A few years ago it was still possible to generalize about the impact of changes in technology, markets or regulation on information technology companies, such as telecommunications service providers, computer hardware manufacturers, and content suppliers.

No more. A variety of forces—the digital revolution, globalization, the trend in mergers and acquisition, and others—have combined to eliminate many of the bases for differentiating one firm from another in these traditional molds.

Firms in the technology sectors have responded to these forces in four ways:

The results are by now familiar: Equipment manufacturers have expanded into content and media production. Long distance telecommunications companies have expanded into local markets and vice versa. National companies have established a presence in foreign markets. Software companies have ventured into hardware and vice versa. Content companies are looking to become conduit providers and communications companies are expanding into program production and distribution. In short, the old schemes of classification are breaking down and are no longer of much use beyond explaining what has changed.

Recognizing the limitations of traditional classification, we have mapped core market functions into a pyramid whose segments are the building blocks of the information technology economy. These functions are the elements of economic activity that undergird electronic commerce development.

Summary Observations

• All companies, regardless of market segement, have an opportunity to use networking technology to (a) increase productivity and reduce costs by improving internal information transfers and (b) use network technologies to make improvements in managing the "supply chain" through which resources and intermediate products are obtained.
• Numerous business cases make clear that productivity gains, cost reductions and service improvements are universally available from intelligent application of network technology.
• Consumer electronics manufacturers are especially exposed to disintermediation effects on their distribution chains from continued growth and diversification of online commerce. For example, consumer electronics appear to have many of the necessary characteristics to qualify them as likely targets for future online sales. In the U.S., Internet retailers like 800.com, Buy.com, Cyberian Outpost, Netmarket and others have targeted the home electronics market.
• As impressive as growth of the Internet and e-commerce has been so far, the prospects are even greater as telecommunications networks expand to incorporate broadband capability. Telecommunications carriers are both threatened by and presented with opportunities from this dramatic increase in demand for network bandwidth. There is an element here of the old notion that supply creates its own demand, which is clearly beneficial for network and other infrastructure providers.
• Growth and diversification of the Internet and e-commerce provide both threats and opportunities for media and content providers as well. Any increase in the number of outlets or viewing options into the home will tend to increase the value of the limited stock of available content. The issue is who will capture the increased value. Content owners are protected by copyright, but traditional copyright enforcement has a tendency to break down when challenged by new technologies—such as copying machines, video and audio recorders and computers—that make it easy to replicate and distribute copyrighted material. So, while the value of content will be increased by the development of network technologies, whether and how current content owners and producers will capture that value is problematic.
• The provision of all kinds of financial services, including traditional banking will be dramatically transformed. The cost of doing a simple banking transaction has already been reduced by an order of magnitude with the progression from teller services, to automatic teller machines to online cash transfers. Virtual money, cybermoney, e-cash, smart cards, electronic wallets and other new terms of art give only a hint at how the development of network technologies and the Internet will eventually transform the financial services sector. Online securities trading has already grown enormously with the appearance of Charles Schwab and others. Online sales of insurance will likely be another fertile application for e-commerce.

These examples are only the beginning. What’s important to take away from them is that the application of e-commerce technologies and principles is affecting the way business is done in nearly every sector of the economy. Although not all businesses must become "e-businesses," networking and communications technologies are providing bottom-line benefits that are hard to ignore—on the supply side, the retail side and within organizations themselves.

Further, it appears that there will be a growing profitiablility gap between successful technology adopters and those who ignore technology or are unsuccessful at applying it to their business processes. Businesses must keep in mind that the benefits of e-commerce accrue only when applied correctly. Successful managers, therefore, will be those who appreciate both the opportunities and the pitfalls of new information economy for their specific businesses.

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