â€śThe Internet changes everything.â€ť Although this might have been an overstatement just two years ago, it is clearly not so today. The impact of the Internet is obvious in business-to-consumer transactions: witness the proliferation of Web sites for facilitating sales and services across a broad range of offerings. But the real revolution is happening in business-to-business value chains as companies restructure their operations with trading partners. The Internet also has had a profound impact on the valuation of individual companies and economic sectors. This can be seen not simply in the incredible market capitalization of companies whose business models are rooted in the Internet (e.g., Amazon, eBay, Yahoo!, Priceline), but also of companies that provide the technical infrastructure for the Net economy (e.g., Intel, Microsoft, AOL, IBM, Cisco). Such valuationsâ€”although highly volatileâ€”are compelling established companies to seriously assess whether they will lose out to relative upstarts that are leveraging their lofty valuations into tangible capabilities through acquisition. The Internet has also evolved beyond personal computers; soon it will be commonplace to access the Net through cellular telephones (Nokia, Ericsson), personal organizers (Palm Computing, Psion), videogame consoles (Segaâ€™s Dreamcast or Sonyâ€™s PlayStation), as well as home appliances (Electrolux, Whirlpool), vending machines (Maytag), and automobiles (GMâ€™s Onstar and Microsoftâ€™s AutoPC). In short, the Internet has become more than a simple and effective way to exchange e-mail and documents; it is emerging as a critical backbone of commerce. And, it is happening at a faster pace than many thought possible1 and with which few feel comfortable. But, if you ask managers about the strategies for their Internet businesses, you get a bewildering array of responses. Some mention the functionality of the Web (â€śyou can get the details of our latest new product introductionsâ€ť); some highlight their choice of platform (â€śwe are driven on the Oracle platform or IBMâ€™s e-business infrastructure or Hewlett-Packardâ€™s latest suite of e-servicesâ€ť). Some trumpet how they use the Web to enhance customer service (â€śwe provide enhanced customized serviceâ€”such as specialized pricing and promotions or provide rapid response to customer inquiriesâ€ť), whereas others point to their success in integrating the physical and digital infrastructures to provide seamless service (â€śour customers can interact with us in branches, by telephone, or over the Net without any differences in cost or service levelsâ€ť).
1. For example, see:
M. Cusumano and D. Yoffie, Competing on Internet Time: Lessons from Netscape and Its Battle with Microsoft (New York: Free Press, 1998).
2. M. Porter, Competitive Strategy (New York: Free Press, 1980).
3. M. Dell, Direct from Dell (New York: Harper Business, 1999).
4. Personalization and dynamic customization are important avenues for redefined customer interactions in the post-industrial world. See:
N. Venkatraman and J.C. Henderson, â€śReal Strategies for Virtual Organizing,â€ť Sloan Management Review, volume 40, Fall 1998, pp. 33â€“48. See also:
D. Peppers and M. Rogers, Enterprise One to One: Tools for Competing in the Interactive Age (New York: Currency Doubleday, 1997).
5. The latest version of Palm Computingâ€™s Palm VII has infrared wireless capability to access the Net, and a variety of services and accessories will support this platform.
6. For a broad overview, see:
N. Negroponte, Being Digital (New York: Knopf, 1995). For up-to-date views, see: nicholas.www.media.mit.edu/people/nicholas/. See also:
N. Gershenfeld, When Things Start to Think (New York: Henry Holt, 1999); and also see Gershenfeldâ€™s Web site: www.media.mit.edu/ttt.
7. For an elaboration of this view, see:
G. Hamel and J. Sampler, â€śThe E-Corporation,â€ť Fortune, 7 December 1998, pp. 80â€“92; and
G. Hamel, â€śBringing the Silicon Valley Inside,â€ť Harvard Business Review, volume 77, Septemberâ€“October 1999, pp. 70â€“84.
8. For a good general discussion of the role of experimentation, see several articles in the fortieth anniversary issue of Sloan Management Review. In particular, see:
C.C. Markides, â€śA Dynamic View of Strategy,â€ť Sloan Management Review, volume 40, Spring 1999, pp. 55â€“63;
E.D. Beinhocker, â€śRobust Adaptive Strategies,â€ť Sloan Management Review, volume 40, Spring 1999, pp. 95â€“106; and
P.J. Williamson, â€śStrategy as Options on the Future,â€ť Sloan Management Review, volume 40, Spring 1999, pp. 117â€“126.
9. Miguel Helft, â€śWal-Mart Teams Up with Accel,â€ť Industry Standard, 6 January 2000 (www.thestandard.com/article/display/0,1151,8649,00.html).
See also: www.accel.com/news.
10. J.T. Chambers, â€śThe New Economy Is the Internet Economy,â€ť white paper (San Jose, California: Cisco Systems, 1998); and see: http://www.cisco.com/warp/public/750/johnchambers/internet_economy/.
11. See www.intel.com for speeches by Andy Grove and other Intel senior managers.
12. Alex Lash, â€śA New Strategy for MSN. Again,â€ť Industry Standard, 27 September 1999 (www.thestandard.com/article/display/0,1151,6571,00.html).
13. For a detailed discussion on the role of financial markets in disciplining decisions, see:
M. Amram and N. Kulatilaka, â€śDisciplined Decisions: Aligning Strategy with Financial Markets,â€ť Harvard Business Review, volume 77, Januaryâ€“February 1999, pp. 95â€“104. See also:
M. Amram and N. Kulatilaka, Real Options: Managing Strategic Investments in an Uncertain World (Boston: Harvard Business School Press, 1999).
14. Real options have emerged as a powerful approach for dealing with resource allocations under uncertainty. See:
N. Kulatilaka and N. Venkatraman, Real Options in the Digital Economy (Financial Times Mastering Management Series, September 1999); also see: www.real-options.com;
K. Leslie and M. Michaels, â€śThe Real Power of Real Options,â€ť McKinsey Quarterly, number 3, 1997, pp. 4â€“22; and www.mckinseyquarterly.com.
15. See, for example, Kevin Kellyâ€™s Wired magazine columns; and
K. Kelly, New Rules for New Economy (New York: Viking Books, 1998). For discussions on the information economy, see:
C. Shapiro and H. Varian, Information Rules (Boston: Harvard Business School Press, 1999).
16. New business magazines, such as Business 2.0 (www.business2.com), deal with the creation of business models for the new economy. See also: Wired (www.wired.com); and
Fast Company (www.fastcompany.com).
17. This is evident in the volatility of the stocks of those dot-com companies whose sites have experienced outages.
18. See, for example:
A. Cavoukian and D. Tapscott, Who Knows: Safeguarding Your Privacy in a Networked World (New York: McGraw-Hill, 1997).
19. See, for example:
E. Brown, â€śBig Business Meets the e-World,â€ť Fortune, volume 140, 8 November 1999, pp. 88â€“98. For articles dealing with how established companies are striving to respond to the dot-com agenda, also visit
Fortune (www.fortune.com); and
The Economist (www.economist.com).
20. A.S. Grove, Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company (New York: Random, 1996).