Media & Entertainment
Structuring Convergence
Paid Content

Information
Knowledge Management

Strategy
Time Based Competition
The "Vision" Thing

Internet
The Net Era
The Internet - Some Perspectives
Chat Society
Net Governance

Branding
Brand Positioning
Brand Personality
Brand Extension

Written: 1998

Summary: The Internet changes everything. But will it affect your work? Your life? Your business? In this article, we explore how the Internet is growing, both inside and outside India and its impact on Media, Brands, Financial Services, Consumer Goods and Retailing. The paper creates a sweeping view of the changes brought in through digital convergence, enterprise-wide solutions, web-advertising, transaction automation, online branding, EDI, shopping habits, digital segmentation and online trading.

An estimated 1,700,000 people downloaded the Starr Report from CNN Interactive in the first two days it was available

PC makers will sell 13.2 million units this year on the Net.

It is difficult to capture the impact of the Web on our work and home lives simply because it changes everything. Lets look at some of the major changes:

History says that the creation of the railways actually unified India from an agglomeration of states into a single market and therefore into a single nation. The impact of the web on the global market is the same. The Net turns the world into a single market. This means that it is as easy for the American housewife to access a jeweller in India as it is for her to reach her local store. Its as easy for an Indian parent to buy a gift and have it delivered to his son in an American college as it is for him to pick up the phone and call him.

A single market also means the escalation of the impact of global competition. No longer will companies be able to defend themselves against global market leaders knowing that their distribution reach will form an entry barrier. This will force companies to become far more efficient than they have been, simply because the alternative is to be competed out of the market.

This efficiency will also be provided by Internet technologies. Web technologies are inherently integrative, and will enable corporations to synchronise all their internal information systems, slash communication costs, build knowledge repositories, aid research and collaborate on projects and strategies at nominal costs.

Adding to this will be the phenomenon of digital convergence - a term used to denote the blurring of boundaries between telecommunications, information technology, consumer electronics and entertainment. Already, electricity majors, cable operators, basic and cellular telephone service companies, software firms and even companies in unrelated businesses are rushing in to provide internet services - from access, to e-mail, to content, applications and consulting.

The profound and explosive changes wrought by the Internet have rendered many businesses non-viable almost overnight. But it has created tremendous value for those who have invested into the Net revolution. The market capitalisation of all Internet firms adds up to $150 billion. The world's largest brand is Microsoft, not Coca Cola. Companies like Amazon and Netscape are business legends in the time that it takes many firms to rework their strategies. People like Michael Dell, Jeff Bezos and Jerry Yang have joined the ranks of the world's richest people before the age of 40, as first generation millionaires. There are as many as 19 people on the U.S. National Advisory Commission on Electronic Commerce.

How fast is the Internet growing?

A look at the growth in the number of people using the Internet gives us a good idea as to where it is headed. The number of online adult users in the US was 36 million in 1997. More than 79.4 million adults or 38% of the U.S. population age 16 and older are online today. IDC expects 329 million Internet users by 2002 all over the world. About 56% of North American households will be online by 2003.

On the revenue front, the picture is even more exciting. According to figures published by International Data Corporation, $8 billion worth of business was transacted on the web in 1998 and that figure will grow to $333 billion by 2002. They predict that this figure will represent 1 percent of the global economy. Deloitte & Touche predict a four-fold increase in e-commerce over the next two years. The strongest growth will be in consumer transactions, implying that the Internet will become an everyday shopping stop for consumers and businesses.

The education level of those online decreased with 36% indicating a bachelor's degree or greater, compared to 46% in the second quarter 1996. Annual household incomes also decreased with 55% having an income of $50,000 or greater, compared to 60% in second quarter 1996.

This growth and the emergence of a mass market have also caused an explosion in the spending on on-line advertising. Total Internet ad-spend in 1997-98 was $ 544.8 million and is likely to grow to $ 2.3 billion in 2000 & $ 3.6 billion by 2002.

In the Indian scenario, NASSCOM estimates, released in 1997, predicted 8 million users by 2000. This is likely to be very close to the real figures since most informal estimates indicate over 1 million Internet users from India already. HotMail, for instance, has seen its Indian user-base more than triple to over 1 million from 300,000 in August 1998!

This implies an exponentially growing market for web solutions and e-commerce in India. Indian companies will spend more than Rs. 12 Crores on Web Solutions in '98 - '99. This is growing at more than 50% every year. More than Rs. 4 Crores will be spent on E-commerce in 1999-2000.

In July 1995, only 10 % of the advertisements in Business Week, FORTUNE, Newsweek and Time contained a URL. By July 1998, that number reached 91 percent (survey by Situate, Massachusetts-based Interacumen). However, a survey done by Planetasia.com showed that only 236 companies out of the BT top 500 have websites. Thus while under 50% of the top 500 companies (who are the more progressive companies in India) have some Internet presence, this percentage is likely to be much less in the lower rung of companies.

