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Date: March 22, 1999

Section: Cover Story

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Title: Business Race To Be A Part Of The Internet Revolution

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Egads! Who would have thought that the letter “E,” the fifth letter of the alphabet that is worth a mere one point on the Scrabble board, would ignite such energy and exchange. The E-revolution is indeed upon us. Electronic business–E-business–has forever altered the way the corporate arena operates. Don”t laugh, but some people–who are not high on any illegal substances–say that E-business is going to have the same impact on society as fire. Already many people shudder at the mere thought of doing business each day without the Internet and/or Intranet at their fingertips. Try shutting down your Internet connection for a day, and feel the panic set in.

The E-explosion goes well beyond that first “You”ve Got Mail” message each morning–and even past the access to a galaxy of information. “The way people do business is really changing,” says Edmund DePalma, vice president of sales, marketing and strategy for World Internet Resources in Woodbridge. “Every time we meet with new clients, they get more sophisticated. It”s about a lot more than just designing a Web site. It”s streamlining operations, distribution, selling products and making money. We”ve seen a lot of change in a short period of time and we can expect to see much more. It”s scary and exciting.”

The following special report tells how the Internet is transforming industries from advertising to software. In addition, BUSINESS NEWS is sponsoring the first New Jersey E-Commerce Expo on March 30. For more information, call Jean Belden at 732-246-5713. If you”re not at least thinking about how E-commerce is going to change your business, you might as well file for Chapter 7 bankruptcy right now.

Advertising

Very few industries have felt the impact of the Internet more than advertising and marketing. The last few years have brought about a dramatic change in the marketing needs of businesses, forcing the advertising and marketing industry to evolve largely into a Web-based industry. Says Walter Guarino, president of Montville”s SSD&W: “About 60% of our clients use Web-based technology in some way or another. Three years ago, no more than 10% did.”

“A lot of people are finding ways to deal with this medium. But ultimately, it will be a common practice,” Guarino says. To adapt to this new business approach, Guarino has trained his employees to be well-versed with Web technology–both the creation of Web sites, user-interphase and browser capabilities. “We”ve trained them to be Web-savvy,” he says.

Veronica Fielding, general manger of the interactive division at Princeton Partners, says that one of the best advantages of the Internet is that her staff can share work-in-progress with its clients. Says she: “What would normally take a week to courier the material back and forth can now be done within minutes. This is a very cost-effective tool for our clients.” Princeton Partners has adopted the Hollywood Model, for its interactive division, where, much like in the film industry, several companies come together–on or off the Web–to work on a project, with Princeton Partners acting as the main producer. Instead of training its staff in all aspects of the Internet business, the company hires specialists in different areas of the Internet and e-commerce. “Currently, we have relationships with 16 such specialized companies and we give them all credits on the Web page,” says Fielding. “Our clients love this approach and we are able to get the best of talents.”

Both Guarino and Fielding feel that advertising and marketing via the Internet is here to stay. Actual selling over the Internet, they say, may take some time to evolve because companies are concerned about jeopardizing their relationship with their current sales channels, including distributors. Advertising and marketing companies are now trying to figure out ways to foster relationships with traditional distributors and at the same time take advantage of cyber technology.

Banking

Internet banking has been extremely good to him, Michael Devlin admits. His branchless Premium Bank of Gibbsboro, which he founded in 1988 on the theory that banking services could be delivered cheaply over the telephone, sold for $26.4 million to Virginia”s Telebank last year. Over the final three years of its existence, Internet banking customers were on their way to becoming Premium”s largest client group.

How fast is Internet banking growing? From 1993 to 1998, the typical U.S. bank”s assets grew at 8% per year. Over the same period Telebank, the nation”s largest online bank, grew at 53% per year. The U.S. Department of Commerce has estimated that by 2000, between 10 and 16 million U.S. households will be doing at least some of their banking online.

