Sunday, February 4, 2007


In the brief annals of doing business on the Internet, Federal Express Corp.'s customer Web site has become a legendary success story. The package-delivery giant, which moves 2.4 million pieces every day, put up a server in November, 1994, on the World Wide Web that gave customers a direct window into FedEx' package-tracking database. By letting 12,000 customers per day click their way through Web pages to pinpoint their parcels--instead of asking a human operator to do it for them--FedEx was soon saving up to $2 million a year by some estimates.

``We saw the success of the package-tracking site and said, `Wow, I wonder what we could do on the inside?''' says Susan Goeldner, manager of Internet Technology for Federal Express. The answer: a lot. Today there are 60 Web sites running inside the company, most created for and by employees. Next, as part of a companywide Web push, FedEx is equipping its 30,000 office employees around the world with Web browsers so they will have access to a slew of new sites being set up inside the company's Memphis headquarters.

``FIRE WALLS.'' FedEx is not alone. After getting their feet wet with public Web sites that promote company products and services, corporations are seizing the Web as a swift way to streamline--even transform--their organizations. These private Nets, or ``intranets,'' use the infrastructure and standards of the Internet and the World Wide Web but are cordoned off from the public Internet through software programs known as ``fire walls'': Employees can venture out onto the Net, but unauthorized users can't come in.

The Web, it turns out, is an inexpensive yet powerful alternative to other forms of internal communications, including conventional computer setups. One of an intranet's most obvious virtues is its ability to slash the need for paper. Because Web browsers run on any type of computer, the same electronic information can be viewed by any employee. That means all sorts of documents--internal phone books, procedure manuals, training materials, requisition forms--can be converted to electronic form on the Web and constantly updated for almost nothing.

But intranets can do something far more important. By presenting information in the same way to every computer, they can do what computer and software makers have frequently promised but never actually delivered: pull all the computers, software, and databases that dot the corporate landscape into a single system that enables employees find information wherever it resides.

Universal reach, of course, is what made the Internet grow so rapidly in the first place. But Net enthusiasts tended to focus on how to link far-flung people and businesses. ``When the Internet caught on, people weren't looking at it as a way to run their businesses,'' says Tom Richardson, marketing manager of Digital Equipment Corp.'s Internet Business Group. ``But that is in fact what's happening.''

And it's happening with amazing speed. Just as the simple act of putting millions of computers around the world on speaking terms fomented the Internet revolution, connecting all the islands of information in a corporation via an intranet is sparking unprecedented collaboration. ``The intranet has broken down the walls within corporations,'' says Steven P. Jobs, CEO of NeXT Computer Inc.

From AT&T to Levi Strauss to 3M, hundreds of companies are putting together intranets. At Compaq Computer Corp., employees tap into a Web server to reallocate investments in their 401(k) plans. At Ford Motor Co., an intranet linking design centers in Asia, Europe, and the U.S. helped engineers craft the 1996 Taurus. Scientists working in fields such as genetics and biotechnology credit intranets with allowing them to share information with colleagues and quickly sift through volumes of data that might have taken days to find in the past.

Across the business world, employees from engineers to office workers are creating their own home pages and sharing details of their projects with the rest of the company. At National Semiconductor Corp., for instance, an engineer rigged a home page that lets his department schedule meetings online. ``It's like a thousand flowers blooming,'' says Frank Dietrich, corporate Web systems manager at Silicon Graphics Inc., whose 7,200 employees have access to 144,000 Web pages stored on 800 internal Web sites.

All this has not been lost on the software industry, which has been reinventing itself ever since the Internet and the World Wide Web hit. At first, software makers focused on Web browsers and other programs aimed at making the Web a consumer medium. But lately, with Net commerce getting off to a slow start, software makers are chasing a more immediate opportunity in helping corporate customers build intranets.

Market researcher Zona Research Inc. in Redwood City, Calif., predicts that sales of software to run intranet servers will shoot to more than $4 billion in 1997, from $476 million last year. In 1998, Zona says the figure will hit $8 billion, four times the size of the Internet server business. And that doesn't include all the applications packages, programming tools, and other pieces that go into intranets. No wonder Netscape, Sun Microsystems, Microsoft, IBM, Oracle, Computer Associates, and nearly everybody in the software business is rushing out intranet products. ``Intranets are huge,'' says Sun CEO Scott G. McNealy.

