Taking It to the Net

Posted: 09/1997

Taking It to the Net

By Gary Kim

Until recently, long distance companies might have paid little
attention to Internet protocol (IP) and the impact it has on
worldwide long distance networks and revenues. All that changed
with the Internet. But two other related developments Intranets
and Extranets are poised to have an equally big impact. No less
than two-thirds of Fortune 1000 companies have an Intranet in
place, according to Cambridge, Mass.-based Forrester Research. As
a result, Intra/Extranets already are a big business. The
combined corporate Internet and Intranet market will jump from
$12 billion in 1995 to $208 billion by the year 2000, estimates
Mountain View, Calif.-based Input, a research firm.

Intranets and Extranets will change the way companies use the
network and the services they demand from carriers, not simply
how much they use the network. For starters, more and more large
businesses are migrating towards IP networks as the preferred
companywide protocol. In terms of media type, more traffic takes
the form of IP data, instead of circuit- switched voice.

So what happens? Demand for 800 numbers is reduced, while
demand for Internet addresses goes up. Browser and server
expenditures go up. Call center personnel growth is curtailed.
Call holding time (duration) may increase slightly, but more of
the traffic may be generated on a flat-rate basis, rather than on
a minutes-of-use basis.

In short, Intra/Extranets move more business traffic in the
direction of data packets and away from voice, and towards open
systems and away from proprietary systems. So carriers, resellers
and agents increasingly will need to sell and support IP-based
and fast-packet services.

An Intranet is simply an internal company data
network using a World Wide Web-capable browser as the interface.
An Extranet uses the same interface to allow suppliers and
customers access to certain portions of a company’s internal
databases. Both developments, as well as consumer use of the
public Internet, have begun to have serious impact on global
telecom networks.

"Capacity is a real problem on the transoceanic
networks," says Chuck Gibney, Cable & Wireless senior
vice president and general manager. "Demand has exploded
since 1996." Greater overall use of telecom circuits is part
of the story, but IP-related traffic in specific is the real
issue, Gibney says.

In fact, the strategic issue is how big Inter/Extra/Intranets
become. "Is the Internet a one-trick pony, or is it the
start of something much bigger?" That’s one of the questions
Howard Anderson, Yankee Group CEO, ponders these days. Perhaps
the more important question is whether IP- based Intra/Extranets
are the wave of the future.

Why Intranets? Firms want to give employees quick access to
information, create giant data warehouses and avoid the cost of
updating paper reference material. Why Extranets? Enterprises
want to reach out and touch customers, suppliers and business
partners, enhancing marketing opportunities at the same time
product development and inventory costs are sliced.

Eliminating paper handling is a primary reason for putting
Intranets or Extranets into place. AT&T uses an Intranet to
support its 15,000 or so customer service agents, providing easy
point-and-click access to data on products, services and
procedures. Previously, these agents relied on paper-based
sources that took too long to decipher, say sources.

United Parcel Service and Federal Express also use Intranets
for package tracking. FedEx, which moves 2.4 million pieces every
day, created its Extranet in November 1994 to allow customers to
track their package shipments. About 12,000 customers use the
system every day instead of asking a human operator to do it for
them, saving FedEx as much as $2 million a year by some
estimates. According to Susan Goeldner, manager of Internet
technology for Federal Express, FedEx now runs 60 Web sites
inside the company, and 30,000 office employees are getting Web
browsers.

One of an Intranet’s most obvious virtues is its ability to
slash the need for paper without adding huge cost. Because Web
browsers run on any type of computer, the same electronic
information can be viewed by any employee, irrespective of the
type of machine or operating system they use. Also, the
information is displayed in the same way on those multiple
computer systems, creating a simple, low-cost universal access
system. Put simply, Extra/Intranets provide a low-cost,
easy-to-use, ubiquitous way for people inside and outside of a
company to access information faster and cheaper. Many types of
transactions such as ordering catalogs also can be automated
using Extranet technology.

According to Forrester Research Inc., which surveyed 50 major
corporations, 16 percent today have an Intranet in place, and 50
percent either plan to or are considering building one.

According to a survey of about 60 information technology
executives, conducted on behalf of one information technology
(IT) supplier, Intranet spending by larger companies had just
begun in 1996, when less than half of the respondents were
spending 1 percent of their annual IT budgets on Intranet
services and hardware. On the other hand, about 46 percent of the
firms already were spending up to 10 percent of their total IT
budgets on Intranet projects.

But that isn’t the case everywhere. British Telecom, for
example, commissioned a study of Intranet potential in the United
Kingdom. BT found lagging interest, in comparison to the U.S.
market. Just 6 percent of U.K. companies surveyed are using an
Intranet today, while less than 10 percent have plans to
introduce Intranet technology, and only 30 percent of firms are
interested in using one.

Still, with more than 5.6 million enterprises in operation,
and many firms running scores of Intranets or Extranets, the
market clearly has enormous potential. As Yankee Group founder
Howard Anderson likes to quip: "Every white-collar worker in
America has a PC on their desk." And the promise of
Intranets and Extranets is that every one of those machines can
access a Web page.

Intranets also are fueling the growth of related markets, such
as Web authoring tools. That market was just $2 million in 1996,
says investment banker Hambrecht & Quist. But authoring tools
will be a $300 million market by 2000.

