A GartnerGroup Study

Internet Strategies Scenario

# Patrick Meehan
Research Director
GartnerGroup

Key Issues
1. What key trends will affect the role of the Internet?
2. How will Internet-derived technologies evolve?
3. What will be the most effective strategies and tactics for users to exploit the Internet?
4. How will Internet applications evolve and which will generate a profit, and which will continue to haemorrhage capital?

>From initial public Websites that were ''brochureware'' and predominantly used for marketing purposes, companies now leverage their Websites for product support, customer service, retail sales, and as a delivery channel for electronic goods and services. Intranet use has evolved from Web publishing to messaging, collaboration, and applications development. e-Commerce is in its infancy, but the opportunity is great.

By 2003, the Internet will become the predominant mechanism for conducting business, whether it be business-to-consumer or business-to-business for North America and Europe. In the Asia-Pacific region, more than 35 per cent of transactions on Web trading sites still get sent via traditional means—fax and phone. The term ''network-connected'' will take on new meanings, with ubiquitous Internet connectivity for developed nations allowing a new wave of telecommuting and remote-users, leading to ''virtual organisations.''

Internet technologies will become pervasive within enterprises, but will also branch into the homes of consumers via higher-speed telephony and bi-directional cable infrastructure in the more mature markets of Hong Kong, Singapore, and Australia. This pervasive one-to-one connection with consumers represents both an opportunity and a threat. The opportunity is an additional channel for reaching consumers while the threat is the rise of unforeseen competition by Internet virtual corporations.

Key Issue: What key trends will affect the role of the Internet?
Centralisation vs decentralisation is a debate that many IS organisations encounter everyday. We believe that the Internet itself and the adoption of its technologies within the IS organisation provide 2 very strong, opposite forces that will not catalyse a complete re-centralisation characteristic of the mainframe era or a return to the chaos introduced by PCs and client/server technology.

Next generation network computing applications, largely built on and enabled by Internet technologies, will be based on a more dynamic, distributed environment that builds on the legacies of the previous eras of centralisation and de-centralisation.

Action Item: Users should not expect the Internet to force either re-centralisation or complete de-centralisation but to enable an equilibrium that can provide for a more dynamic distributed environment.

Strategic Planning Assumption: Through 2004, the Internet will remain identifiable as the logical 'network of networks' (0.8 probability).

Key Issue: What key trends will affect the role of the Internet?
The role of the Internet continues to evolve: it becomes a data 'dial tone' for connections to the outside world; it becomes ubiquitous and omnipresent; its technologies continue to have profound effects on technology and society. We believe that its role as the 'network of networks' will continue throughout the planning period. New technologies will continue to be incorporated into the Internet and one of the most promising, Asynchronous Transfer Mode (ATM) will play an important but subservient role. ATM will be relegated to a role as fast transport pipe underneath the ubiquitous TCP/IP protocols that define the Internet as a primarily logical, rather than physical, network that is implementation-independent.

A richness of complexity of a seemingly disparate network of networks, based upon the original design of the Internet, permits the assumption that this model will last through the planning period. Discontinuity can't happen, and won't happen. TCP/IP enables this richness of coalescing networks, and will not be supplanted by 2004.

Action Item: Plan on TCP/IP as the digital glue binding together disparate networks.

Strategic Planning Assumption: By 2000, the Internet will be dominated by Network Computing traits layered upon earlier Client/Server technologies (0.7 probability).

Key Issue: What key trends will affect the role of the Internet?
The 4 layers of the Internet describe the continual evolution of Internet technologies, applications, and impact. Just as the Internet historically has not experienced discontinuous eras, we do not see this changing in the future. Rather, Internet evolution will continue to reflect a layering of technologies. Just as point to point timesharing gave way to a browser environment over a Local Area Network/Wide Area Network (WAN) infrastructure based upon TCP/IP, we expect technologies such as Java and XML to layer upon TCP/IP in enabling Network Computing applications such as automatic platform adjustment and follow-me profiles to focus first around portal 'Destinations,' and ultimately reside on the network itself. Similarly, the impact of such an evolution will drive the cost and difficulty of participating on the Internet down, enabling increasing numbers of non-PC savvy end-users to drive the Internet to mass market numbers, with the sum effect of transforming the business fabric of the Internet from sell-side to a buyer-centric marketplace built upon decision support and mass customisation applications.

