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ferentiating products and services, or creating broader markets. Leading users of these technologies have found that the value of the Internet lies not simply in automating existing business processes but in creating new means of interaction between suppliers and consumers of products and service, often with significant implications for industry structure.

Industries differ in many respects, and their degree of success achieved in applying the Internet varies as well,2 but the experiences of leading companies in different industries in which Internet use is common suggest a number of general trends. The Internet clearly is transforming the retail marketplace. Online retailers such as and Barnes and Noble have changed the nature of the book industry by creating direct relationships between book buyers and book suppliers that have significantly reduced inventory costs and eliminated many middle layers in the distribution chain—a process called disintermediation.3 Manufacturers of personal computers, such as Dell and Compaq, increasingly use the Internet to market their wares directly to consumers, enabling the consumers to customize their orders and enabling the firms to control inventory at the lowest possible levels. Online auction sites, such as eBay, have pioneered new ways to link buyers and sellers in a virtual marketplace, with some companies expanding on the auction concept to exploit spot markets for last-minute airline tickets, car rentals, hotel rooms, and other services.

Internally, the effective use of information technology (IT), including Internet technologies, can have a profound impact on organizational structure and function. As information is distributed efficiently to those who need it when they need it, lines of control and influence become clearer, and individual units often self-organize in new and more effective ways. The impact may be multifaceted, not only flattening organizational structures but also changing the skill mix of employees. Early evidence suggests that online sales of automobiles reduce the set of skills needed by salespeople (McGarvey, 1999). In contrast, some stock brokerage firms report that online trading requires brokers to have a broader set of skills, although the total number of brokers needed may decline because much of the effort of executing a stock transaction can be passed on to the consumer.

Online interactions boost consumer expectations. Many traditional storefront industries—from retail to manufacturing to news—are now open around the clock, competing in a highly visible and competitive environment. Consumers conduct many transactions at night or on holidays, when many traditional merchants shut their doors, and buyers often compare the prices of many Internet vendors before making purchases. In fact, many Internet companies encourage consumers to discuss topics or items of particular interest. Internet book merchants, for example,continue

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