Business Week: February 26, 1996 Department: Cover Story: SPECIAL REPORT
Company Application Sidebars:
[Dreamworks] [Eli
Lilly] [Cap Gemini] [Visa
International]
In the brief annals of doing business on the Internet, Federal
Express Corp.'s customer Web site has become a legendary success story.
The package-delivery giant, which moves 2.4 million pieces every day, put
up a server in November, 1994, on the World Wide Web that gave customers
a direct window into FedEx' package-tracking database. By letting 12,000
customers per day click their way through Web pages to pinpoint their parcels--instead
of asking a human operator to do it for them--FedEx was soon saving up to
$2 million a year by some estimates.
``We saw the success of the package-tracking site and said, `Wow, I wonder
what we could do on the inside?''' says Susan Goeldner, manager of Internet
Technology for Federal Express. The answer: a lot. Today there are 60 Web
sites running inside the company, most created for and by employees. Next,
as part of a companywide Web push, FedEx is equipping its 30,000 office
employees around the world with Web browsers so they will have access to
a slew of new sites being set up inside the company's Memphis headquarters.
``FIRE WALLS.'' FedEx is not alone. After getting their feet wet with
public Web sites that promote company products and services, corporations
are seizing the Web as a swift way to streamline--even transform--their
organizations. These private Nets, or ``intranets,'' use the infrastructure
and standards of the Internet and the World Wide Web but are cordoned off
from the public Internet through software programs known as ``fire walls'':
Employees can venture out onto the Net, but unauthorized users can't come
in.
The Web, it turns out, is an inexpensive yet powerful alternative to other
forms of internal communications, including conventional computer setups.
One of an intranet's most obvious virtues is its ability to slash the need
for paper. Because Web browsers run on any type of computer, the same electronic
information can be viewed by any employee. That means all sorts of documents--internal
phone books, procedure manuals, training materials, requisition forms--can
be converted to electronic form on the Web and constantly updated for almost
nothing.
But intranets can do something far more important. By presenting information
in the same way to every computer, they can do what computer and software
makers have frequently promised but never actually delivered: pull all the
computers, software, and databases that dot the corporate landscape into
a single system that enables employees find information wherever it resides.
Universal reach, of course, is what made the Internet grow so rapidly
in the first place. But Net enthusiasts tended to focus on how to link far-flung
people and businesses. ``When the Internet caught on, people weren't looking
at it as a way to run their businesses,'' says Tom Richardson, marketing
manager of Digital Equipment Corp.'s Internet
Business Group. ``But that is in fact what's happening.''" (See also
the Case: Digital Equipment Corporation--The Internet
Company.)
And it's happening with amazing speed. Just as the simple act of putting
millions of computers around the world on speaking terms fomented the Internet
revolution, connecting all the islands of information in a corporation via
an intranet is sparking unprecedented collaboration. ``The intranet has
broken down the walls within corporations,'' says Steven P. Jobs, CEO of
NeXT Computer Inc.
(Or, visit NEXTSTEP)
From AT&T to Levi Strauss to 3M, hundreds of companies are putting together
intranets. At Compaq Computer Corp., employees tap into a Web server to reallocate investments in their 401(k) plans. At Ford Motor Co., an intranet linking design centers in Asia, Europe, and the U.S. helped engineers craft the 1996 Taurus. Scientists working in fields such as genetics and biotechnology credit intranets with allowing them to share information with colleagues and quickly sift through volumes of data that might have taken days to find
in the past.
Across the business world, employees from engineers to office workers are
creating their own home pages and sharing details of their projects with
the rest of the company. At National Semiconductor Corp., for instance,
an engineer rigged a home page that lets his department schedule meetings
online. ``It's like a thousand flowers blooming,'' says Frank Dietrich,
corporate Web systems manager at whose 7,200 employees have access to 144,000 Web pages stored on 800 internal Web sites.
(See Also,MIPS Technologies
All this has not been lost on the software industry, which has been reinventing
itself ever since the Internet and the World Wide Web hit. At first, software
makers focused on Web browsers and other programs aimed at making the Web
a consumer medium. But lately, with Net commerce getting off to a slow start,
software makers are chasing a more immediate opportunity in helping corporate
customers build intranets. [Intranets Will Dwarf the Publinc Net]
Market researcher Zona Research Inc. in Redwood City, Calif., predicts
that sales of software to run intranet servers will shoot to more than $4
billion in 1997, from $476 million last year. In 1998, Zona says the figure
will hit $8 billion, four times the size of the Internet server business.