WAKE-UP CALL. They're tapping a ready market. Not only do corporations already have the networking infrastructure--and the money to actually pay for software--but they also crave technology that finally gets information out of the arcane world of databases into a format anyone can use (page 82). A survey by Forrester Research Inc. of 50 major corporations found that 16% have an intranet in place and 50% either plan to or are considering building one. ``People woke up one morning and realized they had all the pieces in place,'' says Paul D. Callahan, director of the researcher's network strategies service.

The intranet provides an opportunity for software makers to revitalize their businesses and another chance for companies that were left behind by previous techno-trends to get ahead. But it also poses a big threat to dozens of companies and products. Suddenly, the Web provides a simple way to do things that in the past required gobs of complex code and specialized programs. The first company to find this out was Lotus Development Corp., which has had to defend its Notes program--a powerful system for helping workers collaborate across networks--in the face of cheaper Web alternatives.

Notes may be just the first product to feel the squeeze. Companies such as SAP, the $1.9 billion German software maker, have risen to the top ranks of the industry with complicated programs to paper over the differences among computer systems. Now, at least in theory, the Web can do much the same job--faster and for a lot less. ``The question is, should we wait [for SAP] or do something with the Web?'' says Todd Carlson, chief information officer at Electronic Data Systems Corp., which has begun a two-year, multimillion-dollar deployment of enterprise software from SAP in Europe but is considering using the Web to get at some of the same data.

It's not just the cost of buying Notes or SAP's R/3 and paying programmers to customize and maintain it. The other factor tipping the scales toward the intranet approach is the cost of training. Not only has the Web's HTML (hypertext markup language) standard emerged as a universal electronic communications medium but it also serves as a standard user interface. By now, millions of PC users have become familiar with the drill: Click on a blue, highlighted word or a graphical button and jump to another Web page. To retrace your steps, simply click on an arrow at the top of the screen. All Web pages, no matter what their appearance, work this way. It requires little if any training--and makes finding electronic information simple enough for everyone in a company.

Another plus for intranets is the relatively low cost of ownership. Because the same basic programming can be used on lots of different kinds of hardware, corporations will need fewer programmers to write and maintain software.

Intranets, however, aren't the magic bullet for every software ill. Nothing on the Web can replace the complex business programs that have been refined over many years--yet. And companies may still opt for the unimpeachable security of conventional programs.

But software makers have seen the handwriting. As Lotus is doing, companies such as SAP are adapting their products for the Web--before Web upstarts begin to encroach. ``It will become increasingly important for SAP and others to `webize' their software,'' says J. Neil Weintraut, an analyst with Hambrecht & Quist. ``In five years, the term Web software will be redundant.''

For now, most intranet Web sites are used for basic information sharing: publishing job listings, benefits information, and phone directories, for example. Some of these simple information-sharing setups already provide strategic advantage, though. Cap Gemini's Knowledge Galaxy is a giant repository of technical information that helps the consulting firm respond more quickly to customers, for example (page 83).

More sophisticated intranets are coming. They will let employees fill out electronic forms, query corporate databases, or hold virtual conferences over private Webs. Corporate information systems managers are ``just now seeing [the Web] as the next step in application development and distribution,'' says Greg Sherwood, National Semiconductor's Web coordinator and chairman of the chipmaker's World Wide Web council.

For a taste of the future, check out Silicon Graphics. The maker of high-end graphics workstations began using the Web internally almost as soon as Mosaic, the original Web browser, was born. The company started out with the basics--publishing information electronically and making it available to employees at the company's Mountain View (Calif.) headquarters and around the world. Today, says Dietrich, ``there's barely a piece of information that's not online.''

But Silicon Graphics didn't stop there. Using its intranet, dubbed Silicon Junction, the company today accomplishes such feats as making accessible more than two dozen corporate databases that employees can traverse by clicking on bright-blue hyperlinks. Previously, to get the same information, an employee had to submit a request to a staff of specially trained experts who then would extract the requested data from the company's databases--a process that could take several days.

SGI also regularly sends video and audio feeds to employees around the world on the Net. When President Clinton visited SGI's headquarters in February, 1993, employees around the world tuned in via the intranet. ``We're using the Web to expand the horizons of all of our employees,'' says Dietrich.

