In the United States and elsewhere in the West, the online retail business firms called e-tailers have mounted a fresh attack on the traditional way of doing business, causing an upheaval in the corporate corridors.
In the previous wave that came in the preceding decade, the Internet boom had transformed most of the West's economy by introducing new technologies which made it more efficient and less expensive. But it also upset the status quo.
When the boom steamed out, the corporate America had a sigh of relief. The threat of the 'disruptive power' of the Net was believed to have subsided and the big companies were sure the things were not going to change as radically or as rapidly as they had feared.
But the threat is back again. A special report in today's (May 10) issue of America's prestigious magazine "Business Week" says the Net companies have "survived their nuclear winter" and now six industries are "under assault".
What the Web has done this time is that most of the middlemen are being eliminated and, as a result, the old pricing power is collapsing. But the latest wave of net "insurgency" can hardly be described, some web watchers say, as a sign of approaching revival of dotcom industry.
It is more to do with current state of the US economy which has reduced buying power of the middle classes and hence an extraordinary attraction for online discounts.
In the first wave of disruption, net companies like Amazon framed new rules for business in books, music, and air travel. Now the Web is poised to remake rules for at least six major industries: jewellry, bill payments, telecom, hotels, real estate, and software.
According to the special report, Jewellry e-tailers are the leading players in the Web's second wave. They are selling diamonds, double-strand pearl necklaces and sterling silver bangle bracelets much cheaply. Online jewellers made up about $2 billion of the industry's $45 billion in U.S. revenues last year.
Amazon has now also joined jewellry business. The new 'startups' - the companies having recently entered - and Amazon are textbook cases of how the Web fundamentally undercuts traditional ways of doing business. One can buy a diamond for $500 and resell it for $575.
Neighbourhood stores charge $1,000 for the same stone. The diamond market is where changes are happening first. Last year, sales jumped 79 per cent, to $128.9 million, and net income hit $27 million.
To get to where they are, the Net upstarts had to defy conventional wisdom that diamonds couldn't be sold online. The companies solved this problem by giving people the same information a jewellry expert would give them.
Meanwhile, the online bill payment is reshaping the $30 billion business of printing, transporting, and processing cheques. Driving the transformation are banks, credit-card companies, and merchants eager to simplify an old system that involves as many as 28 middlemen.
The fact remains that handling an online payment costs only 10 cents, roughly one-third that of processing a paper cheque. Hence, the number of cheques written annually is expected to decline by about one quarter by 2007, to 30 billion.
The age-old practice of printing cheques and shuttling them around the country in armoured cars may soon become a thing of the past. This year, 65 million U.S. consumers are paying some of their bills online, almost twice as many as last year.
Behind this modernization is the Cheque Clearing for the 21st Century Act, known as Check 21. This law, which goes into effect in October, will put electronic images of cheques on equal legal footing with paper originals for the first time.
Another sector, says the Business Week report, the internet is quickly refashioning in its image is telecom. Revenues in the $120 billion traditional phone business are declining several percentage points a year, and capital investment in basic gear has all but dried up. Yet revenue from telecom services based on Net technology is expected to hit $6.7 billion in 2007, up from $281 million last year.
Until now, only one company has been deciding the conditions under which rivals could connect to their networks. It is Bells. The result is that the Bells controls about 80 per cent of the US local phone market. But with Net technology, rivals can bypass the Bells because Net phone service can simply be plugged into any broadband connection.
Internet telephony is introducing new features, too. Instead of a separate phone line, workers simply plug a headset into laptops loaded with phone software. As they travel around the country, co-workers can reach one another using the same extension, as if they were down the hall. The application costs about $125 per user, cheaper than many phones.
Net technology is also reducing the cost of international phone traffic. Currently, the rate to China is only 5 cents a minute, half that of a regular calling plan. Net technology now accounts for about 13 per cent of cross-border international phone traffic, compared with 1 per cent five years ago.
Of all the battles between big business and Web insurgents, the one raging between hotel chains and online travel agencies may be the fiercest. At stake are huge profits in an $80 billion industry.
Traditionally, franchisers have been the hotel industry's dominant middlemen. Hotel owners pay the chains 8 per cent to 10 per cent of their revenues in exchange for marketing and booking services and for the right to call themselves a Marriott or Hilton. Now, e-tailors are horning in on the chains.
Using the power of the Net, the online agencies last year booked 35 million rooms worth $5.8 billion, 8 per cent of the market. They will hit $13.3 billion in 2006 for 17 per cent market share.
With more people booking rooms online, Web travel agencies are changing the hotel industry's fundamental economics. Because they can fill beds with a fury, Net agents are getting a bigger cut of hotel owners' revenues than the chains get for the same room.
One company, for instance, gets a $106 nightly wholesale rate from a San Diego hotel, then charges the customer $132. Customers pay less than the $145 rate they would receive if they booked over the phone.
Why the hotel owners are willing to give Internet travel agents more money is because they can move market share to the hotels that give the agencies the discounts they want. That's crucial in an industry that's chronically overbuilt.
But some hotel owners are bent on fighting the digital evolution. Hotel chains are cracking down on franchisees that get too cozy with Web travel agencies. One big group is slapping hotel owners with fines and threatening to pull their franchise licenses if they offer special discounts through Net partners.
Many economists have been predicting that productivity will slow from its torrid pace of the past few years. But the Web's impact on more industries suggests that productivity growth may continue over 3 per cent a year, near its 3.6 per cent average clip of the past five years. Moving to digital cheque writing is just one example. It costs the bank about 30 cents to process. Pay the same bill online, and it's a dime.
As e-biz strikes again, the question arises: why these six industries? And why now? In the first round of Net disruption, the online players were selling commodities: books, music, or stock trades.
Customers didn't need to see, squeeze, or sniff the stuff - all they cared about was price. Today's Net upstarts are pulling together more complex information and boiling it down so that consumers can purchase from a broader array of products and services.
In real estate, for instance, companies have learned how to use software to show potential home buyers photos and floor plans for scores of potential houses. Because that reduces the agent's work, the company can save consumers 20 per cent to 25 per cent off standard commissions.
Broadband has been instrumental in the Net's advance, too. A critical mass of people around the world now have high-speed Net access, including 27 million U.S. households.
That means consumers can handle the huge loads of information dished up by the second wave of online players. One company lets them browse through dozens of photos of hotel rooms, check out a variety of gold necklaces, or take virtual tours of scores of homes for sale.
Speedy net connections also have made it easier for programmers around the world to cooperate in developing new open-source software, which is changing the economics of the $200 billion software market.
The industries under assault have other more subtle characteristics in common, as well. Several, including jewellry and hotels, have long supply chains with many middlemen, each of whom takes a cut of the profits, driving up retail prices.
A South African white diamond can pass through five different hands, including rough-diamond brokers, cutters, and jewellry and diamond wholesalers. A net company connects over the Internet to its key suppliers, who buy their stones directly from South Africa's powerful De Beers. That eliminates three middlemen or more.
So, who will win, the upstarts or the established companies? This time, says the Business Week, with incumbents attuned to the advantages of the Net, there will be victors on both sides. More important, though, is that the Internet will continue to have sweeping impact on the economy, giving consumers more choices and making everyone more efficient.
