Two important facts about the age of the internet and the world wide web have been obscured by the explosion of interest in them. First, they have been around for longer than most people think. The internet's origins date from the late '60s; the world wide web from the early '90s. Second, both remain in their infancy. If the analogy most frequently drawn – that with the early railways – is true, then we are still at the equivalent of the curious horse-drawn stage in the railways' evolution. We can only guess at what the future will be like when the current tendency, using new technologies to do old things, is supplanted by widespread use of these technologies to do completely new things.

Arthur C. Clarke observed that we tend to overestimate the short-run impact of all technology changes, and underestimate their long-run impact. Certainly recent years have been riddled with hype, including perennial forecasts of the demise of many traditional forms of commerce and other activity, due to their simple replacement by an internet equivalent. We have been less quick to analyse the more fundamental impact the internet will make on business, leisure, and educational pursuits.

We can trace two major stages of the internet world since the invention of the world wide web. First was the business-to-consumer (B2C) stage; second was the business-to-business (B2B) stage. In both we see an evolution of web sites from merely informative use into facilities for transaction origination and fulfilment.


The B2C stage can best be viewed in terms of opportunistic retailing. An explosion in the construction of retail sites, by both start-ups and by established players, was based on the premise that anything consumers buy in the high street, the mall, or through mail-order will in future be bought over the internet. If the retailers' business was to be eaten, they were determined that cannibalism was the way to do it. We have now seen the collapse of some high profile sites: went from riches to rags early this year, and health site clickmango decided to call it a day even though some investors' money remained (although, ironically, the publicity about clickmango's intentions has resulted in some resuscitation of the ailing patient). The latest casualty of the B2C slump has been SAP and Intel's joint venture, Pandesic, which said in a statement: “We do not see a timely road to profitability due to slower than anticipated market acceptability of business-to-consumer e-commerce solutions.”

In financial services, some of the UK's major B2C players, such as iii and The Exchange, have seen recent collapses in their share price. Others have found their fledgling operations plagued by security or performance glitches, or both. Possibly seeing what happened to Abbey National's Cahoot, the Halifax bank postponed its launch of IF. For some the fascination with egg's business model has been replaced with wonder at the range and extent of its security problems.

This does not mean that B2C won't work. Instead it shows that the propensity of consumers to buy online has been overestimated (customers still mistrust the medium); that the amount of investment required by e-tailers to replicate the necessary infrastructure of their bricks and mortar rivals has been underestimated; and that the relentless pressure on prices in conventional retailing is even more relentless in the online world; has only recently started to sell books at above cost. More work is therefore necessary on the contextual issues that currently inhibit consumers' greater acceptance of online retailing.


Early disenchantment with B2C caused focus to switch to B2B. Here businesses that buy from other businesses saw opportunities to reduce expenditure, and those that sell to other customers saw opportunities to shift surplus inventories to an ever-expanding number of customers. A variety of Netmarkets, or exchanges, were built and launched. Most are designed to provide online markets where buyers and sellers of specific products or commodities can interact and do business. Some, called e-hubs, target whole supply chains.

B2B has been less obvious for the financial services sector than for industries constructed around physical assets. Nevertheless, many financial services can be easily commoditised, and some obvious opportunities have been pursued. For example, it is said that online trading could cut costs in the foreign exchange markets, where $1,500 billion is traded each day, by 80%. Thus in August the world's three largest forex dealers, Citigroup, Chase Manhattan, and Deutsche Bank, announced a new online trading service. Called Atriax, it intends, in partnership with financial information provider Reuters, to recruit another 50 banks. It will compete head on with Fxall, the Internet-based platform launched by Bank of America, Credit Suisse First Boston, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley Dean Witter, and UBS Warburg, and now co-owned by 13 banks. In July, European players Banco Santander Central Hispano, Commerzbank, Royal Bank of Scotland, Société Générale, and SanPaulo IMI announced plans to launch a single electronic market allowing their clients to trade forex, fixed income, and money market products.

