Internet Business Pioneer Showing Others the Way

For Shikhar Ghosh, three years is a long time. It took him that long to articulate a vision for electronic commerce, form a company to execute it, and turn it from a basement operation with a dozen workers to a public company with 350 employees in an elegant office suite in Cambridge, Mass.

The company, Open Market Inc., was one of the first to offer software that let merchants, banks, and others do business on the Internet. Mr. Ghosh, a Harvard Business School graduate who cut his high-tech teeth studying interactive technology at Boston Consulting Group, was one of the first in the business world to get credit for recognizing the economic potential of the World Wide Web.

"It's already been a very long ride," said Mr. Ghosh, 39.

Since creating Open Market in 1994, Mr. Ghosh has seen the Internet become a popular-culture phenomenon as well as an almost routine part of business life.

He also said he believes it is time to resolve the security concerns that have impeded the Web's commercial potential.

"A year or a year and a half ago, a lot of the security fears were very real," Mr. Ghosh said. "Today it's possible to create a completely secure environment for banking transactions. The issue is that it will take maybe 10 years for banks' business models to catch up."

Numerous big-name companies, including International Business Machines Corp., Microsoft Corp., and Oracle Corp., are promoting the types of product Open Market does. But three years back, only one organization - the company that was beginning to commercialize the Web browser - was advanced enough to inspire Mr. Ghosh.

"They were there when Netscape had 75 people, when Netscape didn't have any business cards yet, when Netscape was still called Mosaic Communications," said Thomas J. Kitrick, a vice president at First Union Capital Markets Group, Open Market's first customer from the financial services industry.

Today Open Market supplies Internet software to several major banks (see page 14A) and giants from other industries. AT&T Corp., for example, relies on its lead product, OM Transact.

"It is our solution for moving our customers from marketing to selling on the Internet," said James Kwock, AT&T's on-line transaction services director.

He said AT&T chose Open Market for two reasons: "They had a time-to- market advantage over their competitors and a complete solution for the marketplace that worked right away for a company on the scale of AT&T."

Way back in 1994-95, Mr. Ghosh struggled to get his vision across to such corporate giants. When senior executives visited the basement digs for a first lesson in Internet commerce, they often sat at the same communal table where employees gathered for lunch. Mr. Ghosh recalled the surprise of a senior bank official when, during a presentation about the power of the Internet, a part-time receptionist plopped down in the next chair with her knitting and a brown bag.

"About two years ago, the big task was convincing people that the Internet is real," Mr. Ghosh said. "Now people believe it's real, and most of the people believe it will be very fundamental to the way they do business. Now the issue is whom to go to - an Oracle, a Microsoft, or a young company like us.

"We think a big company should not have to deal with another big, slow company to move fast."

Mr. Ghosh is not a technologist. His founding partner, David Gifford, is a professor at the Massachusetts Institute of Technology who largely developed the company's products.

Mr. Ghosh said he considers himself a student of business practices. He believes companies like Oracle, Microsoft, and IBM succeeded by focusing on a single technology application, doing it far better than the competition, and expanding from there.

For that reason, Open Market is limiting product releases and not trying to be a one-stop Internet shop. It went so far as to shed several auxiliary business lines last year, including Web site development and running a virtual mall.

"We have the technical stuff down now," Mr. Ghosh said. "The focus is on making the business plans catch up."

Two years ago, the company moved to plusher quarters in what is known as the "Thinking Machines" building, after its former occupant. Growth will compel a move to an office park in suburban Burlington, Mass., next year - and the proceeds of last year's $80 million initial public offering will fund it.

The company's successes include expansion into Europe, Japan, and Australia, but it is outwardly a Silicon Valley-East type of place. Executives walk around in jeans and bring their dogs to the office. Nearly everyone, including Mr. Ghosh, works out of a modest "cube."

Mr. Ghosh's journey from consultant to Open Market chairman began when he left Boston Consulting Group in 1988 to become chief executive officer of Appex Corp., a cellular telephone communications firm.

Appex was acquired by Electronic Data Systems Corp. in 1990, and Mr. Ghosh decided he "didn't want to be a small part of such a large organization." Moreover, the research he was doing on interactive television seemed to be leading nowhere.

In 1993, the Mosaic browser - the predecessor of Netscape Navigator - came out, and Mr. Ghosh started dabbling on the Internet. It was, he said, as if lightning had struck.

"I looked at the Internet and said, 'Wow, this is everything that interactive TV is supposed to be but isn't, and it exists already.' It was one of those things where you look at it and you see the future."

Mr. Ghosh met Mr. Gifford through a venture capital firm. Over six months they talked frequently by telephone about how to turn the Internet into a commercial marketplace.

"It became clear to us that the Internet wasn't about making things more efficient," Mr. Ghosh said. "It was about changing the roles of companies and how they make money."

They then wrote a bid for a U.S. government project, back when the government was brimming with enthusiasm for the "information superhighway."

