INTERVIEW:
Question 1
Can
you describe some
characteristics, laws and principles that rule electronic commerce?
Answer
E-commerce, basically, is driven by new information age companies. There are two ways to think about it. You can look at the new companies that create new segments within industries or you can look at the way information age companies come and enter an industry segment and change it forever. One example would be
Amazon.com, which has entered the book industry and the CD industry and a number of other segments, Amazon.com basically comes in, has a totally different value-chain for selling, delivering, promoting its product; it's much less expensive for them to go to market and sell their products, and so traditional bookstores are continuously under fire. Bookstores, for example Barnes & Noble in the US, compete online with Amazon.com as well. And the problem is that these online book retailers will limit the prices that are available through traditional bookstores and will probably marginalize their profitability going
forward.
Question 2
And do you think that these advantages are for all kinds of companies, not only for the big editorial
groups?
Answer
I think, this will affect almost all industries. If we look at the new industries being created, like the online services with AOL and Freeserve and people like that, those create industry segments that are very popular and noticeable now. But all industries will be affected. For example, in financial services in the US we started and we created online brokers. These were new Internet companies, and basically what happened was Schwab, a traditional discount broker, decided to enter the online field.: they become 30% of the online market and they increased the number of accounts by 33% last year because they entered the online field. A traditional broker like Merrill Lynch said one year ago it would never enter the online business and now they have just reversed that and announced that they are going to enter the online business because they see that they are going to lose many of their customers to the new e-trades. Schwab is a traditional discount broker which entered aggressively into the area and is capturing substantial value by being one of the first ones to go in.
Question 3
Do you think there is a reason for the different development of e-commerce in the different
countries?
Answer
I think there is an enormous difference in Europe versus the US. There are a number of drivers of that. The first thing is that the telecom charges in the US are very inexpensive and are flat, fixed fees. So, in a month you just pay a flat rate and you can be online as long as you want. That has been an enormous promoter of the Internet. In Europe, where you pay per minute of online use, the Internet has developed much more slowly. Another issue is the entrepreneurial nature of the US economy. If you compare the US to Germany, if you start a new company in Germany and the company fails, what basically happens is that you won't get funding to start another new company in Germany. In the US, on the other hand, when you start a new company and it fails, in some sense you are considered experienced. So you will be able to raise more money the next time when you start your next new company. So this entrepreneurial venture-capital driven economy in the US plays an important role. The inexpensive technology, the inexpensive telephone services, plays an enormous role. And basically the US has been very much "plugged into" personal computers for a long time. We have a whole generation of Internet users who are starting companies when they're 22 and 23, and we just have a lead in doing that because we have got people involved
earlier.
Question 4
What about the big change from make and sell to sense and respond?
Answer
The traditional make and sell companies basically produce goods to inventory, ship them to retail format and then customers buy them. In a sense and respond format, the manufacturers of products sense their customer needs and respond much more quickly. A good example would be Dell Computer, which sells its computers online directly over the Internet. When you order a Dell computer, it is configured to exactly the model that you want. It is not a product it is an inventory. It is basically a product that is made especially for you. It is mass customization of computers. The big change in the industry comes from the elimination of the obsolescence costs. If you think of IBM producing personal computers, when a new model comes out, all the models that they have in the inventory become immediately obsolete. So Dell has revolutionized the PC industry by going to this customized, made-to-order model, a kind of sense and respond model, rather than traditional made to inventory. In the business-to-business space, Cisco receives 70% of its orders over the Internet with no human intervention at all. And it makes it much more sensitive to its customer needs and has a much greater ability to respond to them more quickly. So in this Internet era speed becomes the fundamental driver of competitive
advantage.
Question 5
Do you think that there is an important difference between e-commerce
companies?
Answer
The first part of the question is: is there a difference between new players in the e-commerce space and the traditional players? Absolutely. Because if you take a firm like Amazon.com that comes in, has no stores, no traditional infrastructure, no value chain for delivering its products and services, it can configure itself for the lowest cost way of operating in an e-commerce world. By not having the stores and the traditional infrastructure when it configures itself, it configures itself in a very low-cost value chain going directly to
consumers.
Question 6
Talking about telecommunication deregulation, how much do you think self-regulation is important? What are the limits in the deregulation
process?
Answer
There is a big difference between the US and Europe on this. In the US we deregulated our telecommunication industry in 1984 and are 15 years into a competitive telecommunications structure. So in the US we now have in every region multiple cell phones, multiple PCS users. There is only one wire line company. But petty soon you will be able to get telephone over your cable television lines, so there will be even more than one local connection. In most cities there are more than one local connection, because people like Metropolitan Fiber have created a fiber network in every city. Telecom deregulation has created enormous capacity to serve and it has really fostered the Internet. In Europe most countries are still dominated by a single telephone company. They are slow to deploy capacity, slow to make the Internet available; they charge exorbitantly high prices compared to the US, and so the entire evolution and development of the Internet is curtailed by that. So one of the questions is: how can you create this competitive environment in Italy? If you look at the UK, the UK is more competitive than the US. Telecom is really fully competitive in the UK and their prices are dropping, their services are increasing. The US and the UK are a good model of the type of infrastructure that Italy should probably move to. If the Italian telephone company continues in its position of complete control, it will be a slowly evolving
industry.
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