A look at how four companies have cemented their relationships with existing customers by installing extranets that improve customer service and allow for online ordering.
Internet Commerce
The Internet is a great place to find new customers. It's an even better place to serve existing ones
Tom Farmer and Oona Huber have a business relationship based on Internet technology. Yet they didn't meet through a search engine. They rarely visit one another's external Web sites. And their conversations take place not in the ether but rather around a mahogany conference table.
That conference table occupies a hefty chunk of acreage in the Cypress Room at Fujitsu America's sprawling headquarters, in San Jose, Calif. In 1997 Huber, who is Fujitsu America's benefits administrator, sat at that table while Farmer and his trusty PowerPoint presentations pitched her on RewardsPlus, a company that sells nontraditional benefits to corporate employees. During a series of face-to-face meetings, Farmer and Huber hashed out the complex issues involved in fusing their companies over the Web. "We wanted to know precisely how we would be connected," says Huber. "Could our employees be linked from our intranet? How often would we send RewardsPlus payroll data?"
In the popular vision of Internet commerce, Web sites are open emporiums, and buyers and sellers have little contact off-line. But RewardsPlus isn't interested in serving indiscriminate masses on a public site. Instead, the company is forging strong digital bonds with its customers using an extranet--a private site accessible only to the company hosting it and that company's designated business partners. Extranets can be a chore to set up and may require significant coordination on security, technology, and process issues. But the rewards--particularly for companies doing volume business with a limited number of customers--are considerable.
As corporations prune their suppliers' ranks, small companies are looking to extranets and other Web-based mechanisms to cement relationships with business customers. And they are in good company. Although consumer companies like Amazon.com and Auto-by-Tel continue to snag headlines, business-to-business commerce dominates economic activity on the Internet. This year companies buying from other companies will account for $17 billion of the total $21.8 billion in Net transactions (excluding financial services), and on-line business-to-business sales will surpass $300 billion by 2002, according to Forrester Research.
Electronic commerce isn't new, of course. For years the Fortune 500's upper echelons have hammered down costs and controlled inventory by sharing critical business information over value-added networks. But that sharing, called electronic data interchange (EDI), was complicated and expensive. Small businesses had a tough enough time when their large customers pressed them into electronic relationships; initiating them was out of the question.
The Internet changes that. Small companies can now process EDI transactions over the Net for a small fraction of the cost of a private network. (See "A More Modest Proposal" below.) And for less than $100,000 they can rope off portions of their Web sites and provide important customers with a secure place to find things like account balances and customized catalogs with account-specific pricing. Such arrangements not only win customer loyalty but also reduce overhead, particularly for companies that allow on-line ordering.
But before you and your business partners start to tango, you must establish the rules of the dance. What changes--technological and procedural--must both parties make to engage electronically? What services will bind you most closely together? What information are you willing to surrender? Many CEOs get queasy just thinking about their invoices, purchase orders, and price lists whizzing over the Internet, while others make impossible demands of their business partners. "It's the tyranny of opportunity," says Jonathan Yarmis, senior vice-president of the Internet Research Group at Mainspring, a consulting firm based in Cambridge, Mass. "The good news is that there are incredible chances to get closer to the customer. But it doesn't just happen. You have to offer a lot of time and effort, and it can become your full-time job."
What follow are the stories of three companies that are committing that time and effort.
The benefits of marriage
RewardsPlus CEO and president Ken Barksdale never worried that an extranet would change his business--an extranet is his business. The company has poured nearly $700,000 of its $2.1 million in seed capital into a Web-based system that lets corporate customers buy and administer boutique benefits programs for employees. "If we can improve everyone's bottom line by keeping transactions in the electronic sphere, we will succeed," says Barksdale. "And we will have chained ourselves to our partners and customers in the process."
Barksdale was director of sales for a division of the Zurich Insurance Group in 1994, when he and Jack Kwicien, the division's president, unearthed an intriguing nugget of market research. Corporate human-resources departments apparently were coping with the drum-tight labor market by beefing up standard benefits packages with less orthodox offerings, such as auto insurance and financial services. But they were encountering resistance from the finance side, which argued that core benefits were already too expensive.
Barksdale and Kwicien (who recently left RewardsPlus for personal reasons) figured that by reducing the cost of benefits administration they could pry the lid off a big market. They recruited two colleagues--technology manager Jamie Spriggs and marketing veteran Frank Longwell--and with them repaired to the basement of Kwicien's house to devise their business model.
What they came up with was essentially an outsourcing service. Traditionally, buying and administering benefits is an à la carte affair: corporations make separate arrangements with the vendors of homeowner's insurance, college savings programs, prepaid legal services, and so on, and must then tackle the payroll deductions for each. On the flip side, benefits vendors spend a lot of money marketing group plans to individual employees.
Barksdale and company wanted to aggregate multiple vendors' plans in one system, make information about them available to a corporation's employees over an extranet, and handle the order and payroll-deduction processes for buyer and seller. For its trouble, the company would take a 2% to 4% commission from the benefits providers, which in turn would save 15% to 20% on sales. "We lower overhead by working electronically," says Barksdale. "We provide a costly service at no charge to the employer, reduce the cost of the benefit to the employee, and reduce the customer-acquisition cost to the provider."