In New Jersey, Cherry Hill-based Commerce Bank”s online service has been consistently ranked as one of the best in the country by Gomez Advisors of Boston. Summit Bank of Princeton was named to the Information Week 500 last fall, with special commendation for its online services. Even small start-up banks, like Hopewell Community Bank, have plans to offer online account access.

“I don”t think we”ve seen the full impact of the Internet on banking yet,” says Devlin. “That”s why I”m not getting back into that area.” Huh?

Devlin has seen the future of online banking, and it worries him. His new project, Atlantic Bank in Linwood, will offer online services, but when it opens later this year, Devlin will be cutting the ribbon on an honest-to-goodness bricks and mortar operation.

“It is getting more and more expensive to compete on the Internet,” he explains. With consumers able to search the Web for the best interest rates, he says, “bankers are under tremendous pressure to compete on rates alone.”

A blend of online and walk-in service, he says, will allow Atlantic Bank to satisfy customers who want the convenience of online banking as well as those who may be more comfortable having a face-to-face relationship with their banker. It will also serve the commercial market, he adds. “Services like commercial mortgage lending are not particularly well-delivered on the Internet.”

Education

Since the first time an early humanoid tried to come up with meaningful hand signals for “whatever you do, don”t go back in that cave!” trainers and educators have sought improved ways to convey information. Humankind has come a long way from sign language and grunts, but it is just now entering an era where employees, regardless of where their cave happens to be, can access the latest educational materials in their fields. Thanks to the Internet, workers have access to broad collections of learning materials that they can peruse at their own rate and schedule. Later, if the employer requires it, workers can take online tests to measure their absorption of the material.

Jim Phelan, director of information services education for Merck, says industry is “still at the beginning of using the Internet as a training medium.” That said, he sounds thrilled by the prospects. His firm has some 200 computer training titles available over the company Intranet. Courses are still available on CD-Rom, but Phelan, like others in the field, seems to see CD-Roms as a dead end, lacking the Web”s ability to be instantly updated when new data become available as well as the ability to allow the company to track a user”s progress.

William J. Healy, president of Princeton Learning Systems, a firm that delivers Internet-based training to the financial services industry, has spent 20 years in corporate training, dating back, he says, to the primacy of workbooks and blackboards. Says he: “The access to course content via the Internet is becoming a majority of the system in some organizations.”

Several factors are convincing executives to go this route. One, the ability to measure a learner”s comprehension of Internet-based material has greatly improved. Two, and who can resist, “It has definitely cut costs,” according to Phelan. In particular, the need to fly folks to a distant hotel, rent a room and pay for meals while they miss days and days of work, is diminishing.

Investing

“Anybody who doesn”t see the effect that the Internet has had on the investment community is asleep,” says Jordan Kimmel, market strategist for Red Bank”s First Montauk Securities. The statistics bear him out. A recent report issued by Credit Suisse First Boston analyst Bill Burnham demonstrated the impact that the individual online investor has had on the market: in the first two months of 1999 alone, the number of trades executed over the Internet has increased by 25%, to 425,000 per day.

At one end of the scale, the availability of deep discount trades over the World Wide Web has created companies whose very existence depends on the Web, like Jersey City”s DLJdirect. The Donaldson Lufkin Jenrette offshoot, which recently announced plans to go public, has been named by Gomez Advisors of Boston as the top online investment firm in the country.

At the other end of the spectrum, high-end investment advisors like U.S. Trust have felt little impact from the proliferation of Web-based trading. Joe Gallagher, senior vice president in the company”s Princeton office, says that the high-net-worth individuals who make up his company”s client list are less interested in cheap trades than in the service they receive from their brokers.

It is companies caught in the middle, like Kimmel”s First Montauk, that have to strike a balance between catering to their full-service customers and providing new clients with the ability to make online trades. First Montauk, a 16-year-old brokerage, is preparing to launch its first online offering, called Century Discount Securities.

