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Strategy in the Digital Economy

George T. Geis

Anderson School, UCLAgeorge.geis@anderson.ucla.edu

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The Digital Economy

The digital economy means that business process,

commerce and value is migrating from atoms to

bitsnumbers, 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)

Market Cap ($M) LTM Revenue ($M)

Barnes & Noble 1,809 3,109.8

Amazon 21,918 1,014.6

Time Warner 76,475 14,613

AOL 108,038 4,770

Toys R Us 3,733 11,477

E-Toys 6,882 30

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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 dot-com and incumbent companies)

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A Framework for the Digital

Economy

Product/Service

Competitive arenas &

sector transformationAlliances/partners forbusiness developmentNew channels &channel conflictBrand building &extensionDigital commerce(B2C, B2B, C2C)Value chain mgmt &organizational re-

design

Technology Communications

Impacts

symbolized by

Moores Law

symbolized by

Metcalfes Law

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Internet upsets traditional value

chain (T-ValueChain)

Artist MgmtCo

RecordLabel

RecordDistrib.

MarketingMfging ConsumerRetailer

InternetRetailer

RecordDistrib.

Hybrid model

(Online CD sales)

Digital delivery model

DigitalDelivery

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 driverevenue 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 cross-

organizational relationships and include:

licensingalliances (marketing, technology)

joint ventures

minority investmentsmergers & acquisitions

spin offs and partial spin offs

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Illustration 1:

JVs to redefine auto purchasing

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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