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What's New in Technology

July 2004


After a couple of years respite, e-biz seems poised for another growth spurt as it makes in-roads on new areas of business. Once again, large companies are looking over their shoulders at Internet upstarts who are snapping at their heels. The first time around, Amazon rewrote the rules for selling books and music, Expedia those for selling air travel, and eBay threw a wrench into many segments of the retail business. For the most part, these e-biz stars sold commodity- type products-books, CDs and airline seats -- that consumers were comfortable buying without first seeing or discussing them with a sales person. Thanks to advances in technology, wide-scale, high-speed Internet access, as well as consumers’ increasing comfort level with e-tailers, companies from a variety of business sectors are about to become major web players.

Who is going to be the new "Amazon" of this second wave?

First of all, let’s consider the competitive advantages web-based businesses enjoy. The early e-tailers-- operating with lower overheads than their "bricks and mortar" competitors-- were able to make money with lower profit margins and offer more competitive prices to consumers. Many of the newest entries (see list below) now involve industries with long supply chains where prices can be cut by dismantling the old ways of getting goods/services to market. E-business industry experts have tagged six key industries as most likely to undergo a "web" remake:
  • Retail jewelry sales

  • Real estate sales

  • Invoice payments

  • Telecommunications

  • Hotels

  • Software
Both jewelry and real estate might seem, at first glance, to be unlikely candidates as e-biz rising stars, but both have benefited from the broadband revolution. Some 27 million American households now have high-speed Internet access, which allows easy and speedy downloading of photos of jewelry, homes and hotel rooms. Real estate firms and hoteliers now have new software that gives the customer the opportunity to take a virtual tour.

Fast Internet access has also facilitated cooperative efforts among programmers worldwide and has led to greater availability of open-source (often free) software for consumers. This move is challenging the $200 billion software market and the goliaths of the industry.

Jewelry Industry Shake-Up
Defying conventional wisdom, on-line jewelers have made major headway -especially in the diamond business. Last year, jewelry e-tailers made up about $2 billion of the industry’s total sales of $45 billion in the U.S. Cutting prices, by getting rid of the middlemen and expensive stores, on-line jewelry companies are shaking up the entire industry. It is interesting to note that Amazon expanded its business enterprises to include jewelry a couple of months ago. Customers have overcome their fears about purchasing diamonds sight unseen reassured by first- class on-line consumer information, 30-day money-back guarantees and by prices that may be 40 percent less than at a "main street" jeweler. Start-ups include Ice.com; Diamond.com; and the leader in this segment, Seattle-based Blue Nile, Inc. Having become the eighth largest specialty jeweler in the U.S. in just five years, Blue Nile posted sales of almost $129 million in 2003, an increase of 79 percent over 2002, and is expected to launch an IPO soon. Blue Nile buys direct from suppliers in South Africa and in doing so eliminates about three tiers of middlemen.

The hotel business-a logical addition to existing web-based ventures selling airline seats-is an area where some big chains are resisting change by threatening owners and franchisees with fines or loss of their licenses if they offer discounts through internet partners. On the other hand-other companies, notably Verizon Communications, Inc., intend to meet the upstart contenders in the IP telephony arena head-on with a $2 billion investment in Internet technology.

On-line bill payment, which offers users speed, convenience, efficiency and lower costs is a big hit with consumers, and is poised for explosive growth.

Tomorrow’s e-biz winners will include seasoned industry players willing to re-invent themselves as well as bold new ventures. Perhaps the only certainty is that the Internet will continue to be a major force for change, and that consumers will reap the benefits in wider choices and competitive pricing.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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