1. STRATEGY AND THE INTERNET
BY
FITSUM R. LAKEW

2. INTERNET AS A NEW TECHNOLOGY
IN BUSINESSES
• Internet technology provides better opportunities for
companies to establish distinctive strategic positioning.
• Many of the companies that succeed are ones that use the
internet as a complement to traditional ways of competing
• Companies set their internet initiatives apart from their
established operations.
*Dampen profitability
*Leveling effects on business practices
*Reduce the ability to establish operational
advantage
• The solution-to build on proven principles of effective
strategy using the internet as a complement to traditional
ways of competing.

3. DISTORTED MARKET SIGNALS
• Companies deployed internet technology confused by
distorted market signals.
* Sales figures distorted for three reasons
1.Prices for products placed for sale online
heavily discounted, making demand for
these goods artificially high.
2.Customer curiosity has prompted many
online sales.
3.Some revenues received in the form of stock rather
than cash.
• Cost side of the equation is equally distorted.
*Many suppliers offered products at a discount prices to
affiliate with online business or take stock instead of cash
for payment.
• The main reason for the multitude of dotcoms, i.e.,
*Able to raise capital without demonstrate viability.

4. INTERNET AND ECONOMIC VALUE
• Economic value can be defined as the gap
between price and cost, and it is reliably
measured only by sustained profitability.
• Two fundamental factors that determine
profitability:
1. Industry structure
 Threat of substitute product or services
* (+) By making the overall industry more
efficient, the Internet can expand the size of
the market
* (-) The proliferation of Internet approaches
creates new substitution threats

5. INDUSTRY STRUCTURE

6.  Bargaining power of suppliers
* (+/-) Procurement using the Internet tends to raise
bargaining power over suppliers, though it can also
give suppliers access to more customers
* (-) The Internet provides a channel for suppliers to
reach end users, reducing the leverage of intervening
companies
* (-) Internet procurement and digital markets tend
to give all companies equal access to suppliers, and
gravitate procurement to standardized products that
reduce differentiation
* (-) Reduced barriers to entry and the proliferation
of competitors downstream shifts power to suppliers

7.  Rivalry among existing competitors
*(-) Reduces differences among competitors as
offerings are difficult to keep proprietary
* (-) Migrates competition to price
* (-) Widens the geographic market, increasing
the number of competitors
* (-) Lowers variable cost relative to fixed cost,
increasing pressures for price discounting

8. BUYERS
(+) Eliminates
powerful
channels or
improves
bargaining
power over
traditional
channels
• (-) Shifts
bargaining
power to end
consumers
• (-) Reduces
switching
costs
BARGAINING POWER
OF CHANNELS
BARGAINING POWER
OF END USERS

9.  Barriers to entry
• (-) Reduces barriers to entry such as the need for
a sales force, access to channels, and physical
assets – anything that Internet technology
eliminates or makes easier to do reduces barriers
to entry
• (-) Internet applications are difficult to keep
proprietary from new entrants
• (-) A flood of new entrants has come into many
industries

10. 2. Sustainable competitive advantage
*Company must operate at a lower cost,
command a premium price, or both
• Cost and price can be achieved in two ways,
*Operational effectiveness
*Strategic positioning
• Companies must integrate the internet into their
value chain making difficult for competitors to
copy their strategy.

11.  To conclude that internet is a complement to
rather than a cannibal of existing business
practices
 Only by integrating the internet into overall
strategy will this powerful new technology
become an equally powerful force for competitive
advantage.