The new expanded enterprise

Why do the new generation of Web application companies face little competition from the incumbent enterprise resource planning (ERP) and client-server enterprise software companies from the last century?

These new companies have designed their products for the Internet, around real-time data. They are communication-centric rather than computation-centric. This is a fundamental shift in application design. The Internet is not easily grafted onto a client-server application--those "Web interfaces" are like lipstick on a pig. The new Internet-era companies have designed applications that reach throughout the enterprise and beyond. They engage customers, trading partners and suppliers in a broader communications web. The application is distributed across many desks and is woven into the fabric of the primary business activity: communication. Most business processes are fundamentally exercises in structured communication, from recruiting, to customer sales and support (Kana), to procurement and trade (Ariba). The modern Internet application organizes, enhances and adds automation to the structured communications of business. Therein lies its power.

Network connectivity drives the ideal application design. When a programmer thinks about how to partition an application between various computers, a critical factor is the network connectivity between machines. In the early days of networking, incompatible machines and poor connectivity were the precursors for "islands of automation" with batch communications. File sharing was manual; networks grew from the workgroup level; ubiquitous real-time access to ERP data was out of the question; and most employees looked at their computers as personal productivity tools with Word and Excel. The ERP companies designed applications with a focus on a functional department such as human resources or sales force automation. The computer boundaries between departments were steep.

With the intranet, a lingua franca between machines evolved that allowed for enterprise-wide applications. Suddenly all employees could use a purchasing application via Web browser access. Developers could envision a different application design, with different partitions of programming logic. Network computing, hosted applications and peer-to-peer clients emerged. Historical client-server topologies were no longer relevant. Oracle claims to have stopped client-server development altogether. Even if it's just a marketing claim, it is quite symbolic.

As you would expect, there is a swarm of private companies systematically reengineering the Web-resident deployment of every business activity. Here are a few examples:

In the field of financial planning, chief financial officers have traditionally used computation-centric, standalone applications from the accounting tradition. They were designed to meet statutory requirements for external reporting; they were not intended for real-time management decision-making in high-velocity businesses.

Closedloop Solutions is a company that has developed an Internet-age financial planning product. By breaking out of the CFO's office and connecting throughout the enterprise, Closedloop captures a continuous view of the financial environment by integrating feedback from front-line managers who are intimately aware of changing marketplace conditions. Updates to the budget and hiring plan can adjust in real time. Companies using the Closedloop product can simplify or eliminate entire business processes in the traditional financial planning, budgeting and financial control functions.

In resource scheduling, Xtime is like a "hosted Sabre system" for the booming service sector of the economy. Xtime provides a real-time communications network between a service company and its consumers, allowing them to easily book appointments and reservations via the Web or phone, 24/7. Xtime works for virtually any type of service, from brake jobs and doctors appointments to professional services consulting.

In supply-chain optimization, client-server companies such as i2 Technologies and Manugistics delivered centralized systems for optimizing inventory levels within a company. Saltare has developed a real-time supply-chain optimization system that runs throughout the supply-chain extranet. By sharing information more widely between companies, Saltare's distributed intercompany application enables a much larger economic gain in efficiency and inventory reduction.

What do these new companies have in common? They organize around real-time information, and they extend beyond a functional department to enhance communications across a diverse set of people.

An array of companies fit the pattern, including Tacit Knowledge Systems in employee "expertise"-discovery, SeeUthere.com in event planning and RSVP processing, WorkExchange Technologies in professional services (PSO) and consulting extranets, Magnifi in marketing partner communications, and ReleaseNow in distributed e-commerce for digital products.

There are several natural extensions of the new enterprise metaphor. The power of broad real-time communications extends to the wireless domain. Companies like Centerpost, Par3 Communications and Viafone are extending the customer relationship management (CRM) applications to cell phones, pagers and personal digital assistants (PDAs).

Most of these new applications can be launched as hosted services accessed through a browser. This allows for frequent invisible upgrades, access to external real-time data feeds, and easy use across all corporate desktops as well as remote "Webtops" at home and overseas. A hosted application also enables industry-level automation, such as buying consortiums, and best-practices benchmarking across companies.

When this is launched as a service, a new customer emerges: the small business. Small businesses will dominate the U.S. economy, yet today they are islands unto themselves. Before Web-hosted services, there was no good way to serve small business. They went neglected and served themselves from office stores. No direct sales force would call.

According to Cahners In-Stat Group, U.S. small businesses (under 100 employees) represent more than 98 percent of all employers. If the small businesses in America were a newly discovered economy, they would make up the third-largest GNP in the world.

So companies like Ariba set up Ariba Network Services to address the aggregate buying power of the small business. TouchScape offers CRM solutions that use the common product support needs of many small businesses. Athenahealth manages doctors offices as a service. eBenefits offers free HR services.

The missing link is the distribution channel to reach small business. Web service aggregators like DigitalWork.com are finally forging effective channels to reach small businesses over the Web.

The remotely managed desktop is a new channel to the small business. Everdream offers subscription computing to small businesses, solving their customer support pains today and serving as the channel for Web-launched services in the future. Today, small businesses rely on expensive computer consultants who are slow to fix problems. Partnered with Hewlett-Packard, Everdream makes the PC almost bulletproof with a controlled environment and network management over the Internet from Everdream headquarters. Computing becomes a "utility," and Everdream becomes the trusted brand and channel for small-business service providers.

With channels in place, small businesses can gain from the sophisticated services that used to require a direct sales force and a complex corporate installation. Procurement automation, marketing automation and sales force automation will finally be available. For the service providers, it is the modern equivalent of discovering El Dorado.