Hot idea: rich business communications on loosely coupled networks

The value of mortgages originated this year will be about $1.2 trillion. About $19 billion of those mortgages will originate on the Web, according to Forrester Research (www.forrester.com). That is only about 1.5% of this year’s total mortgage market, but Forrester forecasts that the Web’s share of the mortgage market will reach nearly 10% by 2003. Other analysts put the number even higher, at close to 25%.

The growth in the mortgage market is tied to larger, fundamental changes in the way that businesses use the Web. Web-based systems have, over the last year, developed new ways of supporting rich, complex business interactions over the loosely coupled Web network.

Rich customer interactions

If you go to a site such as E-Loan (www.eloan.com) and work through the application process, it is impressive how rich the interaction is and how much intelligence is being brought to the Web forms interface. That is a big step beyond buying a book or music and providing your shipping information and credit card number. E-Loan is actually accepting complete mortgage applications online and is presenting the user with an application that is responsive to choices-in real time.

Behind that database-driven forms interface is an army of customer service people who ensure that the mortgage gets processed, that problems are flagged and that the customer is able to track the process online.

New systems such as the one used by E-Loan will transform the way companies handle complex customer transactions, which is still largely a paper and image-based process. But the transformation works both ways: The use of complex form processing models is also transforming the idea of what a Web transaction is or can be.

Net markets

The mortgage origination and services market is an instance of a broader phenomenon that is redefining Web business. E-Loan actually acts as a mortgage broker, originating the mortgage and then selling it in the secondary mortgage market. Other vendors, such as Lending Tree (www.lendingtree.com), act as marketplaces that bring brokers and mortgage seekers together. In both cases, the companies are acting as Net market makers, or "vertical portals," using the reach and immediacy of the Web to address the problems associated with the fragmented, inefficient structure of the mortgage origination market.

This phenomenon-using the Web to build a more efficient market-is one of the strongest, most pervasive, and at the same time newest developments in the structure of Web businesses.

Whether the market is for steel (E-Steel and Metalsite), semiconductors (PartMiner, QuestLink), insurance (ChannelPoint), shoes (Shoe.net) or any one of literally hundreds of other business goods and services, the business model of choice increasingly consists of aggregating offers from hundreds and sometimes thousands of suppliers, providing services to buyers that make the exchange attractive and then making money from the transactions or associated services.

GartnerGroup (ww.gartner.com) estimates that the number of vertical portal businesses will grow from about 300 at the start of this year to 10,000 at the end of the year, exploding to 100,000 businesses by 2001. Each of those businesses depends on being able to automatically aggregate a complex set of products, from many suppliers, and to offer them to buyers in a way that solves existing distribution channel problems.

New uses for extranets

Not all of those rich, complex interactions are between companies and consumers. In fact, the most rapid changes appear to be in communications between businesses. For example, in the insurance market, ChannelPoint (www.channelpoint .com) creates an exchange that ties insurance brokers to the wide variety of offerings from different insurance providers. Other companies are setting up extranet communications to build and maintain online catalogs.

Hagel and Singer, writing in the March Harvard Business Review ("Unbundling the Corporation"), point to a near-term future in which the principal activities of a business-customer relationship management, product innovation and infrastructure management-are pursued with increasing frequency outside the boundaries of a company, by other companies that provide those functions collaboratively. A company developing a new product and taking it to market might use the Web to work with other companies to design and develop the product, and use the Web again to acquire infrastructure services to run and maintain its operations, focusing itself only on selling the product and managing customer relationships.

Foundations for Web business

What is new, underlying the current directions in Web business, is the capability to use the Web to exchange rich, complex messages. The richness is not in the actual interaction between two systems, but is encapsulated in the message. What is common to the new systems is the ability to unwrap and use those messages.

The real magic is in being able to conceive of the entire interaction differently, as the construction of a message, or document, that can be sent to your business partner’s system, to be acted on automatically.

It sounds simple, but it is, in fact, a new way of conceiving the problem of communicating between businesses. Whether you are looking at the expanding capability to support complex customer interactions; at the ability to build virtual, vertical marketplaces or at the ability to "unbundle" the corporation, the new business models are growing out of a new capability to create and support rich business communications that work efficiently on loosely coupled networks.