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Computing

How the Internet is changing the face of business

July 14, 1998
Web posted at: 1:50 PM EDT

by Neal Weinberg

From...

(IDG) -- Some companies are using the Internet to forge direct connections to their customers. Others are creating industry-specific electronic trading platforms to balance supply and demand for goods and services. Still others are using secure Internet connections to conduct business with trading partners.

In short, the Internet is helping companies cut costs, improve customer service and attract new business. It is fundamentally changing the way companies do business in virtually every industry.

But the 'Net also poses a risk to individual companies and even whole industries that are slow to find ways to take advantage of it. It's creating new competition within and even among industries. And it's putting the squeeze on traditional middlemen and channel partners that may be cut out of new Internet-based supply chains.

The following are examples of how industries large and small are being reshaped by the Internet.

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Building a better brokerage

E-Trade, the virtual stock brokerage, makes no bones about the fact that it is targeting full-service, full-commission brokers. Customers who open an account at www.etrade.com are offered a free copy of E-Trade's guide to online investing titled "Boot Your Broker." And in a recent speech to a roomful of brokers, E-Trade's brash CEO Christos Cotsakos said, "All those branch offices you all have are going to become fast-food outlets, so you might want to think about your career choices."

There's no doubt that electronic stock trading has taken the industry by storm. Nearly one in every five stock trades in the final quarter of 1997 occurred over the Internet. This year, that could rise to almost one in every three trades, according to Bill Burnham, an analyst at Piper Jaffray, Inc. in Minneapolis. In just two years, online trading has come to dominate the discount brokerage world. "It's not just another channel; it's the channel," Burnham says.

There are now four million online stock customers, according to Chris Musto, senior consultant at Gomez Advisers in Boston. No doubt they are attracted by the average electronic brokerage charge of $15 per trade, given that full-service brokerages can get more than $100 per trade.

Because dollar volumes and commission fees are lower online, electronic trading accounted for only $685 million in commissions last year out of a total of $14.2 billion. That's not enough to pose a real threat to the viability of full-service firms, but Musto says it will change the way they do business.

In addition to a low price and real-time transactions, online brokerages offer consumers a wealth of investment information that at one time was closely guarded by full-commission brokerages. In fact, it wasn't so long ago that consumers had no way of getting stock quotes during the day; they had to wait for the next morning's newspaper. The Internet provides all the real-time information a consumer can handle. But full-commission brokerages have their advantages, too. They offer proprietary research, access to initial public offerings and asset management advice.

Full-service heavyweights such as Merrill Lynch & Co. have not announced plans to offer online trading and may never go that route. "You're asking firms to alienate 95% of their revenue-producing assets [their brokers] for 5% of the business,'' Burnham says.

More likely, full-service brokerages will move away from simply taking orders and focus more on financial planning. And commissions based on the value of a stock trade may give way to a fee system based on the amount of assets under management. Brokers who can make the transition to becoming financial planners will survive; others won't.

Burnham says aggressive online brokerages are now considering an invasion of traditional banking territory. E-Trade currently offers IRA accounts, and Burnham predicts online brokerages will soon begin offering consumer loans.

NASDAQ for truckers

Your average long-haul trucker hasn't traded in his CB handle for an e-mail address, but several innovative companies are driving the trucking industry to the Internet with electronic marketplaces that link carriers and suppliers in real time.

One of the most interesting approaches is that taken by the National Transportation Exchange (NTE), which has modeled itself after the NASDAQ stock exchange. The big difference between the two is that NASDAQ trades in shares of Apple, while the NTE trades in truckloads of applesauce.

For example, Toro Co. in Minneapolis has a fleet of 40 trucks that deliver snow blowers and lawn mowers to stores across the country. Those same trucks often have empty space on the return trips, says fleet manager Marilyn Baldwin.

Gregory Rocque, president of the Downers' Grove, Ill. based NTE, says this imbalance is common in the trucking industry because there's no trading floor to match buyers of truck space with sellers.

That's where NTE comes in. NTE electronically connects prequalified shippers that have loads they need to move with fleets that have extra space. For a fee, NTE sets the asking price for the shipment based on trading activity that day, and special software takes information from fleet managers as to where their trucks are going and how much space is available.

NTE software crunches the numbers and gives fleet managers a ranking of the five best deals. NTE also confirms the contract and handles payment and billing.

Baldwin logs on to www.nte.net several times a week to fill up the empty Toro trucks for the trip home. She says the big selling point of the service is that it's virtually instantaneous.

And it turns out that many of the shipments the Toro trucks bring back to Minnesota go to 3M Corp., so the system benefits two neighboring companies.

The NTE currently has 300 members, including about 200 carriers and 100 shippers.

Rocque says the organization began in 1995 with a value-added network, then progressed to telnet sessions over the Internet. The company is converting its Internet-based transaction applications so they can run on the NTE Web site, which currently serves a marketing function.

Rocque says he expects the Web to provide easier navigation, improved user help tools, graphical reports and even push technology to alert customers to potential trading opportunities.

The Internet Truckstop, at www.truckstop.com, is another site that leverages the real-time capability of the Internet to match buyers with sellers, although it plays no role in actual transactions.

Chief Technology Officer Scott Moscrip says there was plenty of resistance when Internet Truckstop opened in 1995 because of concerns about Internet security and reliability. But now more than 6,500 companies are signed up for the $25-per-month service.

Considering that a freight carrier loses $600 every day a truck sits idle, Moscrip figures $25 is a small price to pay.
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