical stores. Thus far, however, the data on these matters are mixed. For
example, a study of 20 book titles and 20 CD titles sold by 41 Internet and
conventional retail outlets between February 1998 and May 1999 found that
Internet prices were between 9 and 16 percent lower than prices in conventional
outlets, depending on whether taxes, shipping, and shopping costs were included
in the price. (17) However, another study of book prices covering 107 titles
sold by 13 online and two physical bookstores during the week of April 19,
1999, found that prices online and in physical bookstores were the same. This
suggests that certain Web sites have sufficiently differentiated themselves
through factors other than price (e.g., convenience, product reviews) that they
can attract sales even when they are not the lowest-price seller. (18)
Even if the jury is out on the price sensitivity of online shoppers, online
commerce has fostered a variety of pricing schemes. One of these is online
auctions. Live auctions have existed for a long time, but their practical uses
have been limited by the expense and difficulty of getting prospective buyers
to a single location at the same time. Sealed bid auctions are less expensive,
but they often do not produce the highest possible return to the seller. By
contrast, the Internet provides a relatively low-cost and convenient way of
bringing buyers and sellers together, and the use of auction sites such as eBay
has grown rapidly. Variations on the standard auctions are also gaining
popularity. In the reverse auction format of PriceLine.com, the consumer names
the price and the seller decides whether or not to accept it. In the
Mercata.com format, price is determined by the number of people that want to
buy a product--the greater the number of buyers, the lower the price.
A "single price" model holds for most offline goods and services since most
offline sellers do not have sufficient information to vary their prices from
customer-to-customer and because changing the price of individually tagged
items may involve considerable cost. Where providers do have sufficient
customer information and price adjustments are relatively easy to make,
however, variable pricing can produce benefits to both seller and consumer. For
example, airlines have long set lower fares for tickets issued 21 days in
advance that include a Saturday night stay (that is, tickets sold to more
price-sensitive and time-flexible travelers who can plan ahead) and much higher
fares for next-day tickets (tickets sold to less price- and more time-sensitive
business travelers). More recently, airlines have developed an e-mail strategy
to attract "spur of the moment" travelers with last minute travel deals. As a
result, while vacation travelers obtain fares at a lower cost than if the
airline charged a single price for all seats on the plane, business travelers
can be confident that they can secure seats with little advanced notice, and
airlines operate with a higher proportion of their seats filled.
The Internet opens up this airline-type variable pricing to many other types of
goods and services, creating the potential for greater specificity in variable
pricing. By gauging the price sensitivity of particular consumers relative to
the marginal cost of the good and its availability, online sellers can fine
tune prices for individual customers to maximize profits. The study of 20 book
titles and 20 CD titles cited above (Brynjolfsson and Smith) found that
Internet retailers regularly make price adjustments that are smaller than the
smallest price changes observed in conventional stores.
Electronic Information
Product and Service Information. Regardless of where people are, those with
Internet access have at their finger tips a repository of information on
product and service prices, quality, and availability that would have been
unimaginable before the Web. Manufacturers, retailers, and online magazines now
offer detailed product, warranty, and repair information, along with
comparisons of competitive products. Rather than comparison shopping at
brick-and-mortar stores, consumers can now get reliable information
conveniently on the Web.
Consider the information about automobiles now available online, from dealer
costs and expert reviews to the availability of options and detailed product
specifications. Consumers cannot test drive an automobile on the Web, so auto
buyers still want to visit car dealerships. (Consumers are also constrained by
laws in most states that restrict the sale of new cars to licensed auto dealers
who cannot also be car manufacturers.) However, consumers who do their homework
online can approach dealers with a wealth of information that can strengthen
their bargaining position and reduce some of the stress of car buying.
According to J.D. Powers and Associates, while only 2.7 percent of the people
who purchased a new vehicle during the first quarter of 1999 purchased their
car through an online buying service, the percentage of new-vehicle shoppers
using the Internet to help them shop increased from 25 percent in 1998 to 40
percent in the first quarter of 1999, and it is projected to reach more than 65
percent by the end of 2000. (19) After purchasing a car, consumers can find
other valuable information online, including authorized repair locations,
warranty information, recalls, and information to troubleshoot problems.
