"Your normal response time on an ATM machine is 2 to 3 seconds. Your response time on a bank website is about 29 seconds."

That's pretty much the case for all the other websites out there. There's a whole experience with customer service that says if you cannot respond to your customer in a matter of seconds then you're going to lose that business.

From everything we know, everything that is happening right now on the Web is a disaster. Is that going to last? No it is not. As soon as you start getting some real competition, as soon as we move from the enthusiasts to the everyday Joe, there is going to be a demand for a much higher level of service.

One of the things that amazed me... I was reading that Amazon.com was out for an entire day just before Christmas -- the peak selling season for books! What was amazing was not that it went out, but that no one found this unusual. You project this out a few years, when you have more competition, more people offering this kind of service, and that's going to be catastrophic to have outages of that kind.

It is going to be extremely damaging to have 30-second response time delays. It is going to be extremely damaging to have all these weird and wonderful things that happen when your browser doesn't quite match the website. Obviously one of the things that's going to happen here is that consumer tolerance is not going to be infinite.

C O N T I N U E D . . . 2 of 3
SCHINDLER: One analyst says a mainframe failure will bring down a Fortune 500 company in the next 10 years. Could the Internet bring a big company down?
JEFFREY: I don't think you're going to be seeing a major catastrophe, because no time in the next five years is a Fortune 500 company going to be conducting business primarily on the Internet. The risk is far more this steady accumulation of dissatisfied customers.

We looked at the insurance industry. A satisfied customer comes back for repeat business 55 to 65 percent of the time. A very satisfied customer comes back 80 percent of the time. A dissatisfied customer comes back 20 percent of the time. So, what you're looking at is a steady, slow loss of customers and business.

"Try to imagine any other way of transacting business where you're going to have those kind of wait times, those kinds of unpredictability. A 30-second wait to use your ATM card. Those kinds of things just aren't feasible."

There is now a concept of customer lifetime value. If you are in financial services, customer lifetime value can be a half million to a million dollars. In those kinds of businesses you really can't afford to irritate your customers like this. Right now it is not doing too much damage, because the number of Internet customers is relatively low. Also, frankly, because all of the websites are equally awful when it comes to this kind of thing. There is going to be a shakeout.

Try to imagine any other way of transacting business where you're going to have those kind of wait times, those kinds of unpredictability. A 30-second wait to use your ATM card. A 30-second wait to use an automated telephone system. Those kinds of things just aren't feasible. Sooner or later what's going to happen with the Internet is it is going to be run and governed more by business and customer-service principles than by technical principles. Everyone is going to have to grow up.

C O N T I N U E D . . . 3 of 3
SCHINDLER: Will the international payment system move to the Internet?
JEFFREY: I don't think so. What's going to happen is that pressure from the Internet is going to cause a lot of changes. What you're looking at now is the cost and difficulty of international funds transfer. If I want to send money to, say, Italy, somebody's going to be taking a cut on this end, and the financial institution in Italy, and for all I know a bunch of intermediate people as well.

This is ridiculous! It comes about because we have a very heavily segmented and not particularly competitive financial structure in a number of areas. The Internet is clearly going to undercut that. Probably what is going to happen is that it will force the financial institutions to offer services comparable to those of the Internet. There will be more extranets, more protected proprietary kinds of networks.

The effect of the Internet will be as a catalyst. It is an enormous force for deregulation in banking, telecom, and a whole series of other areas.

SCHINDLER: Is the Internet now, or could it be, a serious medium for mass transaction-based business?
JEFFREY: Absolutely. From a business point of view, there are two things driving the Internet. One is the expectation of obtaining a lot of new business. That's the predominant thing right now.

But the second factor... If you look at most of the companies doing business over the Internet, one of the main things they are reporting is a lower cost per transaction. Routinely, anywhere between 25 percent and 50 percent lower for things like transaction processing; it can be orders of magnitude lower for distribution of documents and forms.

Of those two factors, what we are starting to see is the Internet as a vehicle for cost cutting. It is a lower cost than telephone, or call centers, or fax, or the standard telecom system.

As we get out of this first phase, where everyone is prospecting for new customers, and the competitive situation stabilizes, the real potential effect is reducing the cost of interacting with customers.

"We are going to go from all this tech-weenie, touchy-feely, isn't it wonderful stuff, to much more hard-headed, bottom-line kinds of things."

Are customers going to care about that? There's a school of thought that says customer loyalty isn't price sensitive. It strikes me as an extremely dangerous assumption, one that has not been borne out by experience in the past.

The Internet as a cost-cutting medium, being able to do things cheaper, in a more convenient manner, you can perform transactions at 3 a.m. You are looking at a lot of businesses where a combination of a lower transaction cost and greater convenience is a very powerful incentive. We are going to go from all this tech-weenie, touchy-feely, isn't it wonderful stuff, to much more hard-headed, bottom-line kinds of things. The normal dynamics of business competition are going to apply via the Web.

We are in the early part of the cycle, where there's still not a genuinely competitive situation out there, but that's not going to last much longer.