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Christopher S. Rollyson

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Resources/Papers/2001 Vision and Predictions

E-Business and web applications are based on several truths that will drive their development and adoption in 2001, irrespective of what happens in the economy as a whole.  2001 will prove to be year that "e-business grew up," as recognized by the whole family, save a really wacked out uncle or two.  Last year, the kid sister got it where only close friends had been there the year before.

This development is part of the larger theme of the business world's building a new synthesis for how it communicates and inter-relates.  During the past two years, "the old economy" has been confronted by "the new economy," and the latter, although it has prevailed marvelously in its ideas, models and practices, currently has a bloody nose.

However, this phase has only been the overture.  In 2001, the old and new economies will sit at the same table and really start to talk where, during the past two years, the two were mortal enemies.  Each has seen that the other has a part in the new synthesis, and they will become partners in building it.  This is the year in which things will start to get interesting in a new way because both new and old economies will be active participants, and there will be a different kind of creativity that will be less rooted in in-your-face innovation and more grounded in pragmatism.  For example, while creating an "e"-inspired pure-play is certainly creative, it might pale beside the complexity of doing a hybrid because the hybrid will involve those blasted bits! (as well as bytes)

And profitability will start to be the rule rather than the exception ;-).

I have selected twelve predictions and trends for 2001 that are various threads of this story.  As always, I invite your comments and questions about any and all.  Enjoy!

Many of these topics are covered in more detail elsewhere; check out white papers and e-business briefs. Print version of 2001 Vision and Predictions here.

1. E-Business adoption will be strong, helped by a dark horse

Now that the Icarus-inspired first phase of the "new economy" is over, a new level of sobriety enters the scene for some of the more leading edge people.  At the same time, people in traditional global enterprises, although they may have been slower to pick things up, have gotten the picture, and they have the muscle to drive large-scale adoption of e-business ideas and strategies.  This combination of forces will produce a year that may turn out to be less hyped but will produce unprecedented e-business value.

The promise of e-business has always boiled down to reducing transaction costs.  As an early adopter of the web with a content/knowledge background, I was struck in the mid-nineties by how efficient web applications were.  The web could transform the large, bureaucratic organizations that had been 150 years in the making.  Think of electricity: the longer the wire, the more resistance and the more power needed to deliver the electricity.  Large organizations, although they deliver economies of scale in many cases, must expend massive energy to combat that resistance which is, of course, the sum of internal and external transaction costs.  The web, in having the ability to drastically reduce many (the majority?) of these transaction costs, will change the economics of large organizations.

Up to now, saving money through efficiency gains has played the poor cousin to the relentless drive to gain new revenues by developing lush new markets on the web.  Now that the existence of many start-ups and pure-plays largely depends of becoming efficient÷fast÷saving money will become a noble profession for the first time.  Look for firms to focus on cherry-picking opportunities for web applications within their customer service, distribution and operational processes.  This will have the effect of proving the value of e-business among some of the more pessimistic management, who formerly saw the web as a trivial advertising trend.  With this camp's resistance largely gone, a groundswell of adoption will pick up steam within large corporates in 2001 and 2002.

2. BAMs * will pursue a new wave of successful spinouts

The well publicized BAM spinout disasters of the last 18 months will not deter them from a new wave of spinouts because, in many cases, separating the new venture from the traditional business is key for the new team to maintain focus and for the old team to be at arm's length.  The early wave of spinouts failed largely because they were not built on solid business strategies, and there were few people who had the know-how to pull it off: corporate managers did not know how to operate web businesses, and Internet executives that were brought in didn't know how to make things work in a corporate environment.  Large organizations trying to work on Internet time just for the sake of it will certainly fail÷and they did.  The next wave will be much more on point. 

One thing that BAMs discovered in 2000 is that they had time, which is exactly what they needed.  The new efforts will more often be based on strategies that make sense.  The HR situation has improved: more web executives who have come down to earth, and corporate managers have been cramming.  The bottom line: there are significant incentives to work together, and it will happen.  Now that BAMs have stopped panicking, they will focus on what they do best: making money.

