September 2000

Internet Strategy

The Internet

The internet, a new medium to use and to improve the efficacy and communication in a company. The internet can further be beneficial to reach customers and new prospects. The internet is a relatively new technology which gained in the last three years considerable attention and is predicted as the new revolution in the world, on par with the invention of the steammachine, the electric light and the combustion engine. The internet is and will do a lot of things and if it is of the same importance as other great inventions will have to be seen. The internet is a new technology with the ability to greatly improve the communication in the world. This is the major advantage of the internet. The internet will give everybody the opportunity to reach other parties with an unprecedented speed and if done right with great accuracy.

The difficulty with the internet, as with all new technologies / inventions, is what can the internet do actually for the world. This has to be discovered before any larger investments have been made in internet activities. As using the internet is certainly not cheap, larger investments in technology, people and marketing wil be necessary before the intenet will behave as expected.

For every new application a new vision and strategy will have to be developed. To develop the right internet strategy the next questions have to be answered. What do you want to reach and who are the customers / users of your internet site. These two answers decide which and what kind of technology and design is necessary to make a venture into the world of internet a success.

Strategy

The right strategy of your operation determines the success of your operation. Every move in the virtual world has to be focussed on the target group otherways the message you want to spread with your site will be lost in the ocean of information now available on the internet.

The strategy will determine what, when, how and how to implement the advantages of the internet. Strategy is essentially how to manage the resources in a company and how to anticipate on future developments and demands.

The internet strategy is dependent on what is your objective and who is targeted. The objective might be to inform your customers or your staff about the products and ventures of your company. Something like a brochure of your products or to inform your staff about company policies and new projects and/or targets which have to be reached. The internet will be in this situation like an information channel which can be active or passive. Just what is demanded by the management. Or finally the internet as a division / part of the company. The company will in this case offer the internet related services to the market and earn something through the services delivered and the value of the internet as a business and investment opportunity

The internet as information site for customers

The most commonly used way of the internet is like a medium to inform people about the company. The internet was originally designed as a communication system to improve the communication between actors. The internet was therefore at first mostly used by a company as a kind of product brochure. Companies gave and give a presentation of the company, the products and how to reach the company, e.g. the sales department. As the internet is available to large groups of people it is an efficient and relatively cheap marketing instrument.

The target of this kind of site are the existing customers, to give them an up to date view of the company, and to attract new customers who are looking for products offered by the company. The potential customers can be directed to the company’s site by conventional marketing campains or by a premium treatment of the search machines who can direct people to particular sites.

An internet site can also be used to publish financial, sales and product information of a company. This will give all investors the equal opportunity to get informed about the company and avoid of being accused of treating some groups of investors better as the general public.

The internet as comunication channel within a company

The second and increasingly used method of the internet is like a LAN or WAN, respectively a Local Area Network or Wide Area Network. Especially larger companies can use the internet as a communication medium to improve the communication within a company. All employees in a company can create new relationships with people in a different divison in another town or continent for that matter through the use of a LAN of WAN. The quality of such a realtionship can be equal if they would be working door to door.

The LAN or WAN can be used to transfer information/data to all people working in a company or there can be an active exchange of information and ideas between several departments. It is possible to have several Research and Development departments on different continents to work together. New and better products can be developed by the combined power of the R+D departments of a company.

Who is receiving what information and who is allowed into what databank can be perfectly be controlled and arranged. Protocols and passwords can be used allow people into a file or allow them to look into the computer, hard disk, of fellow project members.

The internet as buying and selling instrument

The internet as mentioned before can be perfectly used as an instrument to improve the efficacy of the procurement and sales departments. The procurement of products can be handled by the internet, it will give suppliers the opportunity to know what is wanted when and at what price. This will give them the opportunity to offer the right product at the right price and at a predictable delivery schedule. Another advantage of internet procurement or sales is that the suppliers and buyers can combine the supply and demand therefore they will be able to generate a larger order andthey will be able to get a better price.

The sales department can also achieve big improvements by an internet sales channel. The service to customers can be improved and potential new customers can be reached more freely and more open by the use of the internet.

But again your objective should be clear, what do you want to sell and what are your objectives about selling the product. What place do you want to occupy in the market. There are roughly three types, the seller’s market, the buyer’s market and the neutral market.

