Net Benefit

A new technology can be slow to reveal its full potential. Rail, for instance, revolutionized the coal industry many years before its promise of mass public transport and universal postage was fulfilled. The history of broadcasting likewise reveals a pioneering phase when the new invention was perceived primarily for its usefulness to existing organizations: it finally allowed shipping companies to communicate with their fleets at sea. The radical concept of a home entertainment industry took two decades to emerge. More recently, hardware that enabled computers to communicate with each other was seen by its developers as an important contribution to US defence systems. Only when the World Wide Web was launched a quarter of a century later did the full potency of their work become discernible. Now we are witnessing the emergence of new trading technology. This book suggests that electronic commerce, even though it is overturning retailing and business practices around the world, is still only in a relatively insignificant pioneering phase, akin to mine railways or early ship-to-shore radios. There is an, as yet, unanticipated impact that will go much further in reshaping societies, largely for the good. To explore this lurking potential it is necessary to divide online purchasing into two distinct strands. The first is sales channels, in which specific retailers, manufacturers or service companies offer their output. The second is interactive marketplaces, in which anyone can sell.

It is half past six on a Friday evening. A couple looking for a weekend on the coast have turned to the GEMs system to find somewhere to spend tonight. After the customers have entered their PIN (personal identification number) and navigated to the ‘overnight accommodation’ marketplace, an initial screen asks ‘do you want to rent a room or do you wish to sell accommodation?’ One click tells GEMs they are buyers rather than potential providers: they are then asked for detailed requirements.

Finding a room in Anyville that most comprehensively matched the buyers’ requirements from the widest possible pool, then putting together a deal that could be promptly enforced would have taken seconds. Market entry would be equally effortless and made all the more enticing by GEMs’ market overview capability. Available to any user in any sector, these screens could bring data interrogation to an entire population as they constantly collate market information that can be displayed according to a user’s individual preferences. A householder in Anyville with a spare room, for instance, might call up this screen before deciding whether to start offering bed and breakfast.

A key advantage that public markets would have over piecemeal e-commerce networks is the way in which diverse marketplaces could interlock. A deal can be constructed that fits together something bought in market A, from a wide pool of informed sellers, with goods or services purchased in the same conditions from market B. Imagine, as an example, a plastic moulding company in a small town that just before 7.00 p.m. on a weekday has received a rush order for a van-load of their wheeled bins required 250 miles away by 9.00 a.m. the following morning. The company’s van and driver are elsewhere, vehicle hire depots that may still be open are far away and the trusted driver hire agencies with local presence have all closed for the night.

Although taking less than a minute, the process for hiring a van and engaging someone to drive it just described would be unnecessarily arduous. It would be far quicker to access a GEMs template for ‘van and driver hire’ which could calculate the combined costs and arrival times of multiple options for van and driver, then allow the chosen package to be bought with one PIN entry, both payments going into escrow separately so any link in the chain can become the subject of a complaint. GEMs could memorize its users regularly used settings. If a company makes regular deliveries from their factory to a customer depot utilizing drivers of the same grade, it should take less than half a dozen clicks to have fully a qualified worker and vehicle ready for a long journey at the factory gate in 20 minutes. Both would have come from a widening, competitive, informed marketplace and be contracted for exactly the company’s requirements at that moment.

A public markets system would allow users to lend and borrow money without incurring the overheads of a financial institution, or the fragmenting of the marketplace for capital under multiple sales channels. The GEM for loans would be an anomaly within the system, the only market in which one user could be in danger of defaulting on another. Elsewhere, contracts cannot be signed unless funds are available to go into escrow. GEMs’ commitment to guaranteed trading precludes the uncertainties of debt chains or potentially defaulting creditors. Users without reserve funds of their own would need to turn to the loans market, where lenders decide the level of risk they are willing to assume. Once again the matching between suppliers and purchasers is of fine ‘granularity’: a typical transaction might involve lending $100 for a week.

Public electronic markets would be particularly vulnerable to the law of network externalities: the more who use the system, the more valuable the service to each of them becomes. Starting with only a handful of sectors and growing to the scale of operation outlined in this section, GEMs’ need for secure trades in an open market would demand its users follow procedures that are going to be unfamiliar to most and daunting to some. A cultural leap would be needed to take computer issued codewords from their currently rarefied status in, for instance, ticketless business travel to routine use between neighbours hiring each other’s lawnmowers. Likewise, we are so used to entering into unstated webs of contractual protection, and shrugging off their periodic failures, that signing a written contract for transactions as small as buying a second-hand music CD then engaging a teenager to cycle round and deliver it could seem frighteningly formal.

