SAN MATEO (03/06/2000) - Economics is primarily about power -- and who has the most. In the United States, that power manifests itself in various vertical industries that typically have two or three dominant companies. For example, Ford Motor Co., General Motors Corp., and DaimlerChrysler AG dominate the auto industry, whereas Procter & Gamble Co., Colgate-Palmolive Co., and Lever tend to dominate the consumer products industry.
Each of these companies sits at the top of an elaborate network of suppliers and distributors that are the foundation of their various economic empires. But any major shift in the balance of power of one of these empires can send shockwaves of economic disruption throughout these companies.
As a result, no major company can ignore the economic impact that the Internet will have on its operations because, at its core, the Internet is a vehicle for the redistribution of economic power.
Take, for example, the recent formation of an economic alliance among the Big Three automakers that calls for a pooling of technology resources to create a common infrastructure for suppliers. Given the fact that these rivals have historically gone to great lengths to hurt one another, one has to wonder what new factors could spark that level of cooperation.
The answer to that question lies in the development of new digital exchange platform technologies from companies such as CommerceOne, Ariba, I2, IPnet, Oracle, and SAP. These trading platforms make it possible to enable a whole new level of business-to-business commerce that links suppliers, manufacturers, and distributors in real time.
The first to discover the value of this technology have been start-ups in various vertical industries. These companies, such as Autobytel or PlasticsNet, are on their way to becoming major power brokers by controlling the hubs of commerce in their industries.
Ironically, these types of companies are The New Economy's equivalent to the traditional middleman companies that were supposed to be disintermediated by the Internet. But instead, a new type of middleman is emerging that is even more powerful than its brick-and-mortar predecessors.
For Fortune 100 companies that are used to dictating terms to the market, this is a troubling phenomenon. The delicate love-hate relationship among suppliers, manufacturers, and distributors is being redefined, and there is precious little they can do about it unless they pool their collective resources. And even then, it's unclear whether or not the collective might of even the Big Three automakers will be able to check the growing economic power of companies such as Autobytel.
In the meantime, the technologies that make up these trading platforms are still relatively immature. For the most part, they are designed to facilitate transactions. The next step will be to integrate these platforms with existing back-end applications to create a closed-loop system that operates in real time so that every member of the network knows what is available and when it can be delivered.
Beyond that, the process of discovering new players and services on these networks needs to be automated. Right now building these networks requires a large investment in programmers. As these networks grow, those programmers will become a bottleneck, so automating business process integration will become critical.
And finally, these networks need to be able to do more than just process transactions. They need to serve as focal points for the industries they serve.
You can expect these networks to next develop industry portals full of content designed to serve their industries. Accessing this content will become the prime reason that people will come to conduct transactions on the network.
The economic bottom line here is pretty simple. If your company is not building or planning to participate in a electronic trading network, it probably won't be around within three years. Three months is now the equivalent of a single Web year, so time to market is everything. And whoever owns the trading network will ultimately own the market.
Mike Vizard is editor in chief of InfoWorld.