January 18, 2000
FOREIGN AFFAIRS / By THOMAS L. FRIEDMAN
TheLandgrab.com
Just beyond the headlines about AOL merging with Time Warner and
the Internet retailers having a blowout Christmas, there is another,
more important land grab under way in cyberspace, which by the time it's
over could have an interesting impact on the global balance of power.
Let me put it to you this way: If you think the French and other
Europeans are annoyed with U.S. economic dominance today, wait until
they wake up and see the high ground that some key U.S. companies are
seizing in the business-to-business area of cyber-commerce. These
companies are creating the global exchanges that are going to mediate a
huge amount of industrial e-commerce in the next decade.
The closest thing to these exchanges the consumer would see is eBay --
the auction site, where individuals can buy or sell anything from their
basements. But imagine eBays for a whole set of industries, where goods
and services related to any aspect of that industry can be exchanged
between buyers and sellers.
For instance, you already have Metalsite.com and E-Steel.com, where
construction companies from anywhere in the world can put out their
steel needs to the lowest bidder. There is already E-Chemicals.com and
Chemdex.com for chemicals and life science products. And soon, no
doubt, e-rubber, e-plastics and e-cement.
In a world without walls, these global exchanges will be the shapers of
the rules, standards and technology by which a whole host of goods and
services will be bought, sold, auctioned and bartered. Thousands of
companies are already throwing away their catalogues and traditional
supplier relationships and plugging into these mega-exchanges, where
they will buy everything from paper to plastics. Because of America's
lead in this cyberspace land grab, these exchanges are being created
largely in the U.S.
"Most of this is still happening just below the horizon, and the numbers
are still relatively small, so people don't see it yet," said Joel Cawley,
director of corporate strategy for I.B.M. "But estimates are that these big
exchanges will mediate between 30 and 40 percent of industrial
e-commerce by 2004. Once they get on everyone's radar screen, it will
be too late. The winners will be established, and the cost of switching
from a key site, or starting up a new one, will be very high."
These online exchanges usually start out as spot markets, where excess
inventories are sold. But because of their efficiency, and potential to be
globalized, they are quickly evolving into worldwide market-makers.
Look at Enron. It has set up an online marketplace through which
companies all over the world are now able to buy and sell natural gas,
electricity, coal, plastics, pulp, paper and oil -- and, coming soon,
bandwidth. Bandwidth is the basic electronic pipe down which
companies send their Internet traffic. Through Enron's Pooling Point
Operators -- where ties between bandwidth buyers and sellers will be
established and monitored -- a school with excess bandwidth capacity
during the summer will be able to sell its surplus to a company with rising
bandwidth demand. Bandwidth deals that used to take months to close
will take seconds.
"We were the first to do this sort of thing for trading natural gas and
electricity," says Enron's C.E.O., Kenneth Lay, "but we think the
bandwidth market will be the biggest of all. It is now a $30 billion market
and in three years or so it should be $90 to $100 billion. And it will be
global. We are already operating in the U.S., and will soon be in Europe
and Asia."
The Internet economy runs on bandwidth, so if Enron's exchange works,
it could be the equivalent of discovering cyber-oil -- for Enron and for
the U.S.
"There are strong advantages to being the first mover in these sorts of
global markets," said Mr. Lay. "When you are first, you get scale very
quickly, and with that comes economies that lower your transaction
costs, and that gives you more liquidity and the ability to do more
complicated transactions than others. We will have competitors, I'm sure.
But it's pretty much a winner-take-all environment. The early entrants into
these markets will in large part determine how they are shaped. [And]
once an entity establishes a strong market position in this kind of global
market, it is awfully tough to overtake it."
Copyright 2000 The New York Times Company |
