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Mohanbir Sawhney is the McCormick Tribune Professor of Electronic Commerce and Technology at the Kellogg Graduate School of Management, Northwestern University, where he also heads the Technology and e-Commerce (TEC) Group. BT's Sunit Arora had an e-mail -cum- teleconversation with Sawhney--named by BusinessWeek as among the top 25 influential people in e-biz---just as he was winging it to Europe, and then India, for the India Internet World expo in end September.
Sawhney: The answer is neither, by themselves. I see the emergence of a hybrid world, where the B2B start-ups will partner with the industry consortia to create a 'best-of-both-worlds' business that combines the speed and focus of a start-up firm with the domain expertise and liquidity of established firms. I also see many of the B2B start-ups shifting their role from operating exchanges to becoming enablers of supply chains for established companies. Ventro, Commerx, and SciQuest are already moving in this direction. An interesting model of such a hybrid is Global Freight Exchange, which is based in London. This is a start-up company, that has partnered with leading airlines to create an industry-wide cargo logistics management solution. BT: In fragmented industries, will B2B exchanges gravitate towards becoming democratic bodies with huge turnovers, but little or no profits? Sawhney: That's a distinct possibility, if the B2B exchanges stay focused on mediating buyer-seller transactions. There simply is not much value-added or margin in simply matching buyers and sellers. The real value is in services that are wrapped around the core transaction. The players who provide a comprehensive suite of value-added services will be able to extract significant value. Those who merely mediate commodity transactions will get lots of volume, but low revenues and even lower margins. BT: The Net was supposed to be the death of distance and scale. Yet we see huge M&A plays related to access, eyeballs, content, or commerce. And some B2B companies and almost all B2C ones realise that while they can transact business with a customer in a remote location, delivery (logistics) still poses a very real physical problem. Was everyone wrong in assuming that it was curtains for distance and scale? Sawhney: The paradox of distance is interesting. In brick-and-mortar retailing, the three key success factors were, location, location, and location. In the virtual world, the three key success factors are virtual location, virtual location, and virtual location! This is the first paradox of location---that you can reach customers virtually anywhere, but they don't know where to find you. The second paradox of distance is that distance matters in shipping. The laws of physics and economics haven't changed. Yes, you don't need as much inventory, and you don't need expensive retail store real estate, but you still need to do all the messy blocking and tackling of logistics and physical distribution to win in B2C or B2B commerce. The only exceptions are 'pure information' offerings like Yahoo! (portals) and E*Trade (financial services). Distance is very much alive wherever atoms are part of the offering. Especially so in countries like India, where both the first mile and the last mile pose a nightmare to e-Commerce players, given the creaky physical infrastructure. BT: Aren't all businesses (both brick-and-mortar and pure-play Net firms) constrained by the fact that they define business and business processes in conventional terms. If the hype about the Net changing everything is true, isn't everyone making a mistake by reacting to it using conventional management and business techniques? Sawhney: Absolutely. Take some simple ideas. What's a market? What's an industry? What's a competitor? All these basic constructs need to be re-thought from the ground up. For instance, the boundaries of markets are defined today in seller terms, not in customer terms. Sellers sell products, but customers are interested in life events, activities, and business processes. Products and services are means to ends. By thinking of markets in activity terms, you get a very different view of the market. Similarly, the boundaries between competitors and collaborators are blurring, evidenced, for instance, by the emergence of consortia among competitors in a number of industries. We see the world through lenses of old mental models. To see anew, we must clean our lenses. We must question our basic assumptions. We must open our doors of perception to the winds of new ideas. This is a time of great creativity and endless possibilities. But if we remain prisoners of what we know, we will miss out on the truly exciting opportunities. BT: There's one school of thought that believes that m-Commerce will kickstart B2C transactions. The fact that cellphones outnumber Net-connections in most countries is often used to back this up. Supposing this happens, will the B2C space not acquire a predominantly local flavour? After all, speed and reach are likely to be the key criteria in m-Commerce. Besides, as experience with mobile-content shows, local it needs to be. Sawhney: I, for one, am not too optimistic about the short-term potential of m-Commerce. I simply don't see compelling revenue models among the applications that are being touted. The only 'killer app' that I see is the Short Messaging System (SMS), which is not m-Commerce. It's merely m-Communication! And that too will get commoditised over time. The fact remains that mobile devices simply don't have the display capabilities yet to effectively be able to present commerce offers to consumers. And Wireless Applications Protocol (WAP) is not the solution. It's classical incremental thinking---cramming a web-site onto a tiny screen. There are a few stellar exceptions. i-Mode in Japan has taken off like wildfire, and Sonera Corporation in Finland will reel in an estimated $250 million in m-Commerce revenues in 2000. But each of these companies is uniquely adapted to its local circumstances. The Japanese are reticent people, so 'i-moding' is a nice impersonal way to communicate. And they have small fingers, small houses, and travel in cramped subways. So a small hand-held device works for them. And Finland is the birthplace of wireless telephony. The US, India, and other developing countries are a wholly different ball of wax. Each country will have to develop its own local flavour of killer apps. In the meantime, there will be a lot of disappointments, and a lot of m-Commerce flame-outs. BT: Compared to the developed markets, how important are intangible