Strategy in the Digital Economy

1
Strategy in the Digital Economy

• George T. Geis
• Anderson School, UCLA
• george.geis_at_anderson.ucla.edu

2
The Digital Economy

• The digital economy means that business process,
  commerce and value is migrating from atoms to
  bits
• numbers, words, images, forms...
• music, video, entertainment, information...
• commerce, supply chains, relationships...
• The new age of networked intelligence-- in
  business, education and society
• global phenomenon

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Value Migration the Internet

• In September 1998, Microsoft passed GE in market
  capitalization (261B vs. 257B) -- a symbolic
  gesture of value migration in the digital
  economy. Microsofts revenues are about 20 of
  GEs.
• Striking value pairs (as of 9/24/99)
• Market Cap (M) LTM Revenue (M)
• Barnes Noble 1,809 3,109.8
• Amazon 21,918 1,014.6
• Time Warner 76,475 14,613
• AOL 108,038 4,770
• Toys R Us 3,733 11,477
• E-Toys 6,882 30

4
Digital Disruption

• Technology, communications and content are
  combining to produce new organizational forms
• Impact on all traditional sectors retail,
  real-estate, financial services, music, travel,
  auto sales, and health care -- not just the
  technology sector
• Digital technologies are disrupting industries,
  markets and organizational structure (for both
  dot-com and incumbent companies)

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A Framework for the Digital Economy
Product/Service

• Competitive arenas sector transformation
• Alliances/partners for business development
• New channels channel conflict
• Brand building
• extension
• Digital commerce (B2C, B2B, C2C)
• Value chain mgmt organizational re-design

Impacts
Technology
Communications
symbolized by Moores Law
symbolized by Metcalfes Law
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Internet upsets traditional value chain
(T-ValueChain)
Internet Retailer
Record Distrib.
Hybrid model (Online CD sales)
Artist
Mgmt Co
Record Label
Record Distrib.
Marketing
Mfging
Consumer
Retailer
Digital Delivery Technologies
Digital delivery model
Marketing
High potential to be upset
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Elements of market modeling business
development plan

• Player universe
• T-ValueChain
• E-ValueChain
• Supporting sub-markets
• Customer sub-markets
• Geographic sub-markets
• End result What set of alliances/partnerships
  will drive revenue and build value? How can I
  anticipate or respond to my competitors
  alliance/partnership patterns?

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Spectrum of partnerships

• Partnerships cover a wide range or
  cross-organizational relationships and include
• licensing
• alliances (marketing, technology)
• joint ventures
• minority investments
• mergers acquisitions
• spin offs and partial spin offs

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Illustration 1JVs to redefine auto purchasing
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Illustration 2Marshall plan for Europe, c. 2000
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Research areas

• Modeling markets in the new economy
• incumbents, dot-coms, hybrids
• Visualization technology to communicate whats
  happening, whats really happening, whats likely
  to happen
• Algorithms for partnership plans