Commentary & Analysis
The Second E-business Revolution
By WhatTheyThink Staff
Published: July 14, 2003
By: Frank J. Romano July 14, 2003 -- Since 2000, dotcoms have been dotbombs. Right? Wrong! So says BusinessWeek (BW) in a recent article. The Net is finally delivering on many of its promises-later, rather than sooner. The Internet is connecting people to businesses and businesses to businesses, helping companies cut costs, speeding innovation, and upping productivity. Productivity will rise from the current 1% to 3% annually, to as high as 5%-potentially doubling the U.S. standard of living in a decade. This will be a direct result of the new Internet revolution. Projections in 1999 had U.S. e-commerce between businesses reaching $1.3 trillion by 2003. But the market did better than that: networked business-to-business transactions are presently at $2.4 trillion, says Forrester Research. Forrester's 1999 prediction that U.S. consumer e-commerce would reach $108 billion by 2003 wasn't far off-$95 billion is projected for this year. It has been only eight years since the Web went commercial. That's right-it was one year after the browser arrived that business jumped on the e-biz bandwagon. Gains from businesses using the Net to improve forecasting, keep inventories lean, and communicate instantly with suppliers could reach $450 billion a year by 2005. Distributed across the economy in lower prices, that would add $4,500 annually to the average U.S. household's income. It's a real business transformation, and BW says it has been a real surprise. Of the public Net companies that survived, 40% were profitable in the last quarter of 2002. And half of the publicly-held Internet companies will be profitable by the end of this year. Companies have spent the last few years figuring out what really works, and they have redesigned their businesses accordingly. Broadband now reaches 19 million households, doubling since 2001, and is expected to reach 40 million users by the end of 2004, predicts Forrester. Blazing connections are transforming behavior, as consumers treat the Web like the phone or electric power; it's always there and always on. Broadband subscribers spend 58% more time online, according to a Forrester survey, and spend 37% more on e-commerce. Wi-Fi carries broadband nearly everywhere a laptop or a PDA can go, from conference rooms to the factory assembly line. Venture capitalists invested $100 billion in 6,000 high-tech and Net startups over the past decade. 2,000 have gone under or merged with other companies. But think: 35 billion song files are shared annually. Expedia helped close 13% of traditional travel agency locations last year. Dell Computer built its sales and manufacturing around the Internet. And the printing industry is still there. Businesses are focusing their tech budgets on the Internet. Spending on technology has fallen 6.2% since 2001, but consultant A.T. Kearney says e-business budgets rose 11% in 2002. The growth in e-business spending is now at 4%, but that's double the growth of overall estimated tech spending. E-business will continue to outpace tech outlays for at least two years. Like many industries, the first revolution fizzles, and the next one succeeds. Many consumers just keep going online. And that's what is doing it.