3. The pure-plays that survive will run themselves like traditional businesses

Although this prediction seems totally ho-hum at first blush, I make it not with the trite profitability rationale with which you are already too familiar.  As I have written elsewhere, the "new e-business world" will be the result of the integration of the old and new.  The value that e-business offers has not developed in a vacuum: e-business approaches, strategies and solutions have developed within the context of the offline world.  This matters because the majority of the ultimate arbiters of value÷people÷have formed their values in an offline world.  Therefore, the way in which e-business produces value will involve a significant convergence between the offline and the online.  The latter and, to be fair, many of the journalists that covered the space, espoused that the new would overtake the old, with no end on sight.  Of course, that is happening, but not in an overnight tidal wave.  It will happen as integration happens.  Pure-plays will talk less about changing the world, and they will relentlessly pursue industry domain knowledge to run their businesses. 

4. Internet time: the fate of the speed imperative

The web arguably entered main street in terms of the collective imagination in 1999, and one of the most striking things about it came from the potent hyperconnectivity/digital brew: we could think it and communicate it quickly.  Ideas propagated almost instantly, and distinguishing between compelling ideas and bankable reality was not easy.  There was the illusion of speed, almost as if the tortoise/hare story had been a dream in which the finish line had been inside a theater, and the hare had arrived at the theater, but with no money.  The tortoise, eating the hare's dust, almost came unglued due to fear, but he kept it together by walking while the hare sped everywhere to find his wallet.  Now the tortoise is finally enjoying the play while the hare still finds that wallet illusive and hasn't entered yet.

In 2001, time to market is still critical, but it's not intensive-care critical like it was in 2000 and 1999.  Rather, the balance will shift in 2001 to foregoing speed to consider the bigger picture.  As my colleagues in logistics and supply chain strategy always say, delivering 99 links of a 100-link supply chain doesn't cut the mustard, and that truth lends an element of the absolute to e-business.  Speedy Internet-driven point solutions may create benefits, but they ultimately pale in value to the real, 100-link solution.  Put another way, it was much easier to get to market with a business that was pure "e" in concept, when the bricks world was out to lunch.  During 1999-2000, e-business was E-business, and it will shift to being e-BUSINESS in 2001.  Think of it as Internet time with a reality handicap.

5. Alliances between pure-plays and BAMs* will carry the day

The smartest players will think about their strategy in terms of value networks.  Given a bits and bytes world, what nodes of the value network do they want to claim and why?  Given the generalization that pure-play "e" people know bytes better and that bricks executives know bits better, achieving market position through alliances will be an attractive option for many players.  One of the best examples of this is the deal in which is acting as an e-distribution channel for ToysRus products.  The latter, having had several well publicized debacles when it attempted to design, build and manage its own site, decided that its nodes were not in website design and management., for its part, has a strategy that seeks to leverage its prowess at facilitating buying on the web to many web-appropriate products.  At first glance, this alliance looks to produce extensive value for each party, and it will be interesting to watch this year.

To work, these alliances must be built with a strong understanding of the nodes of each party, as well as the complexity of process.  Regarding other pure-plays and BAMs, they will be limited to the relatively small number of e-tailers with standout skills like's.

6. Mass matters

During the past two years, it has been fashionable to belittle the value of BAMs.  After all, it was obvious that they were too big.  They were slow, they lacked innovation and didn't get the web at all.  Although these three things have been accurate observations for the past two years, they overlook much of the value that BAMs hold.  The global enterprise is a massive configuration of nodes÷and configurations of nodes, such as supply chains.  These configurations are not able to change quickly, whether or not some nifty new technology emerges.  The B2B world is far different from B2C, as we learned in 2000.

Another powerful thing that BAMs understand is economies of scale, which I believe will become increasingly important as the structure of the business world changes.  Why?  As the hyperavailability of information grows, in many cases, product/service life cycles will shorten and commoditize.  The ability to provide commodities effectively over time is largely driven by economies of scale.  One other BAM advantage that you'll hear about continually this year is their ability to fund on-line ventures with their off-line businesses.  In a war for Late Majority and Main Street consumer adoption of B2C e-commerce, the attrition factor will be immense.

