E-Business (6): Strategy ???? (6): ??

1
E-Business (6) Strategy???? (6) ??
Andreas S. Weigend, PhD?????
SJTU Dec 2004

• Content ??
• First-mover issues?????
• Drivers of lock-in ????
• Tippy markets, positive feedback?????,?????
• Demand-side vs supply-side economies of
  scale????????????

2
Does a first-mover have an advantage??????????

• Disadvantages of being the first to
  market?????????
• Market may be poorly understood??????????
• Product creation may be inefficient??????????
• Product/service may be unreliable,
  unfamiliar??/???????????
• Market may not have enough demand as
  yet????????????
• Nature of competition/substitutes may not be
  clear??/????????????
• So, when is speed advantageous???,???????????

• When the first mover can lock-in
  customers??????????
• When the size of ones customer base increases
  the value of the offer ??????????????????/?????
• When entry by competitors can be deterred by high
  fixed investments?????????????????
• Also large market ??-????

Lock-in positive feedback high fixed costs
increasing returns ???????????????
3
Lock-in Overview????

• Switching computers vs cars ??????????

• Computers???
• Across brands Mac to PC
• Buying new peripherals
• Buying new software
• Converting all Mac files to PC-compatible files
• Learning how to use the new OS - getting used to
  the new UI, figuring out what the mouse does when
  you right-click, double-click, what the control
  and function keys do...
• Finding a new support group
• ????Mac?PC
• ????????
• ?????
• ???Mac?????PC????
• ???????????-????????,?????????????,????????????
• ????????
• Upgrade any computer to any other
• Copying files, reinstalling software
• Shortcuts, bookmarks,
• Getting used to the feel/layout of the new
  keyboard
• ??????????????

• Automobiles??
• Across brands Honda to BMW
• Finding a new service shop
• Finding where to get spare parts
• Buying new accessories/toolkit
• Adapting to the new dashboard, figuring out where
  all the controls, switches and levers are
• ?????????
• ???????
• ????????
• ?????/???
• ??????,?????????????????
• Upgrade any car to any other
• Getting license plates, registration, insurance,
  spending time at DMV/AAA
• Getting used to 'how the car drives' (maybe this
  is a little less if you buy a car of the same
  brand and model?)
• ????????????
• ????,????,????,????????/??????????

4
Lock-in Overview????

• Switching costs in the Mac-PC example
  Mac-PC????????
• Buying new peripherals (OS-specific)????????(?????
  ?)
• Buying new software (OS-specific)?????(??????)
• Converting your Mac files to PC-compatible files
  (OS-specific)???Mac?????PC????(??????)
• Learning how to use the new OS (OS-specific)??????
  ?????(??????)
• Finding a new support group (OS-specific)??????
  ?? (??????)
• Switching from a HP to a Gateway
  PC?????Gateway????

• Microsoft makes more money than HP when one buys
  a HP PC???????????????????????????

The piece of the product that drives switching
costs seems to get most of the margins ???????????
?????????????
5
Lock-in Overview????

• ?????????????????????????
• ????
• ????
• ?????
• ??,?????
• ????
• ??????
• ????? ? ??

• Switching cost Cost borne by customer when
  switching from one supplier to another
• Switching brands
• Switching technologies
• Switching vendors
• The costs here are distinct from
• Differences in price
• Differences in product quality
• High switching costs ? Lock-in

Price one can charge (quality competition
adjusted price) (switching cost) ????????? (???
??????)(????)
6
Lock-in Overview????
Brand Selection ????
Lock-In??
Sampling??
Entrenchment ??
7
Sources of lock-in?????
???? ????
???? ???
Durable purchase Replacement costs,
complementary products
????
???? ?????
Brand-specific learning Interface learning,
corporate re-training
??????
??????????
Information and databases Cost of transfer,
re-creation, imperfections

????????? ??????
???
?????? ???? ??????
Search costs Cost of time, attention,
uncertainty
Loyalty programs Lost accumulated benefits
????? ??????
8
Search Costs????

• ??
• ?????????(????????)
• ??????????????(???????????)
• ????
• ?????????
• ?????????????
• ????????????,????????????
• ?????
• ????????
• ?????????

