A Networked World by vivi07


Rahul Aranha Kathleen Bell Quan Chen Daniel Olmos Todd Riggs 4th October, 2001


  

Analysis of Porter‟s View
Tapscott‟s critique of Porter‟s perspective The GE Model

 

The Yahoo Model Team E-Strategy‟s Takeaways

Strategy and the Internet
Michael Porter


Why firms have been overvalued in the Internet era…
Valuations have been based on : • Sales • Projected reductions in cost • Share prices


Porter’s Framework for analyzing market profitability

Key drivers of market profitability • Power of Buyers • Power of Suppliers • Threat of substitution • The ability to erect Barriers of Entry • Industry Rivalry


Focus on low price as the main competitive advantage

The impact of the Internet this far…


Reduction in company profit margins Fiercer rivalry Reduction in Switching Costs


If profitability is under pressure, then what can I do or how can I go around it?

Sustainable competitive advantage comes from…

Operating at a lower cost • Through higher operational effectiveness Choosing a strategic positioning • Differentiates the product or service from the rest of the pack



Dotcoms have violated every precept of good strategy
From the Dotcom legacy…
• Maximize revenue and market share growths
• Pursue all kind of revenues

To the new Path Forward
• Focus on profitability
• Deliver real value to customer

• Offer every possible service
• Imitate rivals

• Make thoughtful trade-offs
• Tailor value chain

• All kind of partnerships and outsourcing strategies

• Maintain control over assets and channels

How can the internet be leveraged to move forward?

The Net as a complement to company strategy



Internet apps demand more of traditional activities • Direct ordering applications require an adaptation in warehousing and shipping systems Internet has systemic consequences in other areas • Flow of order requests may saturate the department handling those requests The internet has limitations • Lack of physical assets (logistical systems, warehouses, …) • No supplier-customer contact (selling jet-engines over the Net?) • How to attract new customers in an ocean of information?


The Internet is here to stay!


Rethinking Strategy in a Networked World
Don Tapscott


The Internet
 “Deep

rich publicly available communication technology” a new business architecture: the business web

 Enables

Business Web Business Model

Suppliers Distributors Service Providers Infrastructure Providers Customers

 All

using Internet to transact and communicate

Biz Web Partnerships

Porter: Lower barriers to entry; Companies lose control Tapscott: Firms focus on core competencies; outsource; see performance advantages



Structural Changes
Porter: Superficial changes  Communication  Tapscott: Deep structural changes  Infrastructure for wealth creation changing  Evolution: Tomorrow‟s Internet will be entirely different from today‟s

Business Model Innovation
Porter dislikes term: murky  Focused on generating revenue  Tapscott: core architecture  Deployment of resources to create distinct value  Retain old measures; New means to create value

Competitive Advantage
 

  

1001 ways to employ the Internet Not all equal: Some better than others Porter: Competitive Advantages neutralized, like a light switch WRONG Continuum of Business transformation  New applications and technologies  Greater richness and depth

Areas ripe for change/improvement
Unique Products: IBM  Operational efficiencies  Customer service and relationships


Customer Empowerment
Smarter  More active  More powerful  Is this bad?

Porter: Yes; Tapscott: No  Leads to more real value

Tapscott’s View of Internet
“Connect every business and business function and a majority of humans on the planet”


Strategy and Internet
Static v. dynamic  Optimism v. pessimism  Embrace v. eschew


Overview of GE’s Businesses
~25% of Net Income • Lighting

~35% of Net Income
• Aircraft Engines

Capital Services
~40% of Net Income
• Consumer Services (e.g. credit cards & insurance) • Equipment Management (aircraft, trailers, railcars)

• Appliances • Industrial Systems
• NBC • Plastics

• Power Systems • Medical Systems
• Transportation Systems • Information Services (now eXchange Services)

• Mid-Market Financing • Specialized Financing (e.g. real estate, private equity) and Specialty Insurance (e.g. reinsurance)

GE’s Early Internet Foibles

1980s & early 1990s: GE Information Systems sells Electronic Data Interchange (EDI) networks to other large corporations 1994: GE launches first web site, an exercise in „brochure-ware‟
1995: I had to get my plant manager‟s authorization to get Netscape installed on my PC




1997-98: Joint venture launched with Microsoft (MSNBC.com); NBC launches NBCi.com and the portal Snap.com


GE Gets a Wakeup Call
 

Christmas 1998: GE CEO Jack Welch “gets it”
January 1999: Welch launches e-Business as his fourth and last company-wide initiative  “Destroy Your Business” teams  Assigns “Stuart”-esque mentors to top 1000 managers  Destroy Your Business becomes “Grow Your Business”


2000-2001: initiative gains more clarity with introduction of “e-Sell,” “e-Make,” and “e-Buy” approaches


GE Caselets Summary
Moving purchasing transactions online
• Reverse auctions & straight purchasing (GE Medical Systems)

Moving business processes online • Online customer reports vs. paper-based (GE Fleet Services)

