WUERZBURG-SCHWEINFURT UNIVERSITY OF APPLIED SCIENCES
DEPARTMENT OF BUSINESS ADMINISTRATION
THE IMPACT OF THE INTERNET AGE
It's difficult to describe the earthshaking impact of the Internet on the business world because it
can't really be compared to other technological breakthroughs like the automobile or the telephone. The
Internet is triggering off a revolution which is spawning a whole raft of new industries, new business
models, novel corporate structures and countless new companies. The Internet is at the foundation of
the New Economy and is calling into question everything that we thought we knew about business,
economics and trade.
Within two years at the turn of the millenium, for instance, Yahoo!
evolved from a Web search machine with a silly name, founded by
two grad school dropouts to a major media company worth $40
billion. Today money-losing startups such as Amazon.com and
eToys command multibillion-dollar market caps and are more
valuable on the stock market than 'traditional' corporations with
multibillion-dollar revenues, such as Barnes & Noble Inc. and Toys
'R' Us Inc. Dozens of these cyberworld upstarts are taking the
lead in countless industries, from plastics to financial services.
The Net differs from microprocessors or other disruptive
technologies of the last century. It's a ready-made marketplace essentially trillions of dollars worth of network connections,
computer power, and limitless databases full of information. And it's
available largely free to anyone with a phone line and a personal
computer. Anywhere in the world. Anytime, day or night. In short, the Net offers an entry point to all
comers in every market and industry.
Understandably, all this flummoxes traditional executives who have spent their working lives building
companies with real assets, real factories, and real profits. ''I don't understand the valuations,'' Wal-Mart
Stores Inc. CEO David D. Glass growls of the online upstarts. But this doesn't changes the facts. The
Center for Research in Electronic Commerce at the University of Texas figures the Internet - if you
include B2B online sales of industrial and consumer goods and services as well as the equipment and
software to support e-commerce - is already far more valuable than any other industry. It's setting off
shock waves which are being felt around the globe. There's hardly an industry that isn't undergoing an
upheaval in how it deals with customers and partners, organizes itself, or defines its essential purpose.
Says Mark T. Hogan, group vice-president of General Motors Corp.'s e-GM Internet unit: ''We've come
to realize that if we don't move with Internet speed, we could become extinct.''
All of these consequences flow from one inescapable fact: The Internet puts the customer in charge as
never before. Until the Net, buyers faced huge obstacles to extracting the best prices and service.
Research was time-consuming, and everyone from producer to retailer guarded information jealously.
For traditional business, customer ignorance was a profit center.
The Net set off a new chain of events. Buyers can now find a wealth of information on just about any
product or service. And if they don't like what they see from one company, another - or dozens of others are only a click away. On the other hand, sellers can identify individual buyers and collect an
unprecedented amount of information on their purchase patterns. Already, software programs analyze
this data and suggest a book or music CD that a customer might also like - with surprising success.
Ultimately, the Net will usher in products that have been customized for each and every customer.
For most sellers, buyer power is likely to present a lot more challenges than opportunities. Nowhere is
this more apparent than in the exploding number of sites where auction fever has taken hold. On eBay
Inc.'s online trading community and other consumer sites, auctions are as much a form of entertainment
as anything. But on sites such as FreeMarkets OnLine Inc. and e-STEEL Inc., where buyers bid on tons
of coal and metal, a penny here and a penny there is about corporate survival. Increasingly on the Net,
list prices are nothing more than the starting point for negotiation.
 PROFESSOR DR G. DE MEUTER
PHOENIX PROJECT
CRA1
1
WUERZBURG-SCHWEINFURT UNIVERSITY OF APPLIED SCIENCES
DEPARTMENT OF BUSINESS ADMINISTRATION
Why? The computing power of the Net allows prices to be negotiated instantly and mechanically, making
haggling more cost-effective than ever. So for the first time since fixed prices became the norm a century
or so ago, a raft of dynamic pricing methods - from auctions to buyer cooperatives and even barter sites is gaining much wider currency than in the physical world.
Traditionally, auctions aren't done for the benefit of buyers. Sellers realize that by gathering as many
buyers as possible in one place, they can provoke heated bidding and thus drive up prices. These days,
though, a number of new companies are reversing the auction process in favor of the buyer.
Priceline.com Inc., for instance, lets buyers trade away convenience - exact departure times for flights in return for a lower price than airlines would ever offer at retail. Going a step further, startups such as
Accompany Inc. and Mercata Inc. pool groups of buyers so that the more people who agree to buy a
product, the lower the price goes.
Gearing up to serve this newly empowered customer turns the classic business model on its head.
Suddenly, factories, trucks, salespeople, and other assets that once defined most companies'
competitive edges become a liability. Through the Internet, virtual upstarts can reach customers faster
for a small fraction of the cost of stores and salespeople. In many industries, investors clearly view
traditional factories and stores much the same way they view outdated power plants: near-worthless
stranded assets. On the Net, speed trumps mass almost every time.
