Study scratches surface of Internet companies

Gauging the health of the Internet economy means measuring the vital signs of major industry vendors, according to one analyst firm.

With this goal in mind, International Data Corp. (IDC) recently released a report called Internet Commerce Software Applications Market Review and Forecast 1998-2003, which is the result of surveys from more than 90 software vendors taken between December 1998 and February 1999, as well as subsequent interviews with their executives and customers.

The study focused on the dominant industry vendors whose software allows companies to expand their presence on the Internet, said Albert Pang, author of the report and e-commerce software analyst with IDC in Mountainview, Calif.

“The business-to-consumer market was being hyped to the stratosphere, but the business-to-business market and the requirements out there have not really been met at all. So a lot of the vendors didn’t spend too much time thinking about the potential of the B-to-B market, but I believe that is beginning to change.”

Pang cited the example of BroadVision, which had been a strong player in the business-to-consumer market, but is now getting more involved in business-to-business, which he said probably offers a much greater revenue growth opportunity for vendors in the long run.

“There is a stepped-up effort on the part of these vendors to tap into different parts of the Internet economy. I think that is going to be much more pronounced over the next 12 to 18 months, as some of the traditional client/server companies begin to ship products specifically for the Internet.”

Major trends listed in the report include a huge increase of e-commerce sales, with a projected 280 per cent growth by the end of this year; the increase of Web site and customer relationship management software on the market; increased use of portal sites on the Internet; the emergence of a hosted marketplace; and an emphasis on direct procurement.

Of the some 95 companies surveyed, the ones listed as generating the most Internet application revenue include Netscape, BroadVision, Open Market, Ariba, Oracle, Intershop and IBM. Pang said the number of the dominant e-commerce vendors will probably grow from about 95 to around 200 by the end of this year, but that growth will likely taper off as many of the smaller players will be bought out or merged with larger companies.

“We are going to see a lot more of that happening, primarily because of the economy of scale. A lot of the vendors would like to be able to have the opportunity to sell an array of products from top to bottom. Because of that, there’s a natural tendency to look for partners that could share the same approach,” he said.

“Also, there is a shortage of talent out there. So the best way for you to get into new markets or start exploiting some of these fast-growing e-commerce markets is just to buy another company.”

Jonathan Tice, senior director of marketing with the Sun

Netscape Alliance in Toronto said industry alliances between organizations sharing common visions and goals is becoming more common, either in the form of cooperative agreements – such as Sun and Netscape – or as a result of acquisitions and mergers, such as Netscape and AOL.

Tice feels Netscape has a “three-year jump on most emerging organizations” in terms of Internet software products.

“Organizations in the client/server application world are stretching the capabilities of their applications to the Internet and are offering some niche-unique services as a result of that. But they are not able to do the end-to-end e-commerce like the tool-kit that the Sun

Netscape Alliance offers,” he said.

Just how Internet commerce trends shape the future of these vendors is anyone’s guess, Pang said.

“The good thing about this is that the market is just beginning to mature and there’s a lot of room to grow for everyone. So it’s safe to say that companies like Netscape, BroadVision and Ariba are going to do well,” he said.

“But then again we are just barely scratching the surface; there are so many things that could happen. We haven’t really seen anything from Computer Associates or IBM or Microsoft – and all these companies are going to demand a much bigger presence in the market.”

Despite growth trends, not everyone is convinced that electronic commerce is much different from more conventional ways of doing business. Stu Millar, a senior principal with Toronto based KPMG Consulting Inc., said the big challenge of Internet commerce is that people still haven’t completely worked out how to sell products on-line without going through traditional sales motions.

“If you look at a company like Cisco, it has done tremendous work over the Internet selling its routers. But if you then go and say ‘well, how do they do that?’ you find out they are basically selling to pre-approved purchasers,” Millar said. “So I’m ordering over the Internet – I’m not truly selling.”

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