Internet (see social media)

The Internet is the dominant technical, communication (such as social networking) and marketing tool of the new economy.

Some basic statistics on the Web

"...The web is less than 2,000 days old and we have 3 billion Web pages, 100 million web sites and are sending 600 billion E mails in the USA alone every year. All these numbers are doubling every year. We are just at the beginning..."

Kevin Kelly, 2001 in AFRBoss

Some statistics (late 2015)

There are around 1 b. websites in the world

Around 50% of people read e-mails on smart phone immediately when they wake up

Around 80% of online work users access the Internet via their smart phone rather than a computer

Facebook  has 1.55 b active users, 1.05 b. daily users and 894 m. mobile active users. It is the most visited place on the Internet.

Twitter has 1 b. users with around half following only, not tweeting

LinkedIn has 400 m. business users & 6 m. business listings; it has 130+ different industry users & in 200+ countries; 61+% use it as primary professional network; 49% are key decision makers

Google + has 300m. users join in the first 24 months

Short videos attract 4 b. viewers a day on YouTube; it serves up to 1b.

Google + - 300 m. regular users joined in the first 2 years

LinkedIn was originally developed by traditional job replacement firms to have a platform to attract and place job applicants. It has grown to nearly 300 m. users with a stock market valuation of around US$ 20 b (late 2015). It is regarded as the professionals' Facebook for business

Instagram launched in October 2010 and by 2016 it had 0.5 b. users (2016) who upload 16 b. photos. Many top brands use Instagram like Star Bucks, Red Bull, Burberry, etc to communicate with their customers and it is more effective than Facebook or Twitter.

Pinterest is used to show items from your store and letting users see what ís available in the catalogue

Klout measures how popular someone is on social media on a scale of 1 to 100 (the higher the score the better) ; its scoring algorithm uses 400 different factors in its measurement.

Research has shown that social media produces double believes trade shows, telemarketing and daily mail.

Comments

Initially there was Twitter, Facebook, LinkedIn and YouTubey. 2013 saw the emergence of Instagram, Google + and Pinterest.  They have a combined audience of 1+ b.;  2015 witnessed the arrival of Snapchat, Periscope & Meerkat

all these are relegating traditional forms of advertising, from print ads to Google ad words, etc to the rubbish bin

(source: Wayne Mansfield, 2016; Alex Pirouz, 2016)

Furthermore,

"...the value of a website, such as Facebook or Google, is proportionate to the number of people using it, as each user contributes to its richness..."

Anders Sorman-Nilsson, 2010

"...The rules of the social media echo chamber are clear. Those who can attract the most eyeballs, brain space and fingertips - in the form of comments, tweets and chat - will rise to the top..."

Mike Hanley, 2008

"...The fruits of the information society are easy to see, with a mobile phone in every pocket, a computer on every desk & big IT systems in back-offices everywhere...?

Victor Mayer-Schonberger et al

. The Internet added communications to computers and owing to its global connections, it has given access & voice to individuals that they never had before

. Information economy is a result of the Internet's access and means that organisations are free from physical assets like buildings, machinery, etc, enabling them to "move in and out" of business(es) at a moment's notice. Thus traditional business models are under threat

The Internet is democratizing innovation (see earlier section on Innovation) and has created a "global web of enterprises", whereby smaller organisations, irrespective of location, have the potential to be participants in virtual business units that cross national borders just as successfully as larger organisations. It is being claimed (Mark Fenton-Jones, 2009) that small businesses now take more orders online than medium-sized businesses. One of the keys to the success of small-business online is building up trust with the customer. A satisfied customer will return to buy from you again and will recommend you to other potential customers. Furthermore, Internet provides valuable, immediate marketing information, eg what is selling, who is buying, etc. This helps control and reduce inventory levels, which frees up cash, and reduces the need (and cost) of having a shop front. Also, online advertising is more effective and cheaper than the traditional avenues of radio, newspapers and magazines, etc.

Internet has changed the dynamics of the world economy of information

"...neither the postal service nor the telegraph made information public. On the contrary, they made it privileged communication. Public information - newspapers, radio, television - ran one-way only, from the publisher to the recipient. The editor rather than the reader decided what it was to print. The Internet, in sharp contrast, makes information universal and multidirectional rather than keeping it private or one-way. Anyone with a telephone and personal computer has direct access to every other human being with a phone and PC. It gives everyone practically limitless access to information......Internet customers are becoming a new and distinct market. In the early years of the 21st century, power is shifting to the ultimate customer..."