Action Item: Don't expect dramatic, discernible shifts in Internet evolution, but rather an evolution of technologies and applications which rely upon previous eras' innovations. Initiatives begun today should be thought of as evolving, not 'start, stop, then start anew.'

Strategic Planning Assumption: Worldwide Internet adoption will not only be a function of economic growth—it will also be impacted by legal, cultural, and social factors through 2004 (0.8 probability).

Key Issue: What key trends will affect the role of the Internet?
A number of factors will impact Internet adoption around the world, such as economic development and regulatory, cultural, and social considerations. Nations high on the growth curve (Type A) are those where a high Gross Domestic Product per capita—indicating a high level of industrialisation—will be matched by a high number of Internet users as the population can afford terminals, modems, and Internet access-lines. Type B countries display high levels of industrialisation but low Internet penetration: their economic environment is favourable but they have traditionally been suspicious of new or foreign-developed technologies—thus slowing mass penetration of the Internet. For Type C countries, we differentiate between NICs (in Latin America, Africa, and Asia)—where Internet growth will be closely intertwined with economic development—and less-industrialised countries displaying high infotech growth (such as India and China). In the latter, because of the large size of the total population, overall Internet penetration in these countries will be low to 2001, and, for countries such as China, u ill remain low through 2003. Taken as a percentage of the population having access to infotech, Internet penetration will be equal or superior to that of industrialised countries, indicating that some Asian markets will leapfrog into Internet/extranet technologies as their economies develop.

Action Item: Expect fast-paced adoption of the Internet in Class A countries and that this adoption will impact their overall economies, which will, in turn, enable more Internet adoption.

Strategic Planning Assumption: Bandwidth to the home will continue to be a limiting factor to Internet adoption and technological development through 2003 (0.8 probability). However, solutions will be closer and access methods will vary wide by geography.

Key Issue: What key trends will affect the role of the Internet?
Since the applications running over the Internet can either encompass or be an adjunct to already ubiquitous media such as telephony, broadcast television and radio, and print, the devices that enable these interactive Internet applications are proliferating. The PC-centric 'box and monitor' access metaphor is splintering into an array of devices on a spectrum from TV-centric to PC-centric, largely freed from the office or home desktop. However, expect continued use of voice and fax as an adjunct to these emerging technologies within the Asia-Pacific region through 2003. Furthermore, expect the extreme costs of telecom and network services in the Asia-Pacific region, and the virtual absence of cable infrastructure outside of Australia and the Philippines to keep consumer access largely relegated to analogue modems through 2003.

Action Item: Recognise that as we develop systems to accommodate for the scarce commodity that is bandwidth that we are developing perhaps the next 'year 2000 problem,' as the motivation for storing dates in 2 digits was conserving a scarce commodity at the time—storage.

Key Issue: How will Internet-derived technologies evolve?
Once an enterprise has decided that a technology will play a role in its future business processes, it must determine the optimal time to invest seriously in the technology. This is no easy task. If the enterprise launches its efforts too soon, it will suffer unnecessarily through the painful and expensive lessons associated with deploying an immature technology. If it delays action for too long, it runs the even greater risk of being left behind by competitors that have succeeded in making the technology work to their advantage. The problem can be eased significantly by understanding the 'hype cycle' of emerging technologies, which follows a predictable pattern of hype, disillusionment, realism, and, eventually, productivity.

Action Item: Technology-planners should assess the relative impact of a technology and act early in the hype cycle for high-impact technologies, no matter what the enterprise's normal level of technology aggression while waiting for others to move first on technologies that are less relevant to the core of their business. Even risk-averse Type B and Type C enterprises should be selectively aggressive with technologies that are potentially significant to future success.

