Don't Bank on Internet Success

Article excerpt

A new rule of business seems to be that only those online will survive. But there is more to e-commerce then just pouring money into your company web site

The lunatic, irresponsible internet gold rush so deplored by sane, respectable captains of industry has developed an equally irrational second phase, led this time, not by teenage scramblers, but by the captains themselves.

Over just two days in late February, the Financial Times announced that United News & Media was expected to separate and float its UK internet assets; Reed Elsevier unveiled [pounds]600 million of internet investments; Siemens set out ambitious targets fonts e-businesses; and the Prudential revealed plans for an Egg-float that would value the baby bank at [pounds]2.8 billion.

The Pru's short-term prize (if not the target) was to rescue its faltering share price. At Reuters, too, the mere announcement of a strategy produced a sharp upturn in market value. Rivals are in hot pursuit. In financial services, say, Barclays, Abbey National and Halifax are all apparently hopeful that their fledgling internet strategies can scramble Egg's prospects.

All this poses three questions, which should trouble the sleep of the managements concerned. First, is their internet strategy correct? Second, can their customers execute that strategy successfully? Third, are too many e-bankers, e-retailers and so on, chasing too few e-customers?

It is perfectly clear that most new car purchases will be made via the web sooner rather than later, for example. There is no reason to suppose, however, that car sales in total will increase, or that the car manufacturers will preserve their retail market shares against the assault of internet newcomers. Whatever steps General Motors, Ford and the other megaliths take in cyberspace, the operation will be purely defensive. They cannot protect their profit margins against predators who are not lumbered by fixed assets or fixed mindsets.

The great gains available to the giants are not external, but internal. The vast web sites that the US auto-makers are assembling will cut costs and raise efficiencies - and thus compensate somewhat for the competitive squeeze. The financial services companies could take note, Too often, their customer-facing services are visibly execrable: just try dealing with a bank account at Hove through a call centre located in the Midlands. The many systems of the banks are still expensively unable to speak to each other and, sadly, because the fast and fertile web-based improvements that might be possible internally rarely merit front-page coverage, they rarely merit much boardroom attention either. …