Strategy and the Internet by Michael Porter
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Strategy and the Internet by Michael Porter

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    Strategy and the Internet by Michael Porter Strategy and the Internet by Michael Porter Presentation Transcript

    • Strategy and the Internet Michael Porter HBR March 2001 p 63-78
    • Market signals
      • Revenues are too high
      • Demand too high
        • Companies subsidized products
        • Government subsidy – No tax
      • Initial curiosity
      • Some revenues from online commerce have been in stock rather than cash.
    • Costs
      • Subsidized inputs
      • Payments in equity
      • False premise about low capital intensity
    • Stock prices
      • Stock prices unrelated to fundamentals
      • “Experts” jump on the bandwagon
      • Many businesses on internet are artificial businesses
      • Key idea – generate economic value
      • Profits are a function of
        • industry structure, and
        • Sustainable competitive advantage
      • Five forces of competition
        • Intensity of rivalry
        • Barriers to entry
        • Threat of substitutes
        • Bargaining power of suppliers
        • Bargaining power of buyers
    • Positive trends
      • Internet dampens bargaining power of channels by providing direct access to customers
      • Internet improves efficiency
    • Negative trends
      • Buyer bargaining power increased
      • Reduces barriers to entry – no need for sales force or access to channels
      • Creates new substitutes
      • Open system – difficult to maintain proprietary advantage – increases intensity of rivalry
      • Expands geographic market – but brings more competitors
      • Reduces variable costs – leading to price competition
      • Threat of substitutes
        • Expands the size of market (+)
        • Creates new substitutes (-)
      • Rivalry
        • Reduces differences among competitors (-)
        • Competition focuses on price
        • Increases number of competitors
        • Lowers VC relative to fixed costs – increases discounting
      • Bargaining powers of buyers
        • Channel power reduced (-)
        • Consumer power increased (-)
        • Reduces switching costs (-)
      • Bargaining power of suppliers
        • Increases bargaining power - more suppliers
        • Reduces need for intermediaries
        • Suppliers have more buyers
    • It’s the choices companies make
      • Ebay.com – did not discount prices
      • Buy.com – always discounted
      • Will switching costs be higher?
        • Network effects > pioneering advantages
        • Costs of registering and learning
        • Software will make switching costs to be lower
        • Network effects are not proprietary to any one company – diminishing returns after a set size
      • Internet brands are difficult to build
        • Lack of physical presence
        • Less tangible
        • Do not affect loyalty
      • Partnering is good
        • Complements
        • Assembly
        • outsourcing
        • If complement raises switching costs – good
        • If complement standardizes – bad for profits
      • Consumers power is growing - moving away from Priceline.com
      • Advertisers are picky
      • Competition intensity will increase
      • Bandwidth will make it easy to provide customer service cheaply.