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Strategy in the Digital Economy

George T. Geis Anderson School, UCLA


george.geis@anderson.ucla.edu

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
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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


Product/Service

Impacts

Technology

Communications
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.

Artist

Mgmt Co

Record Label

Mfging

Marketing

Record Distrib.

Retailer

Consumer

Digital delivery model

Digital Delivery Technologies Marketing

High potential to be upset


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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?
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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
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Illustration 1: JVs to redefine auto purchasing

Illustration 2:
Marshall plan for Europe, c. 2000

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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

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