Most people don't work at a place where they put an $5,000-plus workstation on every desk. But the same capabilities that Silicon Graphics employees enjoy now are coming to ordinary desktop PCs.

The challenge--and opportunity--for the software industry is to come up with programs and Web-development tools to make such sophisticated intranet applications possible at all sorts of companies. The first requirement: ``tools'' that make it possible for anyone to create Web content. The HTML format, the lingua franca of the Web, can be clunky. So software makers are flooding the market with programming packages that mask the complexities of HTML. The market for Web-authoring tools was just $2 million last year. It will hit $300 million by the end of the decade, predicts Hambrecht & Quist.

THE NEXT STEP. Electronic publishing pioneer Adobe Systems has sold more than 30,000 copies of PageMill, an HTML-authoring tool, since December. Microsoft has given away thousands of copies of Internet Assistant, a program that converts Word documents to HTML, and is readying an update to Microsoft Office with built-in HTML authoring. On Jan. 16, it acquired Vermeer Technologies Inc., a startup that makes easy-to-use Web tools, for an estimated $130 million.

The next step is software to take the Web beyond static pages. Today, most pages contain canned information that can be viewed but not manipulated. With the right programming, however, a page can become interactive--an easy-to-use, fill-in-the-blank system for database queries, for example.

Some leading-edge companies, including SGI, Federal Express, and EDS, have already built such setups. But they had to hand-code the database links in an esoteric language called ``perl.'' Software makers are now coming up with programs that will make it much easier to assemble custom Web applications that can work with existing systems. Steve Jobs's NeXT, for example, has a new line of programs called WebObjects, which can crank out custom Web pages on the fly. That's helping companies such as DreamWorks SKG quickly get intranets up and running. Computer Associates International Inc., the $3 billion supplier of systems software, has a program called Jasmine that, like NeXT's WebObjects, uses object-oriented software to create custom Web applications.

In terms of Web buzz, nothing tops Java, the promising programming language developed at Sun Microsystems. Java provides a way of writing small software ``applets'' that can be zapped across the Net to do little tasks such as calculating an expense report or displaying fresh stock prices. Companies including Borland International and Symantec Inc. are coming out with development ``environments'' for Java. Sun itself is drafting extensions to the programming language that enable Java programs to fetch data from corporate databases, making it suitable for all sorts of corporate applications, says Alan Baratz, president of Sun's JavaSoft unit.

Because of their sealed borders, intranets are ideal for testing the idea of electronic distribution of software--Java applets or updates of entire programs. Many companies are already putting applets and other bits of software on internal Web sites so they can be shared by programmers. At Hewlett-Packard Co., software writers now check what's in a ``software vending machine'' before writing new code.

Not surprisingly, the intranet is a magnet for startups. Much of the entrepreneurial energy is focused on meshing Web systems with existing systems. Spider Technologies has a program that lets companies graphically link their databases with Web sites. Maximum Information Inc.'s WebC family of programs help corporate software developers integrate Web systems into existing computer setups. Another newcomer, HAHT Software Inc., makes a development tool called HAHTSITE for Web systems that can pull information from corporate databases. And Edify Corp. and BusinessWeb both aim to link companies' business applications, such as customer service or sales, with the Web.

The Web is still not suited for ``mission-critical'' applications such as order processing or accounting. But in the high-speed world of Internet development, that may not be true for long. Gradient Technologies Inc. in Marlboro, Mass., and WayFarer Communications in Mountain View, Calif., are two startups working on that challenge. The basic problem, says WayFarer CEO Edward Colby, is that Web servers weren't designed for high-speed transactions, things like getting a credit authorization. WayFarer's QuickServer uses its own messaging protocol to speed up transactions (basically messages between databases) and juggle high-volume database requests.

When the fledgling software companies talk of mission-critical computers, they're aiming at the entrenched home markets of the giants: IBM, Sun, Digital Equipment, and Microsoft. For now, at least, the odds are heavily in favor of the incumbents. Consumers surfing the Web may gamble on the latest software they can download. But corporations want to know that they're getting their intranet technology from someone they can trust. John Whiteside, head of IBM's Global Network, hopes to translate that sentiment into a billion dollars in business this year. ``Every single one of our customers is asking for something in terms of an intranet,'' he says.