Health Care. The Internet increases the ability of patients to participate more
actively in matters related to their own health. A recent study by the
California HealthCare Foundation cites estimates that the Internet offers at
least 17,000 different health care sites and that some 24.8 million U.S. adults
have searched for health information. This number is projected to grow to over
30 million during 2000. (20) Jupiter Communications has estimated that 45
percent of online consumers access the Internet for health information. (21)
Today, some patients arrive at their doctors' offices carrying possible
diagnoses downloaded from sites such as Healtheon/WebMD or America Online
Health Channel. In addition, people with Internet access can obtain information
about their healthcare plans, find doctors, and in some cases submit claims for
fee reimbursement. Doctors, too, are increasing their use of the Internet as a
source of information on the latest news in medical research. Other aspects of
health care delivery, including laboratory results reporting, prescriptions,
office visit scheduling, and records transmittal may move online once issues
such as privacy and authentication are resolved.
Employment. Many private companies now post job openings on their company's Web
site, and in some cases these sites can accept online applications. In their
2000 survey, recruitsoft.com and iLogos Research found that 79 percent of the
Global 500 used their Web sites for recruitment compared with 29 percent in
1998. Approximately one-half (46 percent) of the Global 500 both posted
openings and accepted applications online, while one-third listed openings
online, but encouraged application by mail or fax. Web site recruiting among
the North American-based Global 500 was even more prevalent, with over 90
percent of such firms participating and 71 percent accepting applications
online. (22)
In addition to firm-specific online recruiting, a growing number of Web sites
offer online employment classifieds, grouping together requests from multiple
employers. Some of these sites are maintained by newspaper companies,
traditional providers of employment classifieds. Others have been established
to specialize in specific employment areas. For example, the U.S. Government
maintains www.usajobs.opm.gov, a site containing a listing of current Federal
job openings, as well as general employment information.
Some observers believe that effective online recruiting faces substantial
barriers. A recent Forrester Research study, for example, noted that "[t]o
reach a critical mass of Web users, recruiters must manage multiple job
postings, multiple site relationships, and a flood of resumes. Meanwhile, job
seekers must explore listings from both companies and recruitment agencies and
submit multiple resumes." (23) As a result, Forrester and other analysts
believe that these job-classified sites will be superceded by consolidated
online career networks that aggregate training, assessment, and placement
services.
Research. The Internet's original purpose was to disseminate research and
information, and this use continues to be important today. Educational research
and technical materials are available online to students, researchers,
scientists, and engineers anywhere in the world. Many universities make their
research papers available on the Internet, and most academic and professional
journals are available online (though often on a cost basis). In addition,
previously unpublished information is increasingly available on the Internet.
For example, students can download lectures at their convenience, and live
classroom presentations are broadcast on the Internet with students submitting
questions via e-mail.
The Internet also provides access to research of a more general or recreational
nature. News with frequent updates is available from local, national, and
foreign sources, as are weather and traffic information. Numerous online
services also provide information covering everything from the floor plans of
museums and restaurant reviews, to local television and radio listings. During
several recent foreign conflicts and natural disasters, the Internet played a
role in providing news and information when traditional media outlets were
closed. For example, in 1999 the independent Belgrade radio station, B-92,
continued to broadcast over the Internet even after its radio broadcasts had
been shut-down.
Digital Government. Federal, state and local governments also are rapidly
developing new ways of using the Internet to communicate with clients and to
provide public services to businesses and individuals. Activities at the
Federal level include:
* oThe Patent and Trademark Office X-Search system, available at
www.uspto.gov, enables anyone to use an Internet browser to search and
retrieve more than 2.6 million pending, registered, abandoned, cancelled or
expired trademark records. This is the same database and search system used
by PTO's examining attorneys.
* oThe National Institutes of Health offers an online service,
www.ClinicalTrials.gov, that provides information about the latest clinical
research into cancer, heart disease, and other life-threatening illnesses.
