Electronic Markets and Virtual Value Chains on the Information Superhighway

Electronic markets may soon affect the evolution of the national information infrastructure (NII), or in formation superhighway, as well as the emerging global infrastructure. As the NII is connected to consumers’ homes, market activity will rapidly expand. When this happens (most likely over a ten-year period), significant changes in the economics of marketing channels, patterns of physical distribution, and the structure of distributors may also occur. In this article, we draw on previous research on transaction costs and electronic markets to suggest that: (1) all intermediaries between the manufacturer and the consumer may be threatened as the NII reaches out to the consumer; (2) profit margins may be substantially lowered and redistributed; (3) the consumer will have access to a broad selection of lower-priced goods; and (4) there will be many opportunities to restrict consumers’ access to the potentially vast amount of commerce.

Central to the evolution will be the way in which the “market choice box,” the consumer’s interface between the many electronic devices in the home (television, telephone, and computers), the information superhighway, and the vast variety of market choices, will be implemented. Although many of these potential areas of restricted access are being debated in public policy arenas, the market choice box, a technology component, may become a critical component of free access and thus needs policy-makers’ scrutiny.

In the following sections, we examine electronic markets and the industry value chain from the perspective of transactions and transaction costs. We present a model of the NII that delineates key technology elements and stakeholders and identify several highly leveraged opportunities for redefining industry value chains. Finally, we suggest issues that executives and policymakers should focus on in the near future.

New Links in the Value Chain

It is becoming increasingly difficult to delineate accurately the borders of today’s organizations. Driven by IT’s ability to produce ever cheaper unit costs for coordination, organizations are implementing, increasingly rapidly, new links for relating to each other. These links take many forms, such as electronic data integration, just-in-time manufacturing, electronic hierarchies and markets, strategic alliances, networked organizations, and others. The new forms indicate an ongoing transformation of value chains due to technological change.

The proposed national information infrastructure presents an idealized model of everything connecting to everything else, at an extremely high bandwidth and at relatively low user costs.

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