factors in doing business on the Net in Asia? Sawhney: Business in Asia (India and China, in particular) relies very heavily on relationships, much more so than in the West. The reason is simple. There isn't enough transparency in business transactions. The reporting requirements and the lack of enforceability of legal sanctions encourages a culture where you do business with people you know and trust, and on relationships that are cemented over a long period of time. These are informal relationships, often with few legal documents to enforce the terms and to specify penalties in case of default. Relationships fill the vacuum created by the lack of transparency. I also think that the importance of relationships may have something to do with Eastern culture, which encourages values like loyalty and trust. Whatever the reasons, the 'relationship-centricity' of trade poses significant hurdles for transparent and automated e-Commerce transactions. So the Net in Asia will need to be a 'high-tech and high-touch' medium, where automation co-exists with relationships. BT: Much has been written about the advent of permission marketing and privacy issues. Do you think Asian audiences will be less particular about how their personal data is used? Sawhney: I think the privacy debate can be framed as a 'religious debate' or as an 'economic debate'. The religious debate suggests that marketers have no moral right to consumer data. I don't think this is a very useful debate, because it becomes a discussion of 'right versus wrong'. The economic debate is more promising. The idea here is that consumers realise that their personal information has some value, and that they need to be compensated for this. So marketers will have to "make a deal" with consumers to reward them for using their data. And they will have to make the deal clear, transparent, and honest. Under these circumstances, I don't think people will mind parting with their personal information on a selective basis. What ticks me off is that direct marketers profit from data collected about me, without my knowledge, and I don't get anything out of the deal. I think permission marketing is a buzzword that will lose effectiveness over time. The problem is not about gaining permission. It's about presenting a compelling value proposition to consumers for using their data. As for Asian consumers, I think they will initially be more responsive to direct marketing, because of the novelty. Receiving mail, for most people in India, is still a pleasurable idea. It will take a while for Indian consumers to get as jaded as American consumers, whose maiboxes and e-mail boxes are overflowing with junk. When this happens, Asian consumers, like all other consumers, will revolt. BT: The markets are being hard on B2C sites. How does this fit in the evolution of B2C e-Commerce? Sawhney: There is a fundamental problem with B2C e-Commerce sites. They are 'channels', not stand-alone businesses. For the most part, B2C e-Commerce will get subsumed within the multiple-channel strategy of conventional retailers. Very few pure-play e-tailers will survive. It is like saying that a 'pure-play' ATM bank can survive as a stand-alone business. A teller machine is a point of presence. It is not a business. So I see most e-commerce sites (more than 90 per cent) going out of business. There will be three categories of survivors. The first will include players who manage to get massive scale (Amazon is an example). The second will include players who offer niche products or provide services that simply cannot be provided without the Net. eBay is a good example. As is HotHotHot.com, which offers over 5,000 types of sauces. The third category will be gift-oriented product categories, because of the impulse/convenience-oriented purchasing behavior. 1-800-Flowers is an example. A simple test---if you can buy something in a retail store without too much trouble or travelling too far, it probably won't survive as a stand-alone B2C e-commerce business. BT: Which types of e-businesses do you see succeeding in a market like the Indian Netspace? Sawhney: Frankly, I think many Indian e-commerce entrepreneurs are barking up the wrong tree. They are replicating models from the US and applying them to the Indian market. There's a plethora of portals, infomediaries, e-Commerce retailers, and content companies. The pioneers that the Indian entrepreneurs are copying (eToys, Amazon, E*Trade, and CDNow) are having a tough time staying above water in the US, which is a far bigger market than India. The Indian e-Commerce market will be tiny for some years. There just aren't enough people and purchasing power on the Net. I would strongly advise Indian entrepreneurs to look beyond the domestic market, and to build businesses that supply software, infrastructure, brainpower, and services to the US and European market. India should become the base for Net-sourced and Net-delivered services that consume a lot of brainpower, such as design services, legal services, customer care, and tutoring. This is a logical evolution of the infotech body shops into eServices players and technology firms that use India's talent for foreign markets. Indian entrepreneurs should look to Israel and Singapore as examples of countries that are export-focused in their technology businesses. Thank You, Prof Sawhney Mohanbir S. Sawhney Academic
Qualifications:
Courses/Topics Taught: Technology Marketing Honours and Professional Awards: Teaching Awards
Research Awards
Other Awards
Professional Leadership Reviewer: Journal of Consumer Research, Journal of Marketing Research, Management Science, Marketing Science, Marketing Letters Research and Publications: Research Areas
Academic Publications and Working Papers
Trade Press Articles
Current Research Projects
Honorary Memberships Fellow, World Economic Forum Member, Board of Directors:
Member, Strategic Advisory Boards
Principal Michigan & Oak Partners, LLC (Venture Acceleration Services) Consulting and Speaking Engagements Allied Signal, Amgen, Andersen Consulting, Brinson Partners, Dean Witter Discover, Deutsche Bank Alex Brown, Eli Lilly, Gartner Group, Intel, International Paper, Kraft Foods, Leo Burnett, Merrill Lynch, Motorola, Red Hat Inc., Safeguard Scientifics, Sears Roebuck & Company, Stena AB, Texas Instruments, Thomson Consumer Electronics, Titan Industries Limited (India), UBS/Warburg Dillon Reed, and Xerox Corporation |
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BT: Prof Sawhney, who will control
the B2B space---start-up B2B hubs (or meta-hubs, as you term them), or
consortia of businesses that already exist in that space? Why?