Strategy and the internet - porter

1. Group 3 Sergio Montero Frank Buell Michael Ibanez Strategy and the internet - porter

2. Author: Michael Porter Education Harvard Business Professor Mechanical Engineering from Princeton MBA and PHD from Harvard Theories Developed Competitive advantage Five Forces Analysis Strategic Groups Value Chain Generic Strategies Product Differentiation Market Positioning Global Strategy Clusters of competence for Economic Development Diamond Model Porter's Four Corners Model

3. The Internet as a New Technology • Assumptions • Technology that will change everything • Old rules about companies and competition obsolete • What is the Internet • An Enabling Technology • A New Tool Available to Everyone • A Compliment to Traditional ways of competing • A Game Changer

4. Distorted Market Signals • Rampant Experimentation • Subsidized inputs • Payments made with equity, warrants, or stock options • Downplay of traditional financial metrics • Creative accounting

5. A Return to Fundamentals • True Economic Value • Distinction of Uses of the Internet • Operating digital marketplace, selling toys, or trading securities • Internet Technologies ( Site-Customization tools or real-time communications services) • Two Fundamental Factors • Industry Structure • Sustainable Competitive Advantage

6. Industry Structure • Reconfiguration • Communication • Gathering Information • Accomplishing Transactions • The Integration of the Internet • Pros • Cons

7. Influences • Threats of substitutes • Bargaining Power of Suppliers • Rivalry among Existing Competitors • Buyers • Bargaining power of channels • Bargaining power of end users • Barriers to Entry

8. Myth of the First Mover • Myths • Strong Network Effects and Switching Cost • Buying Behavior Better Service • Facts • Easier to Switch to Competitors (One Page) • Limited Network Effects • Self Limiting Mechanism • Network Effects Expensive to Create

9. Myth of the First Mover • Partnerships and Compliments • Produces Network Effects • May Raise Switching Cost • No Relationship to Industry Profitability • Outsourcing Standardization • May increase Rivalry • Depress Profitability

10. Future of Internet Competition • Internet increases Competition • Power of Buyers increases • New Formats of Service • Increased Profits • Fragmented Markets • Differentiated Products • Direct Contact with Suppliers

11. The Internet and Competitive Advantage Sustainable Competitive Advantage • Operational Effectiveness • Speeding Real Time Information • Must sustain to keep Competitive Advantage • Best Practices • Strategic Positioning

12. The Six Principles of Strategic Positioning • Right Goal • Value Proposition • Distinctive Value Chain • Trade-Offs • Fit • Continuity of Direction

13. The Absence of Strategy • Market Strategy • Reduction of Competitive Strategy • Capturing the Market • Reducing Differentiation • Not focusing on Core Competencies • Past and Present • Past: Companies adapted to Software • Present: Software adapts to Strategy

14. The Internet as Compliment • Internet applications • Informing customers • Processing transactions • Procuring inputs • Existing competitive advantages • Skilled personnel • Proprietary product technology • Efficient logistical systems

15. The Internet as Compliment • The internet compliments rather than cannibalizes, companies’ traditional activities and ways of competing. • The use of the internet represents only a modest shift from well-established practices in some industries.

16. Internet activities and traditional activities • Internet applications in one activity often place greater demands on physical activities elsewhere in the value chain • Using the internet in one activity can have systemic consequences requiring new or enhanced physical activities that are often unanticipated • Most internet activities have some shortcomings in comparison with conventional methods

17. Internet limitations • Lack of personal interaction with customers and suppliers • Loss of product feel and sales force expertise • Logistics increased expense in smaller order packaging and shipping • Increased level of competition by the abundant availability of information

18. Traditional Method Limitations • Lack of real time information • High cost of face to face interaction • High cost of producing physical versions of information • Internet fix • Web sites supply product information and support direct ordering • Results: traditional sales force increase in value and productivity

19. The Internet and the Value Chain • Information technology pervasive influence on the value chain • The internet links activities and makes real-time data widely available throughout the whole system: within the company and suppliers • Increase in bidirectional interconnectivity

20. Value Chain

21. Value Chain Implications • Internet influence must be kept in perspective • Not a dominant influence • Conventional factors prominent roles Scale • Personnel skills • Product and process technology • Investment in physical assets

22. The End of the New Economy • Strategies that integrate the internet and traditional competitive advantages and ways of competing should win in many industries • The demand will be affected by the increasing availability of online services yet the service provided by physical locations will still be valued by customers • The supply should improve regarding production and procurement with a combination of internet and traditional methods

23. Traditional VS Dot Coms • It is easier for traditional companies to adopt and integrate internet methods to their traditional operations creating potential advantages. • Dot-coms have to pursue distinctive strategies more so than emulating one another; breakaway from competing solely on price and follow more traditional strategies regarding differentiation or market segmentation

24. Critique of the Porter Model Porter Profit Focused • Oilfield Industry • Farming Consumer Focused/Backward Integration • Wal-Mart • Amazon • Ebay • IKEA Old Business Model with Integration • Automotive Retail • Real Estate

25. Google’s mission is to organize the world’s information and make it universally accessible and useful. • History • Founded in 1998 • IPO 2004 • Google.org 2004 • Launch Google maps and Google earth 2005 • Joins S&P 500 2006 • Acquisition of YouTube 2006 • Android open platform for mobile devices 2007 • Google chrome 2008 • Google + 2011

26. Google • Services • Laser pinpoint accuracy in targeting market sectors • Free online services integrated through the gmail domain name • Largest availability of information presented in a simple format supported worldwide • Mobile information solutions

27. Google Model • Focus on the user and all else will follow • It’s best to do one thing really, really well • Fast is better than slow • Democracy on the web works • You don’t need to be at your desk to need an answer • You can make money without doing evil • There’s always more information out there • The need for information crosses all borders • You can be serious without a suit • Great just isn’t good enough

29. Products and Services 2011 • Kindle Fire (Android Format) • Downloadable Movies • Software Affiliated Companies

30. Affiliated Companies • Zappos.com • Shopbop.com • Woot

31. "Facebook's mission is to give people the power to share and make the world more open and connected.”

32. facebook use a similar model to Google in that the service is free of charge and the majority of its profits come from advertising facebook uses the info of its users to better target its consumers for advertising facebook is everywhere

33. Business model: • Build products that support our mission by creating utility for users, developers, and advertisers: • Users. Enable people who use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about. • Developers. Enable developers to use the Facebook Platform to build applications (apps) and websites that integrate with Facebook to reach our global network of users and to build products that are more personalized, social, and engaging. • Advertisers. Enable advertisers to engage with more than 950 million monthly active users (MAUs) on Facebook or subsets of our users based on information they have chosen to share with us such as their age, location, gender, or interests. They offer advertisers a unique combination of reach, relevance, social context, and engagement to enhance the value of their ads.

34. Article 5: Strategy and the Internet—Porter How does Internet influence the industry structure? Explain using Porter’s model on competition. Can Internet create sustainable competitive advantage? How? Explain. “The winners will be those that view the Internet as a complement to, not a cannibal of traditional ways of competing.” Explain.