CHAPTER 3

COMPETITIVE LANDSCAPE-CHANGING PROPERTIES OF THE INTERNET

This chapter answers the question;• What makes the Internet a better technology?• Does it have potential to transform competitive

landscape?• Look at properties of the Internet that have the

potential to influence business models & industry profitability.

PROPERTIES OF THE INTERNET

1. Mediating Technology2. Universality3. Network Externalities4. Distribution Channel5. Time Moderator6. Information Asymmetry Shrinker7. Infinite Virtual Capacity8. Low Cost Standard9. Creative Destroyer10. Transaction Cost Reducer

Interactive Activity

1. Which industries stand to benefit the most from the Internet?

2. Which activities (business processes/activities) are least likely to be impacted by the Internet?

wiki

Industry-

……the people or companies engaged in a particular kind of commercial enterprise

……the organized action of making of goods and services for sale;

1. MEDIATING TECHNOLOGY

• Interconnects parties that are interdependent or want to be

• Can be B2B,B2C or C2B• It facilitates exchange relationships among

parties distributed in time & space.

To succeed in finding a solution.

2. UNIVERSALITY

• Refers to the Internet's ability to both large & shrink world. Anyone can sell anything anywhere thro Internet service can be retrieve across the globe. E.g. software developer's services & experiences.

3. Network Externalities

• As more people take advantage of the Internet the more it became useful.

• Phone example, Kazaa file sharing, bit torrent

• (Bob Metcalfe) Metcalfe’s Law: N “The value of a network increases as the square

of the number of people in the network”

N

4. DISTRIBUTION CHANNEL

• Acts as a distribution channel for products that are largely information-bits (0110100)

• Replacement effect of the internet that the internet serves using the old distribution channel

Replacement effect &extension effect

• Replacement effect-book example• Extension effect- brokerage online

5. TIME MODERATOR

• Ability to shrink & enlarge time• Shrinks time for potential customers to find

information on buying cars• Enlarge time by for example: work on a software

program that starts in japan and sends it o US to finish it off and sends back to Japan

Work starts here. Software

development

Extend development

here.

6. INFORMATION ASYMMETRY SHRINKER

• Exist when one party to a transaction has information that another party does not

• E.g source of advantage of a car dealer,car dealers always knew the cost of the car but the customers don’t

• Therefore the web offers information to the customer

7. INFINITE VIRTUAL CAPACITY

• Technological advances that improve storage & network technologies

• Similar to Moore’s Law.

8. LOW COST STANDARD

• Internet are open standards and very easy to use. Information is transmitted & received using the same protocol.

• Cost is very low, the remaining cost are shared among millions of user since it is a standard

9. CREATIVE DESTROYER

• The Internet is a low cost standard printing press of sorts and a distribution network with unlimited capacity .It tears down large part of the barriers to entry that exist it that industry

• Creative destruction of the newspaper industry.

newspaper

• High cost• Printing• Distribution

network• Brand names.

$$$$

10. TRANSACTION-COST REDUCER

• Cost of searching for sellers & buyers, collecting information on products, negotiating, writing, monitoring & enforcing contracts. All this activities cost money.

• It reduces the cost by providing information on buyers & sellers & products on the Web.

• Some products can be ‘shipped’ over the web e.g. software, music, videos, ect. thus reduces transportation cost.

NEXT WEEK PART2

• Quiz #2 due next week 1 week from today.• 7-8 page min.• Tutorial???• How to write a good paper.

IMPACT OF THE INTERNET ON THE 5-Cs

• The ability to envision & delivering value to customers require the performance of many activities that rest on information exchange. 5 activities are;• Coordination• Commerce• Community• Content • Communication

The 5-Cs

1. Coordination

• Ensure that each subtask is performed.• Sharing of information is done constantly• Resources are shared accordingly to perform

task

• E.g. task T requires the performance & coordination of subtask A,B & C.

• Development of Pentium III, design & building of Boeing 777

2. Commerce

• Performing commerce over the internet has low cost standards & universality standards

• Potential customers all around the world• Types of e-commerce

1. B2B2. B2C3. C2C4. C2B

3. Community

• Electric community have many advantages over physical communities

• Virtual community can congregate online through chat rooms & message boards

• The advantage of universality & low cost standard properties-anyone from anywhere can join the group

• ‘Time moderator effect’ states that group do not have to meet at the same time

4. Content

• Information, entertainment & other products that are delivered over the Internet

• Entertainment-Disney online, MTV online, interactive video games,& sport casting

• Information-current news, stock quotation, weather forecast, & investment information.

5. Communication

• Beyond all the other C’s the heart of it –communication

• E-mail, web phones, real-time video, ect.• Every user has the capability to broadcast

message.

LIMITATIONS TO TRANSACTIONS OVER THE WEB

• Internet is Information Technology• Information sent over internet encoded into

one’s & zero’s 100101110.• Soon the information sent over the Internet

must be handled by people.• This will cause limitation on conducting

business1. Tacit Knowledge2. People

Tacit Knowledge

• Knowledge is tacit if un coded & non verbalized• Tacit knowledge on which transaction rest

cannot be encoded into a form that can be put onto the internet & transmitted.

People

• Transactions over the Internet are limited by humans & their organization.

• Individuals & organizations are limited because they may not be able to encode knowledge into a form that can be transmitted over the Internet-the receiving end may not understand it.

• Difficult to perform transaction over the Internet, maybe virtual reality can help.