While there are questions about the effect the new service will have on the existing clients of the full-service side of the business, Kimmel says that avoiding an online presence will not benefit the firm in the long run. “Anyone who wants to protect one side of the business at the expense of the other side is going to suffer.”

Print Media

Anybody who actually uses the Internet is aware that the media, in particular newspapers and other news sources, have embraced this giant, economy-size soapbox. The list of New Jersey newspapers with a useful Web presence reads like a list of, well, New Jersey newspapers. The Record, the Star-Ledger, the Asbury Park Press and BUSINESS NEWS New Jersey are all big on the Web.

Peter Levitan, president of New Jersey Online, a division of Advance Publications, is also president of the New Media Federation, a 1,000-member section of the Newspaper Association of America. The fact that that one small part of the newspaper group has exploded to 1,000 members tells the story. Newspapers, getting hammered by television, both broadcast and cable, quickly jumped on the Internet to exploit the immediacy of the medium and its ability to facilitate two-way communication.

The original fear for publishers was that any readers attracted to a paper”s online format, or that any ads purchased on Web pages would simply come out of the print form”s hide. This appears to have been unfounded. Says Levitan: “While newspaper revenues are far ahead of Internet revenues, what we”re seeing is that the online revenues are incremental to the newspaper. They are not cannibalizing the paper.” This matters a great deal to Levitan”s bosses, whose publications include the Star-Ledger and The Times of Trenton. In fact, Levitan says studies show that TV and radio are the real losers when consumers get their headlines or horoscopes from their PC instead of the paper.

New Jersey Online has become the largest Web site in the state, offering chat rooms and allowing non-profit groups to build their own Web sites.

While newspapers continue to thud against people”s front porches around the state, when it comes to more timely data on how the Dow is doing, or for an obit on a recently deceased super star, an increasing number of people will turn to their PC rather than the Jersey Journal or the Home News Tribune. Levitan, for example, says New Jersey Online ran the Star-Ledger obituary on Joe DiMaggio before it appeared in the newspaper.

Professional Services

At a time when you can”t pick up a magazine that doesn”t mention e-commerce, and a company can guarantee a jump in its share price by tacking “.com” on the end of its name, professional services providers can be excused if they feel just a little bit left out.

Can an attorney sell his services over the Web? Can a doctor diagnose you by e-mail? Can an architect develop a building”s blueprint without ever seeing the site? The answers are no, no and no.

“This is something we have been thinking a lot about,” says Nikki Stern, director of corporate communications for The Hillier Group, a West Windsor architecture firm. Stern says the company has been asking itself not only whether or not it should be selling over the Internet, but whether there are even any products it can sell over the Internet.

Like many professional firms, she says, The Hillier Group has decided that one of the best uses it can make of the Internet is to offer free information on its Web site as a way of encouraging potential clients to purchase its services.

Attorney Gerald Marks of Marks and Krantz in Red Bank, admits, “I don”t know how to measure my success with the Internet. I have a Web site, but I don”t sell anything over the Web.” The lawyer-client relationship is very personal, Marks says, and lends itself more to face-to-face interaction than electronic communications.

Through his site, says Marks, he offers information and answers to commonly asked questions about estate planning and franchising, his firm”s practice areas. “It makes clients” trips to my office much more efficient,” he says.

The Ocean accounting firm Rudolf, Cinnamon & Calafato has adopted a similar approach, says marketing director Eileen Monesson. “The Web site is more information-oriented than business-generating,” she says. “Before people do business with a professional firm, they”ll often check out its Web site. I don”t view the Internet as a way to make money, but as a way to present ourselves as a source of information and to inform people of our areas of expertise.”