* oAt the Internal Revenue Service site, www.irs.gov, taxpayers can download
any tax forms and instructions they need.
Many state and local governments are also moving services online. Interested
individuals and businesses can find information on a wide variety of topics
such as registration (voter, business, property, pets), parks, and trash
removal. In addition, people can pay their local property taxes and parking
tickets on commercial sites such as www.govworks.com or www.ezgov.com. (24)
Online Communities
The spread of Internet access is being accompanied by a proliferation of new
community spaces online. Some of these are commercial spaces such as online
auctions that allow consumers to sell or trade goods and services. Others are
meeting spaces where individuals interact around a particular interest or
topic--from chat rooms for hobbyists, and online current events discussions, to
support groups for people facing similar challenges. In the process of
providing places for individuals to interact, these online spaces create
virtual communities.
* oWe Media, Inc, a multimedia company providing services for people with
disabilities, includes on their www.wemedia.com site a WeHomePlace for
members to meet and interact with people of similar interests and
backgrounds.
* oA community center in Arlington, Virginia provides Internet access to
immigrants from many parts of the world--including South and Central
America, Morocco, Bangladesh, and Albania--so they can e-mail friends
abroad, use chat rooms where discussion is conducted in their native
language, and read online versions of newspapers from their home countries.
(25)
* oAt www.geneticalliance.org individuals can search for support groups and
resource information for almost any genetic condition.
The Internet has also become a popular sharing tool for people to research
their family trees, organize family reunions, and share news and
photographs--all without long-distance charges.
THE RISE OF THE DIGITAL BUSINESS
While business-to-consumer e-commerce is the most visible aspect of e-commerce,
it is only a small part of what is now possible due to recent technological
advances. Increasingly, business-to-business (B2B) e-commerce is emerging as an
area of critical importance for businesses faced with rapidly changing markets
and opportunities. Transactions between businesses account for the lion's share
of commercial activity, and e-commerce technologies appear to have an enormous
potential to make these transactions more efficient. Companies are also using
these technologies to increase the efficiency of their internal operations.
Business-to-Business E-Commerce
Estimates of the dollar value of B2B e-commerce transactions vary widely. (26)
According to a summary prepared by The Industry Standard, forecasts for 2003 of
the dollar value of transactions between U.S. businesses that are conducted
electronically range from $634 billion to $2.8 trillion. This wide disparity is
due to a combination of methodological and definitional differences. (27) One
important difference is the degree to which non-Internet network transactions,
such as those conducted over electronic data interchange (EDI) systems, are
included in the estimates of B2B e-commerce. Irrespective of the dollar
amounts, the market researchers all expect strong growth as companies seek to
cut costs and increase efficiency by streamlining their purchasing, sales, and
other business processes.
At present, many firms are at the beginning stages of implementing e-commerce
technologies in their business processes. A recent National Association of
Manufacturers survey found that 68 percent of manufacturers are not yet using
electronic commerce to conduct business transactions. While 80 percent of the
surveyed firms reported having a Web site, far fewer firms reported using the
Internet for business processes such as requests for proposals, purchasing,
etc. (28) In contrast, a recent Purchasing Magazine survey shows that 38
percent of buyers currently use the Web to conduct at least some of their
company's transactions. The survey also finds that of those who do not
currently conduct transactions over the Internet, approximately 35 percent say
they will begin to conduct transactions electronically within the next year and
54 percent say they will do so within the next three years. Only 11 percent of
those not currently online have no expectation of using the Internet for
procurement. (29)
Transforming the Market Place
The potential of e-commerce technologies to transform business practices is
evident in the new marketplaces that are developing online. These important
intermediaries have emerged rapidly in virtually all industries, providing new
places for buyers and sellers to meet, allowing a variety of pricing schemes to
flourish, altering the roles of traditional intermediaries, enabling complex
transactions, and, by making vast amounts of information available at very low
costs, shifting the balance of power among market participants. The expanded
reach of these online market spaces enables buyers to solicit bids from a
broader range of suppliers and, in turn, allows suppliers to develop
relationships with additional buyers.
