(FORTUNE Magazine) – It's tempting to believe that e is, like, over. The searing fire of economic feasibility has scorched all but a handful of Internet startups and corporate e-ventures. A precipitous decline in the number of naive investors has put a major kink in the IPO pipeline. Ad-weary surfers have sent click-through rates plunging, along with the profits of ad-dependent companies like Yahoo. E-whiz consultants such as Scient and Viant have embraced downsizing with old-economy zeal. Arms suppliers like Sun Microsystems and Oracle have seen their share price cut in half (unfortunately not due to any stock split). Indeed, aside from Internet cultists and shameless IT vendors, there's scarcely anyone left on the planet who can utter the words "new economy" without a snort of cynical derision. So, yeah, e is over, if by "e" you mean a wave of overfunded, overhyped startups.

To the horror of all those sandal-wearing, ponytailed Webheads, much fond of aphorisms like "follow the free" and "opportunity before efficiency," the Internet has been captured by the bean counters. Talk about diminished expectations! Is this all that's left of the Net's promise--streamlined procurement, leaner inventories, automated tech support, and better order tracking? How did we get from "the Internet will change life as we know it" to "collaborative planning, forecasting, and replenishment" (current argot for an e-enabled supply chain)? Is e-business nothing more than the mother of all efficiency programs? Where's the revenue boost? Where are the amazing new services? Where are the gob-smacked customers?

It's hardly surprising that e-business has been hijacked by the accountants. After all, CFOs and CIOs, the folks who set and spend IT budgets, are by nature efficiency mavens. They are rewarded for their ability to cut time and costs. Moreover, they are notoriously inward looking. A company's convoluted processes are much more real to the average top executive than the desires and frustrations of distant customers. So it's a whole lot easier for corporate bureaucrats to understand how the Web can simplify well-worn business processes than it is for them to envision dramatically new Web-based services and customer benefits. Building an exchange or a Web-enabled procurement process is an execution problem. Making the Net sing and dance and turn somersaults for customers is an imagination problem--not exactly the long suit of your typical efficiency addict.

As if this weren't enough, a thousand pundits have unanimously proclaimed that B2B is a bonanza and B2C is a bust. But there's a critical distinction between B2C as shorthand for ill-conceived startups and B2C as a label for customer-centric Web initiatives. B2C bombed because most startups had dumb-as-dirt business models, not because the Internet lacks the power to enchant and delight customers in ways hitherto unimaginable. With unfamiliar brands, few customers, and underdeveloped channels, B2C newbies were faced with sky-high customer-acquisition costs and the expense of building fulfillment centers that covered the nation. And since they often seemed intent on putting incumbents out of business, B2C startups provoked strong competitive reactions. In contrast, B2B pioneers were more interested in being parasites than direct competitors--their goal was to suck a bit of value out of the supply chain rather than to steal customers. Even so, most B2B specialists aren't going to end up controlling B2B markets; at best, they'll serve as plumbers and carpenters--building exchanges for industry-sponsored consortia like Covisint and Transora.

Despite the early wins and bold claims, the vast majority of B2B efforts will yield no more than incremental productivity gains. The reason is simple. What matters is not how much a company saves but how much it saves relative to competitors that are equally committed to e-business. The rapid diffusion and near-universal adoption of B2B technology means that the relative cost advantage gained by any one company is likely to be incremental at best. Add to this the pressure for companies within an industry to harmonize--rather than differentiate--their B2B strategies, and it becomes difficult to see how B2B is going to create much in the way of real competitive advantage.

With virtually every large company already on board, the B2B thing will soon be as over as yesterday's mania for Internet stocks. And while B2B isn't going to make shareholders any poorer, it's not going to make them a whole lot richer either.

So what comes next? What should come next is a fierce commitment to putting the customer at the very center of every company's e-business efforts. But it hasn't happened yet. Read any collection of articles on how big companies are using the Web, and you'll find that 80% of the ink goes to B2B. B2C is the poor stepchild, despite the fact that online spending in the 2000 holiday season was up 71% over 1999. Why is this? Well, maybe it's because everyone believes that B2B is bigger than B2C. But bigger in what sense? The value of B2B transactions swamps the value of B2C transactions for the simple reason that goods and services in the making pass through a lot of hands before they reach an end consumer. But just because B2B is bigger in transaction value doesn't mean it's going to make a bigger difference to a company's bottom line. Most B2B-derived efficiencies will be competed away by companies whose products and services are largely uninspired and undifferentiated. On the other hand, digital technologies that create cool new services can create mega-profits. One example is short-messaging service. The ability to send mini-messages (160 characters or less) between mobile phones is a huge hit in Europe. Indeed, SMS is the preferred way for Finnish girls to break up with their boyfriends. With more than two billion messages sent every month all over Europe, and with charges ranging up to 20 cents per message, SMS has turned out to be a colossal money spinner--accounting for as much as 50% of wireless profits for some telcos.

When e-initiatives do focus on the customer, they seldom get much further than online selling, order tracking, and tech support. But B2C should be about exploiting the Net's power to transform the customer experience and create powerful new customer-centered business models. The Internet is going to allow revolutionary-thinking companies to reinvent industries from the customer forward. This is the real promise of the Net; this is where real profits lie. If one of your competitors beats you to the punch, your hyperefficient supply chain won't be enough to save you. If your company is like most, a thin veneer of "customers come first" rhetoric covers a musty old business model that still treats the customer as the last link in the supply chain. This was certainly the case in the world's leading music companies. It took a frontal assault from Napster before BMG, Warner, Universal, and Sony started thinking about customers. Why shouldn't a customer be able to create a customized music library of individual songs? Why, in a digital world, should a customer pay for plastic disks, packaging, and inventory costs? It shouldn't take a near-death experience to get a company working customer-forward.

