Internet Commerce Expo – Los Angeles (1997)

E-business and Killer Apps
The Transcript of Dr. Irving Wladawsky-Berger’s Keynote Address at Internet Commerce Expo
April 9, 1997Irving Wladawsky-Berger
Internet Commerce Expo

Good morning everyone. This is truly a marvelous time of year.
In the Spring new life emerges all around us. Romance permeates everything and a young man’s fancy lightly turns to… baseball!!
In April, I think back to when I was a youngster in Cuba… all sweaty after a game and dreaming of that glorious time when I would pitch on opening day in the majors.
I would ponder what, for me as an aspiring baseball star, was the profoundest of questions… “How will they ever fit my name on the back of my shirt?”
But, while my career as a player was cut short by sheer lack of talent, I did see hope for my being part of the game in some capacity when the late Bart Giamatti became a very popular commissioner of baseball… popular, that is, with everyone except the owners.
It got me thinking that, if a Classics professor from Yale could become baseball commissioner, maybe a Cuban IBM executive with a Ph.D. in Physics might be next.
Unfortunately, that hope too was cut short when baseball decided to become “The Libertarian League,” and abandon all forms of government.
At that point, I was forced to forsake all my fantasies of becoming a force in the sports world and agree with T. S. Eliot that “April is the cruelest month.”
But ICE got me dreaming again. After all, delivering the first keynote at ICE is not unlike throwing out the ceremonial first pitch on opening day.
So for the next half hour or so, I will stand up here and take my cut. Then we can open the program to questions and answers, so you can take yours.
For the last 18 months or so, the Internet has swept over us all in a great wave of enthusiasm that has been part fantasy and part reality.
In the initial rush of enthusiasm, all things seemed possible.
So you had computer companies getting into all sorts of businesses beyond their core competencies, and huge technology IPOs surfacing on Wall Street, supported more by the anticipation of some “killer” application than the prospect of real revenues.
But in the midst of all the hype… real work was going on to merge Internet technologies and standards with the existing IT infrastructure… and produce a supercharged IT that could connect everything and everybody.
In the last year alone, for example, IBM has logged thousands of customer engagements — some simple others very complex — with companies seeking to exploit this new capability.
Nevertheless, despite our work and the work of many others in the industry, some people are asking… where are all those “killer” apps the Internet was supposed to spawn?
And why… except for Hale-Bopp shining brightly in the sky… does the world look the same today as a year ago?
The answer depends on what you mean by a “killer” app.
If you mean one or two major applications that kill off the competition and leave a handful of IT firms with architectural control of this new era, you won’t find them, and I doubt they will emerge in the future.
But from the customer’s point of view “killer” apps are appearing all over the place.
These “killer” apps are the ones that help them do what they have always done… only faster and more efficiently, and with a global reach that two years ago was a mere dream.
Companies like Vauxhall Motors in the UK and Turkish Airlines are leveraging content to serve customers better and enhance their brand.
Others like Toyota Motor Sales are collaborating over hundreds of dealerships to automate the sales force, increase its productivity and, in the process, improve customer satisfaction.
Still others like the Bank of Montreal are closing mortgages, and the Verona Opera House is selling tickets… all over the Web.
Does the ability to do what you have always done… only faster, more efficiently and with a global reach… qualify as a “killer” app?
It does if your competitor has it and you don’t!
But personally, I think it is a mistake to look for “killer” apps and instant transformations.
After all, our modern commercial infrastructure is the product of centuries of evolution that gradually incorporated new methods, processes and technologies as they became available.
And in modern times, nothing has contributed more to the efficiency of the commerce infrastructure than information technology.
Businesses have exploited IT to automate major parts of their operations and build a deep foundation of applications that let them function more productively and profitably.
But they have been living for the last few decades on “islands of automation,” integrated loosely if at all, and more or less cut off from business partners and customers by an uncharted ocean of incompatible systems and processes.
In a manner of speaking, the commercial world was fragmented into many “nation-states,” each doing wonderful things, but each effectively isolated from its potential allies.
What the modern commerce infrastructure has lacked is the breadth of connectivity that would allow businesses to fully integrate themselves and reach beyond to their partners and customers.
