Business Students Flock to Courses on Electronic Commerce In a U. of Texas program, grades depend largely on performance in a virtual marketplace By KATHERINE S. MANGAN Austin, Tex. A group of Mexican M.B.A. students had a term paper to write and $10,000 in virtual cash to spend. So they took a trip to the electronic mall, where they found a deal they couldn't refuse: A team of students from Texas was offering a shortcut that would save the buyers hours of library time. It comprised a package of articles and interviews about Internet-service providers that the Mexican students could refer to in writing a paper on the same topic. They weren't buying a term paper -- just some focused information to help them write their own. The package even came with a guarantee: If it didn't help the Mexican students ace the paper they had to write for their course in on-line commerce, the Texas students would refund some of the money. Five hundred virtual dollars changed hands, and the five Texas M.B.A. students chalked up another sale for their fledgling company, Grade Sensitive Pricing Inc., which does business only on line -- and, in fact, only with other participants in an innovative program aimed at teaching students how to do business in a new era of on-line retailing. Indeed, transactions like that are taking place every day at the University of Texas and more than a dozen other business schools across the country, where electronic commerce is one of the hottest new academic specialties. The students from the University of Texas Graduate School of Business and the Mexico City campus of the Monterrey Institution of Technology and Higher Education are taking part in the "Experimental Digital Economy," run by the University of Texas, in which teams of students create on-line businesses on an Intranet open only to program participants. The teams sell their products to other students; the products are mostly research notes and expert interviews that help the buyers with their course work. The buyers use the material in doing research for their papers, but there are strict rules: The sellers can't actually write the papers for the buyers, and students are limited in the amount of research they can buy on line. "We want to give students a chance to see what it takes to succeed in a digital economy," says Anitesh Barua, a professor of management science and information systems at the Texas business school. "Here, students create the supply and demand in a virtual economy that mirrors what's going on in the real world." At Texas and elsewhere, students are flocking to the new e-commerce programs, hoping that their academic experiences will impress companies that are venturing onto the Internet. Increasingly, companies are looking for cyber-executives to help them navigate the uncharted waters of the World-Wide Web, where many businesses founder, and many fail. On-line retail sales are expected to reach $22-billion this year, up from $7-billion in 1998, according to researchers at Carnegie Mellon University. Business-to-business sales on line are expected to total $110-billion this year, up from $42-billion. While many of the traditional rules of business apply on the Internet, companies are often unprepared for its challenges -- like the difficulty of establishing trust with unseen customers and persuading them to buy products they can't touch. When a competing company is just a mouse click away, and most interactions involve none of the human interaction that might help to inspire customer loyalty, businesses have to come up with new strategies to attract and keep customers. Chris Sgarlata and his teammates at Grade Sensitive Pricing Inc. did that by linking the price of their product to the grade the buyers receive. Another student-run company, which also sold information for research papers, promised a one-hour turnaround on all customer-service calls, 24 hours a day, even if it meant having a sleepy student on call in the wee hours. By learning to create digital products, build and maintain Web sites, advertise their products, and communicate with customers, students on the selling teams draw on skills from many disciplines. The teams of buyers are not graded directly on their participation in the experiment, but they benefit from the research they buy, which cuts down on the amount of time they have to spend in the library. "The economy is changing rapidly, and we have to change the way we educate our students," says Andrew B. Whinston, who directs the Center for Research in Electronic Commerce at the University of Texas at Austin (http://cism.bus.utexas.edu). "In the real world, business is not compartmentalized into finance, marketing, and management, the way it is taught in most business schools. In electronic commerce, students have to integrate those lessons across the curriculum." Other business schools that have or are about to start electronic-commerce programs include those at Duke, Harvard, National, Rutgers, Stanford, and Vanderbilt Universities; the Massachusetts Institute of Technology; and the Universities of Denver, Maryland at College Park, Michigan, and Rochester. Those business schools, among others, are scrambling to offer programs in the booming new field. But some of the programs may be more flash than substance, experts say. "Because it's such a hot item in the business world right now and seems to be driving some of the most recent run-up in the stock market, there's a real temptation on the part of business schools to say, 'We're on top of this,'" notes Charles W. Hickman, director