To see why, do the math on Amazon.com vs. Barnes & Noble. Sure, Amazon is spending into the red
to grab customers. But it still holds a formidable inherent cost edge over a rival such as Barnes & Noble.
It's currently posting an annual sales rate of which are equivalent to ½ that of Barnes & Noble. But
because of the incredible efficiencies of selling over the Web, Amazon has spent only one tenth as much
on fixed assets. Moreover, Amazon's investment in new warehouses can support sales which are five
times larger than its present level. That's why its market capitalization is 10 times that of B&N. No wonder
retailers worry about ''getting Amazoned.'' Cisco CEO John T. Chambers warns: ''Amazon vs. Barnes &
Noble will happen in every industry.''
This wrenching revelation is forcing a fundamental rethinking of what a company does. Increasingly,
savvy companies avoid building expensive, time-consuming in-house capabilities. Instead, they form
partnerships that coalesce and dissolve for each new project : so-called ''dynamic trade.'' Some
companies are even allowing customers and partners access to their innermost operations, blurring the
lines between corporations.
No company has gone further down this road than networking equipment giant Cisco Systems Inc. It
handles 78% of all its orders over the Net and never even touches half, or $6 billion, of them. Cisco
develops product, manufacturing, and testing specifications, but by using the Internet, the orders shoot
directly to contract manufacturers. Cisco owns only 2 of 30 plants producing its network switches and
routers.
The unprecedented flexibility the Net provides to tap resources outside the company is forcing many to
rethink their very raison d'etre. What are we better at than anybody else ? If we aren't the best at
shipping, won't a rival who uses the best shipper gain an edge over us ? Some experts predict a round of
corporate divestitures as companies answer the questions.
Then comes the task of applying a little imagination to what's left. Even the most heavyweight
manufacturers, for instance, may be able to reinvent themselves as service providers instead of box
pushers. Hewlett-Packard is using the Net to remake itself from a computer manufacturer into an ''eservices'' company. Instead of selling multimillion-dollar computers, it's offering to provide the computing
power over a network for a monthly fee - or in the case of an e-commerce site, charge a percentage of
the customer's transaction revenues. Ann Livermore, CEO of HP's $14 billion Enterprise Computing
Solutions, reckons such fees could account for 80% of the division's revenues eventually.
In redefining themselves, companies are also transforming their own industries. Grocery chain
executives in Europe are worried about Wal-Mart Stores invading their territory. It's much worse than
that: They're also in the gunsights of engineering services behemoth Bechtel Group, which is
spending $1 billion to build out a massive logistics warehousing and distribution system for online grocery
upstart Webvan Group Inc.
 PROFESSOR DR G. DE MEUTER
PHOENIX PROJECT
CRA1
2
WUERZBURG-SCHWEINFURT UNIVERSITY OF APPLIED SCIENCES
DEPARTMENT OF BUSINESS ADMINISTRATION
It's a frightening prospect, not knowing who your enemies are until they've already struck. What car
dealer a decade years ago would have suspected a software company such as Microsoft Corp. would
be one of their biggest competitors today ? Could banks have guessed a couple of years ago that online
stockbroker E*Trade Group Inc. would siphon off their retail customers' accounts so easily ?
In industry after industry, the interlopers are swarming like locusts. From plastics to steel to consulting
services, hundreds of upstarts such as PlasticsNet and e-STEEL are setting up new, independent
marketplaces online. Ultimately, they hope to become the nexus for commercial activity in their
industries. And as they gather detailed information about what buyers and sellers want, they could
become more indispensable to each than conventional middlemen such as distributors.
But wasn't the Net supposed to do away with middlemen? After all, producers and customers can now
connect directly. It turns out that on the Net, buyers need middlemen to sort through the vast new choices
of suppliers. And suppliers need to be where masses of buyers gather - which usually isn't on individual
company sites. These middlemen - called infomediaries, vertical portals, or e-markets - are using the Net
to instantly connect buyers and sellers anywhere and will, ultimately, control most of the world's
transactions between businesses.
Altra Energy Technologies Inc. of Houston is typical of these new creatures. Before the online
marketplace was started in 1997, buyers of natural gas had to rely on cumbersome phone calls and
sending faxes to sellers. That limited them to only a few potential deals and a lot of potential price
manipulation by sellers who might know a particular buyer was desperate for supplies.
Now, Altra lets buyers trade anonymously on the Net with thousands of sellers. Since it's so much more
efficient for buyers and sellers, it has quickly emerged as the main place to trade online, handling 70% of
the industry's natural gas liquids. Transactions on the site already top $20 billion a year.
These middlemen are demonstrating an irony of the Net. Yes, it's a marketplace with low barriers to new
entrants - but only if you get there first. And with few clues to legitimacy online, brands provide even
more pull than in many traditional businesses. Then there is the snowball effect: Once a Web site gathers
a mass of buyers, in flow the sellers - whose products then draw more buyers. It's a fast-moving virtuous
cycle that quickly builds one dominant player. Think Amazon in retailing or eBay in person-to-person
auctions. All that portends even more consolidation online than in the physical world. ''There will be
thousands of winners on the Internet,'' says Morgan Stanley Dean Witter analyst Mary G. Meeker. ''But
there will be only a very few really big winners.''
