CTEA CONVERGENCE 2000
OCTOBER 17, 2000
"THE TRANSFORMATION ACCELERATES"
© Copyright 2000 Hewlett-Packard Development Company, L.P
All rights reserved. Do not use without written permission from HP.
Thank you and good morning.
Detroit is a great place to spend a couple of days thinking
about the Internet transformation and delivering on technology's
promise. This city and its founding industrialists transformed
our economy and our lives.
Henry Ford, by use of the assembly line, and Alfred Sloan,
with his management methods, invented modern industrial production
and modern corporate structure. And Walter Chrysler showed
that if you could build technological innovations, like four
wheel brakes and six cylinder engines, for a mass market,
you could walk off with a big chunk of that market.
And Detroit the city, after some glitches in the 1980s,
is today the capital of the world auto industry - again.
But this city and this industry have also looked into the
abyss. We all know what's it's like to be on the wrong side
of a revolution. And I would guess there are people in this
room, just as in boardrooms and newsrooms around the world,
who were still skeptical about the Internet five years - even
three years - ago. They were still skeptical about e-commerce.
They were still skeptical that things were really being transformed.
I don't think there are any doubters left - at least, not
among those of us who work for a living.
What I call the Digital Renaissance is the biggest event,
the biggest transformation, the biggest challenge that any
of us have ever encountered.
It's also the biggest opportunity, especially for industries
like this one - an industry that's demonstrated that you really
"get" the revolution that's underway.
For an industry with such deep roots in the industrial age
and truly big iron, no industry has gone as far in wiring
itself inside and out and harnessing the value of the Internet
age as this industry. I salute you for that.
What you've already learned and done as you've worked to
become e-businesses will be of great value in the next phase
of the Internet transformation.
Beyond that, I believe that, in partnership with IT and
electronics companies who really get this next phase, you
can create a geometric expansion of value wrapped around automobiles.
This morning, I'd like to look a little more closely at
how much you've already been transformed. If I tell you what
you already know, forgive me. But it's a good starting place
for us to jump to the next level of transformation.
Then I'd like to show how the real promise and power for
business in the next Internet era lies in capitalizing on
the convergence of e-services, information appliances and
always-on Internet infrastructure.
And I'd like to show how all of us will need to capitalize
on this convergence, or intersection, to transform the customer
experience, to transform the value creation process, and to
transform entire industries in order to stay competitive.
THE AUTO TRANSFORMATION...SO FAR
But first, where are you guys now?
Like those of us in the technology business and everywhere
else, you're halfway into the new world. For example, you
know a lot of the old rules don't apply any more. You know
things like push marketing, trying to do everything under
one roof, even the old distinctions between companies and
industries, are going away.
Nowadays you stay awake pondering things like: Am I really
a vehicle manufacturing company? Or the builder of motorized
wireless bases? Or the creator of mobile consumer services
platforms? Or a global brand owner and aggregator?
And like us technology folk when we go to a trade show,
you're looking at all the other people in the room you used
to consider your enemy. And you're thinking strange thoughts
like: Are they still my enemies, or my partners? It depends
on which time of day.
And you're thinking: Where does my organization stop and
our suppliers start? And on the customer end, you're thinking:
How far out into the dealer and service world do we go, since
by tradition or by law, we've never sold directly to the customer?
The answers a lot of you are coming to is that while your
direct ownership covers a smaller chunk of physical assets
- the idea, the vision, the process of creating Chrysler or
Toyota or BMW, or HP - creating and building any global brand
reaches everywhere now. But the physical tools, the hard infrastructure,
the number of people, even the amount of capital you need
is going down.
Before we go any further, maybe we need to deconstruct the
transformation we've already undergone - a little group therapy,
in case there are still any doubters.
First, customers and markets rule. "Push" marketing is doomed.
"Pull" marketing is the only game. End of discussion.
Second, in the Internet economy, knowledge assets also rule.
Physical assets are of secondary value.
Third, brand ownership is central to everything else. In
the always-on Internet economy, everything coalesces around
Fourth, the stand-alone product era is over. The new game
is products wrapped in services. In the new world, everything
will be intelligent, everything will be connected and literally
everything can be considered as a platform for the delivery
And last, companies and markets no longer run only vertically,
or in parallel, or fit in compartments, or operate like machines.
Everything spills over into everything else, functioning more
like a living organism in an ecosystem of other organisms.
