THE RISKS AND REWARDS
By Larry Irving
The "Economist" magazine notes that technological turning points
are difficult to spot. The publication pointed out that at the
turn of the century when Studebaker switched from making
horse-drawn carriages to making cars, the move was not obvious
because in the previous five years New Yorkers had bought 350,000
carriages and only 125 cars.
Now we are entering a new century, and the information age is
about change and about achieving new impossibilities. This
change will affect businesses. They need to understand it and,
more importantly, take advantage of it.
Businesses of all sizes need to understand the role that
telephones, computers, networks, and technology can play in
creating new impossibilities. And if they can harness this
potential, they will be the successful entrepreneurs and business
persons who will bring new products to the market, increase
consumers' choices, lower costs, and improve national
economies.
Just consider for a moment the changes that have taken place in
the telecom and information sectors in the last several decades.
The global network of computers, telephones, and televisions has
increased its information-carrying capacity a million times over.
In 1960, a transatlantic telephone cable could carry only 138
conversations simultaneously. Today, a fiber-optic cable can
carry 1.5 million conversations at one time. Today's laptop
computers weigh as little as 1.85 pounds (0.83 kilograms) and are
many times more powerful than the $10 million mainframe computers
of the mid-1970s. Twenty-five years ago there were only about
50,000 computers worldwide; today that number is estimated at 140
million. And no communications medium has ever grown as fast as
the Internet, which has an estimated 50 million users
worldwide.
Two key issues are emerging as increasing numbers of individuals
and companies use electronic networks to engage in commerce: (1)
the need for companies to focus on their value-added; and (2) the
need to delineate the appropriate roles of the private sector and
the government.
The Risks and Rewards for Businesses
The explosive pace and unpredictable nature of the technological
developments make any attempt to engage in electronic commerce a
bit like betting on a long-shot in a horse race. Even industry
leaders don't always make it to the winner's circle.
The Internet, Intranets, extranets, and other communications
networks are lowering entry barriers to commerce, enabling both
small and large firms as well as consumers to engage in and
benefit from electronic commerce. Electronic commerce is already
generating important sales and savings for businesses.
For example, the on-line bookseller Amazon.com's increasing share
of the bookstore market (by offering discounts up to 40 percent)
forced major bookstore chains like Barnes & Noble and Borders
Books to go on-line. Federal Express delivery service saved as
much as $10,000 a day in 1996 by moving some of its customer
service to its Web site. Dell Computer now sells $1 million
worth of PCs every day on the Web. General Electric buys $1,000
million in materials from suppliers on-line and saves money by
streamlining the process and opening it up to more
competition.
Keep in mind that it is not simply a matter of creating a Web
site. Amazon.com is a success, now valued at $500 million.
Interestingly, a British businessman pursued the same idea at the
same time -- but his company is only worth $3 million today. Why
the difference? Jeff Bezos, the American owner of Amazon.com,
researched the industry and relocated to be near one of the
world's biggest book warehouses. Mr. Bezos also raised $11
million from venture capitalists at the outset and heavily
marketed his business. And he learned how to market effectively
worldwide -- Amazon.com sales outside the United States are 10
times the British company's sales outside of Britain.
Electronic commerce is not just for big corporations. In fact,
it provides exciting possibilities for small companies and
entrepreneurs to tap into markets around the world. Moreover, it
enables the sharing of valuable information and resources.
Recently, Women Inc. (a non-profit organization devoted to
helping women business owners succeed) and AT&T announced a
partnership that will greatly help women entrepreneurs and could
serve as a model for other groups. AT&T has provided Women Inc.
with a $25,000 grant to develop and host a Web site that will
give Women Inc. members data space for business transactions,
space to sell their products and services, the opportunity to
"ask the expert" business-related questions, and the ability to
register for conferences. Through the Web site, members also
have access to a host of services.
The Internet is causing a lot of businesses to rethink how they
do business. Business owners and executives should ask
themselves: "If the Internet, in its current state, had been
around when the enterprise was founded, would you be running your
business the way you are doing so today?" If the answer is no,
why not change now? Can you develop a niche market? How can you
compete effectively with off-line companies as well as other
on-line companies?
Private Sector, Government Roles
The Clinton administration believes that the private sector can
and should develop many of the solutions to emerging legal,
policy, and technical challenges with respect to electronic
commerce, particularly activities on the Internet. When
activities on the Internet raise new issues, the government
should first turn to the private sector to see if a solution can
be crafted without government action.
The Internet community has a demonstrated record of expanding the
Internet, successfully managing its operation and growth, and
developing policies and mechanisms to govern its use without
government regulation.
Many of the solutions to emerging Internet-related concerns lie
with technology, and in turning to the private sector we can take
advantage of its entrepreneurial energy. The private sector has
already demonstrated its ability to develop new technology tools,
such as screening software to address concerns about children's
access to adult material on the Net, as well as standards that
would give individuals the ability to control the disclosure and
use of their own personal profiles generated when using the
Web.
The U.S. federal government does have a valuable, and at times
critical, role to play with respect to the development of
electronic commerce. The federal government should be engaged
in: (1) promoting a market-driven environment; (2) creating a
predictable legal environment governing electronic commerce
transactions, and (3) building business and consumer awareness
about externalities that undermine healthy markets.
Even as the government takes steps to fulfill this role, we must
ensure that any government action is the minimal necessary to
achieve goals and one that allows competition and innovation to
flourish.
A Market-Driven Environment
The federal government has a valuable role to play now to
preserve the global environment in which a contract-based,
market-driven model of commerce can emerge. Increased commercial
activity on the Internet makes it an increasingly attractive
target for government regulation to address concerns about fraud,
content, and competition, as seen by recent state and foreign
government action. Consequently, the federal government has two
distinct, but complementary, roles:
We are very concerned that a number of nations have taken steps
or are contemplating action to censor information received by
their citizens via the Internet. We believe that freedom of
speech applies in cyberspace and that laws censoring the
information that flows over the Internet are both misguided and
impractical, especially given the global nature of the
Internet.
We strongly believe that the best way to fight misinformation is
with more information. To quote actress Mae West: "Too much of a
good thing is wonderful." Moreover, the best guarantee of
democracy and stability are informed citizens.
Obviously, on certain issues such as pornography and children's
access to adult material, the U.S. government is concerned. But
even here, we are looking to industry to self-regulate and to
develop technological tools that parents and Internet service
providers, not the government, can use to filter out material
inappropriate for children.
The good news is that the computer industry and the on-line
service industry have been moving quickly and responsibly to
develop new products and services to make the Internet
"family-friendly." These technologies enable parents -- not
governments -- to determine what is appropriate for their
children.
The Internet and its products also are generating new competition
for traditional telecommunications and media companies. The
Clinton administration is concerned with recent attempts by other
nations to ban or block telephone calls on the Internet to
protect their state-owned phone companies.
A Predictable Legal Environment
The U.S. government has an important role to play as facilitator
and catalyst for electronic commerce. We need to examine whether
existing governing standards should continue to apply and whether
new ones are needed. The major issues include data security,
intellectual property, privacy, and financial issues.
The United States recognizes that other nations are facing these
same issues, yet often with a different historical and cultural
perspective as well as different legal and regulatory frameworks.
Given the global nature of the Internet and other networks, a
consensus regarding governing standards needs to be developed on
both national and international levels.
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