7. A new, overdue, oxymoron

Yes, it will be something like "website benefits realization" or "website downsizing," take your pick.  In 2001, look for corporations to reexamine the value that they are getting from their vast holdings of websites.  The fact is that most websites have not performed from an economic point of view, but executives have not cared thus far  in their rush to get to market.  Dotcom mania also swept corporations, who felt that they had to be on the web no matter what.

For the same reason that dotcoms now have to show a profit, corporate executives will be shocked to learn that average big name websites cost at least $10 million per year to operate.  Many corporations have between 100-200 websites, totally over $1 billion per year in operating costs. 

This realization will catch many by surprise, and there won't be an immediate solution at hand.  Everyone knows that websites do produce value, although how and how much is still in question.  If an executive has 75 websites and s/he would like to scale back on the operating cost, this is only possible when one knows the value that each contributes.  Fulfilling this wish will be further complicated because corporations do not have the expertise in-house to assess the effectiveness of their web programs, and their web consultancies obviously have mixed feelings about doing it.  Look to the Big Five to replay their responses to the ERP fiasco by creating "benefits realization" programs.

8. will become known as a BAM* enabler extraordinaire

I believe that is peerless in its knowledge of overall B2C e-commerce regarding bits products.  One only need to interact with its sites to know that this company totally "gets it" with respect to buying bits products (as opposed to bytes) on the web.  Having recently pioneered a web usability diagnostic project, I wasn't surprised to find that was best practice in many categories.  Another data point is Forrester's new "Power Rankings"; is the only entrant in so many categories, including computing, general merchandise, toys, electronics, movies, music and, by proxy of its partner, health.  In all areas, was ranked number two, in many cases barely beaten out of the number one spot (except drugstore took #1).

This attests to's mastery of B2C e-commerce: its $3 billion business is a roll-up of several retail businesses in books, movies, electronics and the others.  I believe that it will capitalize on its singular mastery and learnings by carefully doing other deals in key areas.  The ToysRUs deal is a harbinger, and will be able to take its pick of partners if the ToysRUs deal goes well.

Of course, all that touches does not turn into gold.  It has invested in several losing ventures (one,, I was especially sorry to see go), but these have also contributed to its knowledge and expertise in what works and what does not. 

Most corporate venturing arms make "strategic" investments, and I believe that is no exception to this rule.  Its goal is to maintain a current understanding of how consumers prefer to acquire, manage and own consumer products in almost every category.  Each product is a new lens through which its collaborative filtering and profiling technology "understands" consumers.  By integrating all these data points over time, can have an unparalleled, scaleable "understanding" of consumers, which could give it a lead that would be very difficult to overcome due to the number and breadth of customer "transaction relationships" it will possess.

9. E-Markets and netmarkets: a mixed year

"E-Markets," a term I'll use here for consortia of BAMs (like Covisint), and "netmarkets," which are created by entrepreneurs as market spaces to aggregate buyers and sellers, will see moderate gains for the year as well as a quiet shake-out (relatively quiet because there is such a din of start-ups going under and the e-markets that fail will likely die the slow death of lack of funding and momentum).  BAMs' realization that they now have time to pursue their e-business projects will enable them to proceed with their e-markets with more confidence.  Those e-markets that are built on solid business grounds will make slow gains for the year÷slow due to the complexity of negotiating information sharing deals with erstwhile competitors, not to mention technology and process issues.  BAMs have realized that they have to pony up some volume to drive through their sponsored e-markets, and these transactions will serve almost as R&D to test the fledgling e-markets.  Netmarkets will try to peddle their insights and technology to corporations and to e-markets.  The e-markets will serve as hubs within the larger network in that they will have the heft of the kind of customers that everyone wants.