Market researcher Zona Research Inc. in Redwood City, Calif.,
predicts that sales of software to run Intranet servers will
shoot to more than $4 billion in 1997, from $476 million last
year. In 1998, Zona says the figure will hit $8 billion, four
times the size of the Internet server business.

Intra/Extranet supporters claim they increase productivity,
accelerate speed to market, reduce communications cost and
enhance communications among employees, customers and suppliers.
Other touted benefits include platform independence, multiple
data formats, one interface, common protocols, access to new and
legacy systems, easier publishing of documents, rich information
environment, wide range/types of information and quick, easy
access.

"Everybody’s putting Web browsers on top of their
internal company databases," says Judy Blake, Hughes Network
Systems spokesperson. "Manuals, polices and procedures
records and technical documents are the sorts of things people
want to access."

Savings might be a bit hard to quantify, but the logic is
simple enough. For a company whose employees earn an average of
$38,000 per year, for a 40-hour week, at 50 weeks a year, labor
cost is 30 cents a minute. If each of 50 workers could use an
Intranet to avoid one 30-minute meeting or paper search 86 times
a year, the company could save $38,700 in lost time annually.

"An Intranet is an ideal solution for any organization
with more than 100 users or with remote locations distributed
over wide geographical areas," says Sean Osborn, a
spokesperson for Dallas-based Advanced Network Technologies.
"It’s an appropriate fit for any business that needs a cost-
effective way to disseminate constantly fluctuating information
on demand to its employees."

Slicing paper management costs is another driver of Intranet
deployment. Assume that a firm’s average cost of a catalog and
price list is about $20. Assume 300 people need access to an
updated book every day and that 18 percent of the information is
outdated within the first 30 days, leading to a need to revise
the book every two months. The six annual printings cost $36,000.

An IP’s value lies in its broad interworking
capabilities. Where most earlier protocols were proprietary
limiting communications and information sharing the IP, along
with its accompanying transmission control protocol (TCP) now
means diverse computers and systems can easily and inexpensively
communicate. That’s the technology driver. But the business
driver is the need for enterprises to differentiate themselves.
Customer service is one way to do that, and Intra/Extranets are a
good way to improve customer and supplier access to information
by extending the corporate network and databases to people
outside the organization. That means customers are more likely to
get what they want when they want it.

Intranets also can be used to draw partners and customers into
the product/service development process, allowing firms to bring
products and services to market far more quickly.

Make no mistake: Cost is a major driver. Intranets allow
companies to use the same types of servers and browsers used for
the World Wide Web for internal applications distributed over the
corporate LAN. And browsers are inexpensive, especially when
compared to the cost of a dedicated electronic mail and
information retrieval system.

Intranet applications cost less than $40 per user, say
Netscape executives. They’re also relatively easy to set up and
maintain. Netscape Communications Corp., in fact, reports more
than 50 percent of its Web server sales are earmarked for
corporate Intranet use. By the turn of the century, Intranet
servers will outsell Internet servers 4.6 million to 440,000,
according to IDC analysts.

Intranets are accessible to every member within an
organization or outside suppliers and customers regardless of
hardware platform. So there are no hassles with standardizing on
and upgrading computer platforms. Those two factors can make a
big dent in a company’s cost of publishing and distributing
information, maintaining communications and supporting
information-related transactions.

Intranet applications run the gamut of information-handling
chores within a larger enterprise. In the sales and marketing
area, for example, Intranets speed delivery of up-to-date
information such as product specifications, pricing charts and
new collateral. In the training area, Intranets support online
training materials and sales presentations. Intranets also
maintain databases and allow salespeople to place orders, check
order status and complete the paperwork surrounding a sale.

Product development teams can use Intranets to provide the
latest versions of blueprints and engineering drawings and
project schedules.

Customer service and help desk operations also benefit.
Intranets support low-cost, multiplatform access to customer
databases, order status and online training. Help desk personnel
may find that customers can answer many questions by using
Intranet "help desk" systems, without live interaction
with a human being. When live help is provided, Intranets can
speed access to product/service documentation.

And help desks are a growing part of software support
operations. The worldwide software support market in 1996 was
$17.8 billion, an increase of 11.6 percent over 1995 software
support spending of $15.9 billion, according to International
Data Corp. researchers. The market will grow at 14.9 percent
annual rates through 2001, says IDC program manager Chris
Hoffman.

Human resources departments can use Intranets to publish
corporate information and support transaction applications,
supplying benefits information and automating employee filing of
enrollment forms, for example. Corporate policies manuals,
benefits manuals, job postings and internal job transfer forms,
telephone directories, annual reports and training material are
some types of corporate information Intranets can support.
Finance and purchasing may find an Intranet can simplify
electronic software distribution, billing and supplies purchases
by maintaining an internal and automated system for describing
all company- approved vendors, products and price lists. Legal or
MIS groups, currently using paper-based forms or policies, can
reap the benefits of making transaction applications available
through Intranets.

Intra/Extranets, already emerging as a primary large-business
application, undoubtedly will migrate over time into the medium-
and small-business area, education, government and the consumer
marketplace under the guise of electronic commerce.