In-Depth

E-Commerce: The Third Generation: The Rate of Change Is Preparing to Slow Down

• 07/01/2000

I have a confession to make. I don’t believe in the concept of "Internet" speed. I am not a proponent of the "be-quick-or-be-dead" school of thought. I don’t even believe in the "first mover" advantage.

The reason the notion of Internet speed and first-mover advantage emerged as organizing concepts in business is because the initial wave of Web-oriented technology was so accessible that basically anybody could use it. I frequently tell my students that if a 19-year-old working in a garage can come up with Napster, technically, it cannot be that sophisticated. Basically, everybody who wanted to was able to jump on the Internet bandwagon immediately. But, not everybody wanted to. Those who jumped early reaped some benefits.

However, the real benefits of Web-based technology are yet to come. Over the past several years, the available technology has become increasingly more complex. Once technology reaches a certain level of complexity, the rate of change slows dramatically, but the benefits increase proportionally.

This pattern is clear in the e-commerce arena. The first generation of e-commerce sites consisted of text-and-graphics affairs that served as placeholders for companies on the Web. In the second generation, companies connected product databases and catalogs to a Web interface, and began to integrate their online activities with their back-end legacy systems. While more sophisticated than text-and-graphics Web sites, bolting a Web interface with a database is not particularly challenging for many IS organizations.

The third generation of e-commerce systems is a different story. Many observers believe that the next step for e-commerce is to integrate the entire supply chain from supplier to customers, using Internet-based technology.

Creating virtual supply chains will not be a trivial task that will be easily implemented in Internet speed. Many of the basic building blocks of a virtual supply chain are not in place. In fact, according to Mike Krechevsky, Vice President of Strategic Alliances and Managing Director of Dun & Bradstreet’s Supply Chain Management practice, many large companies do not even have a clear idea of who their business partners are and the nature of the transactions between the entities. In Fortune 1000 companies, Krechevsky says, most information is fragmented among different databases and cannot be easily synthesized. Suppose a company buys midrange servers from IBM and Notes from Lotus, an IBM company. Because those orders may be processed differently by different units of a corporation, there may be no way that corporate management can understand the full extent of its relationship with all the units of IBM.

The same issue exists on the supply side of the equation. Multiple units of one company may be selling goods and services to multiple units of another company, and corporate management may have no way of knowing the full extent of the relationship.

It is going to be a long jump to get from not even knowing how much business a company is doing with whom, to putting virtual supply chains in place. As a first step, Dun & Bradstreet (D&B), along with the United Nations Development Programme, has launched an initiative that, eventually, could play a crucial role in the development of third-generation e-commerce systems – a global commodity code standard that classifies more than 8,000 products and services around the world. The eight-digit hierarchical code is the result of a merger of the United Nations’ Common Coding System (UNCCS) and Dun & Bradstreet’s Standard Products and Services Codes (SPSC). The UN/ SPSC allows companies to consistently classify the products and services they buy and sell.

Using the code in conjunction with a universal business identifier, such as the D&B D-U-N-S Number, can help companies track and manage their relationships with suppliers. Appending the UN/SPSC and D&B D-U-N-S numbers to a company’s file of suppliers can help firms identify interrelated suppliers and gauge opportunities for consolidating and leveraging those relationships.

"The standard helps companies manage the ‘who’ side of their trading relationships," says Krechevsky. That will be welcome as the growth of e-commerce promises to increase the complexity of trading relationships exponentially.

Evaluating and understanding business partners seems like a fundamental business activity. But, if even this basic task is not easily done, obviously the growth of third-generation e-commerce is going to move much slower than the so-called first and second generations.

But, then if change will come slower now than in earlier generations of e-commerce, companies still have to adapt expeditiously.

As e-commerce moves into the third generation, the pace at which companies incorporate new technology will be less important than the propriety of their choices. Key building blocks are still just emerging.

About the Author: Elliot King is an Associate Professor of Communications at Loyola College in Baltimore, Maryland. He can be reached at (410) 356-3943, or via e-mail at [email protected].