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Monday, May 3, 1999 Published at 15:51 GMT 16:51 UK

Business: The Economy

E-business is booming

Computer companies are racing to provide e-commerce services

By BBC News Online's Kevin Anderson

When Recreational Equipment Incorporated, an outdoor sporting goods store based in Seattle, launched its online store, they had their first Japanese customer within an hour.

[ image: Online stores give companies access to global markets]
Online stores give companies access to global markets
Companies often see a payback on their e-commerce investment within a year as their sales triple, quadruple or sometimes increase 10 fold, says Jan Walbridge, spokesperson for IBM's Global Services Division.

"It's not a question as to whether they can afford to go on the Internet. They can't afford not to take advantage of the Internet," she says.

The need for speed

Companies are rushing to get online, not only to sell their products and services to customers, but also to each other.

But going online can tax a company's IT resources, and with the push to get online quickly, many firms are looking for business partners providing one-stop solutions.

Companies reinvent themselves

To meet this demand, firms such as IBM, Hewlett-Packard, Xerox and the alliance of AOL/Netscape and Sun Microsystems are transforming their businesses.

Each of these companies have recently made major announcements on expanding their services business, with Xerox marking a fundamental change in its company focus.

"The real future as we look ahead is that we are going to become more a solutions company and less a hardware company," said Xerox Chief Executive Rick Thoman.

Digital document sharing and network services currently account for just 16% of the company's revenue, but Mr Thoman predicts that "within a decade, (they) will account for 50% of our overall revenue".

The top man at Xerox appears to be taking a page from his old employer, IBM.

IBM chairman and chief executive Louis Gerstner, who just a week ago announced a first quarter net profit of $1.5bn, has already pointed out the increasingly important role of the services business for his company's bottom line.

Sam Albert, an independent computer analyst who follows the company, says: "This was the first meeting of IBM stockholders where IBM was a services company."

Mr Gerstner did not say that IBM is morphing into a services company. But according to Ms Walbridge the sector already made up 37% of IBM's revenue during the first quarter of this year.

And she points out that "not only do the numbers say that we are a major piece of the business, but a lot of our engagements are beginning in services".
[ image: Hardware companies see huge opportunities selling services]
Hardware companies see huge opportunities selling services

To make life easy for budding e-commerce companies - and to increase its profit margins - IBM tries to become a one-stop shop.

When Recreational Equipment opened its online store, IBM RS/6000 servers powered the site, IBM Firewalls provided the security, IBM's DB2 database handled the inventory and IBM's Net.Commerce software handled the transactions.

Huge market potential

Industry analyst Sam Albert believes that the IT services sector will grow rapidly: "As everything goes digital, as businesses take care of their suppliers and customers on the Internet, the services opportunity is huge."

The computer-consulting firm International Data Corporation recently estimated that spending on e-commerce services in the United States alone would grow from $2.9bn in 1997 to $22.1bn in five years.

IBM began 1999 with $51bn in services contracts, and the company has added an additional $10bn in new services contracts during the first quarter.

Mr Gerstner told stockholders, "services is the fastest-growing part of the information technology industry, and our services business is growing 20% a year - and 50% faster than the overall industry".

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