The single greatest obstacle to integrating these “islands of automation” — these nation-states, as it were — was the inability of technology providers, whether out of self-interest or ego, to agree on standards.
Now the information technology industry, like others before it, is moving away from the “architectural control” model… toward a world where products conform to standards and companies compete on implementing those standards.
The refreshing irony is that the standards have emerged not from Armonk, Redmond, or Silicon Valley — nor from any of the many committees that tried for so long to establish them.
They came initially from the university and research communities, which developed the Internet, and they are being adopted by the marketplace which, given the enormous complexity of the technology, is the only institution that can make them stick.
I might add that the marketplace’s enthusiastic embrace of standards both shamed us in the industry and encouraged us to seek greater unity… in short to start behaving like responsible adults.
And that is precisely what we are doing in establishing Java as a standard for application development, and the Secure Electronic Transaction protocol — or SET for short — as a standard for handling credit card transactions over public networks.
These Internet standards are giving the modern commerce infrastructure an electronic dimension, extending the reach of existing applications to people by the tens of millions — even hundreds of millions — creating a platform for the next generation of applications, and giving birth to a new, vigorous e-business environment.
Given that incredible breakthrough in connectivity, it is not surprising that all sorts of grand visions would emerge… visions of a totally transformed commerce and, for that matter, a radically new civilization.
In the fullness of time, some of those visions may even become real.
Still, radical departures are not the norm in history and the modern commerce infrastructure is performing essentially the same functions it has for centuries.
It permits communication so people and institutions can collaborate.
It integrates existing investments and processes, which have proven themselves over many years, with the new advances that will make them work even better in the future.
And finally, the commerce infrastructure makes certain that all transactions are secure, so everyone can be confident in the integrity of the process.
Now, because of Internet standards, that infrastructure can accomplish all these age-old objectives faster, more immediately, and on a far, far broader scale than ever before.
Let’s talk first about communication which has been at the heart of the commerce infrastructure from time immemorial.
Quite probably most major communications routes were either established to facilitate commerce or soon became major trading routes… the Great Silk Road, for example, with its caravans connecting the West and the Orient, and the network of roads that traversed the Roman Empire.
When communication declined, as it did after the fall of the Roman Empire, trade declined… and when it revived, as in the Europe of the later Middle Ages, trade revived.
Every advance in the commercial infrastructure has essentially been an advance in communication technologies… from the Clipper Ships, railroads, and automobile… to the telegraph, telephone and broadcasting.
And now IT is integrating most communications technologies into a unified medium and adding an incredible new electronic dimension to the commerce infrastructure — an e-business dimension that will allow communication of all forms of information by anyone, anywhere.
All this is happening, for one thing, because of the incredible proliferation of networks.
But more important than that are the Internet standards that are letting all those “islands of automation” communicate… with employees, with business partners, and with customers… across the office, across the country and across the world.
Company after company is leveraging these standards to communicate and collaborate . . . to automate and link business processes, and let people work together.
Asea, Brown, Boveri — the global engineering group with 220,000 employees in 140 countries worldwide, and sales approaching $40 billion — is using these standards to build intranets and exploit the Internet.
They are building a seamless web of collaboration for a variety of purposes like better R&D, closer project tracking, higher quality, and improved financial controls… all of it based on advanced communications.
It’s not just commercial enterprises that are reaching out across the Internet.
The government of the United Kingdom recently put the first of its “Direct Access Government” applications on the Web, giving citizens access to current regulatory information and forms from more than 200 agencies.
That same communications capability has let hundreds of Italian companies expand their operations to China through a completely Web-ready facility built in Shanghai by our Italian and Chinese subsidiaries… a facility called Palazzo Lombardia.
At Palazzo Lombardia, these latter-day Marco Polo’s have secure access to the information systems of their parent firms in Italy and communication with the world at large.
Open, Internet standards will allow AMP Corporation to establish an electronic catalog of its 40,000 offerings, and communicate everything about them, in different languages, directly to its distributors and customers worldwide.
But the kind of global communication necessary for real e-business on the web cannot happen without completely integrating all the hard working, “bread-and-butter” enterprise data and transaction systems — with the new, exciting web applications.
