copyright notice
link to published version in the Communications of the ACM, July, 2001

accesses since June 8, 2001

E_commerce: Business at the speed of sleet

Hal Berghel

The real millenium catastrophe

Y2k will prove to be one of the most interesting years in history. Not for the reasons some suspected - the synchronized global failure of computer systems due to their failure to recognize the date rollover to "00." In fact, Y2k probably won't be remembered for any particular technological event at all. It will be known as a landmark year in capitalism - a year of extremes. In one year, we witnessed both the greatest growth in the technology-oriented NASDAQ, as well as its impressive implosion. Y2k saw the foundation of the information technology economy crumble at the same time it helped produce the largest U.S. budget surplus in history. During the same time, investment in DOT.COM startups reached a feverish pace, only equaled by their precipitous fall from grace. Forget the fact that the father of the Internet won the Presidential popular vote but lost in the electoral college. Forget that global equities markets are collapsing despite the prevailing view that global economies have never been in better shape. Y2k may be one of the milestones in the history of capitalism, and forever secure as one of the most resonant themes in doctoral dissertations in humanities and business for centuries to come.

But what really happened? How did e_commerce fit into the historical millieu? More important, did we learn anything from our experience?

What makes E_commerce possible?

There are five key ingredients to electronic commerce.

1. a diffuse, digital networking infrastructure (e.g. the Internet of some reasonable facsimile thereof),
2. a means for delivering and rendering acceptable cybermedia content (the Web does this nicely),
3. a mechanism for handling transactions in a secure environment (secure HTTP, say),
4. a financial infrastructure to handle the accounting and invoicing for transactions in increments from fractions of a cent to millions of dollars (e.g., E_cash), and, finally, but most important,
5. a viable business plan.

1.-4., above, were in place by the mid-1990s. 5. Remains elusive to the present day. Therein lies the rub. In a very real sense, the Y2k DOT.COM catastrophe had nothing at all to do with technology. It had to do with human frailties - greed, rapacity, ego-centricity, ignorance, and a lack of common sense. The great irony of Y2k will be that, contrary to the conventional wisdom, information technology was basically unaffected. It was the economy that it supported that collapsed around it.

An E_commerce Retrospective

In a very real sense, e_commerce has its origins in the bulletin boards of the 1970's. In those years, which we'll here label the Jurassic period of computing, the dinosaurs ("mainframe computers" in popular parlance) were facing extinction and the earliest of mammals (minicomputers) and birds (PCs) evolved quickly, each spawning a new form of communication. The two most popular, early forms of communication in this period were email and bulletin boards. What made bulletin boards effective was the ability to broadcast information. It's easy to forget that in the early days, before reflectors, deflectors, alias files and the onslaught of spam, email was actually conceived as a vehicle for inter-personal communication. However, the historical significance of email is frequently lost when we are welcomed to work by dozens of email messages from those who would engage us in Ponzi schemes, sell us unneeded recycled printer toner cartridges, lure is into unwanted subscriptions, and otherwise beckon us to their distractions, annoyances, and sundry other pointless and unrewarding activities.

Early bulletin boards provided us with the first digital billboards. In the 1970's, no microcomputer user could live without them. They were the connectivity to Ward Christensen's latest insights, the latest Western Digital disk controller card, and a variety of other silicon sundries. E_commerce was born of that mindset - using the digital networks to connect those consumer and supplier electronically Whether the commodity was freeware or payware, advice or announcements, bulletin boards kicked off the e_commerce era.

One might also view E_commerce from the perspective six functional components:

1. a purpose, goal or objective
2. meaningful content residing on a digital network
3. a market niche
4. some mechanism for measuring success of failure
5. a transaction and interaction support infrastructure, and
6. the underlying Internet and Web technology to integrate and sustain all of the above.

The figure below illustrates the idea. Though the size of the wedges of the pie are to be taken cum grano salis, the point is that some of the functional areas contribute more to the success and failure of the e_business than others. Technology, though fundamental to the overall success, is less important in the end than having a viable purpose, and that, in turn, is less important than having a viable business plan. In the scheme of things, the absence of sound technology underpinnings can kill an e_business, but the presence is no guarantee of success. On the contrary, armed with an identifiable need, and a well thought through business plan, one may be able to profitably limp along for awhile while the technology platform catches up. This begins to shed light on the Y2k calamity - the venture capital fuel that created the DOT.COM phenomenon was focused on the technology, largely to the exclusion of the more important aspects of the e_business. For many of us in information technology, the inevitable implosion was seen as long overdue. If only our portfolio managers had bothered to read our articles!


So by the late 1990's, incredibly inflated projections of the impact of e_commerce became the media mantra. The November 30, 1999 Financial Times reported online toy sales up nearly 100% during 1999, with a 27% increase in book and music e_tale sales over the 1999 Thanksgiving Holiday alone. Neilson/NetRatings reported an 18% growth in e_commerce over the same period. The trade press, that should have known better, got caught up in the frenzy as well. PC Magazine projected an order of magnitude growth in e_commerce from 1999 to 2004. Initial success, incredibly innovative computer and network technology, massive amounts of media hype, and a non-insignificant amount of self-serving hyperbole from startup companies, was just too much for the venture capitalists to ignore. They raced to e_commerce, as moths to flame - drawing the investment community along with them in the process as one bad idea after another spawned IPOs of unprecedented and unsustainable growth, thereby creating financial disorder where technological order had once existed. What is remarkable is that this took place against a continuous stream of reality checks. The May 18, 2000 Barrons, for example, reported that 25% of Internet companies surveyed will run out of cash within 12 months, and that 74% had negative cash flows. But the investors continued to come in droves.

What have we learned from the Y2k E_commerce implosion?

Some consequences are more evident than others. When the NASDAQ lost half its value, I think the world caught on that there had been more than enough irrational exuberance to go around. That much we can safely say. Unfortunately, that should have been a no-brainer from day 1.

It is just as obvious that e_commerce is here to stay. Many "Click and mortar" e_talers seem to be doing well. B2B seems to be burgeoning. And Napster demonstrated that P2P will soon have a role to play. On the whole, the future for e_commerce looks quite bright indeed.

The one dark spot on the horizon is that the problem that caused the Y2k e_commerce meltdown is still with us - an over-reliance on technology to overcome the weaknesses of a bad business model.

So overall, the real millennium catastrophe was a wake-up call that even the best technology insights can be oversold. Our great challenge will be to take a deep breath during the current lull, and focus our attention on standards for the future.