Moving customer relationships online • Online wizards to assist in the design process (GE Plastics)

– Direct savings – Reduction in cost and errors • Collaborative design online (GE Appliances)

• Online mortgage origination process (GE Mortgage Services) • Online Travel & Living processes for GE employees (Travel Center, expense reimbursement)

• Remote monitoring and related services (GE Medical Systems) • Leverage existing channel partners (GE Appliances)


GE‟s Outlook on Benefits
e-Sell Online Sales
~$13 $8 ~$0.6 $0.1 '00 '01 '02 '00 '01 '02
$12 -15

e-Buy Auction Savings

e-Make Savings



'00 '01 '02

Auctions Volume $2.3 $10 -11

(Pre Tax $ in Billions)

Jack Welch on e-Business

“I was afraid of it, because I couldn‟t type”


“I don‟t think there‟s been anything more important or more widespread in all my years at GE. Where does the Internet rank in priority? It‟s number one, two, three, and four.” On advantages for old-line companies: “They have the business processes. They have the fulfillment capabilities. They have the brand recognition, and they often have the technology. The disadvantages are that they‟re fighting an existing model. They‟ve got to break the mold.” “Old companies thought this was Nobel Prize-type work. This is not rocket science. It‟s just like breathing.”



Yahoo! Success
Market value $30 billion Up 2,600% since IPO (1998)

Unique Visitors (Aug/2001)
Yahoo!: 119,878,591 103,187,561
94,863,873 69,492,163


AOL: Lycos:




“We’ve set out to make Yahoo the only place anyone needs to go to get connected to anything.”


- Tim Koogle


Yahoo!’s Business Model
Brokerage ModelVirtual Mall:

Advertising ModelGeneralized Portal:

Advertising Model  Personalized Portal:

The method of doing business by which a company can sustain itself. -- Michael Rappa


Yahoo! Partnership and Alliance
Technology Providers: Google HP TIBCO L&H

Net2Phone Novell

Infrastructure & Content Provider providers AT&T Reuters ABCNews CNN The Wall Street Journal Barron’s

Online Advertisement: SONY FIFA 2002 Latin Grammy Awards Ford

Expertise Service Provider: Wetfeet  Career service H&R Block  Tax advisory
Vertical One  Personal finance Headhunter.net Yahoo!Career

e-Strategy Leads to the Success
• First mover.

• Strategically move from sole online directory search service to full range service. • Increase customer awareness – to build brand equity through aggressive marketing activities • Building partnership with content providers and retailers. – flexibility
• Avoid ISP model – to extend the reach-ness

• Adopt globalization strategy – to extend the reach-ness • Personalization – to increase customer loyalty

The Fall of Yahoo!
• Deteriorated market environment

• Stock price crashed
• Continuous revenue and profit warning

• 12% Staff layoff • CEO - Tim Koogle stepped down


Does Yahoo! have New Strategy?
Surely, the strategy of selling advertising and also doing different types of partnerships with other content providers and retailers and such is very sound at this point . … but we will go more heavily toward the top 200 advertisers in the world. …On the other hand, we will also begin the process of some premium services and price it. -- Terry Semel


What Yahoo! is doing now?
•The overall strategy has not changed – “Pure online player” •Focus on traditional companies to sell Yahoo’s online space. Build long term partnership with Sony

•Strengthen its business enterprise service by allying with HP, SAP etc •Start to charge fees on premium service to internet users. •Acquired Broadcast.com and build YAHOO! Broadcast to strengthen its broadband service
Yahoo! Partnerships
100 90 80 70


60 50 40 30 20 10 0

1996 1997 1998 1999 2000 2001/July

Vertical Integration v. Partnering
Vertical Integration Deals


Rank By Unique Audience 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Property Yahoo! MSN AO L Time Warner Lycos Network Microsoft Excite@Home About The Human Internet InfoSpace Google CNET Networks eBay Go.com Amazon AltaVista NBC Internet FortuneCity Napster

Unique Audience 119,878,591 103,187,561 94,863,873 69,492,163 67,428,499 34,680,635 27,925,037 23,780,504 23,455,940 23,356,005 23,188,879 22,654,364 22,546,123 20,911,280 20,139,953 19,236,295 16,431,597 36

By Nielson/eRating 2001. Aug

Our view (Porter)

 


How should one leverage the potential of the Internet? Who will capture the economic benefits that the Internet creates? • Will all the value end up going to customers? • Will companies be able to reap a share of it? Are my operations processes Internet-ready? What will be its impact on industry structure/profitability? So what‟s the firm‟s true competitive advantage, and does it lead to sustained profitability?


Our view (Porter)


Is the 5 Forces framework sufficient to evaluate an industry in the Internet era? Competing on price is imperative in emerging economies Partnerships and alliances are good


Does the Internet add more value to service businesses than product businesses which are more physical asset dependent?


Our view (Tapscott)
The Internet and our use and understanding of it continues to evolve.  How measuring value?  Change is good; embrace it


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