Strategy and the Internet by Michael E Porter

Strategy and the Internet by Michael E. Porter Harvard Business Review, Vol. 79, No. 3, March 2001 指導老師　林娟娟教授 資碩專一　史元瑜 99756009 資碩專一　林仲葦 99756014 報告日期 2010/11/22

Outline Background Myth of Internet Return to fundamentals Internet and industry structure Future of Internet Competition Internet and Competitive Advantage Absence of Strategy Internet as Complement Conclusion

Background Dot-com bubble (1995 -2000) Distorted Market Signals Discount provided by enterprise Curiosity , freshness and discount that influenced consumers Distorted revenue from capital gains instead of profitability from products and services

Myth of Internet First mover ◦ Switching costs ◦ Brand advantages Proprietary makes winner-take-all Partnering improves industry economics

Return to fundamentals Strategy creates economic value, not Internet technology Basis of economic value : price and cost Economic value of Internet ◦ Uses of Internet ◦ Internet technologies Factors determine profitability ◦ Industry structure ◦ Sustainable competitive advantage

Internet and industry structure(1/8) Impacts of Internet ◦ Reduce cost of communicating, information gathering, transaction accomplishing

Internet and industry structure(2/8) Five underlying forces of competition ◦ Bargaining power of suppliers ◦ Threat of substitute products or services ◦ Rivalry among existing competitors ◦ Barriers to entry ◦ Buyers Bargaining power of channels Bargaining power of end users

Internet and industry structure(3/8) substitute s suppliers competitors barriers buyers

Internet and industry structure(4/8) Bargaining power of suppliers Advantage Raise bargaining power over suppliers Disadvantage Suppliers access to more customers Reducing the leverage of intervening companies Gravitate procurement to standardized products that reduce differentiation The proliferation of competitors downstream shifts power to suppliers

Internet and industry structure(5/8) Threat of substitute products or services ◦ Advantage Expand the market size by making the overall industry more efficient ◦ Disadvantage Creates new substitution threats

Internet and industry structure(6/8) Rivalry among existing competitors ◦ Disadvantage Reduces differences Migrates competition to price Increasing competitors Lowers variable cost relative to fixed cost

Internet and industry structure(7/8) Barriers to entry ◦ Disadvantage Reduces barriers to entry Difficult to keep proprietary from new entrants New entrants has come into many industries

Internet and industry structure(8/8) Buyers ◦ Advantage (bargaining power of channels) Eliminates powerful channels ◦ Disadvantage (bargaining power of end users) Shifts bargaining power to end consumers Reduces switching costs

Future of Internet Competition Continuously put pressure on profitability Strengthen customers and advertisers’ power because of low switching cost Opportunities of profitability from Internet

Internet and Competitive Advantage Sustainable competitive advantage ◦ Lower cost ◦ Premium price Cost and price advantages ◦ Operational effectiveness ◦ Strategic positioning

Absence of Strategy Drought of distinctive strategic positioning Advantage of Internet with traditional IT service

Internet as Complement(1/3) Internet complements companies’ traditional activities and ways of competing Critical corporate assets vs. noncompetitive activities Examples: Wal-greens , W. W. Grainger

Internet as Complement(2/3) Virtual activities amplify importance of physical activities Reasons of complementarity between Internet and traditional activities ◦ Internet in one activity places demands on physical activities ◦ Using Internet in one activity can have systemic consequences ◦ Restricts of Internet

Internet as Complement(3/3) Internet and value chain Firm infrastructure Human resource management Technology department Procurement Inbound logistics Operations Outbound logistics Web-distributed supply chain management Marketing and sales After-sales services

Conclusion Internet makes competitive advantage more important Dot-coms must pursue distinctive strategies rather than emulate established companies “New economy” is more like an old economy access to a new technology

Thanks for your listening