Strategies for e- Business CONCEPTS and CASES Creating Value through Electronic and Mobile Commerce PART Ⅰ: Introduction

PART OVERVIEW This introductory part sets up the overall context for the book. It contains the following elements: A definition of the key terminology used throughout the book An overview of the evolution of e-business over time

Strategies for e- Business CONCEPTS and CASES Creating Value through Electronic and Mobile Commerce Chapter 1: Key terminology and evolution of e-business

Chapter at a glance 1.1 Key terminology 1.1.1 e-Business 1.1.2 Electronic commerce 1.1.3 Mobile e-commerce 1.1.4 The concept of strategy 1.1.5 The concept of value creating and capturing 1.2 The evolution of e-business 1.2.1 The grassroots of e-business 1.2.2 The rise of the Internet 1.2.3 The crash 1.2.4 The synergy phase

Learning outcomes After this session you should be able to: Understand what the terms of ‘e-business’, ‘electronic commerce’ and ‘mobile e-commerce’ mean; Define the concept of strategy and recognise the different levels of strategy development; Describe the life cycle of technological revolutions and illustrate it through different examples; and Recognise the four main periods of the e-business evolution over the past decade and explain the peculiar characteristics of each period.

1.1 Key terminology The term ‘e-business’ is defined here as the use of electronic means to conduct an organization’s business internally and/or externally. Electronic commerce, or e-commerce, is more specific than e-business and can be thought of as a subset of the latter. Mobile ‘e-commerce’, or m-commerce, is a subset of electronic commerce.

1.1 Key terminology Exhibit 1.1 Electronic business includes electronic commerce and mobile electronic commerce e-business Electronic commerce Mobile e-commerce Source: Adapted from D. Chaffey, 2002, p. 9.

There are various definitions of strategy 1.1 Key terminology There are various definitions of strategy Strategy is: … the direction and scope of an organization over the long-term, which achieves advantage for the organization through its configuration of resources within a changing environment to the needs of markets and fulfill stakeholder expectations. Gerry Johnson and Kevan Scholes … the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Alfred Chandler … the deliberate search for a plan of action that will develop a business’s competitive advantage and compound it. Bruce Henderson … the strong focus on profitability not just growth, an ability to define a unique value proposition, and a willingness to make tough trade-offs in what not to do. Michael Porter

1.1 Key terminology Throughout this book, we focus on the following key characteristics of strategy Strategy is concerned with the long-term direction of the firm. Strategy deals with the overall plan for deploying the resources that a firm possesses. Strategy entails the willingness to make trade-offs, to choose between different directions and between different ways of deploying resources. Strategy is about achieving unique positioning vis-à-vis competitors. The central goal of strategy is to achieve sustainable competitive advantage over rivals and thereby to ensure lasting profitability. Source: See also G. Johnson and K. Scholes (2002), pp. 39-46.

Three different level of strategy 1.1 Key terminology Three different level of strategy The highest strategy level, the corporate-level strategy, is concerned with the overall purpose and scope of the firm. Business unit strategy is concerned primarily with how to compete within individual markets. Operational strategy deals with how to implement the business unit strategy with regards to resources, processes and people.

Business unit strategy 1.1 Key terminology Exhibit 1.2 The focus of the cases is on corporate level and business unit strategy Corporate- level strategy Corporation Business unit strategy Business unit A Business unit B Business unit C Operational strategy R&D Production Etc.

Life cycle of technological revolutions 1.2 The evolution of e-business Life cycle of technological revolutions Carlota Peres defines a technological revolution as a ‘powerful and highly visible cluster of new and dynamic technologies, products and industries, capable of bringing about an upheaval in the whole fabric of the economy and of propelling a long-term upsurge of development’. Perez divides the surge of a technological revolution into two consecutive periods: (1) the installation period, which consists of an irruption stage and a frenzy (‘gilded age’) stage, and (2) the deployment period, which consists of a synergy (‘Golden age’) stage and a maturity stage.