• Drivers
• Actually finding new supplier (attention, time,
  evaluation)
• Aversion to uncertainty from unknown alternatives
  (loss of knowledge gained from experience)
• Pattern of lock-in
• Customer invests in finding a supplier
• Customer evaluates and understands quality of
  supplier
• Customer pays premium for current supplier,
  trading off cost of search against higher prices
• Supplier strategies
• Pay special attention to first-time customers
• Highlight reductions in uncertainty

9
Brand-specific training??????

• ??
• ????????
• ????
• ????
• ????????????/??
• ?????????(????)
• ????????????????
• ????????????????
• ?????
• ?????????
• ????????????????

• Drivers
• Learning how to use product
• Training employees
• Pattern of lock-in
• Customer invests in learning to use
  product/interface
• Customer becomes adept at usage (increases with
  time)
• Customer sticks with product to avoid re-learning
• Company standardizes product to reduce training
  costs
• Supplier strategies
• Reduce learning barriers to adoption
• Consciously design-in learning over time

10
Information and Databases??????

• Drivers
• Transferring product-specific information/files/me
  dia (actual transfer, imperfect transfer,
  re-creation)
• Pattern of lock-in
• Customer invests in product
• Customer stores/gathers product-specific
  information with use (increases with time)
• Customer stays with existing product to avoid
  transfer costs
• Supplier strategies
• Actively encourage informational investment,
  offering convenience, cost reductions in return
• Build interfaces to your competitors products
• Offer free conversion tools

• ??
• ?????????/??/?? (??????????????)
• ????
• ???????
• ????????????? (????)
• ?????????????????
• ?????
• ????????,
• ??????????
• ????????????

11
Lock-in Microsoft Passport???????

• So software lock-in,now informationlock-in

12
Lock-in Microsoft Passport???????
13
Lock-in Microsoft Passport???????
14
Lock-in Microsoft Passport???????
15
Summary

• First mover particularly important if lock-in
  likely
• Lock-in is powerful, can be quantified
• Setting standards (VCRs)
• Profit margin related to lock-in
• Different sources of lock-in
• Weak Loyalty, contractual
• Strong Complementary assets (tangible
  peripherals, other software, intangible
  information and data), learning / search)
• Ex Phone number switching vs handset switching
• Strategy to get to lock in
• Conversion (free tools)
• Convenience (Microsoft passport)

16
Managing lock-in????
??????????????? ?????????????(??????)

• Isolate and target the buyers with high switching
  costs
• Look for buyers with a high sphere of influence
  (connected, credible)

????????????????,???? ???????????????

• Design-in gradual ease of use, informational
  investments
• Highlight reductions in uncertainty, value from
  their investments

• Up-sell complements, premium services
  (own/partners)
• Sensibly sell access to your installed base

??????,????(??/????) ????????????????
17
Positive Feedback Overview??????

• Positive feedback when a firm becomes
  successful, its past and current success make it
  likely to succeed in the future
• success feeds on itself, the strong get
  stronger
• When does this happen
• More customers -gt lower unit cost (supply-side
  economies of scale)
• More customers -gt larger network -gt more
  valuable product (demand-side economies of scale)
• Products which have demand-side economies of
  scale are most likely to exhibit positive
  feedback.
• If the positive feedback is strong enough, it
  leads to a single firm or product dominating the
  market (winner take all).
• Introducing a new product is difficult in a
  market with positive feedback, because of the
  collective switching costs that need to be
  overcome

• ???? ??????????,??????????????????
• ?????????
• ?????
• ???? -gt ??????(???????)
• ???? -gt ???? -gt ??????(???????)
• ??????????????????????
• ?????????,??????????????(????)
• ???????????????????,????????????

18
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
19
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
20
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
21
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
22
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
23
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
24
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
25
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
26
Scale

• Supply-side economies of scale
• High fixed cost, low marginal cost
• The more you sell, the higher the per-item profit
• IF NETWORK EFFECTS / POSITIVE FEEDBACK, THEN
• Demand-side economies of scale
• Customers will chose product which already has
  many people
• Effect of Web / EB?

27
Demand-side economies of scale???????

• ??????? gt ??????
• ??????????
• ??????????????????

