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E-commerce coming attractions

Analyst Jerry Michalski calls 1998 "the year of the platform," but for e-commerce, it will be both "the year of the bank" and "the year of consolidation." Also expect the continuing saga of Web publishers seeking the right revenue models to make this Internet space profitable.

Analyst Jerry Michalski calls 1998 "the year of the platform," but for e-commerce, it will be both "the year of the bank" and "the year of consolidation." Also expect the continuing saga of Web publishers seeking the right revenue models to make this Internet space profitable.

Michalski, who plays second fiddle at EDVenture Holdings to industry luminary Esther Dyson, argues that Microsoft's control of the computing platform is thrown into question by three converging conflicts: Justice Department vs. Microsoft on antitrust, Sun vs. Microsoft on Java, and Netscape vs. Microsoft on browsers.

Microsoft's strife next year will tell us much about whether its hegemony will last, but it won't decide the issue. Here's what lies ahead:

  • Microsoft: Addicted to hardball tactics, intransigent Microsoft will anger the federal judiciary and get slapped with a big fine. It will blame the legal battle for delaying Windows 98, but nobody will believe it. Internet Explorer will nibble away at Netscape's share of the browser market. Torpedoing Java will work with Windows developers, but in-house corporate developers still will embrace Java as glue for legacy software. Faced with heat from bankers, Microsoft will scuttle MSFDC, its online bill-presentment venture in concert with First Data Corporation.

    Year of the bank

  • Online billing: The buzz around bill presentment--which means utilities, credit card firms, and others post customer bills on Web sites--will intensify. Banks get in, MSFDC gets out, and CyberCash seeks salvation with individual bill-sending firms that want customers coming to their site, not a bank's.

  • Banks brands: Smaller banks will lose ground in Net-based financial services to big banks, software companies, and online specialists. Winners will include Microsoft, Intuit, Wells Fargo, Nationsbank, Chase Manhattan, Citicorp, Fidelity, and online brokerage E*Trade. Stodgy or regional players without a clue, a head start, or capital will suffer.

  • Digital IDs: Banks will emerge as trusted issuers of electronic identity cards, starting with the special IDs needed for doing secure credit card transactions. Since digital certificates for e-commerce and secure email require checking up on your counterpart, a new category of "ID directories" will emerge.

    Year of consolidation

  • ISP/telco: The big dog, AT&T, is back in the hunt, and high-service EarthLink Network looks like a wise buy for a telco still struggling to get to the Net. A mega-merger involving Baby Bells or GTE is a sure bet. Don't be surprised if Verio, which spent '97 rolling up regional ISPs into a national brand for a 1998 IPO, goes instead to a Sprint-like telco that needs somebody to play with--fast.

  • Net payments: If VeriFone wasn't too big to buy last year, small e-cash players such as CyberCash, Digicash, and First Virtual Holdings are buyout bait. The slow rollout of the Secure Electronic Transactions protocol for online card purchases will make small SET vendors with dwindling cash listen to suitors.

  • Security: The merger craze that began in late 1997 will pick up steam. Firewall firms, which looked like buyers a year ago, are on every shopping list. So are virtual private network firms with better technology than market reach. Look for networking giants 3Com and Cisco as buyers with security and network management markets converging. Even Network Associates, the result of a merger between McAfee and Network General, might be pursued.

    The Revenue Saga

  • Subscriptions: With too much content and not enough ads, content players will look anew to subscriptions, a model proven by the porn sites and the Wall Street Journal. Microsoft's Slate e-zine and other brand-name sites might go sub, but it won't work for everyone.

  • Online purchasing: This hot idea of 1997--automating routine corporate purchases by moving them online--will turn into a real business by year's end, but vendors in this category won't see big dollars until 1999.

  • Online aggregators: Online malls, proven a bad idea in 1997, won't bounce back, but niche business marketplaces for specific industries or types of products will emerge. Consumers will realize that Excite or Yahoo, though handy starting points for shopping, are too tied up in sweetheart deals with specific booksellers and CD stores to point to the best bargains. Commerce-specific search sites, comparison shopping services, and shopping agents will take hold.

  • Affiliates: Pioneered by Amazon.com, affiliate programs will send e-commerce revenue to sites without stores. These no-brainer deals give sites a piece of the action for any sales they refer to an online storefront. These will boost "community" sites such as GeoCities, still searching for an economic model to support building virtual circles of friends among people who share a common interest.

  • Commerce service providers: Merchants will flock to phone companies and ISPs that offer turnkey services to host Web storefronts as CSPs.

    Year of government?

  • The feds: Uncle Sam will emerge as a key adopter of e-commerce, taking bids, paying contractors and benefits online, and expanding smart-card trials. The U.S. Postal Service will finally start issuing digital IDs. Behind the push: common sense and Veep Al Gore's presidential bid in 2000.

  • U.S. policy: After unexpected restraint in 1997, the politicians and bureaucrats will meddle more intensely in Internet commerce. Look for online privacy laws, state and local Net taxes, new Internet censorship efforts, and botched telco deregulation. But the worst initiatives will be turned back. The best news: by year's end, a compromise on encryption exports will take shape.

  • Global activities: Copyright issues, hugely important for content companies, will remain bogged down. Asia's continuing financial crisis will slow momentum behind e-commerce. Euro currency conversion and unification efforts will distract Europe.

    Other

  • Intrusion detection: Monitoring networks to be sure bad guys don't go where they're not supposed to will be the hottest game in Internet security. Services from IBM and Perot Systems as well as intrusion device manufacturers such as Internet Security Systems and WheelGroup will gain ground.

  • Year 2000: Technologically backward companies will be squeezed by adapting legacy software to make sure it won't crash on January 1, 2000, giving tech-savvy companies a big advantage in e-commerce. Instead of devoting resources to combing software code for "00," companies that have already tackled Y2K can pour cash and staff into online sales, automated purchasing, and customer service.

  • Back-end integration: Systems integrators with e-commerce specialties will make big bucks linking large Internet catalogs to merchants' existing order, fulfillment, billing, and marketing systems.

  • Leftovers: Among my failed predictions for 1997 were broader use of electronic data interchange (EDI), smart cards, and copyright protection systems for "rights management." Be patient--1998 is still too soon. But not for Internet ad networks.

    See you next December to tally the score.

    As an aside: Michalski got top billing in my annual predictions about the year ahead because he was among the analysts who helped shape this column. But neither he nor others consulted are responsible for how this column twists their thoughts. Blameless thanks to Erica Ruguilles of Giga Information Systems, Scott Smith of Current Analysis, Mildred Wulff of Jupiter Communications, and Vernon Keenan of Zona Research.