"We won," Mr. Ghosh said. "Then we set about creating the commerce system infrastructure."

The heart of this infrastructure is a product set that capitalizes on the Internet's connectivity: It connects back-end and front-end computing functions to make on-line shopping as easy as point and click.

"It's the same as with electricity or plumbing," Mr. Ghosh said. "The architecture is quite complex and involved, but to the person who turns on the faucet or the light switch, it's easy. Similarly, we needed to create a relatively simple content system for basic transactions. That took quite a bit of technical innovation, and now it works."

It wasn't all smooth sailing.

"A couple of their software releases were kind of buggy, and it took them a little while to respond, but they've really turned around in the last six to eight months," said Gary Wagner, director of electronic commerce for Manglobe Virtual Corp. of Winnipeg, Canada. Manglobe is a "beta tester" for Open Market and uses its products to operate a virtual mall.

"Some of the competitors were putting technology in place for technology's sake and seeing if there was an application that would fit," Mr. Wagner said. "Open Market was going in the same direction as we were, focusing on the business aspect of this."

Open Market has written custom systems for several institutions; it has become known as a "catalyst" that not only supplies the products but also shows clients how to use and build on them.

"They hand-hold, they work with you," said Ira Morrow, an analyst at the Gartner Group in Stamford, Conn.

Steve Gesner, associate vice president of alternative delivery channels at Toronto Dominion Bank, called Open Market's offerings "comprehensive" but "simple."

"It's one of the few solutions out there that actually does work, that is in production, that is taking transactions," he said.

With the technology end of things pretty much taken care of, from Mr. Ghosh's perspective, the next challenge is to make the business case for electronic commerce.

"I think innovation is going to come entirely from the business side, and not at all from the technical side," he said.

One example he points to is Amazon.com, the Internet bookstore offering an exhaustive title list and personalized searches. "Their technology is bottom-shelf, but their strategy is great," said Mr. Ghosh. (Another admirer and frequent customer is Scott Cook, founder of Intuit Inc., who recently joined Amazon's board of directors.)

The Internet today, Mr. Ghosh said, is "like the car was in the 1920s. If you were a Martian and came to Earth, you would say that the cars from the 1920s look basically the same as cars do now. They work pretty much the same way, too.

"The problem with the Internet is that people have not been able to translate it into business strategies that work."

Many computer experts are convinced that the development of efficient on-line payment schemes is critical to the expansion of Internet commerce, but Mr. Ghosh called the issue irrelevant. He said today's financial instruments are fine for the Web, and he said he expects smart cards will soon creep into the wallets of rich and poor alike.

He also said he believes the Internet will make banks largely irrelevant and will force radical business changes.

"The Internet is a huge opportunity not for 20,000 banks but for 200 banks," Mr. Ghosh said. "There's no reason to have all those banks. We have three car manufacturers - why do we need more than three banks?

"Sometimes there's no reason for the bank to be there. EDS or IBM could engender the same trust as NationsBank or Bank of Boston. That trust is quite fungible."

Mr. Ghosh described most bank employees as "human modems" who simply transfer information from a computer to paper, or read it over the telephone.

"Most of the people you're talking to - the network is better than they are," Mr. Ghosh said.

But adapting corporations to Internet culture doesn't just mean slapping up a Web site or opening it up to transactions, he warned.

"It's very difficult to completely change the business model," Mr. Ghosh said. "You need to start with aspects of the business and move it thoroughly and completely. Wells Fargo has taken a piece of business and put an Internet mask on it, and that's useful to a point, but it doesn't address the business model change."

Mr. Ghosh said security fears are a "fig leaf" many bankers hide behind, rather than embracing the technology and reorienting their businesses.

Once, after meeting with a banker who expressed concern about Internet security, Mr. Ghosh went home and found an advertisement for his bank's telephone service. He called in, gave his name and address, and a bank representative readily gave him account information. He asked whether the service was accessible by cellular phone and was told that it was.

"Anyone with a scanner could tap in!" he marveled.

Mr. Ghosh's plain talk has won him a following in the banking community. Among the early believers were senior managers from Banc One Corp., who visited Open Market in its basement days.

Rex Plouck, a product manager in Banc One's electronic commerce group, recalled that it "took a lot of internal effort" to sway top brass in favor of the young company.

"We're pretty much an IBM and Andersen Consulting and Tandem type of organization, and nobody really knew who Open Market was," he said. "We took a fair number of executives to Cambridge and met their folks to get a comfort level that, yes, these people know what they're talking about. Shikhar certainly was a key to that."

Mr. Ghosh tells bankers that the Internet is here to stay and is going to reshape business globally.

This lesson came home to him during a recent visit to his native India, where in many places "you can't turn on the faucet and get any water. On the other hand, you have people commenting on the graphics of our Web site and laughing at Bill Gates jokes. The Internet just completely flattens the world."

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