THE INTERNET AGE : GLOSSARY
impact
to trigger off
to spawn
a raft (of)
novel
to call into question
grad school dropout
startup
market cap
cyberworld
upstart
disruptive
available
to flummox
asset
B2B
upheaval
inescapable
obstacle
research
retailer
 PROFESSOR DR G. DE MEUTER
= influence
= to set off, to start, auslösen
= to produce in large numbers, to generate
= a large selection of , a series of, a range of
= new
= to question, in Frage stellen
= someone who does not complete graduate school
= a firm which has just been founded
= market capitalization / value
= the world of cyberspace, of IT, of the Internet
= Emporkömmling
= destructive, zerrüttend
= verfügbar
= to bewilder, verwirren, verblüffen
= (here) Vermögensgegenstand
= business to business ( form of Internet commerce )
= revolution, Umwälzung
= inevitable, unavoidable
= Hindernis
= Forschung
= Einzelhändler
PHOENIX PROJECT
CRA1
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WUERZBURG-SCHWEINFURT UNIVERSITY OF APPLIED SCIENCES
DEPARTMENT OF BUSINESS ADMINISTRATION
unprecedented
purchase patterns
customize
apparent
bid
survival
negotiation
to haggle
to barter
to gain much wider currency
to benefit
to reverse
in favor of
convenience
to pool
to gear up
competitive edge
liability
fraction
to view
to trump
to do the math on sth.
to spend into the red
formidable
cost edge
to post
wrenching
savvy
to coalesce
to dissolve
to tap
raison d'être
divestiture
box pusher
to reckon
to redefine
to be in the gunsights of
behemoth
to suspect
to siphon off
interloper
to swarm
locust
nexus
indispensable
cumbersome
to emerge
to top
clue
pull
virtuous cycle
to portend
 PROFESSOR DR G. DE MEUTER
= without precedent, beispielslos
= buying habits
= to modify to suit the demands of the individual customer
= obvious, clear
= bieten
= Überleben
= Verhandlung
= feilschen
= to exchange goods, Waren austauschen
= to get to be much more widespread
= to gain advantage
= (here) umpolen, auf den Kopf stellen
= zugunsten von
= comfort, ease, Bequemlichkeit, Annehmlichkeit
= to bring together, to concentrate, zusammenlegen
= to get ready
= Wettbewerbsvorteil
= disadvantage, burden, Last
= Bruchteil
= to consider, betrachten
= to beat, schlagen
= to compare the financial situation of
= to make debts
= (here) huge, impressive
= Kostenvorteil
= to record, aufzeichnen, verbuchen
= painful, schmerzhaft
= (Am. slang) know-how
= to merge, to fuse, sich verschmelzen
= sich auflösen
= anzapfen
= Daseinsberechtigung
= sale, Verkauf, Veräußerung
= computer seller
= to figure, to think, to be of the opinion
= neu definieren
= Zielscheibe sein, im Visier von jmd. sein
= giant, juggernaut
= vermuten
= to drain, absaugen
= intruder, Eindringling
= to gather in large numbers
= Heuschrecken
= fulcrum, meeting point, Drehpunkt
= essential, crucial, unentbehrlich
= umständlich, lästig
= appear, auftauchen, erscheinen
= to exceed, überschreiten
= tip, Hinweis
= power of attraction, Anziehungskraft
= tugendhafter Kreis (opposite of 'vicious circle')
= vorbedeuten, deuten auf etwas
PHOENIX PROJECT
CRA1
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WUERZBURG-SCHWEINFURT UNIVERSITY OF APPLIED SCIENCES
DEPARTMENT OF BUSINESS ADMINISTRATION
PRONUNCIATION PRACTICE
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
automobile
business
company
corporate
customer
data
equipment
industry
investment
purpose
COMPREHENSION TASK
A. Pair off. Working together, identify the main ideas contained in the text
B. Summarize them briefly in your own words. Write one or two sentences per idea.
PROVIDE THE NOUN FORM(S) OF THE FOLLOWING TERMS
1. to consult
the ............................................................ / ...................................................
2. to compare
the ............................................................
3. to define
the ............................................................
4. to describe
the ............................................................
5. to differ
the ............................................................
6. to dissolve
the ............................................................
7. to emerge
the ............................................................
8. to evolve
the ............................................................
9. to include
the ............................................................
10. to limit
the ............................................................ / ...................................................
11. to produce
the ............................................................ / ...................................................
12. to reveal
the ............................................................
13. to reverse
the ............................................................ / ...................................................
14. to transform
the ............................................................ / ...................................................
 PROFESSOR DR G. DE MEUTER
PHOENIX PROJECT
CRA1
5