The impact on business from the internet has occurred through three types of strategies:
1. Enhancing existing business models and operations, whether back office function, supply chain or direct sales operations.
2. Create new products or services in traditional businesses. Selling books is nothing new but Amazon took to a new digital level. Ebay too, took over the tradition of the auction.
3. Create entirely new businesses. Network and portals offering new services and information like Google and Yahoo.
A couple of issues can arise like in the case of Napster, the peer-to-peer sharing platform that was targeting for allowing music to be reproduced. Respecting intellectual property rights and how to make money from a technology that basically gives away something for free.
I-Tunes followed shortly thereafter with a fee model but based on the Napster-like idea. Apple shares the revenue with the artists. Affiliate marketing I another way that revenue was shared as ‘click-throughs’ were tracked on partner web sites and they received a percentage of the sales. Social networks make money through advertising.
New models were possible because of low marginal costs of digital goods, ease of global reach and communications, and differentiation in products and services as well as pricing. The low cost of distribution can move very expensive content, such as movies, and content can be searched for almost nothing through search engines even though the infrastructure like Google has is extremely expensive. The investments are high but the marginal costs are low unlike a physical good where marginal costs are high and become a limiting factor in the strategy. In the digital world, every customer increases revenues much more than the cost to reach and serve that customer and average costs decrease over time.
Price flexibility is also possible by making real-time changes in pricing to maximize profitability. One example is airline pricing in that time and availability can be calculated depending on sales trends and pricing adjusted by the computer to serve the customers accordingly. Customer preferences, buying behavior and demographics can also be a part of real-time pricing. However, savvy customers can easily switch loyalty by doing comparisons so loyalty should be a consideration when pricing.
Industry wide platforms also compete for business by offering platform specific services and products leading to network adoption and direct customer experience. Most important with a network effect is that, the more external adopters in the ecosystem that create or use complementary innovations, the more valuable the platform(and the compliments) become. You may have noticed how platforms are selling bundles like Rogers or Bell to include telephone, internet and cable. Once you are invested in a platform and all your information is on there, it is difficult to switch.
Business models are more invested in user behavior as tracking has become as easy as laying breadcrumbs or cookies.
However, there are still problems to sort out for business on the internet:
· How do you improve trust, security and authenticity?
· The need to better manage digital property rights and price digital goods.
· Whether or not ‘freemium’ or ad-based models of internet service are viable for a business in the long run.
· Learning how to integrate mobile platforms into e-commerce.
· Deciding which strategies to use as an entrepreneur.
New Businesses and New Business Models
Michael A. Cusumano and Andreas Goeldi
The Oxford Handbook of Internet Studies