Zachary Zinkgraf Wednesday March 13th BMGT 301 Midterm Review The Digital Business Economic properties of information o Experience good o Public good o Economies of scale Property 1 Experience Goods o Whose value is harder to evaluate A cup of Starbucks Cappuccino Today s Wall Street Journal o Can you tell how much you will like a movie before watching it If you do not like it it is too late o Information goods are experience goods o Definition Consumers cannot tell their quality value before consuming them Property 2 Public Goods o Examples of public goods o Definition of public goods Non rival Lighthouse National defense TV radio broadcasts One person s consumption doesn t diminish the amount available to another Non excludable o Counter example Your home your car Digitization Public Good o Digital information It is costly to exclude people who do not pay from consuming the good Reproduction is easy fast and costless The line between copying and access is blurred o The Internet and the WWW Distribution of IP is costless and instantaneous o Some natural barriers to IP infringement are disappearing o Widespread computer use The technology to spread information goods is ahead of legal awareness Tradeoff between IP protection and privacy Intellectual Property Protection protects any new and useful process machine article of o Patent manufacture compositions of matter or any new useful improvement thereof typically 20 year term Criteria novelty and usefulness o Trademark manufacturer from another infinite term with renewal protects designations used to distinguish items from one Criteria distinctive o Copyright authors life 70 years 95 105 for copyrights not held by people protects works of original authorship fixed in tangible form for Criteria original work of authorship o Trade secret protects any valuable intellectual property Criteria secret Property 3 Economies of Scale o How much does it cost a studio to make a movie o How much does it cost Netflix to stream that movie to a customer o Information goods High and sunk fixed costs Very low marginal costs o Information goods are expensive to produce and cheap to reproduce o Other examples Simulation Game Bertrand Competition Competition in Information Goods o Being a near monopoly or having close to 100 market share is NOT illegal o However a company cannot use or leverage its monopoly power in one product area to compete in another product area Squeezing suppliers Tying products o The example of Microsoft Internet Explorer surpassed Netscape in the blink of an eye after coupling it with their software Summary o Digital business is different Need new models and concepts to understand it o Information as a good has distinctive economic properties Creates challenges in market transactions Requires new ways of strategizing and competing IT and Strategy Key messages How IT enables competitive advantage Frameworks and models for thinking about strategy How IT transforms organizations Business models Internal organization Home Video Rental Business Back to the past pre Internet how would you describe the business model of a video rental business What is a business model How the company makes money Components Value proposition Customers Suppliers Business processes deliver and serve customers Pricing Competitive strategy Value proposition Brand Convenience availability selection price Challenges Inventory control Stockouts are bad why How to improve inventory performance Develop DATABASE of customer tastes Other benefits of a database Scalable and searchable Still difficult to predict demand Stock more why or why not Generating profit What should the business pay for it s raw materials Netflix Success Sources of competitive advantage Brand huge selection fast shipping ease of use and convenience fair price IT major contributor to success Selection the long tail Cinematch collaborative filtering Warehouse operations 58 ultra high tech distribution centers 1 8m DVDs per day Within driving distance of 100 USPS facilities Sorters scanners Scale Why could Blockbuster not catch up Expressing Preferences Generally assessed through ratings information Explicit rating expressed directly Implicit rating inferred based on actions Purchase related actions Time related actions Takeaways Measure of a consumer s opinion of a product service or Dominance of Blockbuster integration of technology and business innovation IT disrupts business models Can lead to death if the model does not evolve IT enables competitive advantage Helps craft and deliver a unique value proposition Helps implement business model Success is a moving target Continual technology and business model evolution Netflix may be in jeopardy Preview What is strategy in the context of IT Useful models for thinking about IT and strategy Value chain Five Forces RBV Advantage Cost Leadership Focus Low Cost Low Cost Product Uniqueness Differentiation Focus Differentiation Is technology an integral part of strategy The Lead lag model Mostly developed before the Internet Tend to be static assume that a firm uses IT to enable a strategy that leads to a sustainable competitive advantage SCA How long does SCA last today The Co evolution view The Value Chain Scope Broad Narrow Examples What is Strategy IT and Strategy Porter s 5 Forces Model New Models for IT and SCA The RVB Resources include all assets capabilities organizational processes firm attributes information knowledge etc controlled by a firm To provide a strategic advantage a resource has to be Rare Valuable Inimitable Non substitutable These attributes mean that You can t buy strategic resources in the marketplace You have to protect yourself against resource mobility the movement of resources to competitors American Airlines and Sabre Resources an interacting set that produced competitive advantage at different times Sabre System and IT skills Rare and valuable imitable and substitutable Added resources to automate agencies and extend features Not rare valuable partially inimitable and non substitutable Dell Major resource lean production but it can be copied Added resources Investment in IT for ordering and customer service Management skills for lean production Management skills for IT Interacting resources Lean production model Web ordering a new business model that was rare valuable inimitable and non substitutable IT and the Strategic Resource Bundled Dynamic strategies that changed over time A need for continued skills and
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