Competitive Strategies for Network Economies

1. Competitive Strategies for Network Economies Owen Graduate School of Management MGT 523 Spring 2002 Mod III “Everything Old is New Again”

2. The “New” Economy “Competition is intensifying across all dimensions” “High demand for innovation of corporate strategy paradigms” “Companies are transforming into expanded enterprises” Economics of Information - Mike Shor

3. What is “e-Commerce”? • Introductions • How do you define “e-Commerce”? • Give an example of a successful “e-Commerce” business model…why? • Example of an unsuccessful “e-Commerce” business model…why? Economics of Information - Mike Shor

4. What is “e-Commerce”? • Information is separated from its medium • The fight against audio tapes, photocopies, writable CDs, DATs • Companies maintained control over medium of information • What is “copying” or “fair use”? • How to conduct border inspections? Economics of Information - Mike Shor

5. The “Old” Economy • Fax machines • Telephone networks • CD players • Railroads • CDs, Tapes, QWERTY keyboards Economics of Information - Mike Shor

6. The “Old” Economy • Coupons • Happy Meals • Outlet stores • Quantity discounts • Airline pricing Economics of Information - Mike Shor

7. The “Old” Economy • The printing press • XEROX machines • Sony Betamax • Circulating libraries Economics of Information - Mike Shor

8. The “Old” Economy • Stereo Components • Sony Betamax / VHS • Diesel / Unleaded Fuel Economics of Information - Mike Shor

9. The Strategy of aThree Year Old • “We lose money on every sale but we make it up on volume” • Actually: willing to give up short-term profits for market share “But Why?” • What is the value of market share? Economics of Information - Mike Shor

10. The Strategy of aThree Year Old • Volume • But Why? -> Market share • But Why? -> Industry leader • But Why? -> Accepted standard … breakdown in the chain … • But Why? -> To make money! Economics of Information - Mike Shor

11. What is “New” about the Internet • New Marketplace • Compare to traditional markets • More efficient • More customers and retailers • Lower startup costs • But • Loss of reputation-building • The anonymity dilemma • Role of international regulation Economics of Information - Mike Shor

12. Challenges & Opportunities • Role for intermediaries • Creating new markets (eBay) • Easier differential pricing • But, more available price data (mySimon) • Recreating markets • Electronic currency (payPal) • Privacy protection (anonymizer) Economics of Information - Mike Shor

13. Goals • Recognize challenges and opportunities in the Internet marketplace • Analyze differential pricing strategies • Consider the role of companies and governments in managing information property rights • Assess the value of networks and consider strategies to capture that value Economics of Information - Mike Shor

14. Topics (last year) • PayPal: eventual loss of business to credit card companies • eBay: creating a formidable competitor by linking existing retail channels • DRM: audience management vs. control • Xbox: managing expectations • XML: profiting from open standards Economics of Information - Mike Shor

15. Competitive Strategies for Network Economies Administratrivia

16. Assessment • Group Deliverables (3) 40% • Group Presentations (2) 20% • Lecture Presentation (1) 15% • Participation 25% Economics of Information - Mike Shor

17. Groups • Self-selected and fixed • Caution: make sure members complement each others’ skills • Three written assignments • Construct or critique a business plan: • Pricing • Lock-In and Networks • Compatibility and Standards • Two assignments will be presented Economics of Information - Mike Shor

18. Written Assignments • Graded based on: • Professionalism • Quality of writing, Presentation, Clarity • Degree of difficulty • Relevance, Originality • Value of advice • Insight, Intuition • Analytical sophistication • Proper application of concepts Economics of Information - Mike Shor

19. Written Assignments • Due classes 5, 9, and 13 • Construct or critique a business plan focusing on … • Assignment 1: pricing strategies • Assignment 2: lock-in / networks • Assignment 3: compatibility / standards Economics of Information - Mike Shor

20. Oral Presentations • Two group presentations • Presenting written assignments • One individual presentation • Assigned a chapter of the text • Discuss relevant current events, background, new developments, etc. • Answer questions (lead discussion) Economics of Information - Mike Shor

21. Participation • Read the book chapter in advance • Review the web site readings • On what points do you agree with the text and supplemental readings? • On what points do you disagree? Economics of Information - Mike Shor

22. Course Outline • The Challenge of Global Internet Markets • Information as a Commodity • Price Discrimination Strategies • Rights Management • Lock-In • Understanding Network Economies • Compatibility and Standards • The Future of Regulation Economics of Information - Mike Shor

23. Next Time … • The challenge of global Internet markets • Privacy & Anonymity • Reputation & Trust • International regulation • The game of chicken: Europe and the US • New role for intermediaries • What “traditional-market” features does the Internet fail to provide? Economics of Information - Mike Shor