And that doesn't include all the applications packages, programming tools,
and other pieces that go into intranets. No wonder Netscape, Sun Microsystems,
Microsoft, IBM, Oracle, Computer Associates, and nearly everybody in the
software business is rushing out intranet products. ``Intranets are huge,''
says Sun CEO Scott G. McNealy.
WAKE-UP CALL. They're tapping a ready market. Not only do corporations
already have the networking infrastructure--and the money to actually pay
for software--but they also crave technology that finally gets information
out of the arcane world of databases into a format anyone can use (page
82). A survey by Forrester Research Inc. of 50 major corporations found
that 16% have an intranet in place and 50% either plan to or are considering
building one. ``People woke up one morning and realized they had all the
pieces in place,'' says Paul D. Callahan, director of the researcher's network
strategies service.
The intranet provides an opportunity for software makers to revitalize
their businesses and another chance for companies that were left behind
by previous techno-trends to get ahead. But it also poses a big threat to
dozens of companies and products. Suddenly, the Web provides a simple way
to do things that in the past required gobs of complex code and specialized
programs. The first company to find this out was Lotus Development Corp., which has had to defend its Notes program--a powerful system for helping workers collaborate across networks--in the face of cheaper Web alternatives.
Notes may be just the first product to feel the squeeze. Companies such
as SAP, the $1.9 billion German software maker, have risen to the top ranks
of the industry with complicated programs to paper over the differences
among computer systems. Now, at least in theory, the Web can do much the
same job--faster and for a lot less. ``The question is, should we wait [for
SAP] or do something with the Web?'' says Todd Carlson, chief information
officer at Electronic Data Systems Corp., which has begun a two-year, multimillion-dollar deployment of enterprise software from SAP in Europe but is considering using the Web to get at some of the same data.
It's not just the cost of buying Notes or SAP's R/3 and paying programmers
to customize and maintain it. The other factor tipping the scales toward
the intranet approach is the cost of training. Not only has the Web's HTML
(hypertext markup language) standard emerged as a universal electronic communications medium but it also serves as a standard user interface. By now, millions of PC users have become familiar with the drill: Click on a blue, highlighted
word or a graphical button and jump to another Web page. To retrace your
steps, simply click on an arrow at the top of the screen. All Web pages,
no matter what their appearance, work this way. It requires little if any
training--and makes finding electronic information simple enough for everyone
in a company.
Another plus for intranets is the relatively low cost of ownership. Because
the same basic programming can be used on lots of different kinds of hardware,
corporations will need fewer programmers to write and maintain software.
Intranets, however, aren't the magic bullet for every software ill. Nothing
on the Web can replace the complex business programs that have been refined
over many years--yet. And companies may still opt for the unimpeachable
security of conventional programs.
But software makers have seen the handwriting. As Lotus is doing, companies
such as SAP are adapting their products for the Web--before Web upstarts
begin to encroach. ``It will become increasingly important for SAP and others
to `webize' their software,'' says J. Neil Weintraut, an analyst with Hambrecht
& Quist. ``In five years, the term Web software will be redundant.''
For now, most intranet Web sites are used for basic information sharing:
publishing job listings, benefits information, and phone directories, for
example. Some of these simple information-sharing setups already provide
strategic advantage, though. Cap Gemini's Knowledge Galaxy is a giant repository
of technical information that helps the consulting firm respond more quickly
to customers, for example see "Cap Gemini: One Electronic SOS Clinched the Deal" .
More sophisticated intranets are coming. They will let employees fill out
electronic forms, query corporate databases, or hold virtual conferences
over private Webs. Corporate information systems managers are ``just now
seeing [the Web] as the next step in application development and distribution,''
says Greg Sherwood, National Semiconductor's Web coordinator and chairman
of the chipmaker's World Wide Web council.
For a taste of the future, check out Silicon Graphics. The maker of high-end
graphics workstations began using the Web internally almost as soon as Mosaic,
the original Web browser, was born. The company started out with the basics--publishing information electronically and making it available to employees at the company's Mountain View (Calif.) headquarters and around the world. Today, says Dietrich, ``there's barely a piece of information that's not online.''
But Silicon Graphics didn't stop there. Using its intranet, dubbed Silicon
Junction, the company today accomplishes such feats as making accessible
more than two dozen corporate databases that employees can traverse by clicking
on bright-blue hyperlinks. Previously, to get the same information, an employee
had to submit a request to a staff of specially trained experts who then
would extract the requested data from the company's databases--a process
that could take several days.