According to a recent estimate by the Economist, over 750 networked
marketplaces have been developed worldwide. (30) Some of these cover a wide
variety of products and a diffuse group of buyers and sellers. E-Bay, for
example, which started out providing a marketplace for consumers selling to
other consumers (C2C) in online auctions, has expanded to include B2C and B2B
transactions.
Some sites offer broader functions for more targeted client groups. Onvia, for
example, is one of the many sites seeking to be the small business portal for
goods and services. Other sites leverage existing relationships within specific
industries on a global basis. One prominent example is the new online
marketplace under development in the automotive industry. In November 1999,
both General Motors Corporation and Ford Motor Company independently announced
plans to move their purchasing operations online. Then, in late February 2000,
these two companies announced that together with DaimlerChrysler AG, they would
work to form the world's largest online marketplace. (31) According to press
reports, if completed, this exchange is expected to handle the nearly $250
billion worth of parts and other items that these companies purchase each year.
Auto executives estimate that they will be able to reduce purchasing costs by
up to 10 percent over several years with the new system. These savings are
expected to arise from increased competition, as the number of bidders for each
contract increases, and by eliminating many of the meetings now required before
a parts order is placed. "Since half of the cost of a $20,000 car lies in
purchased parts, the new system could reduce the cost of producing a typical
automobile by $1,000." (32)
Similarly, Sears, Roebuck and Company, the second largest U.S. retailer, is
joining with Carrefour SA, a Paris-based retailer, to create GlobalNetXchange,
an online marketplace for the retail industry. These two companies buy a
combined $80 billion in goods and services a year from 50,000 suppliers, and
they are seeking other retailers to join with them. (33) While Sears's current
EDI system costs the company approximately $150 per hour; their new
Internet-based exchange could reduce these costs to $1 per hour. (34) In
addition, on March 28, 2000, Boeing, Lockheed Martin, BAE Systems, and Raytheon
Company unveiled plans to develop an Internet trading exchange for the global
aerospace and defense industry. Together these companies have procurement
outlays of $71 billion. (35)
While the large buyers organizing these online marketplaces hope to achieve
significant cost savings, it is difficult to gauge a priori the impact these
new arrangements may have on their supply communities. Some suppliers and
potential suppliers that had been unable to justify the cost of EDI connections
may be much more willing to use the Internet to bid on work that they would
otherwise have missed. Concerns have been raised, however, about the potential
for these large players to use these markets to reduce competition. The overall
impact will depend on the extent to which actual efficiencies can be achieved
as opposed to squeezing supplier margins. One probable side effect of moving
these supply networks to the Internet will be to increase the level of
investment in Internet technologies.
E-commerce technologies also appear to be driving changes among traditional
intermediaries--i.e., firms such as wholesalers, travel agents, or shippers,
that add value between the production of a good or service and its sale to the
final consumer. Early predictions were that the Internet and e-commerce would
create efficiencies by eliminating the need for intermediaries. Manufacturers
and service providers would begin selling directly to the customer and
"middlemen" would disappear. However, the early speculation failed to
appreciate the important role that intermediaries play or the resourcefulness
some intermediaries would exhibit in finding new ways to add value in an online
world.
Instead of vanishing, traditional intermediaries are adapting to exploit new
possibilities as providers of logistical, financial, and information services.
Take the case of ChemConnect, an online suppliers directory that has evolved
into a global Internet exchange. ChemConnect brings suppliers and buyers of
chemicals and plastics into negotiations where the providers of intermediary
functions offer their services for bid. As buyer and seller work to reach
agreement on a purchase, intermediaries provide estimates of costs, including
carriers (ocean, inland marine, and truck), documentation (customs clearing,
regulatory/tax, insurance, cargo surveying), and warehousing (terminal
operations, consolidation).
