1 / 13

Strategy and the Internet

Strategy and the Internet. Michael Porter HBR March 2001 p 63-78. Market signals. Revenues are too high Demand too high Companies subsidized products Government subsidy – No tax Initial curiosity Some revenues from online commerce have been in stock rather than cash. Costs.

jace
Download Presentation

Strategy and the Internet

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Strategy and the Internet Michael Porter HBR March 2001 p 63-78

  2. Market signals Revenues are too high • Demand too high • Companies subsidized products • Government subsidy – No tax • Initial curiosity • Some revenues from online commerce have been in stock rather than cash.

  3. Costs • Subsidized inputs • Payments in equity • False premise about low capital intensity

  4. Stock prices • Stock prices unrelated to fundamentals • “Experts” jump on the bandwagon • Many businesses on internet are artificial businesses • Key idea – generate economic value

  5. Profits are a function of • industry structure, and • Sustainable competitive advantage • Five forces of competition • Intensity of rivalry • Barriers to entry • Threat of substitutes • Bargaining power of suppliers • Bargaining power of buyers

  6. Positive trends • Internet dampens bargaining power of channels by providing direct access to customers • Internet improves efficiency

  7. Negative trends • Buyer bargaining power increased • Reduces barriers to entry – no need for sales force or access to channels • Creates new substitutes • Open system – difficult to maintain proprietary advantage – increases intensity of rivalry • Expands geographic market – but brings more competitors • Reduces variable costs – leading to price competition

  8. Threat of substitutes • Expands the size of market (+) • Creates new substitutes (-) • Rivalry • Reduces differences among competitors (-) • Competition focuses on price • Increases number of competitors • Lowers VC relative to fixed costs – increases discounting

  9. Bargaining powers of buyers • Channel power reduced (-) • Consumer power increased (-) • Reduces switching costs (-) • Bargaining power of suppliers • Increases bargaining power - more suppliers • Reduces need for intermediaries • Suppliers have more buyers

  10. It’s the choices companies make • Ebay.com – did not discount prices • Buy.com – always discounted

  11. Will switching costs be higher? • Network effects > pioneering advantages • Costs of registering and learning • Software will make switching costs to be lower • Network effects are not proprietary to any one company – diminishing returns after a set size

  12. Internet brands are difficult to build • Lack of physical presence • Less tangible • Do not affect loyalty • Partnering is good • Complements • Assembly • outsourcing If complement raises switching costs – good If complement standardizes – bad for profits

  13. Consumers power is growing - moving away from Priceline.com • Advertisers are picky • Competition intensity will increase • Bandwidth will make it easy to provide customer service cheaply.

More Related