1

Figure 7.4 The Six Forces Model for the NE Era

2

Unsustainable Competitive Advantage through NE Systems

• NE technologies, such as Enterprise Resource Planning (ERP) systems per se may not confer competitive advantage, as commercially available systems are available to anyone.

• Furthermore, even ‘homegrown’ software systems are often easily imitated.

• Nevertheless, some firms are better at exploiting these systems than others.

3

Sustainable Competitive Advantage through NE Systems• According to Ross, Beath and Goodhue (1996)

sustainable competitive advantage comes from the following three areas:

Figure 7.10 Resources Leading to Sustainable Competitive Advantages

4

Alpha, Beta, and Omega Effects in Measuring NE Strategic Success

• The GSU NE study depicts 3 anticipated levels of benefits [Straub and Klein (2001)]:

– Alpha – 1st order changes that fairly immediately lower costs and improve productivity.

– Beta – 2nd order changes occur when the full effect of intermediation comes into play.

– Omega – 3rd order changes occur when the firm views NE strategy as a learning process to exploit information advantages over competitors.

• Firms that create a profile of a customer that indicates the type of products they prefer (e.g., Amazon), can profit from such information advantages.

5

Proprietary Data as a Resource that Captures a Relationship

• Resources that are publicly available or readily copied may not be able to provide a sustainable advantage.

• But those (such as a customer database) over which a firm has proprietary control may provide competitive advantage since these often create large barriers to potential new entrants.

• Creating and sustaining competitive advantage over time can thus be possible for firms that gather and creatively use their proprietary customer data.

6

Figure 7.13 Proprietary Data as Resources that Capture Relationships

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3 Steps Needed to Dominate the Relationship with Customers

• First, there must be a commitment to collecting data about customers despite the costs.

• Second, the firm’s NE systems must be able to be personalized to be able to respond to this customer information.

• Third, customers must be able to be “pushed” information that successfully targets their personal needs.

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1 Content Provider

Provides content (e.g., information, digital products & services via intermediaries)

2 Direct-to-Consumer

Provides goods or services directly to customer often surpassing traditional channel players

3 Full Service Provider

Offers a full range of services in one domain (e.g., financial, health care) directly or via complementors who are attempting to own the primary customer relationship

4 Intermediary Brings together buyers and sellers by concentrating information (e.g., search engines, auctions)

Table 8.2a Types of NE Business Models (cf. Weill & Vitale 2001)

Model Type Description

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5 Shared Infrastructure

Brings together multiple competitors to cooperate by sharing common IT infrastructure

6 Value Net Integrator

Coordinates value net activities by gathering, synthesizing and distributing information

7 Virtual Community

Facilitates and creates loyalty of an online community of people with a common interest of enabling interaction and service provision

8 Single Point of Contact

Offers a firm-wide single point of contact consolidating all services provided by a large, multi-business organization

Table 8.2b Types of NE Business Models (cf. Weill & Vitale 2001)

Model Type Description

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Three Key NE Resources

1. The relationship with the customer. This is usually the most important long-term resource, as it converts to loyalty and sustained revenues.

Alternatively, this might be a revenue-producing relationship with a complementor.

2. Proprietary data is one of the most valuable resources a firm can own as it can lead to a sustainable competitive advantage.

3. The transaction may be the least important of the three.

Another way to see this is as a customer perception of your company as the point of contact. NE also allows firms to establish links directly with their customers base and by-pass intermediaries.

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  Relationship

Data Transaction

1. Content Provider      

2. Direct-to-Consumer

X X X

3. Full Service Provider

X X X

4. Intermediary X X  

5. Shared Infrastructure

  X X

6. Value Net Integrator

  X  

7. Virtual Community X X  

8. Single Point of Contact

X X X

Table 8.3 Ownership of Resources by NE Business Models (cf. Weill and Vitale 2001)

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Figure 8.2 Graphical Symbols for Interpreting Business Model Schematics

Schematics allow managers to configure their business models in ways that maximize their effectiveness, as well as helping others understand a model and, in so doing, helping to convince others of its investment potential.

