A little something extra: Extranets are more than the Internet's new secret societies, offering intranets' stability and control with an extended reach

The Internet can be difficult to comprehend, especially when its users and enablers keep redefining it.

While the Internet continues to spread its reach around the globe, the more interesting evolution may be happening within. The commercial buzz for the Internet started four years ago, with the development of graphical browsers to move information among various World Wide Web sites. Within a couple of years, the buzz concerned intranets-intra-enterprise versions of the Internet that let companies and organizations use TCP/IP to move traffic within enterprise walls. The next big hit could be extranets-TCP/IP-based networks that tie together far-flung intranets and cross corporate boundaries to serve larger communities, including corporate customers, suppliers and business partners. The extranet buzz is still building, but it already promises interesting business and partnering opportunities for telecommunications companies worldwide.

Extranets defined Analysts and observers refer to two general types of extranets. One combines various intranet sites from within an organization and mixes in some public or trading partner access. These extranets may be based on electronic commerce initiatives such as Web-enabled electronic data interchange (EDI), on-line shopping or supply chain automation. Leading practitioners of these "extended intranet" extranets include Federal Express, NetGrocer, Charles Schwab and E-trade.

A second type of extranet is one that forms around a "community of interest," linking numerous organizations within the same trade or industry group. A leading example of this is the Automotive Network Exchange (ANX) being developed by the Big Three automakers in Detroit to create a secure, cross-company Internet protocol (IP) network of suppliers and trading partners. Similar community-of-interest extranets are being explored in other areas of manufacturing as well as the financial services, health care and entertainment fields.

Analysts say both types are likely to grow, with the latter probably leading the pack. "Extranets have become an incremental extension of intranets," says Alyse Terhune, research director for electronic commerce and extranet applications at The Gartner Group, Stamford, Conn.

"Organizations go to the trouble of getting information to their employees, and it becomes obvious to open that up to their external business partners and their clients," Terhune says. "It's part of the natural extension of the business need to embrace your customers."

This need to embrace is complemented by competitive pressure to be seen as a forward-thinking company, she says. Organizations that get into the extranet market early think they will enjoy competitive advantages in terms of improved customer and supplier relationships.

The Gartner Group predicts that the e-commerce/extranet area, which accounts for between 6% and 7% of the information technology vendor marketplace, will rise to as much as 34% of that market by 2002. Extranet development, though, is still hindered by unresolved issues, including network security, network availability, network management and extranet software interoperability.

Such concerns have led Cambridge, Mass.-based Forrester Research to urge companies to wait on large-scale extranet development or deployment for the next two or three years.

Issues that still need to be addressed include firewall interoperability, third-party certificate authorities, network address translation standards and Internet service provider performance guarantees, according to Forrester (Figure 1).

Carl Howe, director of network strategies at Forrester, says that these issues make it hard to find early adopters of extranets. Nonetheless, Howe stands by Forrester's prediction that the market for e-commerce will grow to $327 billion by 2002, and he expects that companies will pursue extranets as part of their strategy to capture as much e-commerce as they can.

"Extranets are a big opportunity to make Internet investments pay off," Howe says.

Opportunity knocks for telcos These payoffs likely will mean increased revenues for telcos, ISPs and their partners. Telcos need to look at the extranet market as a growth opportunity, one that many have yet to capitalize on, says Joyce Tompsett Becknell, director of distributed computing research for Newton, Mass.-based Business ResearchGroup.

BRG recently asked Fortune 1000 executives and Internet service managers about their intranet strategies over the next six to 12 months. Nearly one-third of respondents said they would be extending intranet access to business partners, and another third said they planned to offer customer access within the next 12 months. Two-thirds of each group said they would extend their intranets to both customers and suppliers-a figure that Becknell calls significant for technology that is still fairly new.

Of particular interest to telcos is how executives responded when BRG asked whether they are using or plan to use third-party services to host or support expanded intranets, virtual private networks (VPNs) and extranets. Only 33% said yes.

Of those, the top choice for an intranet or extranet partner was a consulting firm, and the second choice was an ISP. Only 1% of respondents said they were using or planned to use a telco as an intranet or extranet partner. "People are not thinking of going to carriers right off the bat," Becknell says. "Carriers might want to go to third parties-partnerships-rather than to the customers directly."

