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Friday, 4 February, 2000, 18:05 GMT
E-business: opportunity or peril?
E is for expertise and energy - not for easy

By BBC News Online's Iain Rodger

Get online or go out of business. That appears to be the received wisdom about the future of e-business.

We are in the grip of internet fever, as companies and individuals rush to get an e-business up and running before it is too late.
Blair: See the internet as an opportunity or it will be a threat.
The chairman of Intel, Andy Grove, has been widely quoted as saying that in five years' time all companies will be internet companies or they won't be companies at all.

Some critics have pointed out that Mr Grove has a vested interest in stoking up the rush to get online, but there are many other influential voices saying the same.

In the UK, the Prime Minister, Tony Blair, has been vigorously urging business to embrace the internet or risk bankruptcy.

Key to success

Even so, in amongst the din of the internet revolution, a new watchword may be also heard: "caution".

Lured by the prospect of a fast track to untold riches, both budding entrepreneurs and corporate heavyweights run the risk of losing sight of business fundamentals.

A good idea and the means to exploit it are essential, but the difference between success and failure in business - online or traditional - ultimately comes down to pleasing customers and beating off the competition.

Market awareness

This involves understanding the market. Some businesses are suited to trading exclusively online, such as electrical goods; others are little suited to it, for example retailers of luxury goods like designer clothes; while the majority fall in the middle.

They need a balance between online and traditional operations. In the UK, for example, the High Street banks are encouraging customers to use online services so they can slim down their expensive branch networks.

But some customers will continue to demand that they retain a High Street presence. There are services where some customers just want to see, and feel that they can trust, the salesman. There will also need to be a continuing network of cash machines.

E-business will be mega for the next five years

PricewaterhouseCoopers' Robert Conway
In the rush to get online, some businesses are in danger of losing sight of what their customers really want.

It's a difference of approach. Some firms are simply putting their traditional operations on the web. Others are using technology, including the internet, to help them make savings on overheads in an essentially traditional business.

Some more sophisticated operators are taking advantage of the net to cut out layers of 'middlemen' between the producer and the consumer, making huge savings, and also extending into new markets.

Huge changes

Currently, this is where the big money is to be had. Why would any producer market its wares through a network of expensive distributors and retailers when the internet offers the opportunity to go directly to the customer?

These processes alone are forcing firms to make huge changes - a cursory glance at the number of IT-related jobs advertised in the quality newspapers is all that is needed to see just how huge.
Internet sales
63% of European companies now selling on the internet
Ability to reach new markets seen as main benefit
Security seen as main concern
Data: KPMG
They are also the reason why it is the business community, and not the consumer, that has been driving the development of the net.

Despite all the hype about shopping online, e-commerce is primarily a business-to-business affair, and will remain so for the foreseeable future.

This progress is typical of the first stages of development of new technology, and may be compared to the way early motorcars were designed pretty much as carriages with an engine where the horses would have been.

Pioneers

The innovative designs that take the world by storm are few and far between but it is these pioneering concepts that shape the future.

With that in mind, the big consulting firms, IT and telecoms companies - and a large number of ambitious start-ups - are working hard to find that rich vein, saying that the ultimate prize will be won by those who innovate successfully.

One of the global consultancies, Bain & Company, recently announced the launch of Bainlab - a subsidiary devoted to developing and funding internet projects.

They, along with rivals such as McKinsey, accountants like PricewaterhouseCoopers and Arthur Andersen, and online professional services firms such as Business Incubator, have realised the value of getting involved early in online start-ups.


They are spurred on by forecasts suggesting that revenues from e-commerce in three years' time will be in excess of $1,000bn.

Some studies - for example, by US research group Forrester and accountants KPMG - suggest much higher figures.

In exchange for a fee or an equity stake in the new company, these firms are prepared to offer assistance across the board - from finance to specialist expertise and even premises.

Although Bainlab's Nick Greenspan says thinking laterally about how the future will be different and seizing that opportunity before anyone else does is very much the hard way to profit from e-business.

Failure rate

PricewaterhouseCoopers' Robert Conway says e-business is a top priority for his company and that it will be "mega" for the next five years.

Bain's Michael O'Sullivan agrees but warns that an inevitable consequence of the rush to set up is that over the next few years many e-businesses will fail - most of them small companies falling by the wayside as the few who get it right stake out the market.

Being a pioneering entrepreneur is the hard way to profit from e-business

Bain's Nick Greenspan
Particularly exposed to failure are projects launched by innovative e-entrepreneurs with a brilliant idea. Few of these ideas will get the support of start-up incubators because of the risks.

Finding backing for such projects is remarkably similar to the process of getting a script made into a movie - an interesting development in an industry with its spiritual home in Silicon Valley, a virtual stone's throw from Hollywood.

Pitching

It involves feverish networking - talking avidly to people through organisations like First Tuesday, which was specifically set up for the purpose - and convincing those with money or contacts to back your project.

For most, it is a demoralising slog of pitching, dealing with repeated rejection and pitching again. Even if the project is selected for development, the majority end up being shelved.

So, while few disagree that exploiting the internet is becoming essential for businesses worldwide, it is equally important to remain focused on business fundamentals.

When it comes to e-business, e stands for expertise, endeavour and energy - and definitely not for easy.

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