It was a surreal morning, even for hardened financial journalists. On Easter Monday 1998, Wall Street opinion formers were invited to the opulent Hilton banquet room at Manhattan’s Waldorf-Astoria to be told that Nations Bank was merging with BankAmerica to form the largest bank in the US. ‘Bigger is indeed better’ a beaming head of Nations Bank told the press conference.¹ Two hours later the financial commentators trooped back to the same building’s Empire banquet hall to learn that First Chicago and Banc One had followed suit, creating the continent’s fifth largest bank. Both mergers were explained in terms of advantages of size in a globalizing economy and economies of scale: BankAmerica and Nations Bank announced plans to shed between 5000 and 8000 jobs within two years of fusing. The creation of megabanks represents one part of a long historical trend in business: the need to be big. Factories and centralized distribution facilities in the Industrial Revolution spawned big business. Craft-based worker alliances then metamorphosed into big union power as an essential counterweight. When the weaknesses of those antagonistic forces were painfully revealed in the depression years, big government emerged to provide a safety net.

A database enigmatically named Monster Board is currently the Internet’s most popular means of finding work.⁶ Its twin pools of job seekers and job openings are diluted by dozens of rival marketplaces; nevertheless, it is indisputably useful, attracting nearly two million visitors a month. But the service it performs – matching employers and candidates – is becoming an anachronism. The world is drifting inexorably towards fragmented employment, with individuals shouldering the costs and time required to find work and then juggling any competing requirements. An online facility for putting the two sides together in this ever-splintering marketplace would have to be far more exacting than any existing job matching service. PeopleBank, the UK Internet employment matching service offers probably the most sophisticated programming for matching employers and potential workers but, even so, does not foresee a future trading in short-term work contracts as a low-cost automated service.⁷ ‘I couldn’t see us getting into temporary work placements unless it was with the involvement of a major agency’, says Bill Shipton, MD of PeopleBank, ‘the administration and vetting would be too complex’.⁸ Guaranteed Electronic Markets could of course crack this problem and embrace the new reality of work, offering increased stability for an evolving workforce. Fifty years ago it was firms who largely absorbed the risks and cycles of business, shielding employees from the ravages of each downturn. In today’s marketplace, profitability frequently survives a slowdown in demand: it is the workforce who immediately suffer the consequences. Individuals seeking a flow of customers for their services, rather than the erstwhile security of life on a single payroll, is the way of the future.

Once a public market system is built there are additional social features that could be added at little cost. As well as creating an additional revenue stream for the consortium funding the system they would do much to promote social stability. These features delivered by a sophisticated but low-cost system offer advantages that a mass of individually targeted Internet sites could never achieve.

British Prime Minister Tony Blair has famously joked that he has trouble finding the on switch for his official laptop computer. Bill Clinton came up with a similar quip for reporters at the launch of his government’s electronic commerce policy statement. This affected naiveté would probably not be a vote winner in a country where a significant section of economic activity was happening in GEMs. Politicians would need to understand the dynamics of electronic markets, including the dizzying speed with which they can respond to events. In October 1997, for instance, the London stockmarket launched its SETs share dealing service with a speech from Chancellor Gordon Brown who, in the course of his remarks, appeared to suggest diminished enthusiasm for European monetary union. As his talk progressed the enormous SETs screen behind him progressively turned red as dealers used their new-found technology to immediately sell shares in companies reliant on the European market. When the frenzy abated, stock prices had been pushed way below their true value. Consumers given similarly fluid markets may conceivably respond in the same way to a report criticizing perhaps a specific make of car. Parliament, like the ruling bodies of Stock Exchanges, would need to decide whether the more illogical aspects of market forces were to be tempered with trading limits. They might, for example, rule that the price of any tangible asset on GEMs is not allowed to drop more than 15 per cent below its previous average in a 24-hour period, to put a brake on panic selling. Alternately they might opt for ‘capitalism red in tooth and claw’. GEMs would not force any ideology on governments, merely give them a new forum in which their convictions can be applied.