Peter Drucker, 2006a

The Internet has changed the information asymmetries equation. Prior to the Internet, an expert knew more than others; thus information asymmetries were present and gave an advantage to the expert.

"...information is the currency of the Internet. As a medium, the Internet is brilliantly efficient at shifting information from the hands of those who have it into the hands of those who do not. Often......information existed but in a woefully scattered way. (In some instances, Internet acts like a gigantic horseshoe magnet waved over an endless number of haystacks plucking the needle out of each one)......the Internet has accomplished like no other consumer advocate could: it has vastly shrunk the gulf between the expert and public. The Internet has proved particularly fruitful for situations in which a face-to-face encounter with an expert might actually exacerbate the problem of asymmetrical information - situations in which an expert uses his informational advantage to make us feel stupid or rushed or cheap or ignoble..."

Steven D Levitt et al, 2005

The Internet has allowed the development of social networking (see social media), eg Twitter, Facebook, My Space, YouTube, Bebo, etc. Facebook was invented in 2004 and by April 2009 it had 200 million registered users. These social networking sites allow communications to bypass the traditional media/communication avenues. For example, social network sites, especially Facebook and Twitter, allowed political dissent in Iran to reach the outside world after the June 2009 disputed elections (Chris Tryhorn, 2009). Other examples include the "Arab Spring" (2011) and impact of the Japanese tsunami (2011).

Generally Twitter is for the media and Facebook for the community.

The Web has resulted in a "tsunami of data" or "data overload". On the other hand, it has de-institutionalized information and challenged the foundations of hierarchical and bureaucratic systems as people no longer rely on institutions to create content, ie

"...as of 2006, there are in excess of 20 billion pages in more than 78 million web sites, forming a significant tool that is redefining power and globalisation..."

Alex Wright, 2007

By 2015 there were around 1 b. websites

It needs to be remembered that organisations can be created by technology and destroyed by technology, ie

"...technology giveth, technology taketh away..."

Chris Ruen, 2013

Linked with the Internet is information technology architecture. IT architecture has a number of layers that need to be integrated smoothly. The first layer is comprised of business goals, strategy and maxims which shape the type of architecture needed. The second layer is core business process that aids the implementation of strategy. Finally, there is the layer that includes data, applications and infrastructure. Good IT helps the organisation to have better choices.

The Internet technology is changing the way we communicate and do business with each other (Andrew Keen, 2015). It is creating the second industrial revolution with Internet monopolists like Microsoft, Google, Amazon, Apple, Airbnb, Uber, etc, increasingly resembling the multinationals of the industrial era. Like their predecessors (John Rockefeller, Andrew Carnegie, Henry Ford, JP Morgan, etc), they are hostile to trade unions, taxation and regulation. The only differences are the new monopolists employ far fewer people, enjoy higher margins and are less harassed by governments. This is creating a digital generation of masters of the universe. They are massing unbelievable wealth while exercising minimal social responsibility.

The best way of handling the dominance and monopolistic approach of big tech companies like Microsoft, Intel, Google, Apple, etc is to encourage innovation. Rapidly changing technology is more effective than laws, rules and regulations, etc in increasing competition. Also, the legal cases can take years, if not decades, of work their way through courts, appeals, etc. Some recent examples of the impact of technological change include

- both Microsoft and Intel focused on PCs. Thus they miss on the rise of tablet computers and smart phones which allowed companies like Apple, Google, Qualcomm, etc to become dominant players in mobile devices.

- for Google, mobile apps are now challenging its lucrative web search as cellphones use the likes of Amazon, Yelp, etc to search directly for products and service, etc, ie

"...Today 7 out of every 8 minutes on mobile devices is spent within apps......consumers are going to whichever website or apps serve them best. And they face no friction or costs in switching between them..."

Vindu Goel et al, 2015

- Apple's iTunes domination of the music industry is under threat by streaming, eg Spotify

Internet has changed the traditional approach to strategic thinking as no one can predict how long an advantage will last, ie a competitive advantage is not sustainable but unpredictable. Thus the need to develop a framework for handling unpredictable markets and uncertainty by seizing fleeting opportunities.

"The Internet portal space is a strategist's worst nightmare: it's characterized by intense rivalry, instant imitators, and customers who refuse to pay a cent. Worse yet, there are few barriers to entry.......Many......leaders in the new economy......rose to prominence by pursuing constantly evolving strategies in marketplaces that were considered unattractive according to traditional measures......the performance of these companies - despite unattractive industry structures, few apparent resource advantages, and constantly evolving strategies - raises critical questions. How did they succeed? More generally, what are the sources of competitive advantage in high velocity markets? What does strategy mean in a new economy?