Lets look at the impact on some key industries.

Media:
Communities, Portals, Destinations - the buzzwords change but the feverish action and the drive to go online continues. We have already seen the birth of the first Indian Portals, a couple of them are claiming to be the best. We have seen communities, notable among them www.midday.com, the 7,000 strong community of Mumbaikars.

A frequent dinner discussion topic among the digerati and the intelligentry is "Will print die?" The short answer to this is no. However, just as television redefined entertainment and news delivery, so will the Internet. 87 % of print journalists in the US are connected to the Internet. The number in India may be currently lower, but the writing is on the wall (screen?). The Internet will therefore impact both the way news is delivered to the reader, as well as the way a journalist researches his subject.

As of today, people are spending on the top 10% of ad-revenue earning websites, which account for 75% of all advertising. There is a lot of emerging work on technologies that manage advertising on the web. Products and services from companies like Double Click, Engage, Flycast and NetGravity are changing the landscape of this industry almost on a monthly basis.

Indian Languages on the Net:
There are a fair number of sites with Indian content. At Planetasia.com, we have worked with clients who are looking to put Indian language content. Though the problems abound, from fonts, to software products like Document Management Systems that need to work with documents created in non-English languages, a lot of effort is going on to make this possible. For example there have been two conferences in Singapore and Chennai, to get the 75 million-strong Tamil speaking population online worldwide. A $1.25 million local language initiative has been launched by the Tamil Nadu government to promote online content and institutional backing.

Banking & Finance
If banks are all about information, transaction and service, then it's easy to see why the Internet redefines banking. Simply because of its whirlwind impact on all these three. Whether its securities trading, consumer banking or other services.

Trading
Online trading has been the killer application for many Net born and incumbent organisations. In India too, the organisations with vision are preparing themselves to make the online consumer an offer he can't refuse. An estimated 25% percentage of retail stock trades are now taking place on the Internet.

Sites that will enable every activity that is associated with the buying, selling and tracking of stocks and shares will be available on the Internet. Will your organisation be the one to drive this? Or will you spend the next year catching up?

Globally, Merrill Lynch is the first full-service firm to offer on-line trading. Though only a small step forward, Merrill's move will force all full-service firms to follow. Midtier firms like Schwab suddenly face new pressures. Financial consultants will have to prove their value. To say that the financial industry is bullish about the Internet is like saying that Y2K is an opportunity for a software company. However, the figures serve to underline this fact. The volume of Internet initial public offerings underwritten by Goldman Sachs in 1998, was 435.6 million dollars.

Transaction and Service:
Internationally, Banks such as Wells Fargo and locally, Citibank and ICICI Bank are allowing customers to transact through their websites. Consider for example the following finding: a bank's cost to process an in-person transaction, as $1.07. On the other hand, a bank's cost to process an Internet transaction, is $0.01. It becomes clear why banks are investing heavily into the web enabling of their processes, systems and their services.

Manufacturing
Manufacturing is the last bastion of the bricks and mortar business model. It is here that the digital world shares a frontier with the physical one. Here too, the value of the bytes is unquestionable. While aircraft engines will continue to evade digitisation, the simulation of wind tunnels and collisions that is needed for the development of aircraft engines will be done in digital form - inside computers built for the purpose. Thereby reducing the cost and in fact delivering better results.

Lets look at two of the critical solutions that manufacturing companies look for - EDI solutions and Enterprise Resource Planning Solutions.

Electronic Data Interchange (EDI):

One of the more commonly accepted definitions of Electronic Data Interchange, or EDI, has been "the computer-to-computer transfer of information in a structured, pre-determined format." Traditionally, the focus of EDI activity has been on the replacement of pre-defined business forms, such as purchase orders and invoices, with similarly defined electronic forms.
The new definition: EDI must now be viewed as "an enabling technology that provides for the exchange of critical data between computer applications supporting the process of business partners by using agreed-to, standardised, data formats". EDI is no longer merely a way to transmit documents. It is a means to dynamically move data between companies that will be used by computer systems to order raw materials, schedule production, schedule and track transportation, and replenish stock.

Enterprise Resource Planning (ERP):

Enterprisewide systems are looking at 3 distinct ways of evolving with the Net Era. The first, of course, is to evolve their products and weave TCP/IP and Java deep into the architecture of their products. The second is to leverage the Net to extend the enterprise, to span the value chain of the enterprise. In other words, your partners should be able to access certain information earmarked for them, that comes out of your ERP system, but is delivered to them through the Internet and viewed over a browser. Customers and suppliers will be able to see selective information that is made available to them, so that it enriches the interaction between the partners. Finally, these will evolve into the Knowledge space - beyond information and data.

Consumer Goods
"Why would you ever want to buy a shirt on the Net?" - a question that had merit a year back, in India but not any longer. At Planetasia.com we are helping consumer products companies, including garments people, to extend their brands on to the Internet and even sell their products.

