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Strategy in the Digital Economy

George T. Geis Anderson School, UCLA

The Digital Economy

The digital economy means that business process, commerce and value is migrating from atoms to bits numbers, words, images, forms... music, video, entertainment, information... commerce, supply chains, relationships... The new age of networked intelligence-- in business, education and society global phenomenon

Value Migration & the Internet

In September 1998, Microsoft passed GE in market capitalization ($261B vs. $257B) -- a symbolic gesture of value migration in the digital economy. Microsofts revenues are about 20% of GEs.

Striking value pairs (as of 9/24/99)

Barnes & Noble Amazon Time Warner AOL Toys R Us E-Toys Market Cap ($M) 1,809 21,918 76,475 108,038 3,733 6,882 LTM Revenue ($M) 3,109.8 1,014.6 14,613 4,770 11,477 30

Digital Disruption
Technology, communications and content are combining to produce new organizational forms Impact on all traditional sectors: retail, real-estate, financial services, music, travel, auto sales, and health care -- not just the technology sector Digital technologies are disrupting industries, markets and organizational structure (for both dotcom and incumbent companies)

A Framework for the Digital Economy




symbolized by Metcalfes Law

symbolized by Moores Law

Competitive arenas & sector transformation Alliances/partners for business development New channels & channel conflict Brand building & extension Digital commerce (B2C, B2B, C2C) Value chain mgmt & organizational redesign

Internet upsets traditional value chain (T-ValueChain)

Hybrid model (Online CD sales)
Internet Retailer Record Distrib.


Mgmt Co

Record Label



Record Distrib.



Digital delivery model

Digital Delivery Technologies Marketing

High potential to be upset


Elements of market modeling & business development plan

Player universe T-ValueChain E-ValueChain Supporting sub-markets Customer sub-markets Geographic sub-markets End result: What set of alliances/partnerships will drive revenue and build value? How can I anticipate or respond to my competitors alliance/partnership patterns?

Spectrum of partnerships
Partnerships cover a wide range or crossorganizational relationships and include: licensing alliances (marketing, technology) joint ventures minority investments mergers & acquisitions spin offs and partial spin offs

Illustration 1: JVs to redefine auto purchasing

Illustration 2:
Marshall plan for Europe, c. 2000


Research areas
Modeling markets in the new economy
incumbents, dot-coms, hybrids

Visualization technology to communicate whats happening, whats really happening, whats likely to happen Algorithms for partnership plans