• More units consumed gt higher value per unit
• Network effects, network externalities
• Network product product that displays
  significant network externalities

value to each user ??????? ???
number of users????
Linkages can be physical or virtual ??????????????
28
Demand-side economies of scale?????????
ICQ
SMS
29
Sources of demand-side economies of
scale????????????

• Product is for person-to-person communication
• telephone, fax machine, email, Instant Messenger,
  ICQ
• Value depends on number of suppliers/partners
• Trading exchanges
• Value depends on the quality and variety of
  complementary assets
• Software-gtOS Windows, Mac OS, Playstation
• Medium-gtdevice CD players
• Value relies on the volume of user-generated
  content
• WWW, online communities
• Output/information needs to be shared across
  users
• Acrobat, Excel, Word, PowerPoint

• ????????
• ????????????Instant Messenger, ICQ
• ????????/???????
• ??????
• ?????????????????
• ??-gt???? ??? Mac????? Playstation
• ??-gt?? CD???
• ??????????????
• ????????
• ??/?????????
• Acrobat, Excel, Word, PowerPoint

30
Openness vs. Control ??????

• A firm benefits from producing a network product
  if it
• ??????????????,??
• Is the only supplier of the product (control)
  ????????????(??)
• Tries to get a very large user base rapidly
  (openness)?????????????????(???)
• However??
• Adoption is more rapid with open
  standards???????,????????
• Profit margins are much higher with proprietary
  standards???????,???????

Ideal??????
31
Strategy and the Internet??????

• Over time, profitability is determined by
  industry structure and competitive advantage
• Industry structure (and the profitability of the
  average competitor) are shaped by five forces
• Barriers to entry
• Intensity of intra-industry competition
• Bargaining power of suppliers
• Bargaining power of buyers (and channels)
• Threat of substitute products and services
• Competitive advantage (and above-average profits)
  can be attained by
• Operational effectiveness
• Product differentiation
• Niche focus

• ???????????????
• ?????,????????????????
• ????(???????????)??????????
• ????
• ??????????
• ????????
• ??(???)?????
• ??????????
• ????(?????)???????
• ????
• ?????
• ??????

32
The Internet and Industry Structure????????
low high? ?
Threat of substitutes ?????
Intra-industry rivalry ?????
Bargaining power of suppliers ???????
Bargaining power of channels end-users ??
???? ?????
? ?
? ?
? ?
low high
low high
Barriers to entry ????
? ?
low high
33
Impact of reducing search costs?????????
increase????
Threat of substitutes ?????
Intra-industry rivalry ?????
Bargaining power of suppliers ???????
Bargaining power of channels end-users ??
???? ?????
reduce????
increase ??
increase??
Barriers to entry ????
reduce??
34
Impact of switching costs and lock-in??????????
reduce????
Threat of substitutes ?????
Intra-industry rivalry ?????
Bargaining power of suppliers ???????
Bargaining power of channels end-users ??
???? ?????
reduce??
reduce?? (in conjunction with higher
concentration) (???????)
reduce??
Barriers to entry ????
increase??
35
Impact of demand-side economies of
scale??????????
reduce??
Threat of substitutes ?????
Intra-industry rivalry ?????
Bargaining power of suppliers ???????
Bargaining power of channels end-users ??
???? ?????
reduce??
reduce?? (in conjunction with higher
concentration) (???????)
reduce??
Barriers to entry ????
increase??
36
Barriers to Entry????

• ???????
• ?????????
• ??????????
• ?????????
• ???????(?????)
• ???????(????????)
• ??????????

• Demand-side economies of scale
• Larger networks of complementary partnerships
• Internet-enabled vertical disintegration
• Easier access to channels of distribution
• Changes in cost structure (fixed vs. variable)
• Changes in switching costs (information,
  learning, search)
• Changes in level of product differentiation

• Examples??
• Auctions??
• Books/CD retailing??/CD??
• Enterprise software????
• Music production????

low high ? ?
37
Intra-Industry Competition?????

• ???????
• ???????????????
• ??????????
• ???????
• ????????
• ??????????????
• ???????(?????)
• ???????(????????)
• ??????????

• Demand-side economies of scale
• Number of competitors, their relative size
• Internet-enabled vertical disintegration
• Reduction in operational differentiation
• Smoothing of capacity creation
• Level of strategic stakes in e-commerce
  operations
• Changes in cost structure (fixed vs. variable)
• Changes in switching costs (information,
  learning, search)
• Changes in level of product differentiation

• ??
• ??/CD ??
• ????/????
• ??
• ????

