CHAPTER 5

DYNAMICS OF INTERNET BUSINESS MODEL

• Business is not constant, so as its business model, it has a direct impact

• This chapter examines the dynamics of business models

• Who profits from technological change• Examine several technological change models• Its implication towards Internet business model

WHO PROFITS FROM TECHNOLOGICAL CHANGE

• Business model = strategy for making money• Understand what it takes to make money from

technological change• Complementary assets model examine.

Complementary Assets Model

Complementary assets = capability/ability/ qualification, that the firm needs to exploit the technology

(includes brand name, manufacturing, marketing, distribution channel, service, reputation, installed base of products, relationships with clients /suppliers & complementary technologies)

Imitability = the extent to which the technology can be copied, substituted by competitors.

Difficult to make money

Holder of complementary assets makes money

InventoryMakes money

Party with both technology & assets or with bargaining power makes money

Pg 79. complementary assets model table figure 5.2

Imitability = the extent to which the technology can be copied, substituted by competitors. E.g. Internet

Imita

bilit

yLo

wH

igh

Freely available/unimportant Tightly held & important

I II

IV III

Complementary assets

How to use table 5.2

• Implications of the internet– Internet;easy to imitate, so imitability is high

• Strategic Implications of Complementary Assets Model

• Determining One’s Complementary Assets

Strategic Implications of Complementary Assets Model(figure 5.3 pg 81)

RunTeam-UpJoint ventureStrategic alliancesAcquisition

Internal development

Block Block Team-UpJoint ventureStrategic alliancesAcquisition

Imita

bilit

yLo

wH

igh

Freely available/unimportant Tightly held & important

I II

IV III

Complementary assets

Determining One’s Complementary Assets

• To determine its complementary assets it must follow these steps:

1. Understand the product-market position it occupies or wants to occupies

2. Understand its value configuration & determine what capabilities other than technology that are critical

•Customer value•Scope•Positioning (firm attains /wants to attain)

DEVELOPING THE TECHNOLOGY

• Developing technology is not easy, the inability of a firm to develop products or services using a new technology is often reason why such firm fail to exploit new technology

• Models of technological change provide guidance for developing successful technology

MODEL OF TECHNOLOGICAL CHANGE

• 5 models of technological change provide guidance for developing successful technology1.Radical versus incremental change2.Architectural innovation3.Disruptive change4.Innovation, value added change5.Technology life cycle

1. Radical versus incremental change

• Type of firm that is likely to exploit a technological change is a function of the type of change

• The change impacts the firm’s product-market position & capabilities

2. Architectural innovation

• A new design that wants to take advantage of the speed of a much faster processor is an architectural innovation & must consider the changes in the linkages between new processor & other components of the computer

• architectural innovation model can help explore the potential impact of the Internet on some industries

3. Disruptive change

• Has 4 characteristics:1. Create new markets by introducing new kind of

product or services2. New products/services from new technology

cost less than existing products/services from old technology

3. Product perform worst at the beginning but catches up & improve itself by fulfilling the needs of consumer

4. Technology are difficult to protect using patents

Disruptive change model e.g. pg 90 figure 5.5 Measure of key

performance Attributes

Cost

0 1 2 3 4 5 6

A

B

C

Dproduct

demand

Meets key performance attributes

Improvement over the yearsMeets key performance attributes

4. Innovation, value added change

• The value that a firm offers its customers is a function of the firm’s capabilities & collaboration of its suppliers, customers & complementor

DELL VALUE ADDEDCHAIN

MICROSOFTINTELSOFTWAREBUNDLE

5. Technology life cycle

• Used as a framework for understanding the evolving competitive landscape following a technological change

• According to the model, technology undergone 3 phase.1.fluid 2.transitional

3. stable

Figure 5.7 pg 94, Internet Technology Life Cycle

EMERGING/FLUID

GROWTH/TRANSITIONAL

MATURE/STABLE

SALES

Where in the Internet valueNetwork do you want to be

Fluid Phase•Product & market uncertainty•Confusion among producer & customers on products•Product quality is low & cost/prices high•E.g. auto industry

Transitional Phase•Standardization took place, common standard for producing product emerge•Reduce the phase of uncertainty for the product•Customer base increase->mass market

Stable Phase (mature)•Product highly define•Demand growth•Fewer competitors•Firm’s strategy is to defend its position in the market, & look for next technology

THE “dotcom” BOOM & BURST

• Should the dotcom bubble & burst have been expected?

• Who wins in a dotcom vs. Brick-and mortar battle?