Strategic Planning Assumptions: More than 80 per cent of enterprise standards will be driven by Internet-derived technologies by 2004 (0.8 probability).
Through 2004, Internet-derived technologies will succeed in the presentation of content-based information but struggle in transaction-intensive applications (0.7 probability).

Key Issue: How will Internet-derived technologies evolve?
The Internet has spawned many new technologies. However, many technologies that have been developed and proven in the pre-Internet era will continue to provide value to IS organisations. Despite maturing, not all Internet-derived technologies will prove themselves in business environments. For example, rich-media types such as full-motion video and latency-sensitive audio, which are still finding their own way with Internet-derived technologies, will remain immature for business applications.

Internet-derived technologies have largely been designed to deal with content-based information and, as such, will be most applicable in similar types of IS applications (which are increasing). Many will succeed wildly internally, based largely on this value proposition. However, they will not generally replace established infotech that deals with transaction and data-intensive applications.

Action Item: Clients should prepare for an influx of Internet-derived technologies that will augment but not replace transaction and data-intensive application technology.

Strategic Planning Assumptions: Although the majority of Internet content will remain HTML-based through 2002, XML's role as integrative metadata technology will not have to wait for widespread adoption of the technology in browsers (0.8 probability).
Java will continue to be the technology that keeps the Vendors Against Microsoft coalition together and prevents total Microsoft infotech domination through 2004 (0.7 probability).

Key Issue: How will Internet-derived technologies evolve?
Although the Internet has spawned numerous new technologies, 2 in particular have captured the imagination of the mainstream as having tremendous potential far beyond the Internet itself: Java and XML, the Extensible Markup Language. However, these technologies are very different, have different applications, have affected major vendors' strategies differently, and are starting to be used differently on the Internet today.

Java, well into its third year of existence, is far beyond the 'aura' stage and beginning to mature, although there still remains much hype and misunderstanding. XML, however, is relatively new and has yet to fall into the trough of disillusionment.

Action Item: Clients should look beyond the deafening hype surrounding Java and XML and match reality and the technologies' real benefits at any given point with their own needs, and should not blindly follow the next 'silver bullet' technology being hyped.

Key Issue: What will be the most effective strategies and tactics for users to exploit the Internet?
Enterprise users are overwhelmed with data. This information overload must be corrected or significant productivity and morale impacts will occur. One method to accomplish this is an intranet portal. Similar in functionality to Internet portals, intranet portals provide an internal view of the enterprise's information and system resources. Information will be made relevant to the business of the enterprise and its users. In addition to 'home grown' intranet portals, which have been in existence in a few enterprises for years, products which facilitate intranet portals will become pervasive. Intranet portal services will also be provided alongside traditional Internet portal services.

Intranet portals, by definition, offer personalisation, albeit at the enterprise level. Personalisation at lower levels, all the way down to the individual, is an important feature. Electronic information within the enterprise, regardless of format, as well as relevant information on the Internet, must be indexed (for searching purposes) and categorised.

An intranet portal will evolve into the workers interface to an e-Business, and thus must be implemented in co-ordination with, and at the pace of, e-Business initiatives.

Action Item: Users should immediately plan for an intranet portal. Type A organisations should plan for deployment by 2000.

Strategic Planning Assumptions: By 2003, 80 per cent of North American enterprises will use the Internet for telecommuting, access to mobile users and communications with trading partners (0.8 probability). In the Asia-Pacific region, just 15 per cent of companies will use the Net for telecommuting while trading partner access will be up to 50 per cent (0.8 probability).
Through 2001, enterprises that minimise investments in Internet technologies while distracted by Y2K projects will be forced to utilise SIs for enterprise service provider activities.