• Examples
• Books/CD retailing
• Electronics/PC
• manufacturing
• Online brokerage

low high ? ?
38
Bargaining power of suppliers????????

• Demand-side economies of scale???????
• Internet-enabled vertical disintegration??????????
  
• Level of operational procurement search
  costs??????????
• Changes in switching costs (information,
  learning, search)???????(????????)
• Changes in component differentiation
  (standardization)????????(???)

• Examples??
• Auto manufacturing????
• Electronics retailing ??????
• Cell-phone/PDA manufacturing
  ??/??????

low high? ?
39
Bargaining power of buyers???????

• ???????(??????)
• ?????????(??????)
• ??????????
• ???????(????????)
• ????????
• ??????????

• Demand-side economies of scale (collective
  switching costs)
• Buyer scale relative to firm (effects of demand
  aggregation)
• Level of operational buyer search costs
• Changes in switching costs (information,
  learning, search)
• Changes in product differentiation
• personalization, mass customization

• Examples??
• Mobshop (and Mercata) Mobshop (?Mercata)
• Energy procurement????
• Online banking????
• Electronics manufacturing Channels,
  complements???????????

low high? ?
40
Complementary or cannibalizing????????

• ?????????
• ??????????
• ??????????
• ??/???????????
• ????????????
• ??/????????????
• ??,???????????

• Disadvantages of being the first to market
• Market may be poorly understood
• Product creation may be inefficient
• Product/service may be unreliable, unfamiliar
• Market may not have enough demand as yet
• Nature of competition/substitutes may not be
  clear
• So, when is speed advantageous?

• ??????????
• ??????????????????/?????
• ?????????????????
• ??-????,??????

• When the first mover can lock-in customers
• When the size of ones customer base increases
  the value of the offer over time
• When entry by competitors can be deterred by high
  fixed investments
• Also large market, manageable hazards

Lock-in positive feedback high fixed costs
increasing returns ???????????????
41
Does a first-mover have an advantage??????????

• Disadvantages of being the first to
  market?????????
• Market may be poorly understood ??????????
• Product creation may be inefficient ??????????
• Product/service may be unreliable, unfamiliar
  ??/???????????
• Market may not have enough demand as yet
  ????????????
• Nature of competition/substitutes may not be
  clear
  ??/????????????
• So, when is speed advantageous? ??,???????????

• When the first mover can lock-in
  customers??????????
• When the size of ones customer base increases
  the value of the offer ????????????/?????
• When entry by competitors can be deterred by high
  fixed investments?????????????????
• Also large market ??-??????

Lock-in positive feedback high fixed costs
increasing returns ???????????????
10-2
42
Lock-in Overview????

• Switching cars vs. switching computers ??????????

• Computers???
• Across brands Mac to PC
• Buying new peripherals
• Buying new software
• Converting all Mac files to PC-compatible files
• Learning how to use the new OS - getting used to
  the new UI, figuring out what the mouse does when
  you right-click, double-click, what the control
  and function keys do...
• Finding a new support group
• ????Mac?PC
• ????????
• ?????
• ???Mac?????PC????
• ???????????-????????,?????????????,????????????
• ????????
• Upgrade any computer to any other
• Copying files, reinstalling software
• Shortcuts, bookmarks,
• Getting used to the feel/layout of the new
  keyboard
• ??????????????

• Automobiles??
• Across brands Honda to BMW
• Finding a new service shop
• Finding where to get spare parts
• Buying new accessories/toolkit
• Adapting to the new dashboard, figuring out where
  all the controls, switches and levers are
• ?????????
• ???????
• ????????
• ?????/???
• ??????,?????????????????
• Upgrade any car to any other
• Getting license plates, registration, insurance,
  spending time at DMV/AAA
• Getting used to 'how the car drives' (maybe this
  is a little less if you buy a car of the same
  brand and model?)
• ????????????
• ????,????,????,????????/??????????