10. The fate of start-ups and VCs

If one reads these predictions from a "we're going to change the world" perspective, the picture may appear bleak.  From a holistic point of view, however, I believe that the 1998-1999 decade (Internet time, of course ;-) will be remembered as a heady time that was made possible by the fact that largely Early Adopters were there.  Get a crowd of Visionaries and Early Adopters in a room, omit Pragmatists and Main Street, and you're in for a refreshing, mind-expanding experience! 

The "start-up" entered the widespread popular imagination during the Internet decade as a vehicle for raw innovation.  Today, the era of "any guy who could fog a mirror" getting funding is obviously over.  The main difference now is that more traditional business practices and principles are involved with start-ups' life cycles.  All VCs, bankers and private fund managers are currently trying to clean up their portfolios and cut their losses, and this has produced an era of relative conservatism in their outlooks.  At the same time, however, all appreciate that innovation can change a lot, fast, and those who understand, or are lucky, can realize handsome returns.  No one has forgotten that, and start-ups that really know their value propositions and that have expectations of running their businesses for a good many years before exiting will continue to do well.  Again, it is a synthesis; the reason that BAMs are doing spinouts is precisely to try to create some of the advantages that start-ups have: focus, small teams, and rapid decision making.  Start-ups still have those advantages.

11. Coming attraction to the Late Majority: supply chain

A useful metaphor for an enterprise is a factory that has customers that buy its products as well as suppliers from whom it buys inputs (raw materials).  Of course, one enterprise's product is another's input, hence a "chain."  In fact, some people go as far as to say that an enterprise is largely defined by its position within various supply chains.

Supply chain consulting and redesign is very hot right now and will crescendo beginning in 2002-2003.  Supply chains are inherently very expensive because most enterprises, when deprived of their inputs, will stop production and, depending on how capital-intensive the enterprise is, that threat is usually extremely costly, which drives managers to maintain enough inputs to run the enterprise, plus a "safety stock" to cover contingencies.  Supply chain cost, because it is incurred largely through the lack of appropriate information, is a perfect e-business target: web-based applications can go a long way in providing real-time information so that every link of the chain can be informed about demand on a more real-time basis and diminish safety stocks and other inventories.  Obviously, this explanation is a simplification: supply chains and technologies are very heterogeneous and not easily integrated. The Holy Grail is the real-time supply chain in which each "link" takes its message from the end demand signal, not from its neighbor, so everything tends toward just in time.  That is many years off, but in 2001 supply chain will begin to enter the collective imagination. 

12. E-Business Is Business

The first phase of "The New Economy" was Internet-focused because the web was the most powerful example of the mix of hyperconnectivity with digital information capability.  The digital component was key because it brought digital leverage to the table.  For example, I could say that the telephone has a higher "hyperconnectivity quotient" that the Internet because I can connect with more people with the telephone than I can with the Internet.  However, the telephone is painfully analog; the effort it would take for me to call 1,000 people would prevent me from doing it, even though I could reach more people.  Another example: doing direct mail (once it's printed, it's analog) to 1 million people over a period of 2 months when, suddenly, something important happens after a month that requires the message to change.  Now I have 1 million pieces in the mail with wrong information.  Hyperconnectivity allows me to forgo the paper printing, and I just tweak the file on the web server to update the information in the direct mail example.

As e-business, which I loosely define as using web applications/processes/strategies to redefine business, enters the corporate world in a big way, as it will continue to do this year, it will become more mainstream by definition.  That was the turning point in 2000 for me; BAMs realizing that, although they had been scared to death by all the start-ups' digital sabre-rattling in the first quarter of 2000, they would have the time they needed to undertake the daunting task of seriously reinventing their enterprises. 

This is going to be a long process because the revolution has been subsumed by the Late Majority and Main Street (if one takes the Visionary/Early Adopter perspective).  This could be a bit of a downer in a sense because some of the Early Adopter cachet goes out of the thing; however, if one is interested in old-fashioned economic value created, there will be nothing like this stage of adoption to produce it.

Print-friendly version of 2001 Vision and Predictions (pdf)

*BAM =Bricks And Mortar ;-)

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