Companies such as Oracle and Sybase Inc., which make powerful database systems--the lifeblood of a corporation--are also well-positioned. Sybase is testing a program called Web.SQL, which links Web servers with databases from Sybase and others, and Oracle is set to release new server and database programs for the Web.

Longstanding customer relationships give the big guys a foot in the door, but they have to deliver the goods, too. That's why Microsoft is now focusing all its energies there--especially on the intranet segment, where it needs to succeed to hold on to its lead in operating systems and applications. Declaring in December that ``the sleeping giant has awakened,'' Microsoft executives unveiled a broad Internet effort.

This month, Microsoft made a splashy entry into the market for Web-server software, the basic programs for intranets. Until now, the Web software market has operated on a novel formula: Companies charge little or nothing for the basic browser program and make up the difference by charging full fare for server programs. Microsoft, however, is giving away both its Internet Information Server program and its browser on the Net. The server software will also be bundled at no extra cost with Microsoft's Windows NT operating system. Dozens of computer makers, including Compaq, HP, and Digital Equipment, plan to ship the software with their servers. ``Basically, we're gonna drop this thing from airplanes,'' says James E. Allchin, senior vice-president of Microsoft's Business Systems Div.

The carpet-bombing could quickly turn Microsoft from an Internet laggard to an Internet leader. After two years, Windows NT has become a leading operating system for the kind of small-scale servers used on local-area networks. Now, those machines are likely to become intranet servers, too. In addition to basic Web server software, Microsoft's free Internet Information Server includes security features and the ability to connect to corporate databases.

That has sent an alarm across the industry. Microsoft's tactics--it is building Web capabilities into all of its programs--could really shake up the Web software market just as companies are starting to make money. ``Microsoft has spoiled the party,'' says Forrester Research's Callahan. The decision to give away the Web server ``was a masterstroke'' and ``a crushing blow'' to rivals, he says. Microsoft insists that building in the server program is not sinister but part of the natural evolution of operating-system software. ``We view it as a native part of the [operating system],'' says Allchin.

Still, Microsoft's Net plans have raised the interest of the Justice Dept. As part of an ongoing investigation into the company's business practices, Justice lawyers are looking into Microsoft's acquisition of Vermeer. ``We're quite confident they'll realize there is no issue there,'' says Pete Higgins, a Microsoft group vice-president.

Who will be hurt by Microsoft's Net push? Netscape, which charges a few hundred to a few thousand dollars for server programs, is the obvious target. The company's stock sank $4, or 6%, on Microsoft's Feb. 12 announcement. But Netscape is not as dependent on server sales as it had expected to be. To build intranets, companies are installing thousands of copies of the Netscape Navigator browser--and paying for them so they get customer service. And because Navigator is the de facto standard, analysts expect strong sales to continue, despite Microsoft's browser giveaway.

Netscape shrugs off the challenge from the north. ``It has not impacted our sales,'' says co-founder Marc Andreessen. Still, Netscape is running as fast as it can. It is rushing out new versions of its Web-server programs--with new pricing--next month. And the latest update of Navigator adds features such as ``frames,'' a Windows-like way to display multiple pages on a screen, E-mail, and built-in security to validate a user's identity. It also includes a scheme for plugging in companion programs, such as Adobe's Acrobat document viewer and Progressive Network's audio player, to round out the browser's features.

A HORSE RACE. At the same time, Netscape is pushing into new areas that will appeal to the intranet crowd. Last September, it bought Collabra, a maker of groupware programs that have some, but not all, of the capabilities of Lotus Notes. And on Jan. 31, Netscape said it would acquire InSoft Inc. for around $160 million. InSoft's technology enables teams to collaborate via audio and video over the Net and will lay the foundation for Netscape's LiveMedia, an industry-supported framework for delivering real-time, multimedia services over the Web.

Can Netscape keep ahead when dozens of startups, Microsoft, and everybody else in the business is on its heels? Maybe not. But it certainly makes an enjoyable spectacle for corporations planning their futures around intranets: Hundreds of rivals striving to come up with better Web software can only make those intranets come to life sooner. As the man said: Let a thousand flowers bloom.