SGI also regularly sends video and audio feeds to employees around the
world on the Net. When President Clinton visited SGI's headquarters in February,
1993, employees around the world tuned in via the intranet. ``We're using
the Web to expand the horizons of all of our employees,'' says Dietrich.
Most people don't work at a place where they put an $5,000-plus workstation
on every desk. But the same capabilities that Silicon Graphics employees
enjoy now are coming to ordinary desktop PCs.
The challenge--and opportunity--for the software industry is to come up
with programs and Web-development tools to make such sophisticated intranet
applications possible at all sorts of companies. The first requirement:
``tools'' that make it possible for anyone to create Web content. The HTML
format, the lingua franca of the Web, can be clunky. So software makers
are flooding the market with programming packages that mask the complexities
of HTML. The market for Web-authoring tools was just $2 million last year.
It will hit $300 million by the end of the decade, predicts Hambrecht & Quist.
THE NEXT STEP. Electronic publishing pioneer Adobe Systems has sold more
than 30,000 copies of PageMill, an HTML-authoring tool, since December.
Microsoft has given away thousands of copies of Internet Assistant, a program
that converts Word documents to HTML, and is readying an update to Microsoft
Office with built-in HTML authoring. On Jan. 16, it acquired Vermeer Technologies
Inc., a startup that makes easy-to-use Web tools, for an estimated $130
million.
The next step is software to take the Web beyond static pages. Today, most
pages contain canned information that can be viewed but not manipulated.
With the right programming, however, a page can become interactive--an easy-to-use,
fill-in-the-blank system for database queries, for example.
Some leading-edge companies, including SGI, Federal Express, and EDS, have
already built such setups. But they had to hand-code the database links
in an esoteric language called ``perl.'' Software makers are now coming
up with programs that will make it much easier to assemble custom Web applications
that can work with existing systems. Steve Jobs's NeXT, for example, has
a new line of programs called WebObjects, which can crank out custom Web
pages on the fly. That's helping companies such as DreamWorks SKG quickly
get intranets up and running. (See sidebar article) Computer Associates International Inc., the $3 billion supplier of systems software, has a program called Jasmine that, like NeXT's WebObjects, uses object-oriented software to create custom Web
applications.
In terms of Web buzz, nothing tops Java, the promising programming language
developed at Sun Microsystems. Java provides a way of writing small software
``applets'' that can be zapped across the Net to do little tasks such as
calculating an expense report or displaying fresh stock prices. Companies
including Borland International and Symantec Inc. are coming out with development
``environments'' for Java. Sun itself is drafting extensions to the programming
language that enable Java programs to fetch data from corporate databases,
making it suitable for all sorts of corporate applications, says Alan Baratz,
president of Sun's JavaSoft unit.
Because of their sealed borders, intranets are ideal for testing the idea
of electronic distribution of software--Java applets or updates of entire
programs. Many companies are already putting applets and other bits of software
on internal Web sites so they can be shared by programmers. At Hewlett-Packard
Co., software writers now check what's in a ``software vending machine''
before writing new code.
Not surprisingly, the intranet is a magnet for startups. Much of the entrepreneurial
energy is focused on meshing Web systems with existing systems. Spider Technologies
has a program that lets companies graphically link their databases with
Web sites. Maximum Information Inc.'s WebC family of programs help corporate
software developers integrate Web systems into existing computer setups.
Another newcomer, HAHT Software Inc., makes a development tool called HAHTSITE
for Web systems that can pull information from corporate databases. And
Edify Corp. and BusinessWeb both aim to link companies' business applications,
such as customer service or sales, with the Web.
The Web is still not suited for ``mission-critical'' applications such
as order processing or accounting. But in the high-speed world of Internet
development, that may not be true for long. Gradient Technologies Inc. in
Marlboro, Mass., and WayFarer Communications in Mountain View, Calif., are
two startups working on that challenge. The basic problem, says WayFarer
CEO Edward Colby, is that Web servers weren't designed for high-speed transactions,
things like getting a credit authorization. WayFarer's QuickServer uses
its own messaging protocol to speed up transactions (basically messages
between databases) and juggle high-volume database requests.
When the fledgling software companies talk of mission-critical computers,
they're aiming at the entrenched home markets of the giants: IBM, Sun, Digital
Equipment, and Microsoft. For now, at least, the odds are heavily in favor
of the incumbents. Consumers surfing the Web may gamble on the latest software
they can download. But corporations want to know that they're getting their
intranet technology from someone they can trust. John Whiteside, head of
IBM's Global Network, hopes to translate that sentiment into a billion dollars
in business this year. ``Every single one of our customers is asking for
something in terms of an intranet,'' he says.