I also know that, to varying degrees, you are already walking
this talk. You've been preparing - and in many cases, using
- the Internet to reinvent yourselves from top to bottom.
You've been using the Internet to better serve and commune
with the customer. DaimlerChrysler's consumer Web sites allow
shoppers to configure vehicles online and search dealer inventories
for vehicles. GM is preparing to tap the Web to harness its
70 million U.S. car owners, while GMAC looks at selling home
mortgages. Ford's new Volvo S60 is being launched totally
online, with no TV ads and no national print campaign. Toyota's
Gazoo site is not only referring customers to dealers, it's
also selling them CDs and books and linking to other vendors.
You are well into using the Internet to transform the value
creation process. You are already practicing what I just preached
about products as platforms for services. Vehicles are or
will be the platforms for new electronic services, many of
them Web-based, like navigation, autopilot, night vision,
voice control, ordering ahead from restaurants, instant stock
quotes, entertainment on demand.
You've been using the Internet to speed up and streamline
your processes and slim down your costs. Supply chain and
inventory management, spreading best practices, simplifying
back office stuff - you've done it all. You're helping dealers,
too, on things like service - even linking dealer mechanics
with engineers at the factory to handle really tough questions.
You've been using it to empower and energize your employees.
Ford recently offered its 400,000-plus employees PCs for home
use at $5 per month. I think we had something to do with that
deal. And in other industries, Intel, The New York Times,
Delta and American Airlines are all doing the same thing.
You've been using the Internet to create new products and
to find new markets and to build greater share value. Your
designers and engineers all over the world are connecting
online to fix, to brainstorm, to invent.
You've even been using the Internet to explore how you can
be better corporate citizens and better stewards of the land,
oceans and air.
That's where you are, in a nutshell. But where are you going?
Where are we all headed, in this next, very exciting wave
of the Internet revolution?
THE NEXT WAVE
The next wave of Internet transformation is probably going to
go faster and deeper than what we've just lived through. Take
a deep breath, and fasten your seat belts.
The very structure of all our companies is going to change.
What exact form they will take is yet to be determined. A
number of ideas are floating around. If you want one interesting
road map, John Hagel III and Marc Singer of McKinsey argue
that traditional corporations will have to go through a trial
by fire to survive and succeed. They call this process "unbundling
First, they say, traditional corporations will have to decide
if they are a customer relationship company, a product innovation
company or an infrastructure/administrative company.
Then, once they decide what they are, they will have to
focus on that one core function and get rid of the other two.
Spin them off. Outsource them.
I don't think it's quite that simple. At HP, while I'm always
looking for efficiencies on the admin side, to the point of
renting and outsourcing to get there, I don't know that I
want to choose between pleasing customers or inventing great
The reason I bring this up is to show the trend. The trend
is that the structures we all grew up with (if we're over
40), the structures that Alfred Sloan and Peter Drucker formalized,
are in question again. Unbundling is a good word, if only
to show that the old, rigid relationships will all be in question.
So on one level, on the formal level, we will be unbundling
the little micro-universes that once defined a corporation.
The Internet is speeding this along. But this unbundling doesn't
It just means the redefinition of relationships necessary
to invent products and please customers.
After the pain and unbundling caused by the end of the Industrial
Age, the next wave of the Internet transformation means a
reconnection of a much larger system of players - customers,
partners, brand-owners, engineers, marketers, manufacturers,
financiers - in shifting, highly efficient, highly flexible
networks, or rather, ecosystems.
That's what the next wave looks like at the structural level.
But let's go down to the product and service level. What is
this next wave all about?
At HP, we describe it as the coming era of e-services.
THE NEXT AGE OF E-SERVICES
We at HP started the discussion about Internet-based services
- e-services - more than a year ago.
To refresh your memory, e-services are any process, any
application, any asset that can be digitized and delivered
over the Web. Believe me, if it can be digitized, it will
be. This means services interacting with other services -
dynamically, on-the-fly. Whole chains of transactions will
be electronically brokered, behind-the-scenes, while you do
better things with your time.
To make this happen, we'll need an always-on infrastructure
reliable enough to support this relentless flood of transactions
- an Internet-based infrastructure as available and reliable
as water, as pervasive as the air we breathe.
And we'll be using millions of new information appliances.
