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.
1. A. Chandler and H. Daems, “Administrative Coordination, Allocation and Monitoring: A Comparative Analysis of Accounting and Organization in the U.S.A. and Europe,” Accounting, Organizations and Society 4 (1979): 3–20.
2. O. Williamson, “The Modern Corporation: Origin, Evolution Attributes,” Journal of Economic Literature XIX (1981): 1537–1568.
3. M. Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), pp. 42–43.
4. Office of Technology Assessment, Electronic Enterprises: Looking to the Future (Washington, D.C.: U.S. Government Printing Office, OTA-TCT-600, May 1994).
5. E. Hollings, Communications Competititveness and Infrastructure Modernization Act of 1990 (Washington, D.C.: U.S. Government Printing Office, report of the Senate Committee on Commerce, Science, and Transportation, 12 September 1990).
6. Vice President Albert Gore, remarks to the National Press Club, 21 December 1993.
7. “Fun Facts and Figures from the Internet Index,” Boston Globe, 30 December 1993.
8. B. Leiner, “Internet Technology,” Communications of the ACM, August 1994, p. 32. This issue of CACM also contains a number of other articles on different aspects of Internet technology.
9. T. Malone, J. Yates, and R. Benjamin, “Electronics Markets and Hierarchies,” CACM 1987, p. 485; and
A. Picot and C. Kirchner, “Transaction Cost Analysis of Structural Changes in the Distribution System: Reflections on Institutional Developments in the Federal Republic of Germany,” Journal of Institutional and Theoretical Economics 143 (1987): 62–81.
10. Williamson (1981), pp. 1545–1551.
11. Malone et al. (1987), p. 485.
12. R. Benjamin and J. Yates, “The Past and Present as a Window on the Future,” in M.S. Scott Morton, ed., The Corporation of the 1990’s (New York: Oxford University Press, 1991), pp. 61–92.
13. Malone et al. (1987); and
T. Malone, J. Yates, and R. Benjamin, “The Logic of Electronic Markets,” Harvard Business Review, May–June 1989, pp. 166–172.
14. Williamson (1981), p. 1548.
15. Malone et al. (1987), p. 485; and
A. Picot, Ein neuer Ansatz zur Gestaltung der Leistungstiefe, Zeitschrift für betriebswirtschaftliche Forschung 43 (1991): 336–359.
16. Malone et al. (1987).
17. Malone et al. (1989).
18. G. Stalk, P. Evans, and L. Shuman, “Competing on Capabilities: The New Rules of Corporate Strategy,” Harvard Business Review, March–April 1992, pp. 57–69; and
R. Benjamin and M.S. Scott Morton, “Information Technology, Integration and Organizational Change,” Interfaces 18 (1988): 86–98.
19. J. Womack, D. Jones, and D. Roos, The Machine That Changed the World: The Rise of Lean Production (New York: Harper Perennial, 1990).
20. R.F. Maruca, “The Right Way to Go Global: An Interview with Whirlpool CEO David Whitwam,” Harvard Business Review, March–April 1994, pp. 134–145.
21. D.B. Miller, E.K. Clemons, and M.C. Row, “Information Technology and the Global Virtual Corporation,” in S.P. Bradley, J.A. Hausman, and R.L. Nolan, eds., Globalization, Technology and Competition (Boston: Harvard Business School Press, 1993), pp. 283–307.
22. Y. Bakos, “Electronic Marketplaces,” MIS Quarterly, September 1991, pp. 295–310.
23. Bakos (1991), p. 300.
24. Bakos (1991), p. 301.
25. D. Lindsey, P. Cheney, G. Kasper, and B. Ives, “TELCOTTM: An Example of the Use of Information Technology in the Cotton Industry,” MIS Quarterly, December 1990, pp. 347–357.
26. “The Next Giant in Mutual Funds,” New York Times, 20 March 1994, section 3, p. 1.
27. H. Brubach, “Mail-Order America,” New York Times Magazine, 21 November 1993, p. 55.
28. “Hopes and Fears on New Computer Organisms,” New York Times, 6 January 1994, p. D1.
29. G. Gilder, “Telecosm ‘Digital Darkhorse – Newspapers,’” Forbes ASAP, 25 October 1993, pp. 139–149.
30. S. Levy, “Bill and Andy’s Excellent Adventure II,” Wired, April 1994, p. 107.
31. Office of Technology Assessment (1994), pp. 30–31.
32. D. Copeland and J. McKenney, “Airline Reservation Systems: Lessons from History,” MIS Quarterly, September 1988, pp. 362–364.