Background Concepts (1/3)

Transcription

1 Impact of Internet on Business: Internet tv Value Chain &V Value Webs Prof. Dr. Hans Akkermans Dr. Jaap Gordijn Free University Amsterdam VUA 1

2 The Impact of Internet on Business Reader: articles Porter: Strategy and the Internet Tapscott et al.: Digital Capital (Business Webs) Important background concepts to understand First-mover advantage Partnering, sourcing Sustainable competitive advantage Industry structure (and entry barriers) (Dis)intermediation Value proposition Operational excellence Trade-offs in decision making Strategic fit and integration Important background concepts to understand (ctd.) Value chain and competitive forces models Switching costs Transaction costs Network effects (network externalities) Cost leadership vs. differentiation vs. focus (forms of competition) The role of (Internet) standards Channel conflicts 2

3 Background Concepts (1/3) Switching costs: : effort or difficulty for a customer to switch to another supplier Transaction costs: : costs relating to letting other companies doing things for you (compared to doing it yourself) Fundamental problem of economic market theory: why not just one-person companies if free market is ideal? Network effects: : cumulative effect on usefulness when an innovation is adopted by more individuals (> linear, e.g. exponential) 3

4 Background Concepts (2/3) Different generic competitive e strategies: Cost leadership: : consistently producing cheaper than your competitors, and so achieving a price advantage Differentiation: : producing with special difficult- to-imitate product features, so that you can command a premium price Focus: : concentrating on very specific markets that you know better or have easier access to than your competitors (niche strategies) 4

5 Background Concepts (3/3) Role of (Internet) industry standards: + standardization makes it easier for your industry sector collectively to create or grow markets as a whole standardization makes it easier for your competitors to imitate or bypass your proprietary solution that enables customer lock-in by you individually id Channel conflicts: : conflicts of interest to be handled by a producer, if its products are simultaneously marketed via different distribution and sales channels e.g. physical stores as well as direct online 5

6 Tapscott: Classification of b-webs (1/2) selforganizing Agora Alliance Con ntrol Aggregation Distributive Network Value Chain Hierarchical Low Value integration High 6

7 Tapscott: Classification of b-webs (2/2) Main theme Agora Aggregation Value chain Alliance Distributive networks Dynamic pricing Selection & convenience Process integration Creativity Allocation & distribution Value Liquidity Optimization Design & Creative Exchange & proposition of selection, delivery of integrated product community supporting shared goals delivery of information, goods & services Customer Market Buyer Vl Value di driver Contributor t Sender/ role player recipient Knowledge focus Timing, market kt intelligence Market segmentation, tti supplier offerings, fulfillment Innovation, supply-chain hi management Community, creativity, it standards & roles Network optimization, i visibility & transparency Key process Price discovery Needs matching Product design, supply-chain management Innovation Distribution 7

8 Tapscott: Techniques to describe b-webs Product Manu- facturers/ Assemblers Planning knowledg edge Value maps Orders Assembled products Orders Planning knowledge Customers S Payment for products $ Payment for assembly Demand System desig gn input Parts Usage knowledge Product knowledge Shows who exchanges: $ Payment for parts Products Demand Distributors Cisco Things Integrated solutions Usage knowledge $ Paymenr for solutions Orders service Customer Strategic Knowledge Knowledge Product knowledge $ Payment for parts Deman and System design input Planning knowledge Intangibles Orders Usage knowledge Customer loyalty Parts System design inpu put Orders Sales Channels $ Commision Component Suppliers Planning knowledge 8 Goods, services, revenue Knowledge Intangible benefits

9 Porter: Strategy and the Internet Industry clearly showed ( 2001) how ecommerce / ebusiness does not work: Revenues are not realistic: subsidy bid of sales, transactions due to curiosity (and not consumer value) Expenses are not realistic: at buy-side subsidized inputs, subsidizing information provisioning (Yahoo) by sellers, payment of employees by stock options rather than salary Other, non value related metrics: click-rate,,p page- views, market share potential 9

10 Porter: Competitive Forces and Internet (-) Reduces differences among competitors as offerings are difficult to keep proprietary (-) Price competition (-) Number of competitors increases due to geogroaphical scope (-) Lowers variable costs, thus incentive for discounts Bargaining power of suppliers (+) market size expanses (-) proliferation causes new substitutes Threat of substitute Rivalry among existing competitors (+ ) reduces powerful channels (-) power shift to end consumers (-) reduces switching costs Bargaining power of buyers Barriers to entry (+/-) due to e-procurement more bargaining power over suppliers (-) suppliers are bypassed (-) reduces barriers to entry by their own suppliers (-) equal access to suppliers with standard products (virtualization) (-) Internet apps are difficult to keep proprietary (-) flood of new entrants 2006 Vrije Universiteit (+/-) indicates effect on an industry 10

11 Porter: Conclusion on Internet and Value Creation Statements: Many enterprises have artificial profits There are no new rules of competition Companies that use the Internet (so not just technology providers) should be able to create economic value with it. Key factors are: Industry structure Sustainable competitive advantage 11

12 Some reactions on Porter s view(1/2) Porter: hardly any network effects Ticoll: Proven network effects (Amazon, Ariba, CommerceOne, Napster, ebay) Porter: pure online brands are difficult to create Ticoll: new brands are always difficult to create 12

13 Some reactions on Porter s view (2/2) Partnering (often seen in Internet business): Porter: Partnering requires product standardization, so in the end it depresses profitability. So vertical integration is the preferred strategy (over virtualization/partnering) Ticoll: IBM and MS show counter-argument: here standardization spawned off a significant industry Choice between one company versus many small ones is determined by transaction costs. Internet resulted in decrease of transaction costs and thus partnerships emerge (with focused enterprises that can exploit economies of scale) 13

14 Networked Business Models: The Logics of Value Creation Value chains become networked Emergence of networked business models: : Value webs Analyze cross-companycompany offerings, business models, workflows Role of customer increases in service-based Information Society 14

15 Arguments about Internet Value Chain Note 1: underlying worldview of Porter is the well- known industrial production line Note 2: E-business: not linear chain, but (dynamic) network connected and enabled by ICT and IS Note 3: ICT as strategic factor, not just cost cutting 15

16 Case Examples for Discussion (by videoclip) Digital content: online music, video, news Universal connectivity Energy: smart homes and smart grids. Requires out-of of-the-box thinking 16

17 Key points: Know and remember these! Internet impact on value chain, value networks Value chain change due to ICT and e-business: Connectivity it of chains From value chain to value network Interacting drivers: business, market, technology Role of Information Systems (IS) to enable Increasing role of customer (and interactivity) Porter vs. Tapscott et al.: differing views on how fundamental Internet impact on business is 17

18 Assignment A3: Classroom Debate Porter: Porter versus Tapscott! Tapscott et al.: It Internet t no more than Cheers! for the Internet t as complement of business as disruptive innovation of usual existing businesses Network effects are absent Network effects are present Partnering is economic Partnering creates new nonsense economic opportunities Internet branding is failure Successful e-brands exist Internet standards destroy Internet standards help create competitive advantage new id industry and market kt First-mover advantage is Successful and sustainable phantasy first movers do exist Strong vertical integration is Loose aggregation and other best strategy new business models work 18