Basically anything with a chip will become a platform for
the delivery of services - and an opportunity to serve customers,
to drive revenue streams, to fuel growth. Not just smart phones
and PDAs - smart eyeglasses, smart refrigerators, smart medicines.
This world is clearly emerging.
Take mobility. Digital mobility is a key component of my
industry's future. It's the bedrock of your industry's future.
Just as you revolutionized physical mobility almost a century
ago, before my industry even existed, together we're going
to bring physical and digital freedom together, for everybody's
And look at the market opportunity:
U.S. commuters spend an average of 1.5 hours per day in
the car (San Jose Mercury News) - talk about a captive market.
Consumers will spend $24 billion for car-based mobile services
by 2005 (UBS Warburg).
As a taste of what's ahead, just look at the market for
mobile services delivered over cell phones now taking shape
in Europe and Asia.
In the work we've been doing through our HP mobile e-services
bazaars in Finland and Singapore, we've played a role in inventing
the first generation of mobile services. Things like:
All of these services represent huge revenue opportunities:
SMS text messages alone now represent about 8 percent of total
mobile revenues in Europe -- roughly $10 billion -- and that
figure is growing exponentially. As for the potential market
for vehicle-based mobile services, I've seen numbers from the
tens to the hundreds of billions of dollars.
- Transactional services - such as banking and travel reservations
- Information services - particularly sports scores and
- Search services - think of yellow pages and translation
- Entertainment services - like custom ringers and games
- Personal services - for calendaring or your address book
- Communications services - like SMS and mail
And the mobile market is just one of the more interesting
Internet landscapes. There's the B2B Internet. The B2C Internet.
The broadband Internet. And the nascent embedded Internet,
where millions of everyday objects become wired and smart,
doing everyday things for us while we do more important things.
At the consumer, individual level, we see a world where
digital services - the pervasive information utility HP envisioned
20 years ago - is real. It's no longer mechanical and forced
and overcomplicated: no more keyboards, no more incompatibilities,
no more language barriers, no more high priests of IT holding
the secret keys.
Put another way, we see a world where the three emerging
forces of e-services, information appliances and always-on
infrastructure are deeply woven into the fabric of our daily
And we also see a marvelous opportunity to leverage the
intersection of those three forces to transform business.
Let me talk a moment about that opportunity, and what it means
for all of us.
LEVERAGING THE INTERSECTION
Through leveraging the intersection of information appliances,
always-on infrastructure and e-services, I believe that we truly
have the power to transform business -- not just automate it.
E-commerce was about front-end automation, and e-business
was about back-end automation. But now, leveraging the intersection
of the three emerging forces is about having technology fundamentally
change the way you CAN do business. It opens up a whole new
universe of methods and strategies.
We see this business transformation power falling into three
Let's talk first about transforming the customer experience.
- transforming the customer experience
- transforming the value-creation process
- transforming entire industries
TRANSFORMING THE CUSTOMER EXPERIENCE
What if you could reach your customers in totally new ways,
wherever they were?
What if you could respond to their needs instantly?
What if you could change the customer experience, making
it more convenient, more valuable, more integrated with the
way customers do things?
What if you could extend the customer experience beyond
the traditional boundaries of interaction?
The Internet is the greatest customer relations tool to
come along since the invention of the telephone.
Think about it in the context of buying a car. Everybody
in this audience is in a race to turn cars into mobile portals.
Customized news and email services delivered to your car.
Satellite navigation systems that provide warnings about upcoming
road hazards, changing weather conditions or nearby gas stations.
MP3-based entertainment systems.
And voice control, stability control, even autopilots. It's
all for sale or in the works.
Wingcast and OnStar are Ford and GM's efforts to develop
and deliver a slew of new technologies and services aimed
at transforming the experience of driving a car and in so
doing, creating a whole new set of revenue streams for both
companies. In fact, the telematics market we're describing
here is expected to be about $42 billion by 2010.
Now, let's bring this a little closer to where I work.
At HP, we're turning printers into smart Internet appliances.
Thanks to stamps.com, your printer is now your local post
office. No more standing in line to buy postage.
Thanks to encryptix.com, your printer is now a ticket office
for movies, for sporting events, for the theater. No more
standing in line to buy tickets, because you can print them
Through our partnerships with AT&T and Excite@home, you'll
soon be able to print coupons to buy detergent while you're
You'll be able to walk up to an HP printer with your cell
phone and print your email messages or your customer presentation.
