by Amir Hartman and John Sifonis with John Kador
This article is an excerpt from Net Ready: Strategies for Success in the E-conomy and appears on TechRepublic through an exclusive arrangement with the authors. Today’s installment of this series examines the last four of the 12 strategies for e-business initiatives that are outlined in the book. Each of these strategies focuses on transforming a specific product or market segment within the e-commerce world. In the first excerpt, we examined the product and market transformation e-business initiative. In the second installment, we looked at business process transformation.
Industry focus is the third critical dimension of creating e-conomy value. Sometimes the best strategy is to redefine the industry in which you operate or, better yet, start a new industry. In this discussion of the four e-business strategies for industry transformation, you’ll see the same names over and over again. This is testimony to the fact that the most successful e-businesses have activity in a number of areas of the e-conomy. Aggressive participation on many levels, some of which will bear fruit, others of which will fail, together determine sustainable competitive advantage over the long haul.

Industry transformation

  • Redefine the basis of competition
  • Become the channel master (SABRE-ize)
  • Redraw industry boundaries
  • Break “unbreakable” rules

Redefine the basis of competition
The most celebrated instances of leadership in the economy happen in the strategic space of redefining the basis of competition. There is no stronger strategy than rewriting the rules organized around your individual competencies and making your competitors play catch-up. While the upside to this strategy can be phenomenal, the investment necessary to make it happen is considerable, and a cast-iron stomach is often necessary to swallow the risks.

The poster company for this strategy is, without dispute, Dell Computer . A number of excellent case histories exist elsewhere, so we do not propose to rehash what has become a very well-known story. Let us just note that Dell has been able to leverage its first-mover advantage. It is now the dominant storefront in the online distribution of PCs and, at its present rate of growth, is likely to become the number one storefront in the industry, passing both Compaq and IBM in sales.

But first-mover advantage, even in this most strategic of spaces, is not sufficient to guarantee long-term success. E*Trade pioneered the discount, Internet brokerage industry by using the attributes of cyberspace to permanently redefine the basis of competition. In the beginning, it made full-service firms such as Merrill Lynch and even discount brokers such as Charles Schwab squirm, forcing a general decrease in prices and eroding margins across the board. Unfortunately for E*Trade, Schwab accepted the challenge of playing in a new space, even one it did not create. By betting the farm on low-cost Web trading and leveraging its existing channels, Schwab redefined the industry that E*Trade had pioneered, taking the lead. It accepted the role of rule taker and is now acting as the rule maker.

Become the channel enabler (SABRE-ize)
TheSABRE Group first demonstrated the power of what seemed at first to be a paradox. An outgrowth ofAmerican Airlines’s reservation system, SABRE at first represented American Airline flights exclusively. As such it operated squarely in the tradition of what was called proprietary lock-in. The strategy was to earn market share by making it cheaper and easier to book American flights than the flights of competitors. But as the SABRE system expanded its coverage to partners and then found favor among travel agents, pressure grew to open up the system to a greater number of partners and travel providers. Some managers were afraid that American Airlines flights would take a hit if they were offered on equal terms with the service of competitors. But a curious thing happened. The value of SABRE grew exponentially, as it became more open and less biased. The number of participants grew, commanding higher licensing fees. The SABRE system gradually became a standard and then, suddenly, a brand.

Today, whenever an e-business storefront consolidates its position by creating an infrastructure sufficiently open to invite a great spectrum of the industry in which it operates, we say it has become a channel enabler. Another way to look at it is that it has “SABRE-ized” its market space.

Redraw industry boundaries
Ingram Micro Inc., a $16.5 billion computer-products distributor, is redrawing industry boundaries by tying together a series of high-tech initiatives to create a competence in channel assembly, the newest expression of creating value in the e-conomy. Channel assembly is the practice of collecting computer components from various manufacturers and putting them together in response to a customer’s shifting requirements. It’s the ultimate extension of one-to-one channel logistics in the e-conomy because it enables customers to use interactive Internet apps to specify exactly what they want, rather than buying cookie-cutter products pumped into a channel by manufacturers. Ingram is one of the first e-conomy storefronts to execute channel assembly via the Internet.

In redrawing industry boundaries, Ingram has also embarked on a comprehensive extranet strategy to tie together its best customers into a value-added infrastructure. The company’s goal is to host and to partially fund a collection of branded transaction sites on behalf of its computer reseller customers. This value migration technique redraws industry boundaries by reframing Ingram Micro, the leader in the space, as an Enterprise Server Provider (ESP), says Esther Dyson, chairman of EDventure Holdings and editor of Release 1.0. The effort is aimed at keeping otherwise fickle resellers, who will aggressively shop multiple distributors for the best price, in the Ingram fold by making it easier for them to conduct business in the low-cost Internet environment. At the same time, it imposes higher switching costs for those resellers who might want to defect from the fold that Ingram Micro has so carefully constructed.

Break “unbreakable” rules
The first step in breaking unbreakable rules is to understand the rules you are not supposed to break. This is not as easy as it sounds, for the chains most difficult to break are precisely those we least acknowledge to be chains. For this exercise, outsiders to your industry are key. With their insight, you must articulate the rules as you understand them. Without doing so, you can’t break them. Our minds will at first be bound by old rules of economic growth and productivity. Reading books such as Net Ready will help unloose them. The lesson is clear: In the network economy, don’t respect rules; break them. Here are a few rules from the traditional economy and their possible e-business replacements (Figure). Now go out and break the replacements.

DoubleClick , the Net advertising company, did just that. It’s just been five years or so since the Net emerged as a viable advertising medium. In all that time, none of the traditional advertising agencies that rule the broadcast or print media environments has emerged as a Net Ready advertising presence. The roles of Rule Breaker and Rule Maker have gone to a born-on-the-Web company that has—by virtue of its governance model, leadership vision, and superior technology—redrawn industry boundaries. DoubleClick, Inc. has succeeded by breaking the industry’s “unbreakable” rules to exploit the exquisite measurability and interactivity of the Net as an advertising vehicle.

When DoubleClick was launched, there was still a huge question mark to as whether the Internet was a fad, a niche, or a mass market. What the Internet “economy” was going to look like was still up in the air. The value proposition for the Web was completely untested. Would sites charge a subscription or would advertising pay the bills? Kevin O’Connor, CEO and co-Founder of DoubleClick, saw that the wealth of all successful media companies derived from ad sales. All DoubleClick had to do was build the technology to tame the anarchic culture of the Web so that the grownups would invest their media dollars.

“We believed that technology was going to be the key in redefining the way marketing was going to be done on the Internet,” O’Connor says. “People from traditional media dragged in all the limitations of their media into the Internet space. We sat back and studied what an advertiser wanted to accomplish and then created a system to solve their problems.”
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