The secret strategy of companies like Yahoo are simple rules. Managers of such companies know that the greatest opportunity for competitive advantage lies in market confusion, so they jump into chaotic markets, probe for opportunities, build on successful forays, and shift flexibly among opportunities as circumstances dictate. But they recognize the need for a few key strategic processes and a few simple rules about them through the chaos......information economics and network effects are important, the new economy's most profound strategic implication is that companies must capture unanticipated, leading opportunities in order to succeed.......reverse some prescriptions of traditional strategy. Rather than picking a position or leveraging a competence, managers should select a few key strategic processes. Rather than responding to a complicated world with elaborate strategies, they should craft a handful of simple rules. Rather than importing uncertainty, they should jump in......Managers using this strategy pick a small number of strategically significant processes and craft a few simple rules to guide them. The key strategic processes should place the company with a flow of opportunities"The processes might include product innovation, partnering, spin out creation or new market entry......Strategy, then, consists of the unique set of strategically significant processes and a handful of simple rules that guide them..."

Kathleen M. Eisenhardt, 2001

For strategy, there are 3 distinct options, ie position (build a fortress and defend it), resources (nurture and leverage unique resources), simple rules (flexibly pursue fleeting opportunities within simple rules). The simple rules are claimed to be the way of the future. This is summarised by Kathleen M. Eisenhardt et al, 2001 in the following table

 

Position

Resource

Simple rules

Strategic logic

Establish position

Leverage resources

Pursue opportunities

Strategic steps

Identify an attractive market

Locate a defensible position

Fortify and defend

Establish a vision

Build resources

Leverage across markets

Jump into the confusion

Keep moving

Seize opportunities

Finish strong

Strategic
question

Where should we be?

What should we be?

How should we proceed?

Source of
advantage

Unique, valuable position with tightly-integrated activity system

Unique, valuable, inimitable resources

Key processes and unique simple rules

Work best in

Slowly changing, well-structured markets

Moderately changing, well-structured markets

Rapidly changing, ambiguous markets

Duration of
advantage

Sustained

Sustained

Unpredictable

Risk

It will be too difficult to alter position as conditions change

Organisation will be too slow to build new resources as conditions change

Managers will be too tentative in exploiting promising opportunities

Performance

Profitability

Long-term dominance

Growth

Summary of "simple rules" approach is

"...in turbulent markets, managers should flexibly seize opportunities " but flexibility must be disciplined. Smart companies focus on key processes and simple rules. Different types of rules help executives manage different aspects of seizing opportunities..."

Kathleen M. Eisenhardt et al, 2001

There are 5 broad categories for simple rules ("how-to", boundary, priority, timing and exit), ie

Type

Purpose

Example

"How to" rules

(must leave room for innovation)

They spell out features of how a process is executed - "What makes our process unique"

Akamai's rules for customer-service process: staff must consist of technical gurus, every question must be answered on the first call or e-mail, and R&D staff must rotate through customer service

Cisco joint venture/acquisition rules: share the same vision; potential for short-term wins with current products, with follow-up product generation; geographically close to Cisco; culture close to Cisco

Boundary rules, eg customer, geography or technology

They focus managers on which opportunities can be pursued and which are not for consideration. Staff are allowed great flexibility within the rules

Cisco's early acquisition rule: companies to be acquired must have no more than 75 employees, 75% of whom are engineers

Miramax movie-making rules: every movie revolves around a central human condition, such as love; main character must be appealing but flawed; a clear storyline with a beginning, middle and end; firm cap on production costs

Lego rules: Does the proposed product have the Lego look? Will children learn while having fun? Will parents approve? Does the product maintain high quality standards? Does it stimulate creativity?