All of this requires new technology - HP intellectual property
- in both the printers and the underlying infrastructure.
Of course, our goal in all of this is to differentiate our
printer franchise and create brand new revenue streams by
transforming the experience we offer customers.
By the way, when you transform the role of printers in this
way, by focusing on the relationship between e-services and
appliances and infrastructure, the potential addressable market
opportunity expands from $40 billion to $100 billion.
But we're playing in the automotive space, too. Our vision
of embedded computing is backed by a strong solution suite,
and some done deals. For example, we've signed a seven-year,
multimillion dollar agreement with Delphi to embed our HP
Chai virtual machine for Java applications and Chai graphics
display software in a Delphi mobile multimedia product now
in development. Delphi picked Chai because of its speed, small
footprint and strong support environment.
As for making e-services real, true services-based computing
requires capabilities and technologies beyond today's Internet
server-based computing model, like security approaches that
enable truly safe interactions between anonymous devices and
systems, or the ability for Internet resources and services
to advertise and locate one another to complete a task or
a transaction, or the ability to manage multiple interactions
between services simultaneously.
HP's e-speak technology is already doing a lot to address
E-speak - today - enables the automated discovery AND interaction
between Web services. It actually delivers capabilities significantly
beyond those that generated so much hype in the recent Universal
Description, Discovery and Integration (UDDI) standard announced
by Microsoft, IBM and Ariba.
And e-speak is already proving its value. Hitel, a subsidiary
of Korea Telecom and the country's leading ISP, is using the
e-speak platform to establish an e-gaming portal that dynamically
links game houses and players in real time.
SpinCircuit is a new Internet gateway that bridges the gap
between electronics designers and the supply chain network.
E-speak actively links all the steps in the chain, allowing
design engineers to communicate and collaborate directly with
component suppliers and other key supply chain participants
during the design process.
Bodhtree Consulting in India is building a portal called
wetheFuture.com that links students and industry. Using e-speak,
the portal will link a student who wants to take a PC repair
course from somebody with 10 years experience and a course
in English Lit from a Harvard professor at specific times,
only on certain days, and will automatically discover the
right matches, negotiate on his behalf, compose the courses,
deliver them to the student and bill him.
TRANSFORMING THE VALUE-CREATION PROCESS
Now let's move to transforming value-creation.
Though still more promise than proof, collaborative trading
communities and exchanges have the potential to wring all
of the efficiencies out of manufacturing and supply chain
management processes by creating perfect markets. Markets
where everything happens in real time and response times are
zero. Where information flows freely so that all participants
have access to the information they need. Where ALL goods
and services are traded, creating a spot market for everything.
At HP, we've participated in online auctions to sell off
excess inventory and buy parts in short supply. In this process,
we've been able to trim our inventory costs by 30%, which
translates into better margins and higher profits. We free
up working capital that can then be poured back into R&D and
product development, which improves the value creation process.
So we know from experience that participating in and mastering
this new supply chain management model will transform the
way companies create and deliver value.
Just last week, Jupiter predicted that the online B2B market
would grow to $6.3 trillion by 2004 - that 80% of business-to-business
transactions will be conducted online in 6-8 years.
Covisint - your auto material trading exchange - will be
the biggest online trading exchange in the world, at least
initially. Congratulations on the FTC approval.
For our part, we've partnered with 15 of the world's leading
IT companies in creating what we hope will eventually become
the globe's largest e-trading exchange for electronics - Ehitex.
This effort is still in its first phase, but its potential
is huge. Analysts estimate that the computer and telecommunications
equipment business already accounts for more $90 billion in
online trade, and is expected to grow to more than a trillion
dollars by 2005.
And the neat thing about trading exchanges is they don't
serve only business. They can serve nonprofits - and so serve
ResourceLink is a trading exchange that brings millions
of pounds of excess food together with needy people. Everybody
benefits. Foodmakers benefit from a charitable deduction.
The hungry benefit from a meal. And the environment benefits,
because there's less waste headed for landfills.
Aidmatrix is another that aims to link business and charities
together in order to improve access to things like food, clothing
and building supplies. We're partnering with the i2 Foundation
to make this happen.
TRANSFORMING ENTIRE INDUSTRIES
The point of all this is that all you need is one company in
an industry to catch on to the power and potential of "inventing
at the intersection" and they become the tipping point for their
If one car manufacturer masters the model for turning cars
into mobile portals, all other automakers have to follow.
