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Tech Industry

Trickle-down success stories

Even companies not usually identified with the Internet are learning quickly how to get their share of the Net bounty.

The Net's popularity has spurred a trickle-down effect in the computer industry, and even companies not usually identified with the Internet are learning quickly how to get their share.

Heavyweights such as Cisco Systems (CSCO), Computer Associates (CA), and Federal Express (FDX) have all implemented strategies for bringing in revenue with Web-based projects, from selling Internet services to setting up e-commerce sites.

CA and Federal Express, for example, are both adding a division that will provide Web site hosting to other companies--a move outside their core businesses that they expect to bring in substantial additional revenue. Cisco hasn't modified its business model for the Web, but it has focused a great deal of energy on promoting a new e-commerce site that sells Cisco's networking products over the Web to customers that would otherwise have been buying through a sales representative.

International Data Corporation analyst Michael Sullivan-Trainor says more companies--like Cisco, FedEx, and CA--will be looking for variations on Internet themes in order to bolster their business operations in the coming years. As they plow more investment into their own Internet infrastructures, they will seek ways to use their Internet prowess to create new profit centers. And this, Sullivan-Trainor says, will create a "cascading effect" that will increase business opportunities not only dependent on, but peripheral to, the Internet.

CA, a database and systems management stalwart, now hosts and manages Web sites. Federal Express has taken its core expertise in overnight shipping and woven that into an electronic commerce scheme that it expects to generate new and lucrative revenue streams for the company.

"There is no doubt that commerce at the end of 1996 is catching fire," said Steve Mann, CA's marketing director for its recently created NetHaven, a business unit, formed in August which offers Web site hosting, site management, and electronic commerce.

The division's benefits to CA are threefold. First, the division makes money by selling the services but it also gives CA a new channel for pushing its systems and network management software to customers trying to tie their Web-related administration to the rest of their network.

And it gives CA an opportunity to create and market brand new software. CA's NetHaven plans to roll out its NetCart software in January, which is designed to help businesses easily set up electronic commerce operations. NetCart will help existing Web sites add electronic catalogs and credit card processing features and will help customers change the look of their sites with different "themes."

FedEx has a slightly different take on its Web hosting business. It plans to offer BusinessLink software packages early next year that will help other companies create electronic product catalogs that the express carrier will host on its own servers. But since it isn't a traditional software developer, the overnight delivery company plans to make money by charging a transaction fee for every item ordered through its central Web site hosting facility.

Cisco meanwhile says it expects to generate record revenues next year from its Internet business-to-business commerce. In fact, Cisco recently projected that as much as 30 percent of its sales--or more than $1 billion in revenues--will come from customer transactions over the Internet by the end of the fiscal year.

Cisco's dedicated electronic commerce site, the Internetworking Product Center, generates over 100,000 transactions each month from 58,000 existing customers and new converts to Cisco's products, company officials said. The networking giant, stretched as it expands its sales and technical support staff fast enough to match its booming growth, is essentially turning to the Web for relief.

"The World Wide Web is ready for business today," said Chris Sinton, director of the company's Web site Cisco Connection Online. "The goal is not to automate ourselves but to improve our relations with customers and partners," Sinton said.

There's no way of proving that Cisco wouldn't sell as much without its Web site, but the company points out that the Net sales will save roughly $250 million in staff costs. The highly visible success of its online business also sends a message to Cisco's competitors that a new sales frontier is emerging.

Cisco is ahead elsewhere too: tapping into a less publicized but the extremely profitable business-to-business transaction market . Market researcher IDC projects that the entire e-commerce market, including sales to consumers-- will grow to $160 billion by the year 2000, but that business-to-business transactions will represent 95.6 percent of that pie. That's up from 81.5 percent of the existing market.