Forget the Internet. Don't worry about on-line banking or new-media publishing. Disregard the supposedly huge market of 20 million to 40 million Internet consumers.
The big action in cyberspace is the intranet.
Intranets are miniature Internet-based systems that corporations build to link together their employees and, sometimes, their customers. By the turn of the century, analysts say, the intranet software business will dwarf Internet software. Whoever captures the former will likely dominate the latter and become the next-generation software powerhouse, analysts agree.
"The intranet is outselling the Internet 10-to-1 on the server side," says Waverly Deutsch, a senior analyst with Forrester Research Inc., a market-research firm in Cambridge, Mass. For every server computer, that companies hook up to the Internet, they're setting up 10 servers to run their intranets, she estimates.
Scott Reamer, an analyst with Bear, Stearns & Co., sees intranet software as an $8 billion market by 2000 four times the size of the Internet software business.
Companies are keen on intranets because they're an inexpensive way to hook up workers. Using Internet standards, an intranet allows employees to message each other and collaborate on documents. If it's correctly set up, such a system can boost productivity.
Until now, companies trying to hook up workers had to use proprietary software, called groupware. But as these companies began to link up to the Internet, they found that they could do many of the same things groupware does, but for less money, by creating private intranets. The key difference between an intranet and the Internet: The former is for an in-house audience only.
For example, Eastman Kodak uses an intranet to hook up 200 upper managers. Unisys has an intranet for employee communication, order tracking, and product configurations. Weyerhaeuser is building an intranet that will allow interaction with suppliers as well as employees.
A year ago, 11 percent of US corporations had installed an intranet; today, 55 percent have, estimates Business Research Group, a Newton, Mass., high-tech consultancy. By the end of the year, the figure will climb to 70 percent, the company forecasts. Companies' biggest reason for using the technology: efficiency.
The battle to capture the intranet is the key to dominating the Internet software business. That's because intranet servers require expensive software tools. So while companies are discounting or even giving away their consumer-oriented software for browsing the Internet, they're making their money by selling intranet software to corporations. Already, Netscape Communications, an Internet leader, figures that most of its revenue comes from selling intranet software to businesses.
While IBM's Lotus Notes software is the leading groupware product, true intranet competitors are coming on fast. Netscape, which already sells the leading Internet browsing software for corporate customers, hopes to persuade corporations to use Netscape software on its servers too. Its intranet offering, called SuiteSpot, is more Internet savvy and less expensive than Lotus Notes.
"Notes has a head-start advantage over the Web as a groupware platform," concludes the July cover story of influential Byte magazine. But "the smartest choice may be a strategy that combines the best of the Notes and Web worlds."
IBM may help that process along considerably. It is already working to make Notes more Internet-savvy. According to published reports, it is also considering selling its Notes technology in pieces, perhaps even licensing those pieces to other software companies, rather than continuing to sell Notes as a complete system.
Oracle, the database-software company, is also moving to remake its software into an intranet platform. Looming on the horizon is Microsoft. The software giant has the patience and the deep pockets to overcome its late start, analysts say, in much the same way it dislodged competitors in operating systems and business software. "Based on history, of course, I would never bet against them," says Mr. Reamer of Bear, Stearns.
But Microsoft's battle will be tougher this time, analysts agree. Microsoft faces an entire industry of Internet-oriented companies this time, not just a single competitor. It is bigger now and less agile. And it is trying to make intranet tools, but these are tied to its operating-system software that, typically, is upgraded only every 18 months to two years.
In the near term, Lotus can hold onto many of its customers because of its superior product, and Netscape can stay ahead of Microsoft by being more nimble. But "to dominate the intranet in the long term, they're going to need each other," Ms. Deutsch says. The two companies have no more than two years to make a deal before Microsoft becomes an intranet force to be reckoned with. Oracle could also be a good Netscape partner, she adds.
Netscape doesn't sound in a merging mood. "To think that Microsoft has this whole intranet market locked up is not true," says David Pann, Netscape's head of server marketing. "They did a great job against a lot of their competitors.... And we respect them. We just basically think we can do it better and faster, and we understand the market better than they do."