Lesson 15: The Internet

In this lesson, we’re going to discuss the Internet. We’ll cover how the Internet has created a new business model that’s changing how companies do business today. We’ll look at intranets, extranets, and e-commerce. Finally, we’ll look at the technology implications of the new Internet applications such as the need for higher bandwidth technologies and security.

The Agenda

- What Is the Internet?

- The New Business Model

- Intranets

- Extranets

- E-Commerce

- Technology Implications of Internet Applications

The Internet: A Network of Networks

What is the Internet? The Internet is the following:

- A flock of independent networks flying in loose formation, owned by no one and connecting an unknown number of users
- A grass roots cultural phenomenon started 30 years ago by a group of graduate students in tie-dyed shirts and ponytails
- Ma Bell’s good old telephone networks dressed up for the 1990s
A new way to transmit information that is faster and cheaper than a phone call, fax, or the post office

Some Internet facts:

- The number of hosts (or computers) connected to the Internet has grown from a handful in 1989 to hundreds of millions today.
- The MIT Media Lab says that the size of the World Wide Web is doubling every 50 days, and that a new home page is created every 4 seconds.

Internet Hierarchy

The Internet has three components: information, wires, and people.

- The “wires” are arranged in a loose hierarchy, with the fastest wires located in the middle of the cloud on one of the Internet’s many “backbones.”
- Regional networks connect to the Internet backbone at one of several Network Access Points (NAPs), including MAE-EAST, in Herndon, Virginia; and MAE-WEST, in Palo Alto, California.
- Internet service providers (ISPs) administer or connect to the regional networks, and serve customers from one or more points of presence (POPs).
- Dynamic adaptive routing allows Internet traffic to be automatically rerouted around circuit failures.
- Dataquest estimates that up to 88 percent of all traffic on the Internet touches a Cisco router at some point.

The New Business Model

The Internet Is Changing the Way Everyone Does Business

From simple electronic mail to extensive intranets that include online ordering and extranet services, the Internet is changing the way everyone does business. Small and medium-sized companies seeking to remain competitive into the next century must leverage the Internet as a business asset.

The Internet is forcing companies adopt technology faster. You’ll discover several themes that are driving the new Internet economy, as follows.

Compression—Everything happens faster: business cycles are shorter, and time and distances are less relevant to your customers.

Time—Some companies have reported a 92 percent reduction in processing time when an item is ordered via an online system.

Distance—Using networked commerce, BankAmerica has widened its customer base so that now 30 percent of customers are outside the traditional geographic reach.

Business cycles—Adaptec, a manufacturing firm in California, used networked commerce to reduce their manufacturing cycle from 12 to 8 weeks, slashing their inventory costs by $10 million a year.

Market turbulence—Customers suddenly have more choices. They can shop farther afield in search of good values. You have to compete even harder to retain customers.

Networked business—Many deem that networked commerce applications will “make or break” companies in the next century. The ability to solicit and sustain business relationships with customers, employees, partners, and suppliers using networked commerce applications is critical to success.

Rapid transformation—Building relationships, business processes, and operating models that can quickly adjust to accommodate shifting market forces is essential. This requires an infrastructure that provides the ability to change rapidly.

Forces Driving Change

Shorter product life cycles are required to stay competitive.

Industry and geographical borders are changing rapidly:

- Companies today must be able to swiftly “go to market” in new and expanded locations.
- Moreover, the rigid border or boundaries of manufacturers are changing: manufacturers are becoming retailers and distributors.

The need to “do more with less” is essential to accommodate narrowing margins, intensifying competition, and industry convergence. The network must raise the productivity of the workforce.

Traditional Business Model Versus New Business Model

The Internet is transforming the way companies can use information and information systems. Historically, businesses have “protected” company information and allowed limited sharing of systems.

Creating these “silos” of information has meant that each “link” of the “extended” traditional business has lacked access to relevant information to make profit maximizing decisions. That means your employees, suppliers, customers, and partners were kept from information, not always by intention, but because limited access created barriers to sharing it. The result was:

- Closely held knowledge base
- Limited access to relevant and timely information
- Costly duplication of effort
- Limited transaction hours to conduct business

The Internet and networked applications have changed all that. They allow all companies, no matter the size, to break the information barriers—to “let loose the power of information.”

Now we are experiencing a transition to a new business paradigm. In order to compete effectively in this rapidly expanding Internet economy, we must reshape our business practices.

