Tuesday, May 22, 2001

No end to the Internet free-for-all

Much has been written about how the free and easy age of the internet is rapidly coming to a close. Broadband is widely thought capable of reintroducing the metered existence we all eked out in the bad old days, and Big Music’s war against Napster and the like seem certain to draw the curtain on the internet’s own phase of primitive communism. So, why am I not so sure?

So few of the heady predictions of the past few years have been near the mark that it’s easy to be sceptical of another rash of forecasts. True enough, having a neat business idea is no longer enough, if it ever was. Its also true that those dotcoms that did survive are now turning on the clients they once succoured with charges that would make the innkeeper in Les Miserables blush. True also, that Telco’s in Europe have been so badly hit by the fees demanded by 3G auctions that they’d aim to screw the last drops from any revenue model. But all this notwithstanding, what is to say that consumers will actually agree to foot he bill? Let’s rehearse the arguments.

The capacity of copper wire, the asset value of which has already been long written off in most cases, could deliver free, or near-free, content into peoples homes both effectively and efficiently. Any Telco provider looking to increase market share only needed to ensure that web access was routed through his wires, to raise the handsome spectre of cake tomorrow. Up to a point.

Consumers got greedy. No longer content with static websites with the odd bit of Flash. Now they wanted streaming media, MP3 files, movie clips, WebTV, peer-2-peer, so much more in fact that what seemed the almost limitless capacity and speed of copper became rather pedestrian – the sexy things were happening elsewhere. This, the argument goes, led to broadband, in turn leading to the need for a new infrastructure and the ability to charge for those services.

Like the argument with SMS messaging, whose pricing is virtually invisible, most of us would like some of the leading edge web services delivered to our PCs if they’re free, but to pay for them is a different matter althother. If fees were charged, then I think we would take a much longer more critical look at the services on offer, and compare them with, say, our cable TV services. In that case, it’s fair to say that most of them are likely to come up wanting, in the short term anyway.

As with 3G, the same with file sharing. P2P undoubtedly has real potential (more on that next issue), and although its commercial utilisation is in its infancy, it has already forced a wholesale rethink of ways to safeguard IPR. Now I’m as keen to pay for my music as the next impoverished techie, but the latest thoughts about how to shackle file sharing are likely to prove as ineffectual as demonstrating against it on Parliament Square.

The concept of Digital Rights Management (DRM) has gained credence in the US, allowing embedded rules to restrict the frequency of access for a particular viewer, much like the time limited access you get from a video store. A lot of bets are riding on this, with legal firms some of the biggest initial supporters for protecting documents involved in litigation.

Well, DRM may be the great white hope of Big Publishing, for both music, movies and text, but don’t hold your breath for it to draw a line under illegal copying and distribution. Send me a document embedded with DRM rules by all means, and, like an Adobe doc, I may not be able to copy it on my machine, but that won’t stop me dictating it out, re-entering it and then using the web to circulate it .

Neither will DRM stop CD-ripping of existing published music, which is always going to comprise over 90% of all in circulation at a given time. Encode new music so it can’t be copied and distributed on peer networks by all means, but as far as existing music goes, Elvis has already left the building.

And that’s where the discussion has traditionally stopped. To embed or not to embed. All other alternatives, including paid access to peer networks having been thought through and found wanting.

What is surely needed is a fundamental rethink of intellectual property and how it is best safeguarded in an age of instant connectivity. What we’re seeing instead is actually a hardening of attitudes to copyright, with lawyers and others seeking to use DRM technology to resist relatively minor infringements of IPR. And here is the flipside of the internet, what some would have liked it to be all along: the information superhighway turned into a glorified tollbooth.

While the lawyers might make hay now off this, the internet-enabled ability to copy and distribute can be discouraged but can never be halted.

We’re really at the heart of the internet here, at a place where the sheer network value of the web came into being purely as an effect of its low cost and easy access. By turning web access itself into a big buck revenue stream, and expecting people to pay a premium for neat services that they are nonetheless happily do without, then not only are we wasting our talents, we’re also hampering the development of something that in many different ways will serve us all.

