Learn E Business Or Risk E Limination

Ever hear of "channel cannibalization?" "Friction-free" markets? How about "re-architecturing" business models? Start learning. They're just a few of a whole series of concepts driving the world of electronic business. So different--no, alien--are they from the normal experience of the average CEO that learning the Net's new rules of the business game is becoming the key to survival for America's managerial class.

Start with channel cannibalization: Middlemen are being eaten alive virtually everywhere on the Net. Companies are beginning to deal directly with consumers, and the need for "physical" stores and other old-style distribution channels appears to be diminishing. The potential cost savings on the Net are enormous, as are the opportunities to customize products. But the transition can be tricky. Cannibalize your distribution channels in stores too quickly, and sales are lost. Move over to the Net too slowly--and sales are lost.

Friction-free markets define another E-business characteristic: buyer power. It takes a lot of time and energy to comparison-shop by going to different stores in different parts of town. It takes very little to click a mouse and hit a dozen Web sites offering the same item. Vast amounts of information about anything anyone wants to buy are available, along with multiple vendors. Friction-free markets translate into greater power for the consumer, more variety, and lower prices on goods and services. At least for now. It may be that efficiencies on the Net work so that players who set a kind of standard come to dominate each field. As Brian Arthur, economics professor at Stanford University recently put it at the World Economic Forum in Davos: "For every 20 or 30 entrants, there will be two or three winners."

But for now, competition reigns. So new is the Net, and so fast is change, that companies are morphing constantly. In a desperate search for profits, they are continually redesigning their business models. Amazon.com Inc. goes from an online bookseller to a Wal-Mart Stores Inc.-style purveyor of all kinds of merchandise. Yahoo! Inc. goes from a search engine to a portal. SpringStreet, a West Coast startup, goes from listing rental apartments to quoting deals on furniture, insurance, and loans, and collecting fees from Visa International and Ryder Moving Services on transactions made on its site.

Who knows what will work? The Net is changing the shape of enterprise, the speed of action, the nature of leadership. CEOs who succeed in navigating this virtual world will be those who understand the nature of E-business and constantly recraft their operations to adapt. We are basically in Year Two of a transforming event. Grab hold, and hang on.

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