Companies such as Oracle and Sybase Inc., which make powerful database
systems--the lifeblood of a corporation--are also well-positioned. Sybase
is testing a program called Web.SQL, which links Web servers with databases
from Sybase and others, and Oracle is set to release new server and database
programs for the Web.
Longstanding customer relationships give the big guys a foot in the door,
but they have to deliver the goods, too. That's why Microsoft is now focusing
all its energies there--especially on the intranet segment, where it needs
to succeed to hold on to its lead in operating systems and applications.
Declaring in December that ``the sleeping giant has awakened,'' Microsoft
executives unveiled a broad Internet effort.
This month, Microsoft made a splashy entry into the market for Web-server
software, the basic programs for intranets. Until now, the Web software
market has operated on a novel formula: Companies charge little or nothing
for the basic browser program and make up the difference by charging full
fare for server programs. Microsoft, however, is giving away both its Internet
Information Server program and its browser on the Net. The server software
will also be bundled at no extra cost with Microsoft's Windows NT operating
system. Dozens of computer makers, including Compaq, HP, and Digital Equipment,
plan to ship the software with their servers. ``Basically, we're gonna drop
this thing from airplanes,'' says James E. Allchin, senior vice-president
of Microsoft's Business Systems Div.
The carpet-bombing could quickly turn Microsoft from an Internet laggard
to an Internet leader. After two years, Windows NT has become a leading
operating system for the kind of small-scale servers used on local-area
networks. Now, those machines are likely to become intranet servers, too.
In addition to basic Web server software, Microsoft's free Internet Information
Server includes security features and the ability to connect to corporate
databases.
That has sent an alarm across the industry. Microsoft's tactics--it is
building Web capabilities into all of its programs--could really shake up
the Web software market just as companies are starting to make money. ``Microsoft
has spoiled the party,'' says Forrester Research's Callahan. The decision
to give away the Web server ``was a masterstroke'' and ``a crushing blow''
to rivals, he says. Microsoft insists that building in the server program
is not sinister but part of the natural evolution of operating-system software.
``We view it as a native part of the [operating system],'' says Allchin.
Still, Microsoft's Net plans have raised the interest of the Justice Dept.
As part of an ongoing investigation into the company's business practices,
Justice lawyers are looking into Microsoft's acquisition of Vermeer. ``We're
quite confident they'll realize there is no issue there,'' says Pete Higgins,
a Microsoft group vice-president.
Who will be hurt by Microsoft's Net push? Netscape, which charges a few
hundred to a few thousand dollars for server programs, is the obvious target.
The company's stock sank $4, or 6%, on Microsoft's Feb. 12 announcement.
But Netscape is not as dependent on server sales as it had expected to be.
To build intranets, companies are installing thousands of copies of the
Netscape Navigator browser--and paying for them so they get customer service.
And because Navigator is the de facto standard, analysts expect strong sales
to continue, despite Microsoft's browser giveaway.
Netscape shrugs off the challenge from the north. ``It has not impacted
our sales,'' says co-founder Marc Andreessen. Still, Netscape is running
as fast as it can. It is rushing out new versions of its Web-server programs--with
new pricing--next month. And the latest update of Navigator adds features
such as ``frames,'' a Windows-like way to display multiple pages on a screen,
E-mail, and built-in security to validate a user's identity. It also includes
a scheme for plugging in companion programs, such as Adobe's Acrobat document
viewer and Progressive Network's audio player, to round out the browser's
features.
A HORSE RACE. At the same time, Netscape is pushing into new areas that
will appeal to the intranet crowd. Last September, it bought Collabra, a
maker of groupware programs that have some, but not all, of the capabilities
of Lotus Notes. And on Jan. 31, Netscape said it would acquire InSoft Inc.
for around $160 million. InSoft's technology enables teams to collaborate
via audio and video over the Net and will lay the foundation for Netscape's
LiveMedia, an industry-supported framework for delivering real-time, multimedia
services over the Web.
Can Netscape keep ahead when dozens of startups, Microsoft, and everybody
else in the business is on its heels? Maybe not. But it certainly makes
an enjoyable spectacle for corporations planning their futures around intranets:
Hundreds of rivals striving to come up with better Web software can only
make those intranets come to life sooner. As the man said: Let a thousand
flowers bloom.