Key Issue: What will be the most effective strategies and tactics for users to exploit the Internet?
The Internet will allow enterprise resources to be readily available, anywhere, anytime. This will allow a higher level of user empowerment than ever seen before. As easily as we today pick up the telephone and call a colleague, we will use the tools and technologies of the Internet, and the Internet itself, to communicate and collaborate. Electronic workplace applications like e-mail and calendaring will be 'Net-sourced,' i.e., outsourced to providers on the Internet. The Internet 'dial tone' will become reality, enabling a whole new generation of telecommuters and mobile workers. This enablement will spread beyond the walls of the enterprise, to trading partners and customers. It will grow beyond the virtual office to the virtual organisation, leading to a plethora of small enterprises that will leverage these capabilities to provide services. Mom and pop service companies will abound due to the new ability to interact, communicate, and collaborate without boundaries. Utilisation of firms overseas will increase dramatically, leading to a shift in the service sector away from the US/EU domain to third-world countries. Caution must be taken, however, to avoid being 'locked in' to outsourcing as the only option. Enterprises focused on Y2K and, therefore, delaying investments in Internet-related projects will encounter a lack of required skills, both internally and externally, and may be forced to utilise SIs.

Action Item: Understanding future resource needs and match outsourcing of Internet sills with overall goals regarding outsourcing.

Tactical Guideline: By 2003, enterprises should not plan to replace their WANs with the Internet but should plan for significant investments to supplement and extend their WANs with the Internet.

Key Issue: What will be the most effective strategies and tactics for users to exploit the Internet?
Enterprise Internet infrastructure of today consist of private WANs connected to the public Internet through highly-secured gateways, known as firewalls. Access by individuals is typically via at-home dial-up into an Internet Service-Provider (ISP). In the future, the dividing line between corporate WANs and the public Internet will start to blur. >From a user's perspective, it will be transparent. Digital certificates and biometrics will allow individuals to be identified without possibility for fraud, providing authentication mechanisms to safely enter private data sources. VPN technologies will allow known users to safely enter the corporate WAN to access data and systems to which they are authorised. VPNs will become the primary enabling technology for user access to corporate resources via the Internet, and both insourced and outsourced VPN implementations will proliferate. Few enterprises will use the Internet to replace their private WANs but almost all enterprises will use the Internet to supplement their private WANs. Access to the Internet will extend to public locales, such as airport kiosks and hotel room-based network computers. Maturity of technology and network connectivity w ill allow the Internet to be used extensively for some types of voice traffic.

Action Item: Users should examine alternate network options on a regular basis and implement when cost savings or improved access are evident. Asian clients should be particularly aware that extreme networking costs will make such cost savings difficult to achieve.

Strategic Planning Assumption: By 2004, over 50 per cent of enterprises will use the Internet for 80 per cent of their external procurement activities (0.7 probability).

Key Issue: What will be the most effective strategies and tactics for users to exploit the Internet?
With the advent of extranets, fuelled by the proliferation of VPNs, supply-chains will be linked in most medium-to-large enterprises. Back office systems will start to play as major ERP vendors (SAP, Baan etc.) integrate their systems between enterprises.

Retail will continue to boom, with more products and services available over the Net. Credit-card payment will not be a concern with stronger encryption and better methods to hack-proof Websites.

Internally, enterprises will use their intranets for procurement of MRO goods. Externally, enterprises will use the Internet for procurement of most goods and services.

Enterprise IS will be challenged not only to connect back office systems via extranets but also to provide flexible, secured connectivity for both short- and long-term business relationships.

Insourced extranets will shift from the currently pre-dominant DMZ-based model to one dominated by VPNs. Outsourced extranets will grow in size and number.

Action Item: Users should examine existing supply-chain mechanisms and replace/supplement with Internet-based mechanisms that have more potential for cost savings.

Key Issue: How will Internet applications evolve and which will generate a profit, and which will continue to haemorrhage capital?
The concept of 'content is king' is dead. The heir apparent is 'actionable content,' which integrates analytical technologies with informational content to help support decisions and to deliver answers. Content for content's sake has no revenue model or value proposition to support the tremendous effort and costs associated with its maintenance.