CATEX claims to be the world's largest internet-based, B2B exchange for insurance, reinsurance, and risk management. It offers global pricing transparency and transaction detail for all lines of commercial insurance and reinsurance. Established in early 1996 to facilitate the swapping of catastrophe exposures between interested parties, CATEX has expanded greatly its operational scope to include all lines of commercial insurance and reinsurance. Risk instruments now managed through the system include traditional premium indemnity transactions, second event covers, industry loss warranties, stop loss and aggregate covers, treaties, and facultative covers. More than 1,400 risks have been posted on the exchange, with more than 500 transactions completed representing over $3 billion of insured limit. Posted risks have included aviation and aerospace, accident and health, marine, energy, political risk, weather, credit, motor liability. CATEX boasts over 170 subscribing corporations representing nearly 2,000 individual end users, including intermediaries, reinsurers, insurance carriers, and corporate risk managers located in over 85 cities.

The next step: b-web

Despite their success, most of the sites described above have been online replications of physical-world activities. For many retailers and wholesalers the internet was just another channel; for many buyers it was just more convenient, cheaper, or faster. Therefore many players experienced no transformation.

Yet the B2B sites are showing the first signs of industry-wide alteration, and even fundamental economic change. It will cause all companies to reassess not just what they do, but what they are. The decline of the vertically-integrated industrial corporation (VIIC) has been predicted many times, but only now can we see clearly how its decline may occur, and what will replace it. The evolving new-model company has had a number of labels, but business web (b-web) seems likely to last. The Canadian business author Don Tapscott defines a business web as: “A distinct system of suppliers, distributors, commerce services providers, infrastructure providers, and customers that use the internet for their primary business communications and transactions.” A b-web is a collection of collaborating businesses that interact on the Internet, endlessly creating new products and services, and new business models. Speed to market and reduced transaction costs are the obvious advantages of a b-web over a VIIC.

B-webs are made possible through a number of enabling technologies, and result from a number of technological shifts. The basic building block of a b-web is a web service. It is a business process or piece of business data or knowledge that can be digitised using XML (eXtensible Markup Language, a universal translator based on common data dictionaries), that can be operated across company boundaries, and that can be managed using directories.

In more conventional terms, imagine running a business that could share its business processes with its partners, could acquire from those partners competencies that it doesn't already have, and could form new business relationships in as little time as it takes to click a button on a web site. More importantly, if you work for a VIIC (as most of us do), think how a new start-up in your industry could erode your natural advantages of scale and capital by operating through b-webs.

The world of b-webs is now tantalisingly close, and today's VIICs should be doing a number of things to anticipate their arrival. First, examination of the value proposition – how a customer experiences your products and services – at a molecular or component level is critical. Second, consider each participant in that value proposition, what it is they contribute and how, and where the weaknesses are. Third, step outside today's implementation and imagine how the customer really wants to experience that proposition. Then imagine how to deliver it in a world without technological constraints – or those that today's organisation imposes. This process is hard to describe and almost impossible to teach, but without such visionary thinking it will be impossible to reconstruct a winning value proposition. Fourth, put it all back together again, identify new contributors to the value proposition, and negotiate partnerships with them. Each new contribution should add new value and enhance the customer's experience. It will be a never-ending process as new forms of value emerge and as new business models are defined to deliver value to customers while making profits for the b-web.

Emerging enabling technologies will realise the potential of the web. They mean we can and should anticipate an entirely new set of companies. They will use web services in a dynamic fashion to create and deliver products to their customers that will be far superior to the mass produced products and services that are still the stock-in-trade of the VIIC. Financial services are not immune from this challenge. Indeed, as financial services are capable of total digitisation, we are perhaps more vulnerable. There is as much opportunity as threat, but however you view it, it is inevitable. This is the new economy in action. Embrace it.

Richard Copley is Director of Solutions Management for CSC's Financial Services, responsible for developing solutions to address emerging issues in financial services.