Mastering the digital marketplace

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Mastering the digital marketplace

• Simo Vuorinen

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The digital marketplace

• Macroeconomic theories four components
• land
• labor
• capital
• technology
• Digital economy for the first time, technology
  becomes a dominant force.
• The IT reaches even the most traditional
  industries.

3
Evolution of the digital economy
Digital Economy
Global Economy
World Economy
Service Economy
Industrial Economy
Agricultural Economy
2000
1700
1800
1900
4
Competition changes

• New brat on the block - the empowered consumer
  the balance of power in commerce shifts to the
  consumer.
• Distributors compete less on their ability to
  manage fleet of trucks, and more on their ability
  to know where widgets are in transit
• Retailers compete less on the position of the
  store and store layouts, and more on how they
  track customer buying patterns

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New Values

• Traditional consumer values
• quality
• price
• brand
• New values
• Time-value,
• Content.
• Example
• Psion vs. Palm

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New Values

• Consumer is driven by
• pursuit of time
• pace of life
• information assimilation
• communication
• Example
• MS 95 evolution to MS 98

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CEOs choices
Redefine reposition
Advantage
BPR and other cost cutting and operational
initiatives
Adopt best practices
Survive
Business as usual
Decay
Yesterday
Today
Tomorrow
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Rules have changed
In the digital economy technology is the only
economic commodity that will cost less as time
passes The DE provides a free channel of
information distribution The DE removes barriers
such as size, geographic positioning, and need of
the real estate
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The value of time
Kurt Salmon Survey 56 of consumers agreed they
had far less leisure time than they used to
have Almost 40 of consumers responded that if
given a choice between more time or more money,
they would choose time Consumers are spending
less time shopping and cooking in attempt to
create more leisure time Examples Encyclopedia
Britannica vs. Encarta, Peapod groceries, 3M
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The value of content
Container a physical product Content intangible
element - typically accompanying information,
knowledge, or service that adds value to the
container Consumers are beginning to appreciate
containers that include additional content New
content can be customized - mass-customization Ex
ample Watch vs. watch - functionality, Palm
Pilot modules
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TODOs

• Price
• Conventional pricing strategy based on resource
  availability
• Future (today?) pricing strategy based on
  increased choices of content
• Quality
• Rather expectation, not much of a playing-card
• Branding - soft assets increasingly important
• Self-expression
• Emotional satisfaction

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TODOs

• Create a strong link to the consumer by
  streamlining the produc development cycle -gt
  reaction speed
• Netscape Navigator
• Attain the perfect degree of consumer interaction
• Offer customizable products based on standard
  components
• Intel Celeron, car sales
• Clearly communicate the value you offer to
  consumers
• Set consumer prices based on the value you offer
  - not on your costs

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Evolution of the traditional supply chain

• Late 50s beginning of the traditional supply
  chain
• Companies started applying statistical and
  mathematical methods to their operations
• Cost of IT declines
• 80s EDI
• 90s electronic links within the traditional
  supply chain and outside the supply chain -gt
  digital value chain

U.S. employment by occupation (percent of total)
80
Knowledge worker
Touch labor
60
Agriculture
40
20
1820
1840
1860
1880
1900
1920
1940
1960
1980
1995
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The coming of age of the digital value chain

• Traditional supply chain dysfunctional, carries
  significant administrative, transactional, and
  financial costs that do not add value to the end
  consumer
• Companies who participate in digital value chains
  that extend communication beyond any two
  adjoining links create 65 more shareholder
  wealth for each dollar of earnings than those
  still operating in the traditional supply chain
  mode

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Forces shaping the digital value chain

• Information and innovation
• Availability of capital
• Globalization

• New wealth from soft assets
• New ideas and creative capacity are soft assets -
  they are not reflected on the balance sheet
• Soft assets are the primary creators of wealth in
  the digital economy

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New business model the digital value network
A digital value network (DVN) is a community of
business partners and customers that is connected
using information technology

• Faster
• More dynamic
• Players work together to maximize their combined
  value to the end consumer

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DVN components

• Digital value chains
• Digital function platform
• Infomediaries

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DVN components

• Digital value chains
• Producers form a digital value chain to create a
  far more efficient, rapid, and flexible version
  of the traditional supply chain
• One or more participants take the role of an
  anchor
• Digital function platform (DFP)
• Multiple digital value chains form a DFP.
• DFP is the service or technology platform that
  supports business processes across multiple value
  chains.
• Example SAP, floppy, EDI standard, Sun Jini

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DFP example - Sun Jini
Source Jini whitepaper, Sun Microsystems,
http//www.sun.com/jini/
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DVN components

• Infomediary
• Definition 1 a company that collects and manages
  access to consumer information
• Definition 2 a company that facilitates the
  exchange of information between other parties,
  such as company that matches buyers and sellers
  in an electronic market
• Example Sonera Plaza, LetsBuyIt, Yahoo

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DVN components - infomediary continued...

• Infomediary tasks
• Integrating services and needs
• Aggregating services and needs
• Creating a floating price system based on supply
  and demand
• Managing the group of vendors, suppliers, and
  customers
• Monitoring the performance of all members of a
  DVN
• Saving time for DVN members
• Managing operational functions that include
  warranty, exchange, charge-backs, etc.
• Developing new customer markets
• Example Telia

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Bringing it all together - the digital marketplace
The digital marketplace
Digital Value Network

Infomediary
Consumer
Consumer
Consumer
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Conclusion and critics

• Couple of words on TODOs
• Couple of words on intelligent organizations
• Couple of words on Creating digital value
• Critics and discussion