Internet-based market spaces also broaden market participation by decreasing
the costs of participating in B2B markets. For decades, large companies have
used EDI to automate routine paperwork surrounding business transactions, to
manage arrangements such as automatic inventory replenishment, and to make
purchases according to pre-established terms. Until recently, the use of this
e-business activity was limited to large volume supplier/customer relationships
because EDI required a fairly sizable investment in dedicated hardware and
proprietary software and use of expensive leased telecommunications lines. As
costs of computing power, memory, and storage declined throughout the 1990s,
the size threshold at which EDI became cost-effective also declined, but still
remained too high for many trading applications. Now, however, the Internet
with its open nonproprietary protocols and global reach has emerged as a
platform for spreading the efficiencies achievable through the automation of
business processes to firms of all sizes.
The bulk of B2B e-commerce remains EDI-based, although analysts are predicting
that most of the future growth of B2B e-commerce will be Internet-based. The
National Association of Manufacturers estimates that among businesses that
currently use the Web for business, 17 percent are using it in place of EDI.
(36) The Boston Consulting Group estimates that 86 percent of the $671 billion
in B2B e-commerce in 1998 was EDI conducted over private networks. However,
they estimate that the EDI component will fall to 28 percent by 2003. (37)
In addition, businesses and even governments have discovered the potential of
the Internet as an auction space. Businesses are using auctions to sell off
surplus goods, dispose of used equipment, and post requests for purchase. More
than 10,000 companies have posted, sold, or bought goods on the Tradeout.com
site, which focuses solely on auctioning surplus goods. (38) Dovebid, an
established used-capital asset disposition auctioneer, has set up an online
auction site with more that 200,000 items and is reaching out to a global
market. (39)
Business purchasers are also using online auctions to request bids. Owens
Corning used an online reverse auction run by Freemarkets, an online auction
company, to put bids out for corrugated packaging materials for its 21 U.S.
plants. At the end of the day the company had 17 two-year contracts with
corrugated packaging material suppliers and had saved an estimated 10 percent.
(40)
E-Business Processes
E-commerce transactions represent only one way in which innovations in
computers and communications can add value and make business processes more
productive. All business processes have some information component.
Specifications for a design must be shared between architects and engineers.
The latest maintenance information must be delivered to the mechanic working on
the airplane. The manufacturer of auto interiors needs to know how many blue
interiors must be delivered for a manufacturing run at the auto plant. All of
these processes benefit when information flows faster, more accurately, and in
greater detail to the people who need it.
Many companies are experimenting with processes that enable them to share
information over a network or the Internet. For example, BOC Gases replaced a
slower, more costly certification procedure with a process that sends product
certification results over the Internet for customers that need specialized gas
products. (41) Similarly, John Deere Construction Equipment Company uses the
Internet to improve customer service by creating a portal providing component
life cycle data to enable customers to manage component replacement before
failure. (42)
Businesses are also using networking technologies to improve processes, such as
design and engineering, reducing development time, simplifying manufacturing
processes, and integrating design processes. Examples include:
* oUsing Internet technologies to coordinate product design. Conexant, a
semiconductor producer, has created Web-enabled tools for its new product
development process. The company's 2,000 engineers use a standard Web
browser to access the company's portfolio of projects and obtain
information on phase of development, team composition, deliverables, and
time frame. (43)
* oUsing communications networks to improve human resource functions. Shaw
Industries, a manufacturer of floor coverings, uses an internal network to
support compensation planning and retention initiatives for the company's
36,000 worldwide employees. (44)
* oUsing wireless networks to manage inventory more efficiently. Cablevision,
a telecommunications and entertainment company, uses wireless mobile
computer appliances over a local area network to process inventory
transactions in real time, at the point of activity. Previously,
Cablevision workers made inventory transactions, such as transferring
inventory between warehouses or scanning new shipments, by filling out
forms by hand for later entry into a central computer. The new system
eliminates the daylong wait to update the main database, so that inventory,
such as cable boxes, can be located instantly. When the installation is
complete, the project will cover 43 warehouses across four states. (45)
* oUsing extranets to provide training. Service Experts, a company
specializing in the installation and maintenance of heating and cooling
systems with 150 locations in 34 states, established an extranet to serve
as an online resource library that includes "3-D diagrams with training
manuals and step-by-step instructions for solving problems." (46)
* oUsing the Internet to provide customer services and answer frequently
asked questions. Many companies are using their company Web site to offer
customer services and product information. Ford offers product information
and links to dealers, and their "Owner Connection" Web page provides Ford
car owners with maintenance information, safety tips, service reminders,
do-it-yourself pointers, and online manuals. (47)
* oUsing the Internet to reduce project administration and management costs.
