Electronic Commerce & the New Economy

Richard T. WatsonThe University of Georgia

rwatson@terry.uga.edu

Capitalism, Socialism, and DemocracyJoseph Schumpeter

“The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumer goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalism creates.”

The new …

• Consumer goods• Information-based services

• Methods of production and distribution• The Internet

• Markets• Global information and services

• Organizations• Net-enhanced organization (NEO)• Object-oriented strategy

The object-oriented firm

Creative destruction

• Private enterprise is continually• destroying the old• creating the new

The drivers of the revolution

• Moore's Law• The power of computing doubles, while the

cost halves, roughly every eighteen months

• Gilder's Law• The total bandwidth of the communication

system triples every 12 months

• Metcalfe's Law• The utility of a network is exponential to the

number of nodes in the network

The revolutions

• Agricultural

• Industrial

• Information

• Food

• Goods

• Services

Continuing the revolution

Household network

Household server

Informationserviceprovider

National InformationInfrastructure connection

The principles of the new economy

• Matter• Space• Time• People• Growth

• Value• Efficiency• Markets• Transactions• Impulse

Matter

• Processing bits is more profitable than processing atoms

• People and knowledge are the strategic resource

• High/unrealistic capitalization of bits businesses

• Problem• How do you manage knowledge?

Space

• The overthrow of the tyranny of distance• Amazon has sold books to millions people in more than

160 countries

• Far fewer local monopolies• US Telecos are threatened by Internet telephony

startups in Israel

• Nano markets emerge• Problem

• What happens to marketing?

Time

• Fast response is critical• Build to order is the coming

expectation• Constant change• Ubiquitous connectivity• Homogenization of time• Business continuity is critical• Problem

• When does work stop?

People

• People are the only resource• Critical skills shortage• Offshoring• Half-life of knowledge is decreasing • Problems

• How do we solve the the digital divide?• What happens to US high tech jobs?

Growth

• The land grab• Brand building• Network effects• Viral marketing

• Hotmail was able to grow a subscriber base of 10 million within two years

• Problem• How do you make each new customer add

value to existing customers?

Value

• Free goods create value networks• Netscape Navigator• RealPlayer

• Value comes from plentifulness not scarcity

• Network effects• Problem

• How do you value a NEO?

Efficiency

• Low friction economy• XML

• Disintermediation• Infomediaries

• Travelocity• Move to auctions• Problem

• Where is your revenue management system?

Markets

• Markets move towards perfection• Search engines and shopping agents• Consumers empowered

• Auto-By-Tel• Edmunds.com

• Problem• How do you handle disaffected and

united consumers?

Transactions

• The Web transaction is the service encounter• Transactions are the foundation of marketing

and customer knowledge• Information is service• Information adds value to products and

services• Information is a significant part of the

product• Information is easier to customize• Problem

• How do you use information to differentiate?

Impulse

• Massive choice• Oversupply• Sophisticated and wealthy

consumers• Buying is effortless• Day trading• Problem

• How to market for impulse flow?

The power of the new economy

• 15 billion invoices are mailed in the US each year

• $US13.5 billion a year savings

Postal Electronic1.25 .35

Metamorphosis

• Peter Drucker• Innovation begins with

abandonment• It’s not what you start• It’s what you stop that counts

• What can you creatively destroy to ensure success in the new economy?