Around 500 BC, the Kings of Lydia achieved dominance of their region by inventing money to replace direct barter of goods. In the 1980s, Singapore automated all export/import paperwork on a computer called TradeNet and became the busiest port in the world in terms of shipping tonnage. Countries that use technology in unique ways to develop their economic workings have often done well. A nation with fully functioning public electronic markets should be able to stand aloof from trends that other nations will have to accommodate in the age of linked online economies. New efficiencies and a galvanized domestic economy could create unequalled appeal for investors that transcends short-term considerations, such as interest rates or business cycles. The nation would, for instance, be particularly attractive to inward investors. Take, for example, a Korean company debating where to set up their European manufacturing facility. If, say, Spain had a GEMs system the company could open an account in a Madrid bank, then a GEMs account, based perhaps at their Spanish lawyer’s address. Before leaving Seoul, they might access GEMs on the Internet and use their account to book an office suite and hire bi-lingual secretaries willing to work particularly long hours. Long-stay accommodation for a forward team and dependable support for their domestic lives could likewise be arranged in minutes. After putting purchased holds on various production facilities for hire on the system, then selecting a site, they could engage highly flexible staff, in their hundreds if necessary, to start work the following Monday. If there were a shortage of skilled workers, fitters qualified to work on a certain make of machine for instance, the company’s demand would show up on market overview screens studied by mechanics around the country, who should then be able to click their way to the training required.

US phone company AT&T used to run a seductive commercial in which two young women, dismayed at the shortcomings of their hard plastic sunglasses, set up in business making a more pliant alternative. Although the mechanics of manufacture present no problem, their newly founded company, Rubbereyes, cannot find retail distribution. In despair, they turn to AT&T Web Site Services, start selling over the Internet and enjoy swift success. This notion, that Net selling will, by its nature, create one level playing field in which a small newcomer can immediately reach world-wide consumers, has been enthusiastically propagated, not least by companies who would like to see every corner store and lone trader setting up a website. The reality, however, is shaping up very differently. ‘People say there are no limits to channels on the Internet. But that’s not the limiting factor here. The real limits are how to get through to people and get their attention’, explains one commentator.⁷ The number of online enthusiasts who will enter, say, ‘sunglasses’ into Internet search software then laboriously peruse even a few of the 190 000 sites returned at time of writing is diminishing sharply. Instead, interactive shoppers increasingly call up a ‘one stop’ site that allows them to shop with a manageable number of pre-selected retailers. These Net ‘portals’ are widely seen as the way forward in Net commerce because they simplify a range of online facilities, including shopping. With millions of users visiting a typical portal every day, the operators can sell their virtual real estate to the highest-bidding retailers.

The act that launched a GEMs service would need plotting in immense detail to ensure it achieved its desired effect, an outcome that can never be guaranteed. The US Telecommunications Act of 1996, for instance, was intended to open the telephony market to a wide range of sellers but instead encouraged big players to consolidate.⁵³ In the case of GEMs, the aim would be to shape a viable business opportunity for the winning consortium while ensuring benefits of trading technology were spread as widely as possible. Once the official protection for a potential system and its accompanying obligations had been crafted and a winning consortium selected, the goals both of parliament and the consortium would be very similar. In a democracy, both would need the new markets to grow while having every reason to continuously assert their independence from each other. Even in countries where many utilities are state run it would be undesirable for parliament to control a GEMs system: the technology has social implications that puts it on a par with broadcasting rather than water or electricity supply. Furthermore, politicians around the world have proved themselves spectacularly inept at articulating a consistent vision for large computer projects. Past evidence suggests that, once a vision is outlined, it is the private sector that should make it reality. Both sides of the pact should adhere to a fundamental principle of GEMs: taxpayers do not fund the project and no one is ever to be forced to use the system (except in the context of a professional relationship at the behest of an employer). Another absolute is that the launch not be predicated on any attempt to restrict the non-GEMs world of online commerce in any way. There would not, for instance, be a repeat of the French government’s effective outlawing of Teletext to protect a nascent Minitel online service in the 1980s.

Since the dawn of commercial computing, millions of jobs have been lost to successive new technologies. The pain involved is generally regarded as an unavoidable part of progress: as one commentator told Business Week in 1993, when cheaper software for clerical and administrative functions was becoming widely available, ‘people who don’t add value are going to be in trouble’.⁵⁴ A full-scale GEMs system would be but the latest encroachment of computerization on previously established ways of doing business. A crucial difference, however, would be the status of its victims: corporations and executives rather than humble office workers. Will they accept their fate as thousands of past employees were expected to and resign themselves to irrelevance? They might not and they would have ample scope to resist. A GEMs service should not be initiated without full public debate. That would ensure the legitimacy of government involvement in a launch and, as a bonus for the consortium behind the system, heightened public awareness. During this phase the proposed system would be vulnerable to attack on several counts. Like all previous major public infrastructure projects, it would push existing technology to its limits in a leap of faith that initially may not stand up to aggressive probing. Historians would recognize the pattern. In 1845, for instance, work began on Britain’s Chester to Holyhead railway with a 5- mile gap in the plans because no one knew how the plunging gorge of the Menai Straits was to be bridged. A race for solutions led finally to the invention of box girders, which could bear all required loads, even as lines leading to the gorge were being laid.⁵⁵

