NEW BUSINESS MODEL & STRATEGY FOR INTERNET ECONOMY

Business Model

A business model describes what a firm will do, and how, to build and capture wealth for stakeholders

Effective business models operationalize good strategies -turning position and fit into wealth

Four Aspects of Business Models

Revenue Sources Cost Drivers Investment Size Critical Success Factors

Effective Business Models Require Hard Choices

About who matters Owners, investors, family, workers, community About what kind of wealth matters Financial capital, social capital, intellectual capital...ie., cash, good life, rich family life, entrepreneurial impact, social impact About the strategy that will deliver the wealth that matters to the stakeholders that matter About the structure that supports strategy

Good Execution is More Important than Good Strategy!

Seeing a position or approach is fundamentally creative

Immersion, scenarios, future search,

Constructing a strategy involves careful analysis and planning Executing a strategy requires relentless discipline
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Strategy for Internet Economy

The Web (Cluster/Platform) Strategy

Webs not the WWW, but clusters of companies collaborating around a particular technology Web a new form of industrial structure Webs create powerful new ways to think about strategy, risk, technological uncertainty and innovation Examples Microsoft/Intel; Novell PC networking system; SAP integrated IT solutions; Netscape; Sony playstation etc.
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Economic Web

Two compulsory conditions: Technological Standard & Increasing Returns Tech standard reduces risks allowing companies to make irreversible investment decisions in face of technological uncertainty Increasing Returns create a mutual dependence that strengthens the web by drawing in more and more customers and producers

Characteristics of the Web

Webs are not alliances no formal relationships between participants Different from virtual organisations The Pursuit of economic self-interest drives behaviour Each company independent and prices, markets; and sells products autonomously Webs are natural responses to risk and uncertainty in turbulent environment The safety net of the web allows a firm to focus exclusively on activities it can offer distinctive value Web reduces overall investment requirements; focus investments on areas most likely to succeed; promote multiple suppliers for bottleneck components
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Strategic Roles in Webs

Shapers Focus on fluidity and opportunities to determine or influence outcomes; mold the environment in ways enhancing their ability to create values [define] Adapters Deal with uncertainty by staying one step ahead of other players in responding to & anticipating environmental changes Profound implications for strategy and tactics (e.g. Microsoft versus Dell)

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Success Factors for Shapers

Ownership of a key platform technology shapes broader architecture & long-term lock-in (IBM Versus Microsoft/Intel) Reliance on economic incentives to mobilise other web participants Active management of increasing returns dynamics to accelerate web growth

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Success Factors for Adapters

Early participation in winning value webs establish pre-emptive position in attractive market Aggressive competition for share within the value web strengthen relationship with shapers for information Linking or diversifying position linking strategy with key shapers or straddle several webs

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What is Distinctive about Web Strategy

New mindset required new way of thinking about industry structure, relationships between companies and value creation Unbundling and out-sourcing of undifferentiated business activities (what about transformational outsourcing?) Maximising value for entire web by shapers not just the company (market share vs size of pie) Strategic decision - webs to join/form & roles to play New performance measurement Product design satisfy customers but also appeal to providers of complimentary products & services Information systems beyond the enterprise
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Strategies for Internet Economy

Internet economy refers to conducting business thro markets whose infrastructure is based on the internet and www. Metcalfes law: the usefulness of a network like the internet grows exponentially as the number of users grows. Competing in an internet age is more than just a matter of doing everything faster

Internet and the Value chain

Every activity in value chain involves the creation, processing, communication of information. So IT has a pervasive impact on the chain. Special advantage of internet is linking one activity with others, make real time data created in one activity widely available Internet provides EDI through relational databases and wireless communications.

The Value Chain

A company is a chain of activities for transforming inputs into outputs that customers value including the primary and support activities.

Strategic guidelines for Internet Economy

Develop an E-Business strategy Hire and develop capable staff Build a knowledge system Focus on being a market leader in process innovation

Internet and Competitive Advantage

Operational effectiveness Strategic positioning Principles of strategic positioning: - Goal - Value proposition - Distinct value chain - Trade- offs - Mutually reinforcing - Continuity of direction

New Business Model

HP printer division (razor and blade strategy) Google (sponsored links) Southwest airlines (cost effective strategies, Point to point service) Dell (direct marketing sales and service)

Types of internet business model given by Wirtz 2000

Content Collection, selection, compilation and supply of contents Commerce Initiation, negotiation or realization of business transactions Context Classification and systematization of information available on the internet Reduction of complexity/navigati on Connection Creation of the possibility of an information exchange in networks Creation of technological, commercial or communicatio nal connections in networks AOL

Definition

Exam Aim ple

Online-supply of Completion consumer respectively oriented, substitution of personalized traditional contents transaction steps by the internet Mp3.com Financialtimes.c om Amazon Dell Ebay

Yahoo!