43
Lock-in Overview????

• Switching costs in the Mac-PC example
  Mac-PC????????
• Buying new peripherals (OS-specific)????????(?????
  ?)
• Buying new software (OS-specific)?????(??????)
• Converting your Mac files to PC-compatible files
  (OS-specific)
  ???Mac?????PC????(??????)
• Learning how to use the new OS (OS-specific)??????
  ?????(??????)
• Finding a new support group (OS-specific)??????
  ?? (??????)
• Switching from a HP to a Gateway
  PC?????Gateway????

• Microsoft makes more money than HP when one buys
  a HP PC ???????????????,?????
  ???????

The piece of the product that drives switching
costs seems to get most of the margins ???????????
?????????????
44
????

• ?????????????????????????
• ????
• ????
• ?????
• ??,?????
• ????
• ??????
• ????? ? ??

• Switching cost Cost borne by customer when
  switching from one supplier to another
• Switching brands
• Switching technologies
• Switching vendors
• The costs here are distinct from
• Differences in price
• Differences in product quality
• High switching costs ? Lock-in

Price one can charge (quality competition
adjusted price) (switching cost) ????????? (???
??????)(????)
45
Lock-in Overview????
Brand Selection ????
Lock-In??
Sampling??
Entrenchment ??
46
Sources of lock-in?????
???? ????
???? ???
Durable purchase Replacement costs,
complementary products
????
???? ?????
Brand-specific learning Interface learning,
corporate re-training
??????
??????????
Information and databases Cost of transfer,
re-creation, imperfections

????????? ??????
???
?????? ???? ??????
Search costs Cost of time, attention,
uncertainty
Loyalty programs Lost accumulated benefits
????? ??????
47
Search Costs????

• ??
• ?????????(????????)
• ??????????????(???????????)
• ????
• ?????????
• ?????????????
• ????????????,????????????
• ?????
• ????????
• ?????????

• Drivers
• Actually finding new supplier (attention, time,
  evaluation)
• Aversion to uncertainty from unknown alternatives
  (loss of knowledge gained from experience)
• Pattern of lock-in
• Customer invests in finding a supplier
• Customer evaluates and understands quality of
  supplier
• Customer pays premium for current supplier,
  trading off cost of search against higher prices
• Supplier strategies
• Pay special attention to first-time customers
• Highlight reductions in uncertainty

48
Brand-specific training??????

• ??
• ????????
• ????
• ????
• ????????????/??
• ?????????(????)
• ????????????????
• ????????????????
• ?????
• ?????????
• ????????????????

• Drivers
• Learning how to use product
• Training employees
• Pattern of lock-in
• Customer invests in learning to use
  product/interface
• Customer becomes adept at usage (increases with
  time)
• Customer sticks with product to avoid re-learning
• Company standardizes product to reduce training
  costs
• Supplier strategies
• Reduce learning barriers to adoption
• Consciously design-in learning over time

49
Information and Databases??????

• Drivers
• Transferring product-specific information/files/me
  dia (actual transfer, imperfect transfer,
  re-creation)
• Pattern of lock-in
• Customer invests in product
• Customer stores/gathers product-specific
  information with use (increases with time)
• Customer stays with existing product to avoid
  transfer costs
• Supplier strategies
• Actively encourage informational investment,
  offering convenience, cost reductions in return
• Build interfaces to your competitors products
• Offer free conversion tools

• ??
• ?????????/??/?? (??????????????)
• ????
• ???????
• ????????????? (????)
• ?????????????????
• ?????
• ????????,
• ??????????????
• ??????????????
• ????????

50
Lock-in Microsoft Passport???????

• So software lock-in,now informationlock-in??????
  ?,
• ???????

51
Lock-in Microsoft Passport???????
52
Lock-in Microsoft Passport???????
53
Lock-in Microsoft Passport???????
54
Summary??

• First mover particularly important if lock-in
  likely????????,???????????
• Lock-in is powerful, can be quantified???????,???
  ???
• Setting standards (VCRs)????
• Profit margin related to lock-in ???????
• Different sources of lock-in ???????
• Weak Loyalty, contractual ????????
• Strong Complementary assets (tangible
  peripherals, other software, intangible
  information and data), learning /
  search)??????(??????????????????)
• Ex Phone number switching vs handset
  switching?????????????
• Strategy to obtain to lock in ??????
• Easy conversion (free tools) ??(????)
• Convenience (Microsoft passport) ??(?????)

