There was a common thread running through the various presentations made at one of the first e-commerce conferences held specifically for the oil and gas industry last year in London: definition. Speakers, almost to a man, chose to hang their talks on e-commerce off a concise characterization of the term. Yet the upshot, at the end of the event, was that the industry as a whole seemed no nearer getting to the heart of the matter.
Definition was sorely needed in 1999, without a doubt. One needs only look at the differing success the oil industry has enjoyed applying the protean concept of e-commerce to procurement and retailing to see that a carefully phrased mission statement can be more useful than some cynics readily admit.
From the earliest data transfer hubs, such as the Secure Oil Information Link pioneered by seven Norwegian North Sea operators in late 1998, the cost-savings benefits to procurement has been the main attraction of e-commerce to the oil industry. Judging by Shell Oil Co.'s joint venture entry with software giant SAP into the business-to-business (B2B) arena, Commerce One-which in recent weeks clinched contracts to "supply technology" to virtual marketplaces in the mining, metals, and utilities sectors-the industrial appeal is universal.
Bankable business model
According to a Banc of America Securities LLC report published earlier this year, the global oil industry-with its "high vertical integration, supplier fragmentation, and massive annual spend"-is on more "fertile ground" than others in growing its e-commerce interests. The report authors suggest B2B will cut some 15% out of sector costs and drive up earnings "3-10% on a run-rate basis."
Company-by-company, things look as bullish, with BP, for one, according to an Arthur D. Little Inc. study, targeting $200 million/year in savings by purchasing "basic catalog items" over the internet-a small, but symbolic, sum.
If the oil industry has been slower to harness e-commerce for retailing, it may be the fault of a traditional business model that has always concentrated on "selling the output of refineries rather than on providing solutions to customer needs," offers report co-author Christopher Ross. With e-commerce's potential of reshaping the "entire structure of the downstream industry" for the better commercially, though, this shortcoming will soon be a thing of the past.
Oil companies are not alone in agonizing over the future of e-commerce. The European Commission gave its first approval to a B2B virtual marketplace-a JV between US aerospace groups United Technologies Corp. and Honeywell International Inc. called MyAircraft.com -only last week, along with the caveat that this go-ahead could not be read as throwing open the door to any like-minded e-commerce venture.
Knowing that B2B will make up, by one reported estimate, 80% of all e-commerce by 2005, but attentive to the widely voiced concern that anticompetitive cartels could spring from such free marketplaces, the EC is treading carefully. Still, on Aug. 11, the commission cleared the way for eight major European and US banks to create a worldwide network called Identrus to check electronic signatures and "other aspects related to e-commerce transactions."
Given the speed at which B2B is expanding, the next wave would be better gauged by defining what it isn't, rather than what it is.