of projects and services at the International Association for Management Education, which accredits U.S. business schools. However, he adds, "when you actually look at the degree programs and course sequences, you have to question how much is new and how much is repackaging existing courses and tying a nice ribbon on it." Mr. Sgarlata appreciates what he calls the "real-world applications" of the Experimental Digital Economy. His company is one of several that have electronic storefronts posted on line in the Intranet's shopping mall. "It's more than just building a flashy Web site," he says. "You have to use strong marketing skills and really get into the mindset of the customers. A lot of strategic thinking goes on." In Texas's e-commerce program, classes are divided into teams of about five buyers and sellers each (all of the sellers are at Texas). Several other universities participate in the Experimental Digital Economy program, including George Mason University and the University of Southern California. At the beginning of the semester, each team of buyers is given $10,000 in virtual cash, which can be used to buy research material and software to help complete their course work. Any unspent money at the end of the semester is converted into bonus grade points. Sellers form on-line companies that take advantage of an electronic marketplace in which they can sell information useful to buyers. The data might include compilations of research articles and interviews with experts in a particular field. There isn't a lot of guesswork involved: Before they begin creating their products, the sellers have a list of assignments that the buyers must complete. Mr. Sgarlata and his colleagues knew that the Monterrey Tech team was working on a paper on Internet-service providers. So the Texas team compiled a list of articles and interviews with Internet experts. Most of the information came from newspaper and magazine articles. The students packaged it and listed it for sale for $500. When members of the Monterrey Tech group went surfing for a bargain, the Texas offer was one of several that had what they were looking for. What set the Texas team apart was its name -- Grade Sensitive Pricing -- and its unique promise: If the buyers get anything less than an A on their paper, a portion of their money would be refunded. The lower the grade, the bigger the refund. They're not dealing with real money, but the students nonetheless have a lot at stake. Up to half of their grade in the introductory electronic-commerce course depends on how their company performs. And at the end of each semester, the three or four companies with the biggest profits get real cash prizes, of up to $1,000. "There's almost a comic level of competition for banner ads," says Mr. Sgarlata, referring to the images that appear on the screen when a student logs on to the mall. "People will put up five ads in a row just to push everyone else off the screen." Other students have gone to great lengths to conceal winning strategies from competitors -- identified according to their log-ins -- by steering them to phony storefronts and customizing the best deals for repeat customers. "The Internet is radically different from traditional markets, and we're discovering that you need radically different approaches for teaching business," says Donna L. Hoffman, an associate professor of management at Vanderbilt's Owen Graduate School of Management. She founded and directs its M.B.A. program in electronic commerce, one of the first such programs. Twenty per cent of Vanderbilt's 410 M.B.A. students are specializing in electronic commerce, which involves taking at least four courses in the field over two years. Peter E. Veruki, director of career planning at the Owen School, says that graduates of e-commerce programs are getting lots of offers, but that the job market isn't without its wrinkles. "A lot of our students are getting jobs with companies we've never heard of by networking electronically," he says. "But it's a different kind of job market. These companies don't hire months in advance -- they'll offer a job, but they'll need it filled right away. It makes for a frenetic job search." Many large companies that sell on line hire big consulting companies to do the job for them. Consultants like Ernst & Young LLP are snapping up e-commerce graduates to fill that role. For faculty members who are teaching electronic commerce, the field offers a different challenge. Because it is a relatively new and interdisciplinary field, e-commerce is a somewhat risky choice for non-tenured faculty members who need to make a name for themselves. Tenure committees typically still look for expertise in a specific discipline, like finance, marketing, or management. E-commerce requires a more general knowledge of a variety of specialties. "The curriculum changes almost daily," says Chriss Swaney, a spokesperson for Carnegie Mellon's Graduate School of Industrial Administration. "The technology is changing so quickly, it's a challenge to keep up." Ms. Hoffman, of Vanderbilt, says that when she and a few colleagues ventured into the field, they encountered plenty of skeptics. "People said, 'It's a fad -- it's going to be a waste of time. It's a good thing you're tenured.' We ignored them and plowed on. It seemed like it was going to be so big. "It's no longer just high-tech firms and Internet start-ups," she says. "Now it's every company. No one can be in business any more and not be in Internet commerce." http://chronicle.com Section: Information Technology Page: A25