Yahoo partnership creation rules: deals can't be exclusive; basic service is always free

EBay rules: based on 2 values: egalitarianism (number of buyers and sellers and community must balance; must be transparent) and community (product ads not allowed; prices for basic services must not be raised; uphold high safety standards)

Ispat's acquisition rules: buying established, state-owned firms having problems; no geographical limitation; 2 process technologies - DRI and electric arc furnaces; potential cost savings (NB different from Cisco)

Intomi rules: never produce a hardware product; never interface directly with end-users; always develop software for applications with many users and transactions

Priority rules

They help managers rank opportunities

Intel's rules for allocating manufacturing capacity: allocation is based on a product's gross margin

Timing rules

They synchronize managers with the pace of emerging opportunities and other parts of the organisation

Nortel's rules for product development: project teams must know when a product has been delivered to the leading customer, and product development time must be less than 18 months

Exit rules

They help managers decide when to pull out of yesterday's opportunities

Oticon's rule for pulling the plug on projects in development: if a key team member - manager or not - chooses to leave the project for another within the organisation, the project is killed

(source: Kathleen M. Eisenhardt et al, 2001)

Remember: simple rules should not be

broad - should be tailored to a single process

vague - could any reasonable person argue the exact opposite of the rule?

mindless - reverse-engineer your processes to determine your implicit simple rule

stale - if your percentage of market share is falling, or if your share price is dropping relative to your competition, or if growth is slipping.

Furthermore, it is important to have the right number of rules, ie between 2 and 7. In a period of predictability and focussed opportunities, a firm should have more rules to increase efficiency. Conversely, in a less predictable an environment, fewer rules allow maximum flexibility. Generally new organisations do not have enough rules, and thus, implementation is restricted; on the other hand, established firms have too many rules which restricts flexibility

E-commerce businesses need todevelop a coherent strategic and operational framework for E-commerce. Around this framework there needs to develop a particular culture and work environment. If the culture and work environment resemble those of the traditional organisation, then the dynamic activity of E-commerce is hard to establish. For example, the annual budgeting and planning cycle of most organisations is far too long to effectively address the high levels of uncertainty and rapid change in E-commerce. Some organisations are adopting 90 day planning cycles with a scenario-based planning process. They postulate a number of scenarios for how the business could develop, pick the most likely and base their plans on that assumption. In other cases, organisations pursue several options against a single opportunity, monitoring progress at 90 day intervals. As a business environment changes, they revise their scenarios, probabilities and plan.

Furthermore, budgeting is tied to a 90 day cycle in a continuous, rolling process. After establishing an initial budget with a range of potential funding, it is adjusted on the basis of changes in the environment and in reference to a set of goal-oriented metrics such as growth, time to market, customer acquisition cost, traffic, revenue per customer, customer loyalty and success in meeting milestones. In addition, it is essential to keep close track of competitors' activities.

E-commerce is encouraging a process entitled "fail fast, fail cheap". This means that to stay competitive, organisations must learn to innovate quickly, cost effectively and in the real world. The marketplace becomes the testing and learning ground for product development and refinement. By doing this, little money is wasted if the project fails. On the other hand, if it is successful you will have to scale up and rebuild a number of times as the underlying architecture is all wrong. In other words, E-commerce initiatives are almost living creatures.

Thus, planning tends to be more strategic and less tactical, while budgeting is no longer an accounting-based control mechanism. It is a way of accelerating the growth of online business within defined economic parameters. This approach emphasizes the long-term value of the customer base and the value of the online investments over a short-term focus on profit and loss.

The Internet has reinforced that to compete in an increasingly competitive global marketplace, organisations need to move into higher-valued services (rather than products), which are less vulnerable to low-cost competitors. Technology is making it easier for suppliers to provide services and to deliver over the Internet from remote data centres (cloud computing model). Furthermore, software has moved from desktop personal computers to becoming a Web-based service, such as Google's e-mail, word processing and spreadsheets, online customer relationship management software, etc. The digitalization of all kinds of business records and documents has allowed automation of business tasks and the mining of business data for everything from customer-service problems to sales opportunities.

One of the challenges in E-commerce is to manage the myriad partnerships that are central to success and critical sources of value. These partnerships are fundamentally different from traditional partnerships as they change quickly and are very complex.

For E-commerce there are 3 main areas of value-creation:

- transaction costs

- prices

- supply change effectiveness

i) Transaction costs - current indications are that cost savings exceeding 25% are possible when fully integrated e-procurement systems (including purchasing and accounting processes) are deployed. In fact, John Kotter (2003) claims that for the US banking industry, the Internet has reduced the cost of each banking transaction from around $US 1.07 to around 1 US cent!!!!!

ii) Prices - low prices can be achieved where there are many buyers and sellers in products or services that can be adequately specified. On the other hand, prices can benefit sellers where products and services can be differentiated but are currently bought like commodities owing to a failure of marketing channels.

iii) Supply chain effectiveness - engaging all players in a supply chain with a common information architecture can enable closer alignment of production with real demand, greater customisation or responsiveness, faster quality recovery, faster product development cycles, lower inventories and transaction costs.