Study the radical innovators in the offline economy, and you'll invariably find companies that look at the world through customer-tinted glasses. British Airports Authority turned Heathrow's Terminal 4 into an enticing arcade filled with the world's most elegant shops. Starbucks transformed the humble cup of joe into a trendy social event. British-based Pret A Manger created a chain of sandwich shops that, with fare like chicken-and-grape baguettes and Moroccan couscous salad, offer a wonderful alternative to burgers and fries. And Southwest Airlines got everybody flying. Ask yourself, Is your e-strategy going to do anything equally dramatic for the customer experience? If not, you have only half an e-strategy.

Already a bunch of companies are using digital technology to build customer-forward business models:

--The University of Phoenix built an online curriculum that has so far attracted more than 19,000 students who find it more convenient to sit in front of a PC than to sit in a classroom.

--TiVo, along with partners like Philips, Sony, and others, pioneered a programmable digital recording device that allows couch spuds to create a custom "channel" filled with their favorite programs available anytime.

--Singapore is creating a portal that will allow citizens to access the full panoply of government services, categorized by need and function rather than by department and agency.

--Spain's Zara, a clothing maker and retailer, is using digital technology to give its customers thousands of new styles to choose from every year.

Such exemplars constitute a rare breed. To build a customer-forward e-strategy, you'll have to systematically challenge every orthodoxy and every cherished dogma that put the customer anywhere else but at the center of your universe. This isn't as obvious or easy as it sounds.

So let's try a little customer-forward thinking. Do the folks at Home Depot truly understand the bewilderment a customer feels when confronted with a stadium-sized store? Do they empathize with the homeowner who has spent three hours assembling all the various bits and pieces needed for a major improvement project--a customer who will trek back to Home Depot three or four more times for items that were overlooked on the first visit? Here's a customer-forward solution that I'm offering free of charge: A customer with a backyard patio project visits the Home Depot Website. She enters her budget and the space constraints for the project. She is presented with a dozen different plans. With a simple, downloadable blueprint, she resizes and adjusts the plan to suit her needs. She chooses the kind of brick she wants to use, the barbecue she'll be installing, and the shrubs she'll plant around the patio's border. The site generates a list of materials for the project. After reviewing the list and deleting anything she already has, our hypothetical customer submits her order. The next day a pallet arrives at her house loaded with all the materials for the project, including a detailed plan. And if she runs into a problem, there's an 800 number for a Home Depot consultant who will call up her plan and talk her through whatever difficulties she may be having. So what's the orthodoxy at Home Depot? That it's the customer's problem to find and integrate the components of a big do-it-yourself project. What's the alternative? Selling solutions via the Internet.

When you make an online reservation for air travel, why doesn't the airline present you with an intriguing menu of onboard meals, magazines, and ancillary services that you can order in advance? Why shouldn't a passenger be able to order a gourmet meal if he's willing to pay a premium for good food? Why shouldn't he be able to order the New York Times and a current copy of FORTUNE to be delivered seat-side? And why does he have to rent a DVD player from an airport kiosk? Why can't it be brought to him once he's on board? If online e-tailers can deliver a unique bundle of books, CDs, and videos to your doorstep, why shouldn't American and United be able to deliver a unique package of amenities to your seat? And the airlines have an advantage that the e-tailers don't--millions of truly captive customers. What's the orthodoxy? Airlines sell seats. What's the alternative? Selling a bundle of onboard services to suit each passenger, via the Web.

Want to get some quick insights into the orthodoxies that are keeping your company from developing a customer-forward business model? Get a group of employees together and pose this question: What would you never hear a customer say about our company or our industry? For example, you'd never hear an MBA student say that it's possible to earn a degree at Harvard Business School without ever setting foot in Boston. You'd never hear a hotel guest say that check-in was completely automated. You'd never hear a car buyer say that owning a car is hassle-free. More often than not, it is what customers wouldn't say that reveals deep customer-dissing orthodoxies.

Want to tee up a bunch of ideas on how to truly transform the customer experience? Start by making a list of the best and worst feelings you can have as a customer. It's great to feel enthralled, informed, amused, valued, involved, respected, trusted, and confident. It's not so great to feel bored, confused, impatient, ignored, belittled, mistrusted, or misinformed. Next, ask a group of your colleagues to identify the best service experiences they could have as customers. Maybe the best is a day at Disney World or a flight in Virgin's upper class. Maybe it's wandering through London's Burlington Arcade or spending a day at a world-class spa. Having identified five or six enchanting experiences, send out a few small teams to actually enjoy each of them. Arm them with digital cameras and handheld computers. Each time something happens that provokes a good feeling, the investigators should write down what happened and grab a picture too. The goal is to deconstruct these great experiences into the specific things that provoked good feelings. Next, have the team members come back and live through the experience of being a customer of their own company. Have them focus on the not-so-good feelings--the ways in which their company inadvertently irritates or annoys customers. For every less-than-wonderful experience, team members should ask, What have we learned that would let us turn frustration into delight? Customers have a tendency to pigeonhole service experiences. For example, it may not occur to someone who uses the Internet to book an airline seat that the same technology ought to make it possible to make a doctor's appointment online. Only by understanding why some customer experiences are exceptional and others pedestrian is it possible to generate the kind of insights that can transcend orthodoxies and transform customer expectations.

The Net will create hundreds, maybe thousands, of opportunities to profitably redefine customer expectations--but only if your company is thinking outside-in and customer-forward. Any e-business initiative that isn't built atop customer insights that are both profound and novel will end up as little more than digitally enhanced reengineering.

GARY HAMEL is the chairman of Strategos, a strategy consulting firm, and the author of Leading the Revolution.

FEEDBACK: gh@strategos.com