Web-based content will increasingly be purchased by business and consumers on a pay-per-use or subscription model in order to support decisions. The content aggregate of portals will serve as the consumer and business draw to these on-line destinations, with actionable content supporting the evolving transactional marketplaces. Within these marketplaces, consumers will come to expect up-to-the-minute information for comparative analysis. Consequently, advertising models, as we know them, largely based upon physical and time-oriented placement revenue models, w ill become irrelevant, to be supplanted by new advertising models drawn from the target market knowledge aspects of direct mail wherein the Internet creates a value exchange proposition with consumers.

Action Item: Seize the opportunity to become part of the content aggregate of portal sites; develop actionable content applications that instil confidence within decision-focused interactions.

Strategic Planning Assumption: By 2001, enterprises maintaining basic presence or prospecting Websites will suffer attack from an Internet challenger (0.8 probability).

Key Issue: How will Internet applications evolve and which will generate a profit, and which will continue to haemorrhage capital?
Basic Presence And Prospecting: From 1993 to the present, most Web-based Internet projects were developed as tactical or experimental, and provided valuable enterprise learning experience. This learning must be leveraged in order to define a strategic direction.
Business Integration: As the Internet matures, traffic increases, and planners move to link systems and processes across the enterprise to the Internet, projects beginning in 1999 must become long-term prospects with rigorous planning, reviews, and quantifiable and subjective Return On Investment goals. The new applications are new media-enabled, business-critical applications.
Business Transformation: Enterprises conceive new business and migrate traditional business to the Internet. Integrated back-office functions streamline supplier and client communication and replace paper-based functions.

Action Item: Get strategic! The Internet is rife with emerging competitive threats. Embrace this framework now so that threats may be transformed into opportunities. Asian clients will find dramatic cost savings, varying widely by region, over the North American costs presented.

Strategic Planning Assumption: The notion of the Internet as a borderless, global marketplace will be proven a myth by 2001 (0.8 probability).

Key Issue: How will Internet applications evolve and which will generate a profit, and which will continue to haemorrhage capital?
One of the early, idealistic promises of Internet commerce was the opportunity to exploit a global forum and marketplace, free of governmental interference. This is a US-centric view of the Internet, and will become a 'growing pain' reality as enterprises exploit the Internet internationally. Just as there is no such thing as a borderless, global marketplace in real-time and space, we have no reason to believe one will materialise via the Internet.

The EC already has strict consumer privacy laws whereas the US established a policy of industry self-policing. China is building the 'Great Firewall Of China' as a way of limiting free speech and exposure to outside cultural influences. Although the Bill Clinton Administration pledges no taxation of the Internet economy, most countries view Internet commerce as a way of boosting revenues.

Action Item: Plan for the greatest return on applications that reach the broadest audience common denominator found in the least restrictive zones.

Tactical Guideline: Consumer-focused enterprises considering deals with Internet portal sites, micro-marketplaces, or affiliates for advertising, content or services should not be enticed into long-term arrangements since volatility, not profitability, rules in this domain.

Key Issue: How will doing business on the Internet force major changes in enterprise business models, management strategies, and applications architecture?
Consumer-focused Web merchants must react to the dramatic and continual consolidation of user traffic on relatively few portal sites that are working to become full-service Internet stops for end-users to access e-mail, news, and business information; participate in e-Commerce transactions and chat; and be part of an on-line community. Failure to devise effective strategies for relating to these portals will diminish an enterprise's ability to win new customers and could spur defections of current customers. Very few enterprises possess the ability or desire to build portal sites themselves; most enterprises should concentrate on leveraging the marketing benefits of third-party portals. Once an enterprise identifies a portal strategy, it must immediately and rigorously pursue that strategy. Those that made no portal strategy decisions by mid-1999 will risk missing the opportunity to leverage portal traffic altogether.

Action Item: Re-evaluate any current commitments or payments to e-malls and portals based on their payback. Avoid making any long-term commitments.