Companies today are now:

- Sharing knowledge with suppliers and partners
- Ensuring that relevant and timely information is available to all employees
- Removing redundancies
- Conducting business 24 hours a day, 7 days a week (24x7)

Accelerating this shift is the explosive growth and rapid adoption of Internet usage.

Today’s Internet Business Solutions

Let’s take a look at some of the Internet business solutions that companies are driven to implement in order to improve their productivity and stay competitive. These include:

- Intranets
- Extranets
- E-commerce

Intranets

What Is an Intranet?

An intranet is an internal network based on Internet and World Wide Web technology that delivers immediate, up-to-date information and services to networked employees anytime, anywhere.

Whether providing capabilities to download the latest sales presentation, arrange travel, or report a defective disk drive to the technical assistance center, an intranet offers a common, platform-independent interface that is consistent, easy to implement, and easy to use.

Initially, organizations used intranets almost exclusively as publishing platforms for delivering up-to-the-minute information to employees worldwide. Increasingly, however, organizations are broadening the scope of their intranets to encompass interactive services that streamline business processes and reduce the time employees spend on routine, paper-based tasks.

Intranet applications are platform-independent, so they are less costly to deploy than traditional client/server applications, and they bear no installation and upgrade costs since employees access them from the network using a standard Web browser. Finally, and perhaps most important, intranets enhance employees’ productivity by equipping them with powerful, consistent tools.

Typical Intranet Applications

Most companies can benefit from an intranet. Here are some sample applications:

Employee self-service—Employee self-service provides your employees with the ability to access information at any time from anywhere they want. It enables employees to independently access vital company information. Employee self-service allows companies to save on labor costs as well as increase employee productivity and communication. We’ll look at this in more detail.

Distance learning—Employee training becomes more accessible through distance learning over the data network, which can draw employees from many sites into a single virtual classroom, saving them travel time and keeping them more productive.

Technical support—Companies with limited IS staff can deploy an intranet server to answer frequently asked technical questions, house software that users can download, and provide documentation on a variety of subjects. Users gain instant access to key technical assistance, while IS staff can concentrate on other matters.

Videoconferencing—A proven way to bring team members together without calling for travel, video conferencing is now possible over a data network, bypassing the need for an expensive parallel network. Intranets can make videoconferences easier to set up and use.

Example: Employee Self-Service

These are some of the employee self-service applications.

Let’s take a look at one in detail. By posting HR benefits information on an intranet, employees can look up routine information without taking up the time of a benefits administrator, thus reducing total headcount requirements. By giving employees the ability to look this information up anytime they wish, they are not confined to making their inquiries during regular business hours. And, they don’t have to wait on hold while another employee is being assisted, resulting in saved time.

In addition, by posting general benefits information on the internal Web site, HR is able to spend their time in more productive, strategic ways that ultimately benefit the company, as well as reduce the costs of having an administrator available on the phone all day.

Another example is corporate travel. Many employees travel frequently. New intranet applications that store an employee’s travel preferences can make it easy for employees to request or even book travel arrangements at any time of the day or night, enabling companies to provide this vital service at a lower cost.
As you can see, intranet applications are a win/win for both employees and the company.

Benefits of Intranets

Intranets are rapidly gaining wide acceptance because they make network applications much easier to access and use. Intranets enable self-service.
Intranets allow you to:

- Improve design productivity and compress time-to-market, for example, by providing engineers with immediate access to online parts information and requisitions.

- Increase productivity through greater employee collaboration.

- Share or access vital information at any time, from any location. For example, you can extend intranets around the world, for instance, to sales offices in London and Tokyo. Now sales teams or manufacturing plants in Asia can quickly access information on servers at the central office in the United States—and it’s easier to use.

- Minimize downtime and cut maintenance costs by providing work teams with complete electronic work packages.

- Lower administrative costs by automating common tasks, such as forms and benefit paperwork.

Extranets

What Is an Extranet?

An extranet allows you to extend your company intranet to your supply chain.

Extranets are an extension of the company network—a collaborative Internet connection to customers and trading partners designed to provide access to specific company information, and facilitate closer working relationships.
The way you extend your company network to your extranet partners can vary. For instance, you can use a private network for real-time communication. Or you can leverage virtual private networks (VPNs) over the Internet for cost savings.
You can also use a combination of both. However, it’s important to realize that each solution has different benefits and security solutions.
A typical extranet solution requires a router at each end, a firewall, authentication software, a server, and a dedicated WAN line or VPN over the Internet.

