The fight for your e-business

With customers spending billions online, internet firms are scrambling for your attention. Steve Shi

If you're not confused about the "new economy", then the chances are you haven't understood the question. Or, more accurately, you haven't been listening to the cacophony of claims and counter-claims, as a rabble of rival industries ruck for the right to boast that they own the net. Companies we'd never previously heard of are wooing us from the poster sites and TV screens. Sun Microsystems tells us it "put the dot in dot-com". Breathe.com would seem to want to introduce us to the joys of respiration. NTL, apparently, has "technology tamed"; life is "better with MSN"; and Nortel Bay exhorts us in song to "come together". All very slick, all very seductive. The only thing is, can you honestly say you know what Breathe, MSN, NTL or Nortel Bay actually do?

Don't feel guilty if you can't answer that question. In this unseemly scrum for your attention, it is considered enough to get the brand in front of the public. Whether you understand what these companies do is of secondary importance - something to be sorted out later. If that smacks of a desperate scramble, then so it should. The stakes are high here, and many companies believe that a failure to stake their claim in e-business will mean nothing less than going out of business altogether. Turn to the researchers and they will gladly roll out some truly head-spinning figures in which billions are fast becoming small fry. The International Data Corporation confidently predicts that consumers will be spending $1.3trn on e-commerce by 2003. And Forrester Research estimates the business-to- business market for products and services online at $131bn this year, rising to $1.5trn in 2003. Nobody can afford to miss out on that kind of market, which is why the well-publicised outbreak of dot-com fever is not going to clear up - the more spectacular symptoms will settle down, but, from here on in, e-commerce is economically endemic.

In any given gold rush, the only people guaranteed to make money are those making the shovels. Which is why the likes of Sun, Cisco and Nortel Bay occupy the prime-time slots, the premium poster sites and the top end of the stock listings. The growth of the internet is simply astonishing. It took four years to register the first million domain names. It took three months to go from four million to five. Last year, 196 million people were using the web worldwide. By 2003, IDC sees that rising to 502 million. With that kind of growth, the people who make the infrastructure, the servers and the various forms of pipes (be they cable, wire or wireless) would be rubbing their hands in glee if they weren't too busy making money. No wonder IBM, Sun and NTL sound so confident.

Then there's the convergence factor. It's not just about web pages and e-mail being delivered to your TV. It's about a profound rethink of the way we communicate. As computer networks expand exponentially, becoming broader and faster as they go, so their capacity to deliver the goods grows with them. Technical limitations meant that the web was once all text. Now it's alive with pictures. As bandwidth rates (the amount of data that can be handled) balloon, it is becoming a medium for video. ADSL (asymmetric digital subscriber loop), now being introduced nationally by BT makes it possible to send TV-quality programmes as digital information over an ordinary copper phone line. Suddenly, websites can double as TV stations, or video rental outlets, or powerful advertising spots.

Video may be using the phone lines, but telephone conversations are likely to switch to the computer network. By digitising sound and sending it as data over the computer network, it can be sent internationally at no extra cost. The telcos may be chortling over the increased traffic from surfers, but they will mourn the passing of long-distance charges.

The smart reaction to this convergence is merging. Nortel Bay sings the praises of coming together because it was once two companies; the phone company Nortel and the network company Bay Networks - a marriage made in heaven. Telcos will continue to look to the makers of hubs and routers (the sorting offices of electronic communication) as the data demand increases. It is no mistake that Cisco, a company that most of us know only from its timekeeping at Euro 2000, is a fixture in the top five largest companies of any kind in the world. It makes hubs and routers, the hardware that manages the internet.

It is precisely because it was over-eager to hog the shovel market that Microsoft found itself on the wrong side of the law. It won the browser battle, but isn't so sure of winning the web war. That is partly because the web has changed the way that software is bought. The freely available Linux operating system is proving a threat, as is the pay-per-use approach of ASPs (application service providers), whereby you effectively rent software online, rather than buy it. The growth of ASPs is one of the quiet revolutions in business computing.

Quiet revolution is the hallmark of the business-to-business market. Portals are sites where businesses collect to trade products and services. Ariba, for example, is a site where a handful of major companies put their office supplies needs out to tender. Their combined $65bn spend means that 250,000 suppliers are on the site competing for a slice of the action. The buyers are sure of competitive prices; the sellers get their foot in the door of the big boys.

Trickle-down means that, eventually, even the one-man-and- his-van businesses will not only be buying nails and paint from the web, but will also need an online presence. Already, larger companies are forcing smaller businesses to take orders online. Online ordering systems mean that prices from rival suppliers can be checked in real time. The successful supplier may be in Singapore, but the order can be placed as soon as the barcode reader at the till notes another product sold.

Business-to-consumer sites (B2Cs, naturally) have attracted most of the media attention, not to mention the venture capital. The likes of Amazon scared the wits out of high-street retailers; but now that the panic is calming, those retailers can see that often they are themselves best placed to use their brands to make money online - it's the "clicks and mortar" approach.

Delivery has often been a sticking point for online businesses, but there is a new generation of fulfilment companies popping up - companies such as Webvan and M-box, which offer alternatives to the big guys such as Federal Express. As well as post and courier delivery, your online shopping can now be picked up from your corner shop, the petrol station, or even delivered with the milk.

The next step is WAP (wireless application protocol) phones that access the web. There are services available that let you type in the name of the product you're looking at in the shop and will come back with a list of the best prices for that product. The role of mobile phones in web-shopping is one of the reasons why phone companies bid billions in auctions for the licences to operate the next generation networks.

Financial services, banking, travel - some things are so suited to the web's rapid delivery of information that it's hard to imagine doing them any other way. EasyJet plans to phase out everything but web purchasing of tickets. Combine that with the free, unmetered web packages that phone companies are offering and you have a society that won't hesitate to check the web to get the best price before buying anything.

No wonder they're fighting for your attention - let's just hope we recognise the world when the dust settles.

Steve Shipside writes on the internet and technology for the Economist and Internet Magazine

This article first appeared in the 10 July 2000 issue of the New Statesman, Education, education, profit