Enterprise data is some of the world’s most valuable information… customer databases… inventory records… bank accounts… security portfolios… airline reservation systems… and all the critical information assets that run a business… much of it on IBM systems, I might add.
This information is your stock in trade… the silks and spices that were transported by the ancient caravans… the tea in the holds of the Clipper ships.
Take that information… integrate it with your web site… and you can communicate it to tens of thousands of employees and business partners… not to mention customers by the tens of millions… all without rewriting the application.
That’s when the Web truly makes your employees more productive, your supply chain more efficient, and your customers more satisfied.
Integrate your transaction systems with the web and you have truly entered the realm of e-business… where customers can not only review current product information from the enterprise database, but actually buy and pay for a product or service.
Many companies all over the globe are integrating all that rich back-end content with the worldwide communications capabilities of the Web, exploiting it directly in the business and reaching out to business partners and customers worldwide.
Caterpillar, Incorporated, for example, once replied by mail and FAX to 20,000 requests a day for parts images.
Now, with their parts database integrated with the Web, suppliers and dealers can access them from a browser.
Customers of Japan Airlines can now reserve their own seats on flights because the airline’s reservation system is integrated with the Web.
For the same reason, Canadian home buyers can now apply for a Bank of Montreal mortgage and get approval over the Net in a matter of seconds.
Smith Barney clients have 24-hour access to their records.
And Charles Schwab|s clients can now trade anywhere, anytime over the Internet.
Let’s hear about their on-line trading system directly from them.
The National Hockey League — our close partner in developing their new NHL-ICE web business — has also integrated all kinds of enterprise data with its web site so fans can look up stats on their favorite players and teams… won/lost records of course, but also face-offs, ice time, and turnovers, as well as articles, photos and soon full audio and video of games.
And when someone comes to the NHL web site to look up how many times Gordie Howe checked Bobby Orr into the boards, what better time for a commerce server to sell them a jersey with Howe’s number nine?
Clearly, Internet standards have transformed information technology into the latest and perhaps the ultimate communications medium with tremendous potential for commerce.
The consensus of a number of analysts puts total revenues from electronic commerce last year at about $1 billion… not much when you realize that it is only about a day’s worth of volume for Visa and Mastercard.
But the growth rate is tremendous. This year they estimate $2 billion… and by 2010… a trillion dollars.
Of course none of that will happen unless the commercial infrastructure can make payments, property rights and privacy at least as secure as in the traditional business environment.
If there is one real “killer” technology, it is security; because without security, electronic commerce and e-business in general are dead.
Security has always been the precondition for a strong commerce infrastructure.
Long ago, on the high seas pirates so dominated some areas that merchants had to pay tribute in order to trade.
The United States fought a war with the Barbary Pirates under the principle: “Millions for defense, but not one cent for tribute.”
Likewise the IT industry has invested heavily in its own form of defense, namely the very sophisticated security technologies like cryptography that are paying off in stringent security for payments and intellectual property.
Of course while we feel very capable of protecting commerce from the new “electronic pirates” who are trying to exact tribute from networks, this time of year also reminds me that no amount of technology will keep governments everywhere from trying to exact their tribute by taxing business transactions over the Net.
Let me spend a few minutes discussing some of the great security innovations that are coming to the Web.
Mastercard International and Visa, for example — with significant help from IBM — pioneered an open, industry protocol named the Secure Electronic Transaction — or SET for short.
In fact, we’ve embodied SET standards in a suite of applications covering the entire payment process and making credit card payments more secure than in a store.
Credit card information is encrypted all along the way.
So unlike transactions in a store or by phone in which it is exposed to everyone, credit card information transmitted electronically is seen by no one but the processor and the issuer of the card.
I’m very happy… and proud as well… to say that IBM was the first to implement SET in a product called Net.Commerce Payments.
It was first used by Danish Payments Systems — known by its Danish acronym as PBS — which handles some 300 million credit card transactions a year.
As their CEO put it, “Staying out of the Internet would mean staying out of future business.” With Net.Commerce Payments and SET, they are very much in the running for that future business.
