Online Extra: Q&A with Meta Group's Howard Rubin

The [pure-play] e-tailers...thought they were untouched by the laws of nature

Consultants still think B2B (business-to-business) transactions will climb into the trillions of dollars within the next few years. But the figures they cite today are a few trillion less than those they quoted just a year ago. For a front-line perspective on how corporations are coping with the Net's new reality and reasons behind the new trim-line diets they're forcing on their IT departments, BusinessWeek's Faith Keenan spoke with Howard Rubin, executive vice-president of META Group. Here are edited excerpts of their conversation:

Q: What's the true value of the Internet?


The true value is the high-speed networking. It's that it allows business to externalize itself to a larger community in real time, whether in B2C [business-to-consumer online outfits], where you have access to a catalog, or B2B, access to procurement. It's the externalization of the inside of a business to suppliers, consumers, shareholders, and every[one] else.

Q: Which sectors have shown the most gains?


The use of the Internet has run like a steeplechase. You have competitive positioning: Different sectors move more quickly into it each year. First was retail, then media, then financial services, then manufacturing. So there's a ranking of who has started to tap into this network first.

Q: What retail models make sense on the Net?


Is there a retail model that works? All the models would work, if they had been financially engineered to be profitable. Instead of exponential sales growth, you had exponential marketing growth.... We'll end up seeing more hybrid e-tailers. The species are cross-breeding. The [pure-play] e-tailers on the Internet, they thought this was Galapagos. They thought they were untouched by the laws of nature. But other species are now populating the islands, and you see cross-breeding.

Q: What are the hotspots now for Internet spending?


The hotspots are peeling back. If you looked at them in July/August of 2000, the hotspots were moving rapidly into e-biz, doing customer-relationship management [CRM], enterprise-resource planning [ERP]. But in August, we started to see a braking effect, the growth of IT spending started shrinking. The average IT budget is increasing by 4% to 5% [vs. 20% to 40% for the last few years]. And the hot spots are becoming hot dots. They're peeling back ERP, moving more cautiously into CRM. The new hot spots are optimization and cost cutting. They're taking a look at their whole mixed bag of e-biz stuff and trying to consolidate to get economies of scale.

Q: Could you cite an example?


Any of the major banks that have different e-biz sites for mortgages and loans, for investment management, for each area of company. And now they're saying: Sell one product. They're bringing all the different sites together.

Q: Does optimization require even more spending?


If you're smart, you can pay for optimization out of the optimization [it]self.

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