E-strategy
Rahul Aranha
Kathleen Bell
Quan Chen
Daniel Olmos
Todd Riggs
4th October, 2001
1
Agenda

Analysis of Porter’s View

Tapscott’s critique of Porter’s perspective

The GE Model

The Yahoo Model

Team E-Strategy’s Takeaways
2
Strategy and the Internet
Michael Porter
3
Why firms have been
overvalued in the Internet
era…
Valuations have been based on :
• Sales
• Projected reductions in cost
• Share prices
4
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
5
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
6
If profitability is under
pressure, then what can
I do or how can I go
around it?
7
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
8
Dotcoms have violated every
precept of good strategy
From the Dotcom legacy…
To the new Path Forward
• Maximize revenue and market
share growths
• Focus on profitability
• Pursue all kind of revenues
• Deliver real value to customer
• Offer every possible service
• Make thoughtful trade-offs
• Imitate rivals
• 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?
9
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?
10
The Internet is here to stay!
11
Rethinking Strategy in a
Networked World
Don Tapscott
12
The Internet
 “Deep
rich publicly available
communication technology”
 Enables
a new business
architecture: the business web
13
Business Web Business
Model

Suppliers
Distributors
Service Providers
Infrastructure Providers
Customers
 All
using Internet to transact and
communicate
14
Biz Web Partnerships

Porter: Lower barriers to entry;
Companies lose control

Tapscott: Firms focus on core
competencies; outsource; see
performance advantages
15
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

16
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

17
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
18
Areas ripe for
change/improvement
Unique Products: IBM
 Operational efficiencies
 Customer service and relationships

19
Customer Empowerment
Smarter
 More active
 More powerful
 Is this bad?

Porter: Yes; Tapscott: No
 Leads to more real value

20
Tapscott’s View of Internet
“Connect every business and business
function and a majority of humans on
the planet”
21
Strategy and Internet
Static v. dynamic
 Optimism v. pessimism
 Embrace v. eschew

22
Overview of GE’s
Businesses
“Short-cycle”
“Long-cycle”
Capital
Services
~25% of Net Income
~35% of Net Income
~40% of Net Income
• Lighting
• Aircraft Engines
• Appliances
• Power Systems
• Industrial Systems
• Medical Systems
• NBC
• Transportation Systems
• Plastics
• Information Services
(now eXchange Services)
• Consumer Services (e.g.
credit cards & insurance)
• Equipment Management
(aircraft, trailers, railcars)
• Mid-Market Financing
• Specialized Financing
(e.g. real estate, private
equity) and Specialty
Insurance (e.g.
reinsurance)
23
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
24
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
25
GE Caselets Summary
e-Buy
Moving purchasing
transactions online
e-Make
Moving business
processes online
e-Sell
Moving customer
relationships online
• Reverse auctions &
straight purchasing (GE
Medical Systems)
• Online customer reports
vs. paper-based (GE
Fleet Services)
• Online wizards to assist
in the design process
(GE Plastics)
– Direct savings
• Online mortgage
origination process (GE
Mortgage Services)
• Remote monitoring and
related services (GE
Medical Systems)
• Online Travel & Living
processes for GE
employees (Travel
Center, expense
reimbursement)
• Leverage existing
channel partners (GE
Appliances)
– Reduction in cost
and errors
• Collaborative design
online (GE Appliances)
26
GE’s Outlook on Benefits
e -Sell
Online Sales
e -Buy
Auction Savings
e -Make
Savings
~$19
~$2.5
~$13
$8
~$1.1
~$1.0
~$0.6
$0.1
'00
'01
'02
'00
$0
'01
Auctions Volume
$2.3
$10 -11
(Pre Tax $ in Billions)
'02
'00
'01
'02
$12 -15
27
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.”
28
Yahoo! Success
Market value $30 billion
Up 2,600% since IPO (1998)
Unique Visitors (Aug/2001)
Yahoo
MSN
AOL
LYCOS
Excite
eBay
Yahoo!:
119,878,591
Msn:
103,187,561
AOL:
94,863,873
Lycos:
69,492,163
“We’ve set out to make Yahoo the only place anyone needs
to go to get connected to anything.”
- Tim Koogle
29
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
30
Yahoo! Partnership and Alliance
Technology Providers:
Google
HP
TIBCO
Net2Phone
L&H
Novell
SAP
Online Advertisement:
SONY
Ford
FIFA 2002
Latin Grammy Awards
Infrastructure & Content
Provider providers
AT&T
Reuters
ABCNews
CNN
The Wall Street Journal
Barron’s
Expertise Service Provider:
Wetfeet  Career service
H&R Block  Tax advisory
Vertical One  Personal finance
Headhunter.net Yahoo!Career
31
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
32
The Fall of Yahoo!
• Deteriorated market environment
• Stock price crashed
• Continuous revenue and profit warning
• 12% Staff layoff
• CEO - Tim Koogle stepped down
33
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
34
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
•Acquired Broadcast.com
and build YAHOO!
Broadcast to strengthen its
broadband service
Yahoo! Partnerships
100
90
80
70
60
Count
•Start to charge fees on
premium service to
internet users.
50
40
30
20
10
35
0
1996
1997
1998
1999
2000
2001/July
Vertical Integration v. Partnering
Vertical Integration Deals
+
+
Partnering:
Rank By
Unique
Audience
1
Property
Unique Audience
Yahoo!
119,878,591
2
MSN
103,187,561
3
AO L Time Warner
94,863,873
4
Lycos Network
69,492,163
5
Microsoft
67,428,499
6
Excite@Home
34,680,635
7
27,925,037
8
About The Human
Internet
InfoSpace
9
Google
23,455,940
10
CNET Networks
23,356,005
11
eBay
23,188,879
12
Go.com
22,654,364
13
Amazon
22,546,123
14
AltaVista
20,911,280
15
NBC Internet
20,139,953
16
FortuneCity
19,236,295
17
Napster
16,431,597
36
23,780,504
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?
37
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?
38
Our view (Tapscott)
The Internet and our use and
understanding of it continues to evolve.
 How measuring value?
 Change is good; embrace it

39