Internet-Based Commerce:

You Ain't Seen Nothin' Yet

Dr. Jay M. Tenenbaum is founder and chairman of CommerceNet, a Palo Alto (California)-based consortium dedicated to transforming the Internet into a global electronic marketplace. He previously served as CEO of Enterprise Integration Technologies (EIT), an Internet R&D/consulting company that he founded in 1990, and sold to Verifone in 1995. Prior to forming EIT, Dr. Tenenbaum led artificial intelligence research groups at Schlumberger and SRI.

CommerceNet, launched in April 1994, has grown to include nearly 200 of the world's leading companies and organizations. It is acknowledged as the premier industry association for Internet commerce. For more information about CommerceNet, see http://www.commerce.net.

interviewed by Wm. Auckerman

The company you founded in 1990, Enterprise Integration Technologies, has been called "the company that made Internet commerce happen." Can you tell us a bit about EIT?

Jay M. Tenenbaum: In the late '80s, I had an epiphany about the Internet. I decided [working with the Internet] was the right thing to do, so I moved over to Stanford for a couple of years and tried to do it as an academic. But I soon discovered that things would take forever as an academic, so I started a company.

In 1993, EIT had all the technology that was needed in terms of security, and payment and collaboration - much more sophisticated stuff than anything on the market. We looked around for companies to license the technology to, and some people showed an interest, but basically no one cared about the Internet. No one!

Back then, it was a world of proprietary networks and online services. If you were a computer manufacturer and wanted a CompuServe forum, for example, you had to guarantee them $100,000 per year in connection time that they could collect from people coming to your forum.

But the Internet was different; it was open. We started CommerceNet, originally, as a business development activity of EIT. But we were smart enough to start it as a nonprofit industry association, and it has grown up along with the Internet.

The term "electronic commerce" seems to mean different things to different people. What is your own definition?

Tenenbaum: In the broad sense, I guess I've come to call it "digital commerce." What it's about is two things. Number one is breaking down boundaries - between companies, organizations, industries, countries.... Second is leveling the playing field between big and small players, well-capitalized and uncapitalized companies, buyers and sellers.

The Net has already had an impact on the way things are bought and sold, at least in the United States. Sellers had all the advantages before; now, the tables are turning. Fundamentally, electronic commerce is about using the incredible and unprecedented economies of two-way interactivity over the Net in order to enable business models that previously were unfeasible.

More prosaically, electronic commerce is not about buying and selling. It's about all of the information and processes that lead up to a sale. Everyone has been focusing on how you're going to get paid, but the actual sale itself is a very small piece of it.

What is the biggest issue facing electronic commerce today?

Tenenbaum: There are three encompassing issues: content, convenience, and confidence. Content means that you have to be able to find things on the Net that you want to buy. And there has to be a compelling value proposition as to why you would buy on the Net as opposed to some other place. The Net, at the moment, has some shortcomings in both of those areas, particularly in Japan.

Second is convenience; it has to be as easy to use as the telephone or a bank card. Housewives need to be able to go buy clothes or groceries on the Net. The current lack of interoperability is a real problem, in terms of payment as well as security.

Confidence means that people have to trust it, or they'll go elsewhere. They have to feel comfortable about the security, the privacy, who they can get their money back from....

What's the potential for Net-based EDI (electronic data interchange)?

Tenenbaum: I always thought that would be one of the first big applications. Yes, it's a viable proposition; there are absolutely compelling advantages to moving EDI to the Net. The fact that it's a lot cheaper and simpler to use Web-based EDI is just the starting point.

The real advantages are that the Web turns EDI from something between established suppliers to more of a marketplace. Traditional EDI is dead, basically; the Web is where it will be.

What effect have the US export controls on cryptography had on electronic commerce?

Tenenbaum: It's slowing things down a lot. It's certainly a pain for US software suppliers, because they have to make two versions. And it hurts sales overseas, because people don't want to buy a second-rate product. But I don't think it's the major inhibitor of the market at this point in time.

What about the issue of regulating Net-based commerce. For example, which locality's sales tax laws apply to a purchase?

Tenenbaum: This is a major, major issue, because on the Internet, there's no such thing as "place." It's everywhere. And transactions that span over the continent are routine. A seller here, a buyer there, a bank over there.

I give a lot of credit to the Clinton administration for putting together this Global Electronic Commerce framework. It's based on two principals, and I think they're the right ones. One is that there needs to be a global framework. The other is that the legal framework just sets the context; it shouldn't remove business risk. That's part of doing business, and it provides lots of opportunities for banks, insurance companies, credit card associations, and others in the business of selling risk-reduction services.