Typical Extranet Applications

- Supply-chain management
- Customer communications
- Distributor promotions
- Online continuing education/training
- Customer service
- Order status inquiry
- Inventory inquiry
- Account status inquiry
- Warranty registration
- Claims
- Online discussion forums

Extranet applications are as varied as intranet applications. Some examples are listed above. Extranets are advantageous anywhere that day-to-day operations processes that are being done by hand can be automated. Companies can save time and money in development, production, order processing, and distribution. Improving productivity increases customer satisfaction, which drives business growth.

Example: Supply Chain Management

The traditional business fulfillment model is linear, with communication flowing from supplier to manufacturers in a step-by-step process. Communication does not transcend down the supply chain resulting in inefficiencies and time consuming processes.

Effectively managing the supply chain is more critical now than ever. Customers today are looking for a total solution—they want ease of purchase and implementation, they want customized products, and they want them yesterday.

Today, in order to better service and retain customers, companies realize that they need to improve their business processes in order to deliver products to customers in reduced time. One effective way to do this is to improve the system processes that make up the overall supply chain.

With an extranet, companies can:

- Enable suppliers to see real-time market demand and inventory levels, thus providing them with the necessary information to alter their production mix accordingly.

- Give suppliers access to customer order information, so they can fulfill those orders directly without having to route product through you.

- Using the network, demand forecasts can be updated in real time, and manufacturing line statuses, and product fulfillment can be queried by any member of the supply chain.

- Use the network to hold online meetings where product design teams work together with suppliers to discuss prototype development, resulting in reduced cycle times.

Benefits of Extranets

What are the benefits of using extranets?

You can decrease inventories and cycle times, while improving on-time delivery.
You can increase customer satisfaction and, at the same time, more effectively manage the supply chain.
You can improve sales channel performance by providing dealers and distributors with product and promotional information online, while it’s hot.
You can reduce costs by automating everyday processes.
You can improve customer satisfaction by streamlining processes and improving productivity.

E-Commerce

E-Commerce Market Growing Rapidly

When we think of e-commerce, most of us think of business-to-consumer e-commerce, for example, Amazon.com.

However, the revenues that business-to-consumer companies are realizing are just the tip of the iceberg. The bulk of business on the Internet is actually business-to-business e-commerce which, as you can see by this chart, is skyrocketing.

In the last two years alone, the amount of business conducted over the Internet has gone from $1 billion to $30 billion, with an 80 to 20 business-to-business and business-to-consumer mix. The projections for the next two years and beyond are even more dramatic. Internet commerce will likely reach from $350 to $400 billion in 2002. Some estimates are even more aggressive and place the size of Internet commerce by 2002 at almost a trillion dollars.

And, most of us generally think that only big businesses are conducting e-commerce. In fact, over 97 percent of businesses conducting electronic commerce are companies with 499 employees or less, and 71 percent of those companies have less than 49 employees. As you can see, e-business has become a critical component of many businesses.

Typical E-Commerce Applications

Now let’s take a look at what you can do with e-commerce.

A few examples of e-commerce are:

- Online catalog
- Order entry
- Configuration
- Pricing
- Order verification
- Credit authorization
- Invoicing
- Payment and receivables

For example, by allowing customers to do their own online ordering, long-distance phone and fax service can be reduced. In addition, fewer people are required to take customer orders and do timely order entry. Finally, online electronic order forms eliminate data entry and shipment errors.

Benefits of E-Commerce

E-commerce can expand and improve business.When we think of e-commerce, we immediately think of selling online. We quickly realize the benefits of increasing revenue by supplying customers and prospects with valuable information at any time and providing them the opportunity to purchase online.

We also recognize how online ordering can cut costs significantly by reducing the staff needed to man an 800 number or physically write up orders.

Additionally, we understand that the Internet allows companies to extend their reach and sell into new markets without incurring global headcount costs

What most of us don’t realize is that these are only a few of the benefits of e-commerce.

Lets take a look at the following two more compelling benefits:

- You can manage your inventory levels better. For example, an automobile manufacturer has its suppliers linked via the Web for online ordering. A supplier can place an order directly and can see immediately if the part is in stock or will need to be back ordered.

