"Intelligence Is Value"

Who will be the winners in tomorrow's networked world? Which business models will make money and which technologies will count? Where will value be created and who will profit? Who better to answer that than the man who first pointed out in September 1999 that B2B is where the future of e-commerce lies. Mohanbir S. Sawhney, McCormick Tribune professor of electronic commerce and technology at the Kellogg Graduate School of Management in the US, was named by Business Week as one of the 25 most influential people in e-business. He was voted Professor of the Year at his university in 1998. The IIT Delhi and IIM Calcutta alumni, with a PhD in marketing from the Wharton School, is a Fellow of the World Economic Forum. In Delhi last week for the India Internet World, Sawhney spoke to Bharat Ahluwalia. Excerpts:

The Net has raised questions for us in the publishing world since most of us now have sites offering free content. That's because most horizontal portals offer news and magazine content for free. Will our readers stop valuing the articles we give them?
Publishing is going through dramatic change. It must find ways of monetising the access it gives its audience. But you must find other revenue streams beyond subscription. For instance, the Boston Globe has a site, Boston.com, where they offer services to the city's citizens and this is where it is able to monetise the content and brand that it has.

Content companies have to find activity sequences. For instance, look at what I do. I have a site where I give away content free and, in the process, create awareness about my work. That awareness leads to people engaging me as a consultant which is lucrative for me. Or look at Edmunds, a company on whose board I serve. It used to be a book, giving information on cars. Today, it's a website that gives free content on cars, car insurance, service and spares. It then refers customers to the GM or Ford websites and gets paid for it. The value is created in the content but the value is captured and monetised at the second step. Publishing companies will have to look for similar models.

But if that isn't possible, are we right in giving away free content?
I believe there will be a separation between free and branded content. Content has no value, viewpoint does. I value what the Wall Street Journal says. If The New York Times gives away free content, it enhances the value of the brand. Provided that content doesn't look like those on 500 other sites. The look and feel must be preserved.

Pure play Internet companies were the first to get into e-commerce. But now with brick-and-mortar companies setting up Internet sites, what is expected to happen?
Portals have a big challenge on their hands. You can't build brands at Internet speed. It's a complex, time-consuming and costly process. Brands that are 50 to 100 years old count for a lot. Offline players have a huge advantage as they come online. Those people who have so far shopped online were the pioneers on the web. They understood technology and were willing to experiment on the Net with new brands. But the new wave of Net users preferred to use the older and more respected brands. Now that they are on the Net, and their population is increasing, they will naturally stick to the same brands.

Where will value be created in tomorrow's web network?
Value is where intelligence is in a network. As networks evolve, intelligence migrates. It is important to identify and profit from where value is moving. Tomorrow's network will have value at the user end, thanks to the software that runs on your devices. This will be good for companies like Sony and Panasonic that know how to make good user-interface devices. Plus, value will lie in the functionality that resides in the server. Then, entities like Cisco Systems, which coordinate how information flows between various entities, will have value. But the middle will hollow out. It is the infrastructure players, those who actually set up the wires, who will lose value. If you are just charging for access, your margins will constantly diminish.

I see a big risk for service providers who have put in big money to just provide access. It will become a commodity. That is why I fear for all those telecom companies around the world who have forked out huge sums for 3G licences. If a customer is only paying $30 or $40 a month for an Internet connection, it won't subsidise the billions a company has paid as licence fee and invested in infrastructure.

But if setting up network infrastructure is not going to pay, companies will realise that and won't sink money in infrastructure. That, in turn, will affect network growth and access will get its own value...

That's a genuine fear. And a difficult question to answer. What infrastructure firms need to do is provide value-added services too. There's Japan's DoCoMo, which is both an access provider and offers content. Then, of course, there's AOL But then, for each of these companies there's a Sonera.

The good news for access providers also is that they have an assured annuity. Assuming AOL charges $22 per Internet subscriber per month, multiply that by the number of subscribers and you know that AOL has an assured monthly income. It can then go and be competitive, take risks on its portal. Yahoo! doesn't have that benefit. But if Yahoo! content is the best, some access provider will tie-up with Yahoo! to be the default screen. Then, AOL's advantage of being the default screen on its Net access will go away if Yahoo! is giving better content. And people will change their default screens to Yahoo!

But most Net users don't know how to change their default screen...
Profiting from customer ignorance is a dangerous way of making money. It isn't sustainable. Those customers who don't know how to change their default screen will never indulge in e-commerce. And that means no revenue. So what use is a customer like that?

B2B exchanges are springing up everyday. Do they lend themselves to every business environment? Say, the Indian steel industry?
There is a lot of copycat activity. B2B exchanges lend themselves to fragmented industries. In others, it doesn't. Instead, making more sense as a shared service platform to improve your supply chain. Dealers can order in, giving a company real-time information and the amount of forecasting that you need to do gets reduced.

Detroit auto companies have set up a B2B exchange. Indian auto companies are trying to do the same. But there are issues of sharing proprietary data. How much information do you disclose to your rivals to get yourself a better deal? Who will be in the driver's seat? These are human issues that machines can't solve. Are we being too bullish on B2B, especially when we are still to sort out these issues?
Businesses will have to answer a fundamental question before they get on to the B2B bandwagon. Do you want to collaborate with your competitors? While at the same time you want to protect proprietary information. How and who is going to define what is proprietary and what is not? How do you protect the information? It's challenges like these, in terms of execution and governance, that are going to be the toughest challenges. And we'll only know the answers once companies get down to it.