Major Web sites could be branded as "Powered by India"
Madanmohan Rao interviews Mohanbir Sahwney, e-commerce professor, Northwestern University
Mohanbir Sawhney is professor of electronic commerce and technology at the Kellogg Graduate School of Management, Northwestern University, where he also heads the technology and e-commerce (TEC) group. His research has been published in Management Science, Marketing Science, and the Journal of the Academy of Marketing Science. He has also authored several articles in publications like Business 2.0, Financial Times, Context Magazine and Silicon India.
Mohanbir serves on the boards of Divine Interventures, Edmunds.com, Ethnicgrocer.com, and MyPotential.com. He holds a Ph.D. in Marketing from the Wharton School of the University of Pennsylvania; an MBA from the Indian Institute of Management, Calcutta; and a Bachelor of Technology in Electrical Engineering from the Indian Institute of Technology, New Delhi.
Q: What e-commerce myths are likely to be shattered this year?
1. Pure plays will win the e-commerce battle. Early wisdom held that pure-play startups would win, because they don't need the inventory and the assets of the brick-and-mortar firms. The fact is that brands matter, customer relationships matter, inventory is needed, and brick-and-mortar assets are valuable, if leveraged intelligently. Pure-plays are really "impure-plays", because they lack an essential point of presence - the physical location.
Last year, 75% of new accounts opened at Charles Schwab, a financial services firm with a strong internet presence, were opened in their brick-and-mortar branches. Many
e-commerce companies are *channels*, not businesses. eToys, E*Trade, and NextCard are channels. Not a business. In contrast, eBay is a business. It cannot be done without the Net.
2. E-commerce creates channel conflict and disintermediation. The fact is that the Internet is essential infrastructure that you will need for every channel that you use to go to market. You will use the Internet to support your salesforce, to enable your channel partners, and to help your customers order directly over the Net.
The Internet is an *enabler* of channels, not a *substitute* channel. Of course, the role played by intermediaries will change, as they will focus on the relationship-intensive channel functions, while the transaction-intensive functions will be performed over the Net.
3. B2B e-commerce will be huge this year. The fact is that B2B e-commerce holds a lot of promise, but significant hurdles need to be overcome before companies and their frontline employees actually start using electronic exchanges and hubs to do their procurement. Human behavior and culture is very hard to change, and it will take time before these tools and technologies get adopted by large enterprises.
So, while the eventual potential may even be larger than what we anticipate, in the short run, the take-off will be much slower than expected. This will cause a lot of heartburn among the B2B startups, and the B2B consortia that are being set up by incumbent firms.
Q: In your opinion, what are the more notable success stories you have come across of B2B e-commerce in the SME sector?
The SME sector is far less developed than large enterprises, so success
stories are very hard to find. Here are a few that hold promise, although the jury is still out on some of them:
- Biztro - a firm founded by an Indian to provide operations infrastructure
for small businesses over the Net as an ASP application.
- Dell - with their Dellhost.com service that offers hosted web solutions
- FOB.com - a buyer aggregator for small businesses to pool their buying
power, and to provide supply chain management solutions.
- Teligent - provider of wireless telecommunications solutions for SME
Q: How should a company manage channel conflict in B2B e-commerce?
As I mentioned above, it may be incorrect to think of the Internet as a substitute for
your channels. The fact is that you can eliminate a middleman, but you cannot eliminate their functions. So, you need to ask yourself what functions your channels perform, and how you would perform these functions after you incorporate the Internet into your channel mix. You will tend to find that there are some functions that are best performed by channels.
They may have specialized end-customer knowledge, specialized assets (like warehouses), and specialized capabilities (like handling international logistics) that you would find very hard to replicate. On the other hand, they may be performing functions that are best performed over the Net (like credit verification, providing product information, tracking order status, creating product configurations for specific
customers, analyzing customer buying patterns).
In redesigning your channels, you may simply end up reallocating your functions
across the channels to optimize the overall channel system. Instead of disintermediation of entities, the Internet will cause the reallocation of *functions* across channels. Of course, in some cases, you may find that you end up with so few functions allocated
to a channel member that you may want to disintermediate them. But for the most part, the Net is an enabler of channels and channel partners, not a substitute.