Friday, May 11, 2001

A new release from “the business model formerly known as B2B”…

While the B2C web world has been battered by investors and commentators alike for their childlike approach to such esoteric business issues as profit and ROI, the gurus of the B2B world have stood smirking on the sidelines.

Not for them the vagaries of new economy investors, the fickle fortunes of the tieless vanguard of the tech revolution. They were to deliver real value to traditional businesses, shaving huge amounts off procurement costs, and bringing buyers and suppliers together in what now became called “transaction theatres”.

Oracle has been among the forefront of those heralding the new age of instant and free, having shaved an apparent $1 billion from its own costs. Notwithstanding the fact that a company that can shave this much off its costs, and then go on, as they have, to target another $1b in savings must be fairly flabby anyway, few companies in other sectors have followed suit. Why is this?

We B2B analysts are mostly to blame. Far from wanting to start a bout of self-flagellation, I’d like to illustrate where I think the much-heralded B2B revolution started to peter out.

Its business, but not as we know it

1) The netmarketeers ignored the competitive dynamics of the industries they were targeting. Why would a company want to share the benefits of its lean procurement structure with competitors by joining a public marketplace?

2) The crazy savings numbers being used were based on unconvincing industry data. Automotive analysts, for instance, have long been using a figure of $92 as the average industry cost of pursuing a purchase order. Then, using the scantiest of data, they forecast savings of up to 80% of this.
Where did the $92 figure come from? Do sector buyers in the US, UK and, say, India, share the same admin cost? What about different labour costs in these markets? Does it take account of the existing level of procurement automation? EDI significantly reduced procurement admin cost; does it take this into account? Apparently not. Are we then to assume that the automotive procurement sector is still in the age of the Flintstones when it comes to procurement? If so, clearly the netmarketeers see themselves as dragging it, screaming, into a brave new world. To their credit, automotive purchasers saw the brave new world and named it Planet Zorg.

3) Most independent net marketplaces focussed on transaction fee charging as their revenue model. Based on a percentage of transaction volume, these fees clearly increased broadly as exchange value increased, but the savings touted were static – the so-called 80% of $92 – so there was an inbuilt disincentive to increase the size of individual transactions, if those perceived admin savings were not to be dwarfed by fees.

4) In their rush to satisfy large buyers, many B2B practitioners built both public and private exchanges to represent their clients interests alone, and not of their valued trading partners. Reducing suppliers offerings to little more than commodities, exchanges threatened to undo, for the suppliers, years of hard work in developing a relationship with their chosen large customer. Saddling potential customers (not even a buyside marketplace can survive without sellers) with huge integration costs was hardly a winning strategy either.

5) Overuse of terms: remember when value-add was a phrase used purely in the Harvard Business Review? Remember when delivery and payment were central to a business model? In the B2B space, discussion about whether delivery and payment functionality “added value” to a marketplace became common. Imagine your next trip to the supermarket, without a trolley, a car park or a check out – hey, but look at those neatly stacked shelves!

6) There, we can all say, but for the grace of God go I. Few sales people have ever let the truth get in the way of a big contract, and why should those of the B2B ilk be any different? But what excuse do the analysts have? Remember CSFB: they said that B2B e-commerce would value $30 trillion (that’s one thousand billion by the way) in a couple of years. $12 trillion would flow through netmarkets alone, raising $400 billion in fee income for the owners of the market!
CSFB weren’t the worst offenders. Gartner and Forrester amongst many others dug themselves into the same hole, assuming the internet boom represented a self-evident fact of physics, alongside the ever-expanding universe. Delivered value was clearly a thing of the past – this must represent the internet’s darkest hour.
And the lights are still going out all over Silicon Valley, but where are the analysts? Here’s Gartner dated March 28th this year: European B2B will be worth Eur 1.94 trillion by 2005. Where’s the champagne?


Am I sounding the death knoll for e-procurement? By no means, but the people and companies that move procurement truly into its next stage are likely to be far different from the marketplace software vendors, consultants and analysts now thick on the ground. Public marketplaces are dead and dying, and will not be missed (unless you have stock in CommerceOne). Private marketplaces will dwindle too, in their present form, to be replaced by innovative collaborative tools that can be implemented and run at a fraction of the cost of these marketplaces.

And it’s on this subject, peer-to-peer environments, that I will concentrate next issue.

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