What is the potential for online advertising?

Tenenbaum: I think there is always going to be a market for niche advertising. But having said that, I would go further to say that the Net is fundamentally not about advertising. I think advertising, and now this new "push" technology, are passing fancies.

The Net is about two-way interactivity, and matching buyers and sellers on the basis of need. Online advertising has like a 3% hit rate at best, or a 1% hit rate. That's silly; that's not what the Net is for. Advertising will be a minor revenue model going forward. If anything, the Net will be about "reverse advertising." Buyers will say what they want, and go to the sites that cater to their needs.

CommerceNet's stated mission is "to accelerate the growth of Internet commerce and create business opportunities" for its members. How successful have you been?

Tenenbaum: I'll let you judge how successful we've been accelerating the growth of Internet commerce. Certainly CommerceNet doesn't claim credit for everything, but we do claim credit for the thing getting started. And that continues to happen in country after country. What we did in the United States in 1994 is repeating itself every month in another country as we roll out around the world.

As far as creating business opportunities for members, I think we're just beginning to see the potential. Our members around the world represent an unparalleled business development core. All of the members working together to push these global markets is where the real strength of CommerceNet will come from.

One of CommerceNet's "four synergistic goals" is "jumpstarting key vertical markets." Can you give an example of this in Japan?

Tenenbaum: We'll probably work with a number of Japanese companies in two areas. One is to create a mall of malls. MITI [the Ministry of International Trade and Industry] kind of set up this issue by funding all these parallel efforts that have developed incompatible payment and security measures. The issue now is how can we put these back together again, so that those malls are components in a bigger mall.

A second one probably will be in either electronics or auto parts, depending on what the climate is like. This is in the business-to-business phase; once we get some examples going, we'll continue to do more, working with the major industry associations. We'll do this an industry at a time; it's an opportunity to fundamentally reengineer an industry.

Since you mentioned MITI: The traditional rivalry between MITI and the MPT (Ministry of Posts and Telecommunications) has carried over into electronic commerce. I've heard that, since CommerceNet Japan in the past was regarded as an MPT ally, it gets little cooperation from MITI-allied organizations. Can you comment on this?

Tenenbaum: That problem is on the Japanese side, and I think it's very unfortunate. The Japanese are tremendously handicapping themselves in two self-destructive ways. Number one is what they've done in terms of how they've priced Internet access. If anything, that should be highly subsidized; then we'd see the stuff take off.

But secondly, Internet digital commerce absolutely cuts across all the traditional turfs. It's equal part Trade and Industry, Posts and Telecommunications, and Finance. And the fact that there are these three ministries acting like shoguns and unable to work together is absurd. I have heard that the prime minister has told them to work together, and they'd damn well better. That's a very serious issue.

CommerceNet certainly is the victim of such perception. What we try to tell them is that this is a neutral turf, where you guys can talk to each other and not feel all bad about it. If they can't do that, it's really unfortunate.

What is the long-term outlook for the Internet?

Tenenbaum: The Internet will continue to evolve in many directions, including technically. But I really would like to stress that the essence of the Internet is not any particular protocol, or anything technical like that. It is the principles that have been established, in terms of universal, very cheap access. These are the drivers.

Whatever it is that is going to connect the greatest number of computers and people in the most cost-effective and open way is, by definition, going to be the Internet. That's going to be the market of choice, and of interest, and the biggest one.

And what are the biggest problems to be solved?

Tenenbaum: We've got to fix the problem of finding things on the Internet. It's fundamentally broken that way. Solutions like the search engines, Yahoo and so forth, just aren't practical. You routinely get 50,000 hits. That needs to be fixed. And a lot of the interoperability issues that people are concerned about now need to be fixed. We've got to make things work together aggressively; it's not that hard, folks.

What about the infrastructure? Can the bandwidth keep up with the exponential growth of Internet use?

Tenenbaum: I do find that now I'm depending more on the Internet, I get increasingly frustrated. I try to get something, and the site is slow that day. People are going to be demanding a higher level of quality than we've had up to this point.

But to answer your question, yes; certainly the infrastructure will keep up. It's shown a remarkable ability to scale so far, and I think there are some fairly creative solutions on the drawing boards.

There's enough fiber, a lot of excess capacity. The issue is getting routers to be smarter about routing at the policy level, the business level, instead of the IP level.... You ain't seen nothin' yet.

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