55
Managing lock-in????
??????????????? ?????????????(??????)

• Isolate and target the buyers with high switching
  costs
• Look for buyers with a high sphere of influence
  (connected, credible)

????????????????,???? ???????????????

• Design-in gradual ease of use, informational
  investments
• Highlight reductions in uncertainty, value from
  their investments

• Up-sell complements, premium services
  (own/partners)
• Sensibly sell access to your installed base

??????,????(??/????) ????????????????
56
Positive Feedback Overview??????

• Positive feedback when a firm becomes
  successful, its past and current success make it
  likely to succeed in the future
• success feeds on itself, the strong get
  stronger
• When does this happen
• More customers -gt lower unit cost (supply-side
  economies of scale)
• More customers -gt larger network -gt more
  valuable product (demand-side economies of scale)
• Products which have demand-side economies of
  scale are most likely to exhibit positive
  feedback.
• If the positive feedback is strong enough, it
  leads to a single firm or product dominating the
  market (winner take all).
• Introducing a new product is difficult in a
  market with positive feedback, because of the
  collective switching costs that need to be
  overcome

• ???? ??????????,??????????????????
• ?????????
• ?????
• ???? -gt ??????(???????)
• ???? -gt ???? -gt ??????(???????)
• ??????????????????????
• ?????????,??????????????(????)
• ???????????????????,????????????

57
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
58
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
59
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
60
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
61
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
62
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
63
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
64
Tippy markets????
PRODUCT A ?? A
PRODUCT B ?? B
65
Scale??

• Supply-side economies of scale???????
• High fixed cost, low marginal cost ???????????
• The more you sell, the higher the per-item
  profit?????,?????????
• IF NETWORK EFFECTS / POSITIVE FEEDBACK,
  THEN????????/????,?
• Demand-side economies of scale???????
• Customers will chose product which already has
  many people ?????????????????
• Effect of Web / EB? ??/????????

66
Demand-side economies of scale???????

• ??????? gt ??????
• ??????????
• ??????????????????

• More units consumed gt higher value per unit
• Network effects, network externalities
• Network product product that displays
  significant network externalities

value to each user ??????? ???
number of users????
Linkages can be physical or virtual ??????????????
67
Demand-side economies of scale?????????
ICQ
SMS
68
Sources of demand-side economies of
scale????????????

• Product is for person-to-person communication
• telephone, fax machine, email, Instant Messenger,
  ICQ
• Value depends on number of suppliers/partners
• Trading exchanges
• Value depends on the quality and variety of
  complementary assets
• Software-gtOS Windows, Mac OS, Playstation
• Medium-gtdevice CD players
• Value relies on the volume of user-generated
  content
• WWW, online communities
• Output/information needs to be shared across
  users
• Acrobat, Excel, Word, PowerPoint

• ????????
• ????????????Instant Messenger, ICQ
• ????????/???????
• ??????
• ?????????????????
• ??-gt???? ??? Mac????? Playstation
• ??-gt?? CD???
• ??????????????
• ????????
• ??/?????????
• Acrobat, Excel, Word, PowerPoint

69
Openness vs. Control ??????

• A firm benefits from producing a network product
  if it
• ??????????????,??
• Is the only supplier of the product (control)
  ????????????(??)
• Tries to get a very large user base rapidly
  (openness)?????????????????(???)
• However??
• Adoption is more rapid with open
  standards???????,????????
• Profit margins are much higher with proprietary
  standards???????,???????

Ideal??????
70
Strategy and the Internet??????

• Over time, profitability is determined by
  industry structure and competitive advantage
• Industry structure (and the profitability of the
  average competitor) are shaped by five forces
• Barriers to entry
• Intensity of intra-industry competition
• Bargaining power of suppliers
• Bargaining power of buyers (and channels)
• Threat of substitute products and services
• Competitive advantage (and above-average profits)
  can be attained by
• Operational effectiveness
• Product differentiation
• Niche focus

• ?????,????????????????
• ????(???????????)??????????
• ????
• ??????????
• ????????
• ??(???)?????
• ??????????
• ????(?????)???????
• ????
• ?????
• ??????

