Strategy and the Internet

1
Strategy and the Internet

• Michael E. Porter
• Harvard Business Review, March 2001.

2
Outline

• Introduction
• Distorted Market Signals
• Return to Fundamentals
• Internet and Industry Structure
• Myth
• Future of Internet competition
• Competitive Advantage
• Internet and Value Chain
• Internet as Complement
• End of New Economy

3
Introduction

• Internet changes everything?
• See the Internet for what it is.
• The key question is how to deploy Internet.

4
Distorted Market Signals

• When confronted with a new business phenomenon,
  looking to marketplace outcomes for guidance -but
  market signals can be unreliable.
• The sheer number of dot-coms revealed a danger
  sign - the existence of low barriers to entry.

5
Return to Fundamentals

• Two fundamental factors that determine
  profitability
• Industry structure
• Sustainable competitive advantage

6
Internet and Industry Structure
7
Myth

• First movers would reinforce advantages by
  quickly establishing strong new-economy brands?
• Switching costs
• Network effects critical mass
• Internet brands
• Another myth that has generated un founded
  enthusiasm for the Internet is that partnering is
  a win-win means to improve industry economics.

8
Future of Internet competition

• Five Force
• Internet sellers will be able to better
  differentiate themselves and shift buyers focus
  away from price.
• Linking many buyers and suppliers electronically.

9
Competitive Advantage

• Operational Effectiveness - doing the same things
  your competitors do but doing better.
• Strategic Positioning - doing thongs differently
  from competitors, in a way that delivers a unique
  type of value to customers.

10
Internet and Value Chain

• Prominent Applications of the Internet in the
  Value Chain

11
Internet as Complement

• Internet technology can do many useful things,
  but not everything.
• Traditional activities can compensate for the
  Internet limits.

12
End of New Economy

• The old economy of established companies and
  the new economy of dot-coms are merging and
  will soon be difficult to distinguish them.