Q: How are Web solutions companies likely to fare on the stock market this year? What new areas of focus and expansion are emerging?
The market will continue to be tough. In the B2C e-commerce sector, I don't see
more than a dozen companies as survivors. Even the bluest of blue chips - Amazon, Yahoo!, Priceline.com - are still to prove themselves in the long run. So there is a
lot of consolidation ahead. The same is true of the B2B e-commerce sector. There
are too many poorly-conceptualized companies out there. Over 90% of them will
never make it to the public markets, and those that are public will have to reinvent
themselves to justify their valuations. I also see a tough environment for e-business
consulting and IT consulting shops, whose stock prices had gone way beyond any
reasonable levels. These include some of the larger Indian IT consulting firms. We
have seen a healthy correction here, and things may not pick up until the end of the
On the bright side, infrastructure companies will be robust performers. Firms that build
core enterprise applications and platforms, provide networking hardware, build optical
networking components, and provide essential outsourced services over the Net, will
do well. These are the "picks-and-shovels" people, the arms merchants.
Q: What is your vision of what the Net can offer for a country like India?
India can play a winning role in the emerging arena of e-services. With the advent of a high-speed and reliable network, a number of services can be delivered electronically
over the Net. To the extent that many of these services require human capital, India can become an important player in this space. For instance, I was asked by Michael Dell a
few months ago if I knew of any Indian firms who could provide web-based outsourced customer care for Dell's SME customers from India.
I can see technical support, billing and payment processing, management consulting, software development, web consulting, engineering services, design services, advertising services, and many other arenas where India can become the base for Netsourced "brain-powered" services. How about a brand called "Powered by India" on every web site!!
Another area that holds a lot of promise is software development, networking
technology, and wireless datacom infrastructure. I am not talking about body shops here. I think Indian companies can collaborate with the best-of-breed U.S. players to create small, focused, R&D firms in India that can create next-generation products for the world market. These companies would capitalize on the high quality research scientists and
technologists in India.
The secret is to look outwards at the world as your market, and not to look at the Indian market alone. The domestic market is still quite small, while the world beckons...
Q: What are some possible metamediary areas that seem most suitable for the Indian business market?
I would focus on the business-to-business arena, because the limited PC and Internet penetration will limit the potential for metamediaries in the B2C arena for a few years
in India. I would begin by identifying activity sequences that currently have lots of disconnects, and can be seamlessly enabled as an end-to-end process from the customer point of view over the Net.
For instance, you could create a metamediary site for managing outsourcing of IT projects for Indian corporates. You could create a site for managing human resources - including recruitment, e-learning, career planning, and outplacement for Indian corporates. You could create a meeting planning metamediary site to manage the end-to-end process of organizing a meeting - finding the venue, arranging for transportation and logistics, connecting with speakers, managing registrations, etc.
The secret is to look for highly complex, highly fragmented, and information-intensive activity sequences that involve a number of players and audiences, and then to create
an "information backbone" that connects these players and information flows into a seamless solution.
Q: What are the market dynamics involved in pure-play Internet exchanges competing with industry-led consortia? What kinds of shakeouts are we likely to see in various industries?
The dynamics of this arena are best illustrated by the story of a blind man who is
trying to get out of the forest. He stumbles over a man lying on the ground. When
he asks why the man is lying on the ground, the man says that he is also trying to
get out of the forest, but he is lame. The men have a brilliant idea - the lame man climbs
on the shoulders of the blind man. The lame man borrows legs. The blind man borrows
eyes. Together, they get out of the forest.
The pure-play B2B exchanges are like the lame man - they know where to go, and how
to get there, but they cannot walk - they have no liquidity, no transactions. Meanwhile, the B2B consortia are like the blind man - they have liquidity and resources, but they cannot execute, and cannot agree on strategy and decision making process. I see a
convergence, where there will be mergers and alliances between the two types of players
to create hybrid models where execution capability will be married with liquidity.
Of course, in the meantime, there will be a huge shakeout among both types of entitites. A vast majority of the B2B pure-play exchanges will fold (Indian B2B exchanges had
better take notice!), and a vast majority of incumbent-sponsored consortia will also fail. The survivors will be few, and they will tend to be hybrids.
The writer can be reached at email@example.com
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