The potential unpopularity of a raw online marketplace in the first world notwithstanding, GEMs is unlikely to be launched in a developed country. It is in ‘second world’ nations that the opposition to such a move by government could be most readily overcome. The possibility of GEMs in a far off country might be enthusiastically supported by investors who would bitterly contest the same project on their home ground. Unlike, say, online entertainment applications GEMs can operate with very basic displays to users and would not require substantial bandwidth or advanced technology in terminals. The personal computers with 486 processors now being piled into skips across Europe and the US and the copper wire discarded for high-density fibre optics could provide the spine for a usable, if not particularly glossy, GEMs in a developing nation. Many of these countries are propagating the awareness and technical backbone required for a GEMs service. Internet access and usage is accelerating faster in developing countries than elsewhere.⁷⁰ In China, for example, twice as much fibre optic is now being laid as in the USA, encouraging the number of Net accounts to double in the first half of 1998.⁷¹ The Prime Minister of India (which has an existing middle class of 200 million people) has set out to reverse his country’s slow take up of the Internet with a national task force designed to make the country ‘an Information Technology superpower’. ⁷² Brazil is now committed to growth through privatization deals to create commercially driven infrastructure. With a favourable government any of these countries could achieve much from launching a first GEMs service.

The existing online marketplace is concentrating economic power and diminishing the variety in mainstream outlets. Under pressure from globalizing retailers, for instance, consumer goods manufacturers led by Proctor & Gamble are slashing their ranges to focus on a smaller number of key products standardized for marketing to the world.² Advertising and brand building would still be beneficial in a GEMs selling environment, although not crucial. However, speed to market would be so fast and demand data so freely available that the range of products available to GEMs users is likely to be constantly refreshing itself. Big companies would be foolish to respond with nothing more than a small number of unchanging lines when brand extensions or new merchandise could be painlessly tried on thousands of waiting consumers.

Any seller in GEMs could stipulate favoured buyers for whom he will drop prices. This could be automated so that, for instance, someone designated a member of a furniture store’s loyalty programme would always have cheaper prices displayed. But they would be shown to the customer seeking a new armchair alongside those of multiple other sellers. As she narrowed her search down, by defining perhaps style of chair, pattern of material, then cost and availability with delivery charges for each option already calculated, the chances of the store being in her final selection would be increasingly slim. It would probably be more beneficial to orientate the company towards market overview information, trying to predict trends and ‘own’ a niche: individually tailored leather armchairs perhaps. Instead of outlining a pricing formula for one product the company specifies a rate at which it will build chairs of different sizes. These options, on as yet unbuilt items, are offered to every buyer whose requirements they match with the details sheet giving a delivery timetable and emphasizing the benefits of madeto- measure seating.

Order processing between manufacturers and their supplying companies was one of the first areas of business to go electronic. The now ageing technology known as Electronic Data Interchange turned ad hoc orders by e-mail into on-screen forms from which information could be extracted by the computer at either end for billing, transit details, stock management and so on. Later attempts to cut costs by creating more efficient supply chains led to the creation of electronic markets in which buyers were limited to large corporations whose presence made it worthwhile for sellers to invest in the software for that market. General Electric (GE), for instance, set up the Trading Process Network (TPN) through which they bought more than a billion dollars’ worth of goods and services in 1997.³ Other substantial purchasers including utility giant Con Edison now use the TPN to meet their needs. For the sellers a recurrent problem is how to integrate the demands of TPN with their in-house computer systems, so that information can flow seamlessly around the company.

The world has been here before. A potent new technology is being exploited but only for restricted commercial advantage. Meanwhile, problems that it could address if made more widely available worsen. In the 1840s the technology was water pumping; the problem, epidemics caused by poor sanitation. Now electronic trading is being used primarily for new efficiencies in marketing while economies around the world become exclusive and inefficient. This is not a ‘them’ and ‘us’ argument. Just as no amount of wealth in Victorian England could create a barrier against airborne diseases that started in the poor areas so the impact of disintegrating social structures in the technological age can not be reassuringly compartmentalized.