Results from the Zona/IntelliQuest 1998 holiday shopping survey of over 1,000 Web users show that the Internet shopping (53%) was the third most popular method among respondents for holiday gift purchases, behind brand-name stores (88%) and discount retailers (70%). In fact, more respondents purchased gifts online than shopped via paper catalogs (40%).

Brands:

Most Indian marketing companies today, are thinking, "Who's online?" Who will I target? Will the money spend be worth it? Those companies with greater insights have seen a future that excites them and are preparing themselves to dominate the new marketspace. The Web, as a single market, will tend to be dominated by Category Killer sites created by Brands wishing to build strong associations. It remains to be seen whether the category killer in Cricket turns out to be a beverages brand, a footwear brand or a tobacco brand. The Web will enable brand managers to intelligently generate user insights and feedback through rich and repetitive interaction with the target audience.

Where will the advertising bucks go?

Internet advertising has been dominated by technology and services, with computers and software (including online and Internet services) contributing $275 million, or 50% of all Internet advertising in 1997. The No. 2 category was financial services, contributing $42 million, or 7.7% percent of Internet advertising. Telecommunications was third, spending $33 million, or 6% of Internet advertising.

Clearly there will be categories such as Music, Books, Information Technology, Travel, Hospitality and Financial Services that will lead the way in Net Advertising. However other areas will follow - Garments, Consumer Goods, Branded services will all find it essential to advertise on the Net. Rather than competing with the traditional advertising media, companies will learn to Integrate their communications, combining websites, Internet banner advertising and regular print, TV and other media, to create rich and compelling communication.

Though figures for India are unavailable and in general very low today, the emerging categories in the global Internet advertising bandwagon throw more light on how this medium is fast becoming a mainstream one for ad-spend.
Ø The beverage industry spent $2 million on Internet advertising in '97, up 35% over '96.
Ø Beer and wine marketers spent $970,000 on Internet advertising in '97, up 53% over '96.
Ø In the skincare subcategory, marketers of creams, lotions and oils spent $500,000 on Internet advertising in '97, up from almost nothing in '96.
Ø Diaper companies spent $671,000 on Internet advertising in '97, up from almost zero in '96.
However, to categorise the Net as an advertising medium will perhaps miss the bigger picture. The Web can be as much a tool for Direct Marketing, transacting and intelligent market research.

Digital Segmentation
Researchers expect that by 2003, consumers will segment themselves by technology attitude, income, education, and digital lifestyle. One group will constantly turn to the Net from multiple platforms to meet an ever-increasing variety of needs -- shopping, banking, investing, education, entertainment, and work. The other group will grudgingly adopt technology when necessary. This divide will exist for 10 years -- until Generation Net begins to form new households.

Customisation:
The dream of mass customisation remains a potential on the web, for Indian companies so far. However brands that are keen on creating a lasting bond with their users, will soon learn ways to uniquely satisfy each customer on the web by profiling the consumer, creating membership based sites and enabling cookie and profile based tracking surfing behaviour. Companies are already trying to wean their existing customers on to the Net. Despite selling less that 3% of their tickets over the Net in 1998, Delta Airlines is charging $ 2 extra for tickets not purchased over the Net.

The Retail Power Shift Begins

The interesting distinction between shopping and purchasing will perhaps make that quaint phrase "window shopping" an anachronism.

Ten percent of North American households now use this new channel to bank, invest, or purchase products. On-line retail revenue totalled $8 billion in 1998, but the real story lies in the profound change in consumer attitudes, expectations, and behaviour.
While e-tailers are testing fresh ways to reach and interact with customers, this is only the beginning. Online companies are still pioneering and reaping the rewards, but they have to continue to look for new ways to build brand and create point-of-sale in the real world.

A study by Intelliquest showed that 60% of users shop online and nearly 20% purchase online. Automobiles, computer hardware, and software were the most popular items that are shopped for online. The most popular items purchased online were books.

Zona Research reports that 27% of their survey sample had their merchandise delivered within 3 days and that 79% received their goods within a week of placing their order. This will surely boost the confidence of shoppers.
Retailing is an underdeveloped industry in India, when compared to the unabashed wooing of the consumer in countries like the US. It is not surprising therefore that online retailing will also take a while to gather its own groundswell of support. We are yet to see where the first inroads will come from, though the Planetasia.com experience suggests that the financial services industry will take a headstart in this journey. Traditional retail organisations and brand companies are all hammering out their Internet strategies on their boardroom anvils. In the meanwhile, there are a million Indian customers hanging on to their mouse pads.

Despite the power of the Internet to revise the course of global businesses, it is perhaps in its impact on the human mind that its greatest potential lies. The ability to convert a simple idea into a global business, to take a great idea to a universal audience, and therefore to fire the human ambition beyond the frontiers of possibility, is probably the biggest source of value that the Internet provides.