Over the year-long process of building a hotel in San Francisco, contractor
Swinerton & Walberg estimates that by using an Internet-based project
management system they will squeeze about $110,000 out of the project's $11
million budget. (48)
AN INCREASINGLY WIRED WORLD
Not only are individuals, businesses, and other organizations going online in
increasing numbers, but the products and services used in everyday life are
becoming increasingly integrated into the networked economy. Certain goods and
services can now be delivered directly to the buyer over the Internet. And
Internet connectivity is no longer tied to the desktop computer.
The Internet provides a new way to have goods and services delivered. Music,
legal advice, software, opera tickets, news reports, books, photographs,
movies, and product designs--can all be downloaded directly into a computer.
According to Forrester Research, while only 3 percent of all current online B2C
sales consist of digitally-downloaded products, this level could reach 22
percent of all online sales by 2004. The most dramatic growth in direct,
digital download sales will probably be in the music sector, where such sales
could rise from 0.1 percent of online sales in 1999 to 25 percent in 2004,
followed by software (rising from 7 percent of online sales in 1999 to 40
percent in 2004) and books (rising from 1 percent of book sales online in 1999
to 13 percent in 2004). (49)
Digitalization is also changing the design of products, so these products can
be networked. For example, home-electronics producers have joined together to
develop Home Audio Video Interoperability (HAVi), an open,
consumer-electronics-industry standard that will allow digital audio and video
devices from different vendors to work together when connected to a network in
the consumer's home. (50) Appliances that can be networked are beginning to
emerge in other areas as well.
New home electronics and appliances will not only be networkable, many of them
also will be "network appliances"--that is, appliances that can access the
Internet. The television has long been viewed as a potential portal for
Internet access. More recently, simple, low cost dedicated Internet access
devices have been introduced. In addition, connectivity is increasingly being
viewed as an important feature to add to existing products. At recent trade
shows, for example, home appliance manufacturers have unveiled prototype
Internet-enabled refrigerators and ovens that offer features such as e-mail,
calendar management, automated grocery ordering, and tracking of the service
requirements of the appliance.
We are only in the early stages of designing and developing new products that
take advantage of open networks. This development is still limited by slow
connection and transmission speeds and the lack of standards to facilitate
individual appliances communicating with one another. As these limitations are
addressed, however, the developmental pace of digital products is likely to
increase. New technologies that exploit the potential of wireless connections
are already creating new ways of communicating and conducting business,
reconfiguring many traditional industry and product definitions. As Internet
access migrates from the desktop computer to a range of products, the lines
that now separate the transmission of voice, data, and pictures will disappear.
New devices under development today will combine cellular telephone,
geopositioning, and Internet access in a handheld or automobile device. The
major automakers, for example, have already announced plans to equip some of
their automobiles with voice activated Internet access and handheld and
automobile Internet access is already available in Japan. (51)
The technologies that make the digital economy possible are still evolving, as
is the environment in which these technologies are being used. Many businesses
and individuals remain hesitant about e-commerce because the business
environment online does not yet have the same predictability and reliability as
it does offline. And the medium itself offers new challenges. For example, our
ability to deliver digital goods electronically has, in many ways, outpaced the
resolution of difficult legal and policy questions associated with it, such as
how to protect intellectual property rights in an environment where it is easy
and inexpensive to make virtually perfect copies of digital originals. Efforts
are underway, within the U.S. Government, in multilateral organizations, and
within the private sector, to resolve thorny issues related to privacy,
safeguards for children, consumer protection, information security,
authentication, intellectual property rights, jurisdiction, taxes, and tariffs.
Full realization of the economic promise of information technology depends on
the development of the same safeguards and predictable legal environment that
individuals and businesses have come to expect in the offline world.