Retail

Consumers and retailers are tearing along the information superhighway like it”s an international street fair. It”s known as e-tailing or e-commerce, and according to a report by shop.org and Boston Consulting Group, Internet consumers generated about $13 billion in sales in 1998, a figure that is expected to grow more than 200% annually over the next few years. Furthermore, Ernst & Young”s Internet Shopping Study reports that 76% of retailers surveyed last year either sold merchandise or planned to sell over the World Wide Web. That”s up from 36% in 1997. As the Internet snakes its way into more homes, retailers are riding those modem lines to satisfy consumer demand.

The Internet offers retailers additional marketing opportunities and sales venues. The Great Atlantic & Pacific Tea Co. of Montvale, for example, offers on-line ordering of prepared meals from its delis and bakeries. Exclusively online retailers, like CyberShop of Jersey City, have a chance to grab some of the business from established, store-based retailers. “If you look at Amazon.com and companies who have not been involved in retail prior to getting on the Internet, they”ve made tremendous in-roads,” says Ed Fechner, senior vice president for Shoppers Charge Account in Mahwah.

Not all retailers have been caught up in the Internet sales fever. Ernst & Young reports that retailers may not have the technology to support on-line sales or the distribution networks to meet customer demand. Furthermore, the report states that some retailers are concerned about on-line sales eating into their own store sales.

That fear is not held by everyone–or, at least, others are too scared to admit it. “I don”t think the Internet has affected our retail business much at all,” says Rick Jones, CEO of Tops Appliance City in Edison. Last year, Tops entered into a partnership with CyberShop to offer the electronic retailer”s products–from CD players to washing machines–at www.electronics.net. “We are enjoying pretty brisk sales and we are looking to reinforce the site as the channel develops,” Jones says. The fact that Jones is investing in e-commerce suggests that he recognizes the direction in which his industry is headed.

While Tops and other larger retailers may have the resources to merchandise over the Web, smaller competitors may not be able to break into the digital arena. That doesn”t, however, have to signal the end for those stores. “In my opinion,” says Fechner, “the smaller stores that are in existence are successful because they are offer face-to-face service. They may very well not lose to the Internet because the customers would lose that service.” That, of course, would be the best-case scenario. More likely, consumers will continue to get real comfortable ordering their goods from the comfort of their own homes.

Software

What effect has the Internet and e-commerce had on the software industry? Like total. Like how much effect did Galileo have on astronomy? There”s a whole new world out there, and the savvy software companies can”t find enough hours in the day to serve all their new customers.

The software industry has found new life in the Internet in two ways. Foremost is the opportunity to fulfill the insatiable demand for programming. Every Web site that offers headlines or horoscopes, proxy statements or pornography, requires powerful programming tools to make it all work. A number of software companies, like Bluestone Software in Mount Laurel, have seized the opportunities presented by the Internet. Mel Baiada, Bluestone”s chairman, says, “We saw we were a big fish in a small pond. We wanted to play in a bigger pond.”

In 1995, Bluestone jumped into the Internet market, with products for building powerful Web sites, such as those used for e-commerce and financial institutions that can”t afford to have a Web server crash. Bluestone”s products facilitate the pulling of information from databases and integrating it with Web pages. Further refinements in Web technology, such as XML, a more-powerful version of Internet language HTML, offer opportunities to help smaller companies exchange information from their databases over the Internet.

Baiada says that “a lot of companies are popping up” to feed the hungry beast. He remarks, however, that New Jersey lags behind other states in having a solid venture capital infrastructure in place to support these new firms.

In addition to their role as the companies writing the software that makes the Internet work, New Jersey software firms have benefited from the ”Net”s fantastic ability to convey information. Says Joe Allegra, president of Princeton Softech and chairman of the New Jersey Technology Council: “The Internet has become the primary research tool for anybody who wants to look at your products.” Demos can be made available, questions anticipated and answered. “Now, when a salesperson talks to customers, they”ve prequalified themselves. He says, “It speeds up the sales cycle.”

Telecommunications

The Communications Age runs on programs and wires that doting engineers produce and traditionalist regulators follow. In the chase for reliable, robust and cheap means of carrying voice, data and video, the Internet promises reduced costs and broadened revenues.