The seller’s market is dominated by the seller, the company can use its advantages it normally enjoys in the real market to his benefit. Product information, price, quality and delivery can be decided by the seller. The internet site has only to be practical and beneficial to the seller. The information on the site is written and edited by the producer/seller. The real story might be somewhat different from what can be seen on the site. The site is an extension of the company and very often found by companies who have a direct seals channnel.

The buyer’s market is different as the buyer is like in the real world having an advantage over the seller. The buyer can choose between several products. Product information, price, quality, service and quick delivery will become important. The internet site has to be practical for the buyer, easy to use and inviting to come again.

This will mean an advanced very good looking site. The site has to be interactive to fulfil all needs and wishes of the buyer and it has to remember preferences of the buyer. Most buyers like it to be treated specially and be taken immediately to the part of the site which interests them most. The information on the site is much closer to the truth as the buyer is able to influence the site, he can even write his own recommendation about a product without any interference of the seller/producer. This site is closer to the customer as he needs to be treated with care. This kind of site is often found at a reseller’s site, this site just wants to sell a product and as he has more products on sale it is not that important what product is sold as long as a product is sold.

The neutral market is the most difficult. Nor buyers nor sellers are able to dominate the market. This will mean that the site has to be convincing and practical but with not the same level of service as the buyer’s market. The site will however be very fair about the products as it is not allied to a certain producer nor a customer. The disadvantage of a neutral site is that not always the best products and prices are available nor will they become available on the short term as it is not seen as the task of the site to improve the product. This kind of site will be mostly found at sites of government, consumer advisory organisations or at the sites of large multi-product sales companies.

The internet operation in a company

The internet is not only beneficial to a company to exchange information or to sell products but it can also generate additional capital for a company. The question here is what to do with the new internet division. Essentially the internet operation is a new part of the company which will most likely have outgrown its origin, just as an addition to the sales and marketing departments, and will need very often more capital than the company is able or willing to finance with company resources.

There are three options to play the internet. The internet operation as an independent company, as a joint venture or as a consolidated division.

The parts of the company responsible for the internet operations, design, management, sales and procurement, will be taken together, in sofar they are not already belonging to the same department, and will be set up as an entity of its own. The indepence of the entity will have to be decided considering the position of the company in general.

As mentioned before the new entity can be constructed as an independent company with only a minority ownership wich will be rendering services to the former holding company. As a joint venture, the new entity is only partly owned and managed by the holding company. It will be very often merged with another internetcompany which has some services/skills on offer which previously were not present in the company. The joint venture will remain a big supplier to the former holding company. Or finally the internet entity remains a part of the holding company as a consolidated division. The consolidated division will be under direct control of the company’s management and directly delivering a share to the company’s balance sheet. Where as the other two options wil only be listed as a participation and only become visible if there are any profits.

All have their advantages, an independent company is the less risky and will if the IPO, Initial Public Offering, is done properly the most beneficial as it will generate a lot of immediate available capital and value for the holding company.

The joint venture has its own advantages as the risks will be controllable as any losses will not drain the profits of the former holding company, if a service can not be delivered you are free to look somewhere else, new technologies can be incorporated and finally it is still able to deliver a nice return.

The consolidated division is the most controllable, the activities can be focussed on the holding company but it can be the most expensive in regard of the investments and will deliver a lower return on investments as it is closely connected to the holding company, it willhave however lesser sales opportunities and there will not be any high return as the entity will remain part of the holding company.

All have their advantages and disadvantages, it will depend on the holding company which alternative to choose. The most important factor to the decision is in what business you are and what are the immediate needs and expectations of the holding company. For example if the internet activities have become an important part of your sales system, it is profitable, or will be on the short term, and if the company is not in a desparate need for capital, the internet activities can be best kept as a consolidated division. But if certain technologies are needed and the company does not have the skills to develop it in house and/or the financial position is weak, a joint venture would be the best choice. And finally if the internet activities are considered as a nice to have and are not an important part, or better non-replacable part, of the company and the holding company is in need of capital or wants to improve its figures and the internet activities are large enough the spin off of the internet activities in an independent company would be the best choice.

The decision about how and when to use the internet is of strategic importance for a company. It is necessary to have some kind of internet application for every company but every company does not need an advanced internet site or a fully utilized internet department, this all will depend on the specific situation of every individual company. It is however necessary to be aware of the situation and what is possible as some kind of internet stragegy, game plan, is unavoidable.