Many carriers either have already done so or are planning just such a move. In the past year, GTE purchased BroadBand Networks, and WorldCom bought UUNet, which in turn has been buying up small companies in Asia and Europe to expand its reach and market presence. Bell Atlantic is partnering with ANS, the data network services unit of America Online, and more partnerships, mergers and buyouts are certainly on their way as carriers try to muscle into the data services market, including Internet, intranet and extranet hosting.

Management and access One way telcos can make money from extranets is by selling access to community-of-interest extranets being developed (Figure 2). A key impetus for extranet growth is being provided by industry consortia such as the Automotive Industry Action Group, which comprises the Big Three Detroit automotive manufacturers and some of their major suppliers, says Denise Grey, marketing director for AT&T VPN Solutions.

The AIAG's ANX extranet will let companies transact business over a secure TCP/IP network administered by AIAG and supported by major telcos and service providers such as AT&T and EDS. AIAG intends to certify various carriers to participate in the ANX, which will then sell access to the network to companies in the automotive supply chain.

Valorie Nicolai, ANX manager for Troy, Mich.-based EDS, calls the ANX an attempt to "take the best of the various companies' intranets and smash them together." The result will be a network that is more secure than the Internet and that lets subscriber companies-sponsored by a certified ANX Internet provider-collaborate on automotive design and supply/demand chain logistics, she says. And the demand for ANX connections is expected to go beyond that of the automotive industry, Nicolai says.

"We understand that the automotive industry touches just about anything and everything in the manufacturing environment," she says. "It is envisioned that the chemical, metal and insurance industries are all going to want ANX connections as well. This is the model for industrywide extranets that may be created after this one takes hold."

The main telco clients in the cross-industry extranet market may well be smaller or medium-sized companies that were unable to afford value-added network participation, AT&T's Grey says.

"The mid-sized customer will buy the extranet facilities to get to the big consortiums," she says. "A smaller-sized company can now be a supplier. Before with EDI, only the biggest and the baddest could do that."

Another extranet role for carriers is managing some of the core competencies that extended networking involves, Grey says. She lists directory structures and maintenance, certificate incorporation and security keys as carrier competencies for bringing companies into an extranet (Figure 3). She points out that AT&T has a chief architect on the security committee of the ANX consortium for this reason.

"Smaller customers don't want to develop a core competency in networking," Grey says. "They want to help you set up the connection for them and then manage it all."

Sprint Business sees the primary extranet opportunity as that of linking far-flung intranets together. Intra-enterprise networks linking several intranets into one larger extranet comprise about 75% of the extranet data services market, while cross-enterprise or industrywide extranets account for the remaining 25%, says Brad Hokamp, director of data services for the Kansas City, Mo.-based carrier (Figure 4).

This may change as technologies develop and extranet success stories begin to filter out into the general public, he says. Hokamp points to Sprint Drums as an example of a cross-enterprise extranet that is growing fast within the entertainment community (see sidebar).

"None of this is going to happen overnight," Hokamp says, adding that frame relay services did not catch on for several years following their introduction. He predicts that frame relay still will grow faster than TCP/IP-based extranet revenue in 1998 and says that Sprint's advantage in the extranet market is the company's lead in current packet- and cell-based services revenue over other carriers, including the Bell companies.

RHCs and ISPs join in Bell companies and ISPs also see opportunities in extranet service offerings. For example, Bell Atlantic is focusing on the securities industry, working with the Securities and Exchange Commission and top financial services firms to create an industrywide extranet for stock trading, financial reports distribution and even Internet-enabled road shows for initial public stock offerings (see sidebar).

"We compete for services with the big [interexchange carriers] and [competitive local exchange carriers]," says Rangu Salgame, president of Bell Atlantic Internetworking and Multimedia Services, New York. "Our advantage, though, is that we have the strongest concentration of Fortune 500 companies in our territory, particularly those where new technology is critical, like the financial services industry. So our strategy is to go after Bell Atlantic footprint-based customers but offer global services. We are not going to sell services in California, Tokyo or London specifically, but if the company is based here and needs services globally, we can do that."

Bell Atlantic also is partnering with ISPs such as UUNet and ANS in the extranet services arena.

Bell companies enjoy some advantages over IXCs in provisioning extranets, Salgame says. First, Bell companies have greater local name recognition and strong backgrounds in directory services and other network core competencies, he says.

Salgame also concurs with Sprint's Hokamp that the main extranet market is the extended intranet model, giving Bell companies an advantage if they play host to corporate headquarters staff looking to connect their far-flung operations.