In a traditional phone call or fax, sounds and words run along a path of circuits, each bit of information after the other. This is efficient and reliable, but slow. Each message hogs an entire wire until it ends. Internet-based commands use packets, digital bits that can travel along any available line in any expedient sequence, reassembling at the computer that receives them. The information can arrive much more quickly and switch instantly from voice to video to data. It also doesn”t require as much time or space on costly network equipment, making it cheaper to provide. Part of the cost advantage comes from the fact that the notorious access fees that local phone providers like Bell Atlantic charge for connections into a building are easier for Internet-based networks to avoid, especially in business contexts.

The message that gets transmitted can be just as robust in sound quality and smoothness as a traditional call. “If you close your eyes, it”s getting increasingly difficult to distinguish voice from Internet protocol services,” says Bob Rosenberg, president of Parsippany”s Insight Research.

All that murk sends firms digging for the smoothest, most popular telecom technology. Basking Ridge”s AT&T already runs the second-most popular consumer Internet service. In absorbing cable company TCI, it plans to offer video alongside phone service with Internet protocols traveling over cable lines. “Because there”s so much intellectual energy aimed at making [packetized service] happen,” AT&T chief quality officer Frank Ianna told reporters this month, Ma Bell is focusing investment away from traditional voice and toward edge vehicles that poise it to compete in Internet-based settings. Meanwhile, small competitors such as Hackensack”s IDT and Plainsboro”s ITXC seek fortunes in the low-end retail and wholesale provision of Internet-based phone calls.

But this healthy competition has a turbulent side. ATM, which uses packets but not telephony-rigged computers, may emerge as a preferable technology, making IP bets costly. Local phone companies like Bell Atlantic stand at a disadvantage for selling retail Internet service, says Rosenberg, because federal regulations bar them from acting as information providers.

Finally, cable companies may beat their telephone rivals into consumers” hearts. “Cable operators appear to be rolling out high-speed service faster than the incumbent telephone companies,” notes Rosenberg. As AT&T, Morristown”s Telcordia and smaller players devote their lines to multiple services, unprecendented choice may produce a lot of busy signals.

Travel

Few industries are experiencing as dramatic a transformation in their field as travel. One survey late last year reported that travel is second only to computer products (and just before books) in the amount of cyber sales it generates. The Internet has given aspiring travelers the power to plan their own jaunts, which, in time, will render agents obsolete. As a result, travel agents may need to find a new role in years to come.

While the opportunities and ease of planning a vacation or business trip over the Internet have created highly informed travelers, cyberspace is not yet totally replacing travel agents, says MaryLou Pollack, president of the New Jersey Travel Industry Association and vice president for national sales at Prime Hospitality in Fairfield. “But we know it is coming, and that eventually there will be an Internet boom,” she says. But Pollack firmly believes that for a long time to come travel agents will continue to offer the best fares and information about destinations. “Travel agents have to offer better value-added services. Almost all of them now have Web sites and are getting a ferocious number of hits. Still, 93% of reservations are done the traditional way,” Pollack claims.

Sylvia Veitia, vice president for corporate communications at AAA Central West Jersey in Newton, also says that the Internet has brought about a better-educated and better-informed traveler. Says she: “Earlier, a customer would ask us advice on where to go, but now the customer not only knows the destination, but also how to get there, where to stay and which tour group to go on. He comes to us to verify his information and make reservations. In many ways we have become a clearing house, a guardian for travelers.”

Veitia says there is no doubt that the number of customers making travel bookings through the AAA Web site has been on the rise. Says she: “During the last five months, reservations over our Web site have increased by 70% every month. This represents an increase in our business since we have not felt a corresponding dip in our normal bookings. So one is not replacing the other.” Both Pollack and Veitia feel that to survive in the Internet era, travel agents will have to reinvent themselves.

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