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Far more than a Microsoft, a Netscape or an Oracle, Cisco offers an interesting Internet business case-study today. Pick a dimension, any dimension - mergers and acquisitions; tech base; management smarts; market cap; operations - and you'll find Cisco's performance commands respect. This is a company every serious player on the Net monitors, benchmarks, or invests in.
So only a Net naif would fail to pay extremely close attention when Cisco announces plans to move into e-commerce. The company is already moving major iron via the Web. Within six months of launching its Cisco Connection Online, the company should easily clear US$100 million in Web-based sales. What's more, management expects fully a third of its sales to come from the Net by next July. That's aggressive.
Do the math: The company would then easily be topping $1.75 billion in Web sales. According to The New York Times, that would make Cisco the world's largest e-commerce merchant.
But Cisco's nascent success as an e-merchant is actually less interesting than its e-commerce aspirations. The company plans to sell its e-commerce expertise to other companies. In other words, Cisco wants to be as much a force in the global e-commerce infrastructure tomorrow as it is in global Internet infrastructure today.
That seems a completely logical diversification/extension into a new Web business. Then again, that's what I thought when Federal Express absolutely, positively announced it wanted to leverage its expertise into the e-commerce market. To be sure, FedEx doesn't have the same kind of Internet expertise as Cisco. But then, FedEx certainly seems to have both the process and infrastructure skills to craft viable e-commerce packages for clients.
So what's going on here? Well, you can't help but like a medium that makes companies like Cisco and Federal Express into direct competitors. (That's why I'm so fond of credit cards - anything that turns Citicorp, Wal-Mart, General Electric, AT&T, and GM into rivals can't be all bad.)
More significantly, we're seeing what appears to be the next transformation of the Web's industrial structure. The Web has exploded into prominence as a medium that minimizes the marginal cost of posting information and imagery worldwide. The Web is a superb publishing, broadcast, and multicast medium. That's the obvious.
What's rapidly becoming just as obvious is that the Web can facilitate process management as easily as it does data distribution. The marginal cost of putting your Internet infrastructure online - such as Cisco's foray in marketing its e-commerce infrastructure as a value bundle - is shrinking. Indeed, the hard-dollar costs to Cisco won't be in technological innovation, but in marketing management. The same holds true for Federal Express. The Web is simply a vehicle to extend FedEx's logistical processes into cyberspace.
There is, of course, ample precedent for this kind of core-competence diversification, as the management pundits might put it. Ryder, who you probably know best for its truck-rental business, has built another nice, big business for itself marketing its internal competence in logistics management. The Web provides a magnificent, comparatively low-cost vehicle for companies to export their internal skills to the larger marketplace.
There's already a nifty example of this in British Petroleum, which has a lot of its accounting work done by Andersen Consulting through the companies' linked intranets. Andersen has effectively exported its accounting expertise via the Web. Then again, you could argue the Web provides a nifty medium for companies looking to outsource their non-mission-critical corporate processes. E-commerce thus represents a completely reasonable diversification for the Ciscos, FedExes, IBMs, and Visas of the world. The Web represents the most compelling approach to manage those initiatives.
But the competitive implications of Web-driven diversifications/extensions are profound. Most obviously, what this means is that Web commerce will be filled with large, well-heeled organizations coming to the Web to compete. While that doesn't rule out opportunities for entrepreneurs, it should mean that cyberspace is likelier to become less hospitable to independent innovators.
Why? Well, let's take the most obvious scenario: If you commit to Cisco routers and switches for your corporate intra/extranets, the company might theoretically toss in its e-commerce package for 40 percent off. If you do more than $1 million a year in FedEx packages, the boys in Memphis, Tennessee, might give you their e-commerce software for free. Please tell me what venture capitalists want to fund a clever e-commerce start-up in that kind of competitive environment.
That's not to say that even a fraction of these giants seeking to extend their infrastructures and process competencies into the digisphere will be successful: They won't be. But you'll have the sort of vicious, price-driven competition that does not bode well for start-ups. With the exceedingly notable exception of Southwest, think of what happened to all those airlines launched during airline deregulation in the '70s and '80s. Remember People Express? New York Air?
Of course, as Java, JavaScript, and ActiveX seep into the marketplace, Web-based process competition between diversification and extension-minded companies can only intensify. I think it will get ugly. But it could be a terrific time to be a virtual customer.