A good way to identify decisive opportunities is to understand and develop your supply chain. To achieve this, focus needs to get beyond relying on efficiency by cutting costs and speeding delivery to being agile, adaptable and aligned.

"...Agility is about crisis management, designing a supply chain that is robust enough to handle short-term market volatility and external disruptions. Adaptability involves redesigning the supply chain as the structure of the market shifts by monitoring customers, competitors and opportunities. Alignment is about building good relationships throughout the supply chain, sharing risks, costs and gains with customers and suppliers..."

Hau L. Lee, 2004

This involves developing a 'trusting' mindset to harness co-operation rather than the counterproductive efficiency mindset which exploits supply chain partners

The Internet is turning business principles upside down and is working its economic magic by:

- reducing the cost of getting information and increasing its availability

- reducing operating and transactional costs

- expanding potential market opportunities

Some examples:

i) On the Internet, the 98% rule applies. The old 80:20 rule stated that 80 percent of sales came from 20 percent of your sales staff; 80 percent of your problems came from 20 percent of your staff, etc. Internet and niche sales work on the 98 percent rule, ie virtually all of the products are in demand and available at some time and at some level.

"... the culture of music has been transformed in the last 10 years, from the blockbuster hit and music store to the iTunes. It has a completely fragmented audience, but a rich music world. The same with books: the notion "out of print" is out of style. You can get anything you want on Amazon..."

Chris Anderson is quoted by Sheridan Winn, 2006

As the Internet makes everything available to everyone at any time, the bottlenecks that plagued traditional supply and demand are disappearing. This is sometimes called the economics of abundance.

ii) pharmaceutical giant Eli Lilly has changed the way it handles R & D, ie

"...two years ago, Lilly had 7,500 employees in its research and development wing. Today, it has nearly tripled the number - except they don't show up on the payroll.......Lilly created an online scientific forum in mid-2001 called InnoCentive, where the company posts thorny chemical problems, such as the best way to come up with a specific molecule, and offers cash to anyone who can solve them. By making the site open to anyone and available in numerous languages, it spurs solutions to problems that have stumped its own researchers. And Lilly pays for their time and effort only if they get the right answer. These purses run up to $US100,000..."

Timothy Mullaney, 2003

iii) JetBlue

"...Take three-year-old JetBlue, which in a time of airline implosion remains solidly profitable and grew 63% in the most recent quarter. The company uses only industry standard Intel servers and Microsoft software, and it automates every aspect of its operation that it can. It sells 71% of its tickets over the Internet. That's partly how it has kept its cost per seat mile to US6.25 cents, which is far lower than American's US11.39 or even Southwest's US7.5 cents. Its market cap of $2 billion is more than twice that of American and United combined..."

David Kirkpatrick, 2003

iv) Amazon

With "...Amazon using the Internet and state-of-the-art tech tools...... its competitors are......Wal-Mart, Sears and eBay. The benefits of its system: last quarter Amazon turned over its inventory at a rate of 19 times a year, vs. Wal-Mart's 7.6...."

David Kirkpatrick, 2003

The Internet has allowed on-line learning (including gaming technology) which allows thousands of people to be trained at once and to respond very quickly to new situations. Gaming technology, such as Nintendo, Wii, etc, has many advantages as stated by7 Walder Arevolo DeAzevedo Filho et al, (2006):

- self-directing (games are goal-orientated, which keeps the students focused on the desired outcome. Real-time feedback helps people follow their progress.

- engaging (people become emotionally involved in the outcome of the game; surprises draw out creativity.

- interactivity (people learn processes by trying, failing and making corrections; collaboration with others is also encouraged)

- multi-modal (encourages combination of learning styles and intelligence that traditional training programs don't often reward)

- adaptive (games progress is tracked to continually challenge; this leads to longer attention spans, improved attentiveness and positive feelings)

- real-time feedback (players can compare efforts with previous attempts and the performance of others)

"...when students learn by experience, the understanding and retention are higher...... games can make students more proficient in skills 4 to 6 months earlier than students who took training classes, but had no way to apply the knowledge..."

Walder Arevolo DeAzevedo Filho et al, 2006

"...researchers found trainee doctors score 48 percent high on tool control and performance during virtual surgery after using the Wii game as a warmup ..."

Fiona Smith, 2008o

 

designed by: bluetinweb