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Thinking Strategically of E-Commerce
The first generation of electronic commerce has been a
virtual land grab. Experimentation and short-term tactical moves have ruled. Organizations
have been forced to defend their "old world" spaces due to the
indiscriminate onslaught from the "new world" guerrillas. Thankfully,
this phase is coming to an end. We are at the threshold of the second generation
of e-commerce.
The key players who have survived must now shift their attention from claiming
territory to defending or capturing it. They have to focus on strategies that
will lead to long term competitive advantage. One of the key dimensions of the
"new" competitive advantage is navigation
: how customers make their choice through searching, comparing, and
deciding what to buy. In the physical world, consumers rely on product suppliers and retailers, who
secure advantage by creating "navigational" tools to help them make a
choice - branding, advertising, relationship building.
On the Internet, however, people can exchange information directly, fast, and free.
This allows the creation of a specific kind of competitive advantage - collating
and presenting information to consumers that makes the decision making process
much easier. Pure informators like Yahoo! can organize information and help people make
sense of it without being involved in any physical transaction.
Most businesses now see the Internet as an arena for marketing and
promotion, a new channel for doing old things. However, only a few have made a
successful paradigm shift - the internet is much more! There is an
increasing awareness that in many consumer businesses, influencing the decision
making process could be more profitable than most other activities.
Companies have three basic ways to capture that profitability:
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Reach
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Reach is about access : how many customers a business can access and how many products it can
distribute. Before the internet revolution, retail superstores built a
tremendous competitive advantage on reach by offering broad selection and convenient locations. But they were
limited by the economics of distribution. The largest physical bookstore in the United States carries about 250,000 titles.
Amazon.com, by contrast, offers 4.5 million and is "located" on some 25 million computer screens.
When there is no physical constraints, reach explodes. Along with this go
traditional geographic and product boundaries.
Technology now allow us to gain synergies in information,
rather than on processes. Consumers as a consequence are making purchasing
decisions based on a new network of easily accessible information. One has to,
however, ensure that there remains synergy and value of the information to the
consumer - not information overload. Having a business model of everything to
everyone has yet to succeed.
Established players will have to match the reach of the pure
informators for the simple reason that buyers value it. How can this be achieved?
By partnering, moving on a strategic basis to capture the information flow for
competing goods and services, and leveraging the traditional business with the
new lever of advantage - information. It is clear that there is a paradigm
shift in progress - the usual consequence of reduced profit margins and
some cannibalization of the new businesses by the old will follow - like night
follows day!
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Affiliation
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Affiliation is about whose interests the new business represents.
With the ability to provide access to information to consumers, there is an
increasingly profitable business model that can be built. Look at the number of
new Portals and Vortals that are mushrooms the e-landscape.
The informators revenue source is from advertising,
commissions on sales of products and services from the e-tailer. There is
clearly an emerging symbiotic relationship between the retailer and the
informator in the new world. Look at the growth of a number of relationships
between the e-brokers and independent research analysts. The informator has the
unique advantage of being perceived as an independent observer. Going are the
days of the proverbial car-salesman!
One has to be cautious about how a product supplier could
move to becoming an informator. The famous case of American Airlines and SABRE
leaves a horrific memory of the power that people can wield. However, as was
said, "you can fool all people some time, but not all the people all
the time". Consumers continue to become very discriminating in their choice
- and have developed and even longer memory. Ethical consumerism is on the rise
- evidenced by a number of ethical organization such as Body Shop. Product
suppliers then have to consciously build and extend affiliations to remain
competitive.
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Richness
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Richness is the depth and detail of information, about products
and about customers. Although incumbents must struggle to keep up with e-retailers and pure
informators in terms of reach and affiliation, they have a natural competitive
advantage when it comes to richness. Product suppliers have the potential to
have more solid and deeper information regarding their customer. The use of the
web for data mining has been well documented. However, less apparent is the
mother lode of information about the consumer and their behavior that is
accessible to well focused product retailers.
Putting this "traditional" access of information
onto the new fabric descending on the corporate landscape, allows the product
retailer to build very powerful relationships and an extremely strong
competitive advantage.
However, competition from the informators will intensify as
alliances are formed, better data mining techniques are perfected, and database
marketing continues. The product suppliers natural competitive advantage could
be a mirage in a few years, if the product supplier does not actively work on
consolidating it.
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The Inexorable force to Reinvent
The traditional value chains are being besieged and broken
down by the new e-economy. This presents traditional business leaders with a Hobson's
choice - they stay still and are doomed to failure or they change and see the
traditional business model destroyed! They have to redefine the formula of
reach, affiliation and richness to be able to compete tomorrow and allow the
traditional business to emerge chrysalis-like into the new world - ready to take
wing.
This transformation presents a tremendous challenge for any
organization. Traditional competency, skills, process and procedures, and power
structures all become immense hurdles rather than remain the bedrock of
strength. The organization has to go ride through the "valley of
death" in a calculated charge to capture the freshness of the new economy.
There have been a few organization who have made the journey of reinvention
successfully. For the rest, this may be their maiden attempt. Let's
hope that it will not be their last.
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