13Figure 8.3 Type I: Content Provider Schematic

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Figure 8.4 Type 2: Direct-to-Customer Schematic

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Figure 8.5 Type 3: Full Service Provider Schematic

16Figure 8.6 Type 4: Intermediary Schematic

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Figure 8.7 Type 5: Shared Infrastructure Schematic for Suppliers-Members

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Figure 8.8 Type 5: Shared Infrastructure Schematic for Customers-Members

19Figure 8.9 Type 6: Value Net Integrator

Schematic

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Figure 8.10 Type 7: Virtual Community Schematic

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Figure 8.12 Type 8: Single Point of Contact Schematic

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Figure 8.13 Lonely Planet as a Hybrid (Molecular) Business Model Composed of Many Atomic Models

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Chapter 9. Intermediation and Cybermediation

Foundations of Net-Enhanced Organizations

Detmar Straub, 1st EditionCopyright © 2003 John Wiley & Sons, Inc.

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9.2 What is Intermediation?• Intermediation: a business

process that lies between and facilitates (adds value to) the points in a value chain (see Figure 9.1)

• Intermediaries often provide an information-based service rather than a product.

– Their typical role is to bring multiple buyers and sellers together.

• Common examples are: stock brokers and travel agents.

Figure 9.1 Intermediaries in the Value Chain

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Intermediaries in a Value Chain

• The role of an intermediary is to:1. Use information to match buyers and sellers,

2. Facilitate the rapid transfer goods and services through their operation.

• Two major categories of intermediaries are:1. Virtuals: who do not take ownership of products

and services.

2. Aggregators: who may own, but do not produce or even assemble the goods and services themselves.

• When an intermediary offers its services over the Web, it is called a cybermediary.

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9.4 Dis-intermediation, Re-intermediation and Cyber-mediation (Figures 9.2 and 9.3)

• Disintermediation: adding a parallel link going around intermediators [Delta Airlines, encouraged customers to call direct to the airline, saving a 5-15% commission and disintermediating its travel agents].

• Re-intermediation: electronic re-insertion into the role of intermediator in a firm’s value chain [Delta.com allowed customers to go directly to its Web site to buy electronic tickets, taking over the job of brokers via a direct connection. – This is a direct-to-consumer business model, or possibly a

shared infrastructure model, as in the case of Orbitz

• A firm that offers intermediary services over the Web, is a cybermediary. This can disintermediate agents.

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Figure 9.2 Disintermediation

via Traditional Channels

Figure 9.3 Reintermediation of Delta into the Value Chain

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9.5 Theory of Intermediation

• Since purchases and transactions that are least costly are preferable to customers, especially for commodity goods and services,

• All other things being equal, the value chain with the fewest intermediaries will have the lowest price.

• However, there are additional costs:– Intermediaries have their own cost structure.– Consumers incur costs when searching for goods/services

to purchase.

• Thus a consumers must weigh a cost tradeoff between searching for the cheapest commodity price and paying extra to use an intermediary.

29Figure 9.5 Intermediation Pre- and Post- Internet

30

Intermediation Pre- and Post-Internet• A decade ago, for example, intermediation in air travel,

involved both airlines and consumers paying commissions to travel agents.

• When the issue of disintermediation was first discussed, many predicted the complete demise of intermediators.

• Sarker, Butler & Steinfield (1995) argued instead that cyberspace would change intermediation, but never make it irrelevant.

• They differentiated between categories of threatened intermediaries, like travel agents, who could lose their business, with cybermediaries, (e.g., Travelocity), who had very low marginal costs and would thrive.

• Supplemented intermediaries, firms that decide to reintermediate into the value chain, were also predicted to succeed.

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Table 9.2 Value-Added Roles of Intermediaries and Cybermediaries (based on Westland and Clark, 2000)

Search efficiencies and information management

Use knowledge of how to procure items & services; create trading floor for buyers and sellers

Expedia.comeBay.com

Routinizing and guaranteeing transactions

Handle complex transactions; insure payments and shipments

Ibm.comAmex.com

Logistics Delivery of goods, locally or globally

Ups.com

Aggregating demand/ negotiating prices

Gather orders & negotiate prices with client(s)

Priceline.comETNs like Covisint

Creating packages Break bulk through large-volume purchases, and reassemble into packages

Dell.com

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9.7.1 Portals and Content Aggregators

• Companies like Yahoo and Amazon are described as cyberspace “portals” and “content aggregators” – Their true business models are complex hybrids and

include being intermediaries and making direct-to-consumer sales.

• Again the main idea is replacing physical processes with information processes.

• If Yahoo was a retailer like Wal-Mart, its distribution system, etc., would have to be huge.– Instead it handles these processes through its Web-

based and information-based systems. Its market niche in the economy is based on this.