71
The Internet and Industry Structure????????
low high? ?
Threat of substitutes ?????
Intra-industry rivalry ?????
Bargaining power of suppliers ???????
Bargaining power of channels end-users ??
???? ?????
? ?
? ?
? ?
low high
low high
Barriers to entry ????
? ?
low high
72
Impact of reducing search costs?????????
increase????
Threat of substitutes ?????
Intra-industry rivalry ?????
Bargaining power of suppliers ???????
Bargaining power of channels end-users ??
???? ?????
reduce????
increase ??
increase??
Barriers to entry ????
reduce??
73
Impact of switching costs and lock-in??????????
reduce????
Threat of substitutes ?????
Intra-industry rivalry ?????
Bargaining power of suppliers ???????
Bargaining power of channels end-users ??
???? ?????
reduce??
reduce?? (in conjunction with higher
concentration) (???????)
reduce??
Barriers to entry ????
increase??
74
Impact of demand-side economies of
scale??????????
reduce??
Threat of substitutes ?????
Intra-industry rivalry ?????
Bargaining power of suppliers ???????
Bargaining power of channels end-users ??
???? ?????
reduce??
reduce?? (in conjunction with higher
concentration) (???????)
reduce??
Barriers to entry ????
increase??
75
Barriers to Entry????

• ???????
• ?????????
• ??????????
• ?????????
• ???????(?????)
• ???????(????????)
• ??????????

• Demand-side economies of scale
• Larger networks of complementary partnerships
• Internet-enabled vertical disintegration
• Easier access to channels of distribution
• Changes in cost structure (fixed vs. variable)
• Changes in switching costs (information,
  learning, search)
• Changes in level of product differentiation

• Examples??
• Auctions??
• Books/CD retailing??/CD??
• Enterprise software????
• Music production????

low high ? ?
76
Intra-Industry Competition?????

• ???????
• ???????????????
• ??????????
• ???????
• ????????
• ??????????????
• ???????(?????)
• ???????(????????)
• ??????????

• Demand-side economies of scale
• Number of competitors, their relative size
• Internet-enabled vertical disintegration
• Reduction in operational differentiation
• Smoothing of capacity creation
• Level of strategic stakes in e-commerce
  operations
• Changes in cost structure (fixed vs. variable)
• Changes in switching costs (information,
  learning, search)
• Changes in level of product differentiation

• ??
• ??/CD ??
• ????/????
• ??
• ????

• Examples
• Books/CD retailing
• Electronics/PC
• manufacturing
• Online brokerage

low high ? ?
77
Bargaining power of suppliers????????

• Demand-side economies of scale???????
• Internet-enabled vertical disintegration??????????
  
• Level of operational procurement search
  costs??????????
• Changes in switching costs (information,
  learning, search)???????(????????)
• Changes in component differentiation
  (standardization)????????(???)

• Examples??
• Auto manufacturing????
• Electronics retailing ??????
• Cell-phone/PDA manufacturing
  ??/??????

low high? ?
78
Bargaining power of buyers???????

• ???????(??????)
• ?????????(??????)
• ??????????
• ???????(????????)
• ????????
• ??????????

• Demand-side economies of scale (collective
  switching costs)
• Buyer scale relative to firm (effects of demand
  aggregation)
• Level of operational buyer search costs
• Changes in switching costs (information,
  learning, search)
• Changes in product differentiation
• personalization, mass customization

• Examples??
• Mobshop (and Mercata) Mobshop (?Mercata)
• Energy procurement????
• Online banking????
• Electronics manufacturing Channels,
  complements???????????

low high? ?
79
Complementary or cannibalizing????????

• ?????????
• ??????????
• ??????????
• ??/???????????
• ????????????
• ??/????????????
• ??,???????????

• Disadvantages of being the first to market
• Market may be poorly understood
• Product creation may be inefficient
• Product/service may be unreliable, unfamiliar
• Market may not have enough demand as yet
• Nature of competition/substitutes may not be
  clear
• So, when is speed advantageous?

• ??????????
• ??????????????????/?????
• ?????????????????
• ??-??????,????????????

• When the first mover can lock-in customers
• When the size of ones customer base increases
  the value of the offer over time
• When entry by competitors can be deterred by high
  fixed investments
• Also large market, manageable hazards

Lock-in positive feedback high fixed costs
increasing returns ???????????????