Internet Influences on the Marketing Environment

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Internet Influences on the Marketing Environment

• General characterization
• Marketplace v. marketspace
• Environment effects

2
How does the Internet change the marketing
environment?

• General effects
• What does the marketplace look like?
• How do companies organize themselves and their
  activities?
• Specific effects
• What activities can be carried out in the new
  environment?
• How do the processes change?

3
What forces create change?

• Technology
• Hardware (infrastructure)
• Software (things to do with hardware)
• People
• In the aggregate
• Acceptance of technology
• Resistance to technology
• In the specific
• Interactions between consumers and marketers
• Involvement of policy makers

4
Conceptualizing effects of change population
ecology

• General framework to organize concepts and
  effects
• Taken from biology
• Adopted by business
• Management structure of firms
• Marketing modeling competition
• Used by us
• To characterize the Internet environment
• To describe environment effects on marketing

5
A population ecology primer

• Rule 1 things dont exist in a vacuum
• Importance of context
• For existence
• For growth
• Importance of others in the context
• Rule 2 nice guys finish last
• Ecological imperative
• Natural selection
• Adaptation
• Centrality of competition

6
Some useful jargon

• Population ecology - systematic explanation of
  environmental factors that affect size and growth
  of a population
• Translation Internet as the ecosystem, industry
  as the population
• Biotic potential - expected growth under optimal
  conditions
• Example Microsoft????????????
• Environmental resistance - constraints to growth,
  checks to biotic potential
• Example Microsoft
• Carrying capacity - point where resistance stops
  growth

7
From biology to business

• Marketing technology environment
• viz., a virtual ecology
• With different types of populations
• DNS as classification system
• Industries in .com domain as species populations
• Environmental resistance constraints to
  industry growth
• E.g., available technologies
• E.g., imposed regulations

8
Classifying constraints

• Impediments to industry growth
• Natural circumstances (density independence)
• Limits to production (resources)
• Supply-side (product components)
• Demand-side (consumers)
• Limits to implementation (technology)
• Cultural conditions (ethological characteristics)
• Acceptance of technology
• Imposition of regulation

9
Competition and the Internet ecology

• Concepts from population ecology in marketing
• Who thrives?
• Nature of competition as function of
• Company characteristics
• Industry characteristics
• Product life cycle
• Strategic activity
• Application to the Internet ecology
• Internet as product market
• Internet as environment for product markets

10
Evolution and business ecosystems

• Resource competition affects population
  structures
• Competition gt interaction gt resource allocation
  gt interbreeding gt genetic variation
• Industries also exhibit interbreeding
• Mingled capabilities confer competitive advantage
• blur industry
  boundaries
• create business
  ecosystems
• E.g., Time-Warner and AOL

11
The Internet as a marketing environment

• Characteristics
• Virtual
• From physical to digital
• From marketplace to marketspace
• Interactive
• Person interactivity (via CME)
• Machine interactivity
• Constraints
• Environmental (e.g., experiential limits)
• Cultural (e.g., societal expectations)

12
Evolving Market Structures

• Ye olde value chain notion
• Set of activities undertaken to move a product
  from development to market
• Each link is an opportunity to add value
• Aka., value-added chain
• Value chain structure can lead to competitive
  advantage
• Example
• McDonalds in Russia (bought the farm)

13
Adapting Structure to Add Value

• Two basic mechanisms for moving materials through
  the value chain
• Hierarchies (internal focus)
• Movement controlled by managerial decisions
• Related to vertical integration
• High asset specificity, complex product
  description
• Markets (external focus)
• Movement via supply and demand
• Low asset specificity, simpler product
  description

14
The Internet and Structure Shift

• General effects of IT
• Generally faster integration of value chain links
• Enhanced communication between chain participants
• Structure specific effects of IT
• Changes to relative costs
• Production costs
• (Development and distribution)
• High for hierarchy, low for market
• Coordination costs
• (Movement through chain links)
• High for market, low for hierarchy

15
More About Internet Effects on Structure

• Better communication leads to
• Simplified product descriptions
• Decreased asset specificity (e.g., due to
  flexible manufacturing technologies)
• Shifts in cost tradeoffs
• Lower production costs
• gt hierarchies have less value
• Lower coordination costs
• gt markets have more value

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