- By putting valuable information on your Web site, customers can get answers quickly to most of their questions at any time of the day, from any location. Customer satisfaction soars when customers can get critical information at any time, from any location. It allows them to do business when they want to, not during the traditional 8 to 5 business day.

Technology Implications of Internet Applications

There are real technology implications to these new Internet applications.

First is the need for increased bandwidth. Internets, intranets, and extranets have totally reversed the 80/20 rule so that now 80% of the traffic is going over the backbone and only 20% is local. Everyone is clamoring for Fast Ethernet and even Gigabit Ethernet connections.

The need for security is obvious once a company is connected to the Internet. You cannot read the paper without hearing about the latest hacking job.

The Internet makes VPNs possible.
And finally, EDI to enable electronic commerce.
We’ll look at each of these briefly.

Applications Need Bandwidth

The type of connection necessary depends on the bandwidth required:

- Individual users connecting to the Internet for e-mail or casual Web browsing can usually get by using a simple modem.

- Power users or small offices should consider ISDN or Frame Relay.

- Larger offices or businesses that expect high levels of Internet traffic should look into Frame Relay or leased lines.

- New technologies like asymmetric digital subscriber line (ADSL) and high-data-rate digital subscriber line (HDSL) will make high-speed Internet access even more affordable in the future.

Internet Security Solutions

One of the most vulnerable point in a customer’s network is its connection to the Internet. To secure the communication between a corporate headquarters and the Internet, a customer needs all the integrity security tools at its disposal. These tools include firewalls, Network Address Translation (NAT), and encryption, token cards, and others.

Virtual Private Network

Virtual Private Networks (VPNs) can bring the power of the Internet to the local enterprise network. Here is where the distinction between Internet and intranet starts to blur. By building a VPN, an enterprise can use the “public” Internet as its own “private” WAN.

Because it is generally much less expensive to connect to the Internet than it is to lease data circuits, a VPN may allow companies to connect remote offices or employees when they could not ordinarily justify the cost of a regular WAN connection.

Some of the technologies that make VPNs possible are:

- Tunneling
- Encryption
- Resource Reservation Protocol (RSVP)

Electronic Data Interchange (EDI)

Electronic commerce can streamline regular business activities in new ways. Have any of you used a fax machine to send purchase orders to vendors?

A fax machine turns your PO into bits, transmits them across a network, and then turns them back into atoms on the other end. The disadvantage is that the atoms on the other end can only be read by a human being, who probably has to retype the data into another computer.

EDI provides a way for many companies to reduce their operating costs by eliminating the atoms and keeping the bits.

What advantages does EDI provide your customer?

- Ensures accurate data transmission
- Provides fast customer response
- Enables automatic data transfer—no need to re-key

For example, RJR Nabisco reduced PO processing costs from $70 to 93 cents by replacing its paper-based system with EDI.

Public key/private key encryption is created by the PGP program (Pretty Good Privacy). It creates a public key and a private key. Anyone can encrypt a file with your public key, but only you can decrypt the file. To ensure security, an enterprise may issue a public key to its customers, but only the enterprise will be able to decrypt a message using the private key.

---

- SUMMARY -

The Internet has created the capability for almost ANY computer system to communicate with any other. With Internet business solutions, companies can redefine how they share relevant information with the key constituents in their business—not just their internal functional groups, but also customers, partners, and suppliers.

This “ubiquitous connectivity” created by Internet business solutions creates tighter relationships across the company’s “extended enterprise,” and can be as much of a competitive advantage for the company as its core products and services. For example, by allowing customers and employees access to self-service tools, businesses can cost effectively scale their customer support operations without having to add huge numbers of support personnel. Collaborating with suppliers on new product design can improve a company’s competitive agility, accelerate time-to-market for its products, and lower development costs. And perhaps most importantly, integrating customers so that they have access to on-time, relevant information can increase their levels of satisfaction significantly. Recapping:

- Internet access can take a business into new markets, decrease costs, and increase revenue through e-commerce applications. It can attract retail customers by providing them with company information and the ability to order online.

- Intranets can provide your employees with access to information and help compress business cycles.

- Extranets enable effective management of your supply chain and transform relationships with key partners, suppliers, and customers.

- Voice/data integration can save companies significant amounts of money and, at the same time, enable new applications.

- All of these applications reduce costs and increase revenue.