Another of our customers — The Swiss Federal Railway — has been offering on-line schedules and travel information over the Internet for almost a year.
Now because of the SET protocol, they will execute ticketing and other sales.
And with SET and IBM’s CommercePoint suite, Fuji Bank is enabling customers to shop over the Internet and have their accounts debited automatically.
Secure payments is far less an obstacle today than it was even a year ago, but secure payments is only part of the issue.
Confidentiality of personal information, and protection and payment for intellectual property are critical as well.
And in this case too, we are all far ahead of the game because of a technology developed by IBM Research and called Cryptolope Containers.
This is a secure, encrypted wrapper for any kind of digital content.
From documents and magazines to software and music… from video and airline tickets to purchase orders and invoices… if you can digitize it, you can wrap it in a cryptolope that can be unwrapped only by someone who has agreed to the terms and conditions.
We use Cryptolope technology to protect Dun and Bradstreet databases while providing other companies and Web site developers with access to them.
Acxiom Corporation uses cryptolopes technology so its direct marketing customers can determine if the recipient got the information and opened it, and how they responded.
They can also tell if the recipient placed an order, requested more information, or passed it along.
Key recovery is another security technique that has been in the news lately and Kathy Kincaid, the leader of our security team, will be making a presentation on SecureWay Key Recovery in the Grand Ballroom at 8:00 am tomorrow.
Clearly, the communications, integration and security required to extend the commerce infrastructure into the e-business realm are either in place or rapidly taking form, and more and more of the companies we deal with want to exploit the infrastructure for electronic commerce.
That means everything from market research to merchandising, from electronic shopping to the execution of the sale, and from fulfillment of the order to the post-sale relationship.
As you can imagine, this is a very complex undertaking.
And anyone anxious to get into electronic commerce needs to seek out partners who know both the technology and the business it’s being applied to… partners who can help develop secure, flexible, scalable commerce solutions that put them on the web quickly.
This is the relationship that existed between us and L.L. Bean, for example, when we helped them install an e-business solution so they could provide the secure on-line shopping their customers were demanding.
Traffic on the site is exceeding expectations and this past December, during the Holiday shopping season, sales at the Web site were twice what they had forecast.
Likewise the Verona Opera House I mentioned before has a new global sales vehicle in its multilingual web site based on our CommercePoint family and DB2.
Of course, many customers want to leverage the vast new electronic potential of the commerce infrastructure, but prefer to concentrate on what they do best.
McLane, Incorporated, for example, is one of the largest distributors of goods and equipment to convenience stores and gas stations and prefers to concentrate on its core competencies rather than on information technology.
So, rather than establishing its own internal e-commerce system, they will use our World Distributor service to link the district offices of convenience chains to McLane|s national order center.
Their hope is to cut in half the time and paperwork involved in a purchase.
In another implementation of this business-to-business model, the Government of Singapore has ambitious plans to put all 10,000 of its suppliers on-line, saving as much as 45 percent in manpower costs while cutting processing time by about two-thirds.
Smaller companies especially find this route to e-commerce appealing since buying a service lets them put off investing in hardware and software, and get their business on the Web quickly.
Likewise, for new ventures with a lot of ideas but limited capital, a service can also be the ideal way to exploit electronic commerce.
When all is said and done, electronic commerce is not a matter of technology, it is a matter of satisfying market needs.
That has always been the purpose of the commerce infrastructure from time immemorial.
The marvelous thing about the ancient trade routes was not the carrying capacity of the caravans, but the fact that spices grown in the orient were consumed thousands of miles away at a Roman dinner table.
Likewise, the excitement of the emerging electronic commerce infrastructure is not in the bandwidth and browsers, nor in server and security technologies, but in its ability to deliver goods and services that people need and want.
So the challenge faced by the modern marketer is in essence the same as that faced by the merchants in the Roman Forum or the Agora in ancient Athens, or on the great trading routes of the Clipper ships… to identify a need and use the technology at hand to satisfy it.
In the final analysis, perhaps the real challenges in electronic commerce are not so much communication, integration and security as the fundamental business virtues of imagination, insight and daring.
In that sense, nothing has changed.
Now I’ll take your questions.