ISPs usually do not have the name recognition or established business relationships with big companies that Bell companies have, so their strategies often revolve around partnering agreements or the provisioning and sale of specific data network products and services that other carriers can consider reselling.

Fairfax, Va.-based UUNet, for example, is trying to become a major extranet provider through its ExtraLink and ExtraLink Remote offerings.

UUNet's ExtraLink provides T-1 or T-3 Internet access to dedicated sites around the world. Enterprises can buy a mixture of access, creating their own completely secure networks or putting one together over the Internet using ExtraLink's authentication and encryption technologies.

Most clients want a mixture of proprietary network and public network access, says Ralph Montfort, manager of network products for UUNet. "A big trend is the customer with a lot of internal sites," he says.

"The network does not scale well and is hard to manage. The customer gets tired of this and thinks it would be great to have someone else manage it," he says.

"Maybe three of the sites go to the Internet, but most do not. Perhaps two of those sites are trading partners that can each talk to the customer but cannot talk to each other, since they are competitors," Montfort says. "So the customer needs a mix of access, both public and private."

A case in point is payroll processing and human resources firm ADP, UUNet's largest ExtraLink beta site. ADP wants to link many sites around the country but is not particularly interested in bringing in partners, at least not for the time being, Montfort says. "People get hung up on the 'extra' of extranets and think it has to mean a trading partner," he says. "'Extranet' means wide area. We view an extranet as anything that links internal intranets."

Industrywide or cross-industry extranets similar to the ANX may be a few years off, Montfort says. He calls ANX "the exception, not the rule," pointing out that EDI has been popular in the automotive industry for a long time. "It may be a bit more difficult to get acceptance of electronic trading relationships in other industries," he says.

Clients are increasingly asking for Internet expertise, adds Paul Hoffman, UUNet's manager of Web product marketing and development. He points to UUNet client Marriott, which uses a UUNet-supported extranet to post internal job openings at hotels and resorts around the world. "The Internet is not their main business function," Hoffman says. "But it is our core business, so making their site available from a high-bandwidth and availability standpoint is where we come in."

Hoffman calls Internet, intranet and extranet hosting services a very important area for UUNet in 1998. The strongest demand so far has been from financial companies, health care organizations and enterprises with widely distributed sales forces, he says.

Partners hold the key Partnerships with consulting firms and systems integrators are important for carriers or ISPs that want to market extranet services.

Traditional value-added network or information technology service vendors such as GE Information Services or IBM Global Services hold the key to some lucrative extranet opportunities. These and other systems integrators, application developers and even software companies are often close enough to the customer to know the type of carrier access needed for the extranets that enterprises are building or planning to participate in.

Dominic DeAngelo, vice president of Internet services at Sprint Business, credits Silicon Graphics for helping Sprint develop and market its entertainment industry extranet, Drums.

Bell Atlantic's Salgame states flatly that Bell Atlantic is "not in the business of systems integration" and relies on partners to help develop and deploy extranet services.

Such partnerships will continue to grow, says The Gartner Group's Terhune, citing a recently announced Microsoft/SAP/Price Waterhouse-Commerce One consortium that has chosen MCI as a hosting service for extranet platforms and services.

Partnerships are going to be critical for telcos and ISPs that want to expand in the Internet services market, says Nick Dixon, global services manager for intranet and extranet services for IBM Global Services, Tampa.

IBM has 1200 worldwide points of presence and a secure IP backbone that has hosted more than 30,000 commercial customers in the past 15 years. Telcos and ISPs may be hard pressed to compete with the global reach of IBM or GTE Information Services, and they are better off providing some access and management functions while inking agreements with companies that actually build the extranets, says Dixon.

"How are you going to turn a geographically, usually country-based telco into a global business environment of this nature?" Dixon asks. "The telcos have to form alliances worldwide or with other networks if they want to take Internet technology to the heart of the business environment."

Referring to his experience in providing extranet services to Citicorp, SmithKline Beecham, Smith Barney and Merrill Lynch, Dixon sees telcos as the best providers of extranet infrastructure rather than as extranet builders or consultants."We increasingly do not want to own the network that si ts under the extranet," Dixon says. "We want to be able to buy that in bulk. From the physical connection to the servers, we are not terribly interested. If a telco could partner with us and brand-label our service in their channel area, that would work out pretty well."