Life cycle of technological revolutions 1.2 The evolution of e-business Life cycle of technological revolutions Irruption (1). The irruption stage takes place right after a new technology is introduced to the market. Frenzy (2). The frenzy stage, also called the ‘gilded age’, is characterized by a sense of exploration and exuberance as entrepreneurs, engineers and investors alike try to find the best opportunities created by the technological big bang irruption. Crash (3). The gilded age is followed by a crash, when the leading players in the economy realize that the excessive investments will never be able to fulfil the high expectations. Synergy (4). Following the crash, the time of quick and easy profits has passed. Maturity (5): The maturity stage is characterized by market saturation and mature technologies.

1.2 The evolution of e-business Exhibit 1.3 Technological revolutions move through different stages as their diffusion increases INSTALLATION PERIOD DEPLOYMENT PERIOD Previous great surge 5 Maturity 4 Synergy (‘golden age') Crash Degree of diffusion of the technological revolution 3 2 Frenzy (‘gilded age') Irruption Next great surge 1 Time Big bang Next big bang Source: Adapted from C. Perez, 2002, p. 48.

Technological revolution 1.2 The evolution of e-business Exhibit 1.4 Major technological revolutions during the past two centuries show similar patterns of evolution INSTALLATION PERIOD DEPLOYMENT PERIOD 1 2 3 4 5 Technological revolution (core country) 'Crash' 'Irruption' 'Frenzy' 'Synergy' 'Maturity' The Industrial Revolution (Britain) Age of steam and railways (Britain, then spreading to Continental Europe and the USA Age of steel, electricity, and heavy engineering (USA and Germany overtaking Britain) Age of oil, automobiles and mass-production (US, then spreading to Europe) 1770s and early 1780s 1830s 1875–1884 1908–1920 late 1780s and early 1790s 1840s 1884–1893 1920–1929 crash in 1797 crash in 1847 crash in 1893 crash in 1929 1798–1812 1850–1857 1895–1907 1943–1959 1813–1829 1857–1873 1908–1918 1960–1974 Source: Adapted from C. Perez, 2002, p. 57. Timeline

1.2 The evolution of e-business Exhibit 1.5 During the past decade, e-business companies have passed through four distinct periods, as is reflected in the evolution of the NASDAQ 1 2 3 4 'Grassroots of e-business' 'Rise of the Internet' 'Stock market crash' 'Synergy' Points – 45% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Launch of Amazon.com Source: NASDAQ quotes taken from Factiva.com.

The evolution of e-business Grassroots of e-business (1). Before the widespread commercial use of the Internet, the NASDAQ showed only modest increases. Between 1983 and 1993, it hardly doubled from 350 to 700 points. We refer to this period as the grassroots of e-business which corresponds to the irruption stage in the Perez model. Rise of the Internet (2). Even though the beginning of the dot.com boom cannot be determined precisely, we chose 1995, the year when Amazon.com was launched, as the starting point of the rise of the Internet period. The year 1995 also saw the going public of Netscape, the maker of the Netscape Navigator Web browser, which presented the first initial public offering (IPO) of a major Internet company. This period, which corresponds to the ‘gilded age’, finds its reflection in the strong rise of the NASDAQ, especially during the late 1990s. Crash (3). The bubble burst in March and April of 2000, when the NASDAQ crashed. Between 10 March and 14 April 2000, the NASDAQ dropped 1727 points or 34%. By the end of 2000, it had fallen by 45%. Consolidation phase (4). By winter 2003, there were signs of an e-business revival, as reflected in the rise of the NASDAQ during the second half of 2003. This trend continued, thus marketing the beginning of the synergy stage (‘golden age’) mentioned in the Perez model.

Summary This chapter first introduced the definitions of e-business-related terms, including ‘e-business’, ‘electronic commerce’ and ‘mobile e-commerce’, and definitions of strategy and value creation Second, this chapter provided a framework that describes the typical periods of technological revolutions. It also positions within this framework the evolution of the Internet during the last decade. The four main periods that characterize this evolution are: the grassroots of e-business period, which took place before the widespread commercial use of the Internet; the rise of the internet period, which started with the launch of Amazon.com in 1995 and continued until 2000; the crash (or burst of dotcom bubble) which took place in March and April 2000 and caused a 45% decline of the NASDAQ by the end of that year; the synergy phase, which followed the stock market crash and continues until today.