Mastering the digital marketplace

Simo Vuorinen

The digital marketplace

Macroeconomic theories’ four components:•land•labor•capital•technology

Digital economy: for the first time, technology becomes a dominant force.

The IT reaches even the most traditional industries.

Evolution of the digital economy

1700 1800 1900 2000

AgriculturalEconomy

IndustrialEconomy

ServiceEconomy

GlobalEconomy

DigitalEconomy

WorldEconomy

•“New brat on the block” - the empowered consumer: the balance of power in commerce shifts to the consumer.•Distributors compete less on their ability to manage fleet of trucks, and more on their ability to know where widgets are in transit•Retailers compete less on the position of the store and store layouts, and more on how they track customer buying patterns

Competition changes

Traditional consumer values: •quality•price •brand

New values: Time-value, Content.

Example: Psion vs. Palm

New Values

Consumer is driven by•pursuit of time•pace of life•information assimilation•communication

Example: MS 95 evolution to MS 98

New Values

CEO’s choices

BPR and other

cost cutting and

operational initiatives

Advantage

Survive

Decay

Yesterday Today Tomorrow

Redefine & reposition

Adopt best practices

Business as usual

In the digital economy technology is the only economic commodity that will cost less as time passes

The DE provides a free channel of information distribution

The DE removes barriers such as size, geographic positioning, and need of the real estate

Rules have changed

Kurt Salmon Survey: 56% of consumers agreed they had far less leisure time than they used to have

Almost 40% of consumers responded that if given a choice between more time or more money, they would choose time

Consumers are spending less time shopping and cooking in attempt to create more leisure time

Examples: Encyclopedia Britannica vs. Encarta, Peapod groceries, 3M

The value of time

Container: a physical productContent: intangible element - typically accompanying information, knowledge, or service that adds value to the container

Consumers are beginning to appreciate containers that include additional content

New: content can be customized - mass-customization

Example: Watch vs. watch - functionality, Palm Pilot modules

The value of content

Price:•Conventional pricing strategy: based on resource availability•Future (today?) pricing strategy: based on increased choices of content

Quality:•Rather expectation, not much of a playing-card

Branding - soft assets increasingly important:•Self-expression•Emotional satisfaction

TODOs:

•Create a strong link to the consumer by streamlining the produc development cycle -> reaction speed

•Netscape Navigator•Attain the perfect degree of consumer interaction•Offer customizable products based on standard components

•Intel Celeron, car sales•Clearly communicate the value you offer to consumers•Set consumer prices based on the value you offer - not on your costs

TODOs:

•Late 50’s: beginning of the traditional supply chain•Companies started applying statistical and mathematical methods to their operations•Cost of IT declines•80’s: EDI•90’s: electronic links within the traditional supply chain and outside the supply chain -> digital value chain

Evolution of the traditional supply chain

1820 1840 1860 1880 1900 1920 1940 1960 1980 1995

20 %

40 %

60 %

80 %U.S. employment by occupation (percent of total)

Knowledge worker

Touch labor

Agriculture

•Traditional supply chain: dysfunctional, carries significant administrative, transactional, and financial costs that do not add value to the end consumer•Companies who participate in digital value chains that extend communication beyond any two adjoining links create 65 % more shareholder wealth for each dollar of earnings than those still operating in the traditional supply chain mode

The coming of age of the digital value chain

•Information and innovation•Availability of capital•Globalization

Forces shaping the digital value chain

New wealth from soft assets:•New ideas and creative capacity are soft assets - they are not reflected on the balance sheet•Soft assets are the primary creators of wealth in the digital economy

New business model: the digital value network

A digital value network (DVN) is a community of business partners and customers that is connected using information technology

•Faster•More dynamic•Players work together to maximize their combined value to the end consumer

DVN components

•Digital value chains•Digital function platform•Infomediaries

DVN components

Digital value chains:•Producers form a digital value chain to create a far more efficient, rapid, and flexible version of the traditional supply chain•One or more participants take the role of an anchor

Digital function platform (DFP):•Multiple digital value chains form a DFP. •DFP is the service or technology platform that supports business processes across multiple value chains. Example: SAP, floppy, EDI standard, Sun Jini

DFP example - Sun Jini

Source: Jini whitepaper, Sun Microsystems, http://www.sun.com/jini/

DVN components

Infomediary:•Definition 1: a company that collects and manages access to consumer information•Definition 2: a company that facilitates the exchange of information between other parties, such as company that matches buyers and sellers in an electronic market

Example: Sonera Plaza, LetsBuyIt, Yahoo

DVN components - infomediary continued...

Infomediary tasks:•Integrating services and needs•Aggregating services and needs•Creating a floating price system based on supply and demand•Managing the group of vendors, suppliers, and customers•Monitoring the performance of all members of a DVN•Saving time for DVN members•Managing operational functions that include warranty, exchange, charge-backs, etc.•Developing new customer markets

Example: Telia

Bringing it all together - the digital marketplace

The digitalThe digitalmarketplacemarketplace

DF

PD

FP

Digital value chainDigital value chain

InfomediaryInfomediaryD

FP

DF

P

Digital value chainDigital value chain

Digital value chainDigital value chain

Digital Value NetworkDigital Value Network

ConsumerConsumer

ConsumerConsumer

ConsumerConsumer

Conclusion and critics

•Couple of words on TODO’s•Couple of words on intelligent organizations•Couple of words on Creating digital value

•Critics and discussion