Dixon sees a convergence of ISPs into larger regional companies, mergers or buyouts. Citing GTE's purchase of BBN and WorldCom's purchase of UUNet, Dixon says ISPs are going to have to grow fast and internationally to compete effectively in the extranet market. Some telcos may become regionally dominant but have trouble competing globally, a fate Dixon also sees for Bell companies in extranet services. However, he concedes that Bell companies and ISPs that want to provide extranet services on their own do have one key advantage over multinational firms like IBM and GTE Information Services.

"It is obviously easier for them to compete in their home market," Dixon says, citing incumbent LEC advantages like familiarity with local business customers. "Just like in basketball, they have the home court advantage."

In the early 1990s, Silicon Graphics and two advertising production houses approached Sprint Business with an interest in collaborating on an Internet protocol network to plan and produce television commercials.

The companies' main interests were to reduce the costs and time delays associated with cross-country travel and shipping of videotapes to evaluate new commercial ideas and pitches, says Dominic DeAngelo, vice president of Internet services at Sprint Business.

By the November 1993 National Association of Broadcasters' annual convention in Las Vegas, Sprint Business had turned this idea into a service it called Drums-subscription-based access to a community of advertising companies, production houses and other entertainment companies wanting to do IP-based collaboration over the Internet. By the end of the convention, Sprint had signed up more than 40 customers and was on its way to changing the way people do business in the entertainment industry, DeAngelo says.

Four years later, Drums has evolved into a full extranet, letting participating companies collaborate across the country or around the world on their commercial productions via the Internet. Companies such as Industrial Light and Magic, Grey Advertising, MCA Universal, McDonald's, General Motors and Hallmark Entertainment now can participate in on-screen story-board sessions complete with live videoconferencing and whiteboarding tools at each site.

Over the years, the service has changed to meet customer demands, says Angela Rizzo, director of business development at Sprint Business. The original subscription called for a dedicated T-1 access line, but today's most popular option is to subscribe via primary rate ISDN. ISDN users pay a $750 a month user fee, an $800 installation charge and are charged $500 a seat for multiple-site licenses.

Access charges are 30 cents a minute on an ISDN B channel, and Sprint says the service works well over eight concurrent B channels, bringing per-minute charges to $2.40.

Average user fees are about $3000 a month, but Sprint still offers T-1 access at a flat fee of $3500 a month for heavier users who don't want to be concerned about per-minute charges, says Rizzo.

Drums has given rise to some unforeseen and interesting collaborations, including a virtual internship program between The Discovery Channel in Bethesda, Md., and the Ringling School of Art and Design in Sarasota, Fla., she says. Students in Florida created logos and campaigns for Discovery without ever having visited the company, she says, and several have been offered jobs as a result of their Drums collaboration.

"When we started Drums, the extranet was just a twinkle in someone's eye," says DeAngelo. "But this is the way business is going to be conducted as we go forward."

Each year, investment banks host more than 6000 road shows- cross-country tours in which bankers meet face-to-face with large institutional investors and money managers to sell them on the opportunity to invest in initial public stock offerings (IPOs) for new companies.

In February 1996, an Atlanta-based company called Net RoadShow began asking the Securities and Exchange Commission for permission to put these road shows over the Internet. The idea was not to replace the existing shows, but rather provide alternatives for those who could not make a scheduled show. It would also allow investment banks to distribute their shows more widely than would traditionally be possible if the bankers had to visit every site, says Net RoadShow President Brad Hammond.

In the case of IPOs, visiting more than a few dozen sites in person can be difficult because the shows almost always take place in the two to three weeks immediately preceding an IPO, Hammond points out.

On July 30, 1997, the SEC gave Net RoadShow approval for Internet IPO road shows. Net RoadShow then partnered with Bell Atlantic, which was eager to offer virtual access to its large number of financial services clients. Net RoadShow viewers who subscribe to the Bell Atlantic securities industry extranet now can call up a pre-recorded show over the Internet, which consists of a streaming video of the person giving the presentation, in concert with a slide show synched to the presenter's speech.

Hammond likens his service to a channel providing programming on a cable TV network. Investment banks can either pay to host one or two road shows on their own or participate in Bell Atlantic's extranet to provide a steady stream of road shows for clients.

"Bell Atlantic is developing specialized services for this industry," Hammond says. "What they provide is the wiring and the relationships with the companies, as well as the backbone to get this out over the Internet or company extranets."