The first broadcast company to link printing to television
content in a meaningful way will transform this medium, creating
value for viewers, for advertisers and for broadcasters.
That's just a quick view of what I see as the transformational
power and opportunity of the next Internet era. What we need
to keep in mind is that in this new world, transforming customer
experience, transforming the value creation process and transforming
industries are all inter-related. One triggers the other.
They are all part of a larger transformation.
REINVENTING THE EMPLOYEE RELATIONSHIP
In this age of ever more esoteric technologies and devices and
business models, it's too easy to be distracted from our most
important asset - our people. All of us will be powerfully impacted
by the next wave of the transformation.
The central lesson of the next wave is that every business
needs the best people, with the best ideas.
The Internet transformation gives us the tools to get there.
People animate a business, even in the automated, always-on
e-services world. They give it a creative and ethical intelligence
that can't be duplicated. They give it heart and soul. And
because the ultimate goal of all technology-driven business
must be to serve people and customers - not just business
plans and balance sheets -our people give business the human
touch and perspective.
Just as importantly, the central lesson of the Internet
transformation is that it's populist. It's grassroots, it's
anti-hierarchy, it's anti-silo. It truly transfers power to
As for knowledge, spooning out information on a "need-to-know"
basis has been replaced by "Everybody needs to know." Every
product, every solution, every company, every industry is
now based on ideas. And ideas can and must flow from everywhere,
not just from the top floor.
Internet solutions like E-learning are the company trainer's
dream, letting employees learn on their own time and at their
own speed, saving time, saving money, saving materials. The
percentage of companies using e-learning is expected to grow
from 21 percent this year to 51 percent over the next two
years, according to The Forum Corp. And they won't only use
it to train employees; they'll use it to train customers,
too. According to Gartner, 42% of all e-learning will be directed
at customers by 2003, compared to only 7% today.
Because it's populist, the digital transformation gives
you the tools to communicate better with your employees -
especially if they number in the thousands and are in dozens
of countries. It gives you the tools to keep the whole organization's
eye on the ball, aligned with the goals of satisfying customers.
It also gives you the best tool to date for listening to their
ideas and concerns. Jac Nasser says he gets 100 emails a week,
and they all get read and answered.
Before I close, I want to bring us down from the higher reaches
of business and technology transformation. Instead, I want to
briefly look at grassroots transformation, at the molecular,
man-on-the-street level. And not only on the street, also in
the barrio, in the countryside, even in the jungle. Because
I think these changes on the ground show more of the potential
of what we're dealing with than the huge changes in companies
I think this grassroots-level transformation shows the defining
character of this revolution, which is truly populist. And
the inventive and empowering natures of the revolution lead
me to call it the digital Renaissance.
There's no better evidence of the digital Renaissance than
what's going on in India.
NIIT is a large computer training and software service firm
in New Delhi. But their corporate headquarters adjoins a colony
of squatters and day laborers. The scientists at NIIT literally
tunneled a hole through the wall, and placed a PC there, facing
the people outside, to see what would happen. And without
any training, the kids there, from ages 8 to 11, have over
time taught themselves how to use this PC - surfing the Web,
downloading Hindi music, playing games and even landing 747s
on a flight simulator.
In poor neighborhoods of the Philippines, where the traditional
economy isn't doing so well, ad hoc cells of young programmers
are joining together online to write code, do a project, start
a business - all on homemade PCs banged together out of used
And in the Amazon jungles of Peru, a tribe that says it
has gotten nothing from 80 years of modernization other than
poverty and disease is now saying that the Internet is the
first piece of technology that really helps them. They've
already boosted their incomes 10 percent by exporting organic
fruit online.Their kids who have never left the village are
chatting with other kids in Canada and Europe, and suddenly
horizons that were once close and dark are now on the other
side of the planet.
Keep all this in mind - from grassroots social change to
planetary business change - as you explore and discuss new
technologies over the next few days at this conference.
Because this revolution, this digital Renaissance, at its
most basic says that for the first time, individuals without
physical or material assets, with nothing more than an idea,
or curiosity, or maybe nothing more than hunger, can create
and invent. They can play in the global economy. And that's
really transformational stuff.
Thank you. Enjoy the rest of Convergence.
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