《电子商务 E-business》阅读文献_E-Business Strategies and Internet Business Models

Organizational Dynamics, Vol 33, No 2, pp. 161-173, 2004 ISSN 0090-2616/S-see frontmatter G 2004 Elsevier Inc. All rights reserved doi:10.1016/ jordyn200401004 ganIzational-d E-Business Strategies and Internet Business models How the internet Adds value G.T. LUMPKIN GREGORY DESS he Internet continues to grow and evolve the Net represents something qual as a vital resource with which companies tatively new-an unprecedented can upgrade their capabilities and grow their powerful, universal communica businesses. Shop. org and Forrester Research tions medium. Far surpassing radio at, at its growth and television, this medium is digi- retail sales in the United States will top the tal, infinitely richer, and interactive $100 billion mark in 2004 which represents 4.5 Mobile comput percent of total retail sales. Business-to-busi- broadband access, wi ness(B2B)e-commerce is expected to grow works, and computing pe ower worldwide to $4.3 trillion by 2005 according to embedded in everything from refrig International Data Corp(IDC). The phenom- erators to automobiles are conver- success of youn g companies such ging into a global network that will Bay Google, and amazon are also indicative nable people to use the Net just of the Internets potential about anywhere and anytime The impact of the information technology revolution, however, goes beyond the Inter These technology-driven initiatives-the net. At a more basic level, it is the shift from Internet, wireless communications, and other analog to digital technologies that is respon digital technologies-are having a significant sible for so many new information technology impact on the economy. They have done so by (IT) capabilities. Analog was once the primary changing the ways businesses interact with technology for conveying information such as each other and with consumers This has not music recordings, voice communications, and only created an environment in which busi television signals. Many technologies have nesses must perform at a higher level-faster, made the switch from analog to digital- cheaper, smarter-but also it has created phones, Photographs, television signals, and many new business opportunities ven so, many firms are still struggling tion is here to stay. As a result, digital tech with the basic issue of how to use the Internet nology capabilities which, in essence, make igital technologies for their best advan- the Internet possible, are altering the way tage. Despite the visible and noteworthy suc business is conducted. According to digital esses such as eBay and Google, other Internet economy visionary Don Tapscott companies continue to struggle including here-to-stay giants such as Time Warner The Net is much more than just The weak economy is partially to blame another technology developmen for faltering Internet businesses. However,a

E-Business Strategies and Internet Business Models: How the Internet Adds Value G.T. LUMPKIN GREGORY G. DESS T he Internet continues to grow and evolve as a vital resource with which companies can upgrade their capabilities and grow their businesses. Shop.org and Forrester Research predict that, at its present growth rate, on-line retail sales in the United States will top the $100 billion mark in 2004 which represents 4.5 percent of total retail sales. Business-to-busi￾ness (B2B) e-commerce is expected to grow worldwide to $4.3 trillion by 2005 according to International Data Corp (IDC). The phenom￾enal success of young companies such as eBay, Google, and Amazon are also indicative of the Internet’s potential. The impact of the information technology revolution, however, goes beyond the Inter￾net. At a more basic level, it is the shift from analog to digital technologies that is respon￾sible for so many new information technology (IT) capabilities. Analog was once the primary technology for conveying information such as music recordings, voice communications, and television signals. Many technologies have made the switch from analog to digital— phones, photographs, television signals, and even books—and the trend suggests digitiza￾tion is here to stay. As a result, digital tech￾nology capabilities which, in essence, make the Internet possible, are altering the way business is conducted. According to digital economy visionary Don Tapscott: The Net is much more than just another technology development; the Net represents something quali￾tatively new—an unprecedented, powerful, universal communica￾tions medium. Far surpassing radio and television, this medium is digi￾tal, infinitely richer, and interactive ... Mobile computing devices, broadband access, wireless net￾works, and computing power embedded in everything from refrig￾erators to automobiles are conver￾ging into a global network that will enable people to use the Net just about anywhere and anytime. These technology-driven initiatives—the Internet, wireless communications, and other digital technologies—are having a significant impact on the economy. They have done so by changing the ways businesses interact with each other and with consumers. This has not only created an environment in which busi￾nesses must perform at a higher level—faster, cheaper, smarter—but also it has created many new business opportunities. Even so, many firms are still struggling with the basic issue of how to use the Internet and digital technologies for their best advan￾tage. Despite the visible and noteworthy suc￾cesses such as eBay and Google, other Internet companies continue to struggle including ‘‘here-to-stay’’ giants such as Time Warner. The weak economy is partially to blame for faltering Internet businesses. However, a Organizational Dynamics, Vol. 33, No. 2, pp. 161–173, 2004 ISSN 0090-2616/$ – see frontmatter
2004 Elsevier Inc. All rights reserved. doi:10.1016/j.orgdyn.2004.01.004 www.organizational-dynamics.com 161

more fundamental reason is that companies conduct business on-line and use digital are still not clear how the Internet adds value technologies to streamline operations, the In this article we look at how nternet is helping them develop new value are leveraging the unique features of digital propositions. Fig. 1 illustrates four related technology to create competitive advantages value-adding activities that are being revo- Two aspects of this approach stand out. First, lutionized by the Internet-search, evalua- there are several strategies that Internet- tion, problem-solving, and transaction. In based businesses can use to improve their this section, we address how companies value propositions. These include four Inter- can use these capabilities to add value and net-specific activities that are providing firms create competitive advantages with new capabilities-search, evaluation problem-solving and transaction. These value-adding activities are enhanced further Search Activities by managing three different types of Internet Search refers to the process of gathering content--customer feedback, expertise, and information and identifying purchase entertainment programming. Second, these options. The Internet has enhanced both value-adding strategies are best understood the speed of information gathering and the in the context of business models that are breadth of information that can be accessed specific to the Internet environment. Thus, This enhanced search capability is one of the we will consider seven internet business key reasons the Internet has lowered switch- models that have emerged and proven suc ing cost--by decreasing the cost of search cessful, and outline how value-adding activ. These efficiency gains have greatly benefited ities and content are best used in the context buyers. Suppliers also have benefited. Small of each of the internet business models suppliers that had difficulty getting noticed can more easily be found. Large suppliers can publish thousands of pages of informa- INTERNET ACTIVITIES THAT tion for a fraction of the cost that hard-copr ADD VALUE catalogs once required. Additionally, on-line search engines have accelerated the search In his article, Strategy and the Internet, process to incredible speeds Michael Porter has emphasized that Internet Consider the example of Google,a technology becomes strategically significant search engine developed as a project by only when its practical application creates two graduate students, which became the new value. How w are firms using the Internet number-one search service in just four years to add value? By allowing companies to Why? Because it is capable of incredible FIGURE1 NTERNET ACTIVITIES THAT ADD VALUE Product-Related Evaluation Transaction Service-Related Problem-Solving 162 ORGANIZATIONAL DYNAMICS

more fundamental reason is that companies are still not clear how the Internet adds value. In this article we look at how companies are leveraging the unique features of digital technology to create competitive advantages. Two aspects of this approach stand out. First, there are several strategies that Internet￾based businesses can use to improve their value propositions. These include four Inter￾net-specific activities that are providing firms with new capabilities—search, evaluation, problem-solving and transaction. These value-adding activities are enhanced further by managing three different types of Internet content—customer feedback, expertise, and entertainment programming. Second, these value-adding strategies are best understood in the context of business models that are specific to the Internet environment. Thus, we will consider seven Internet business models that have emerged and proven suc￾cessful, and outline how value-adding activ￾ities and content are best used in the context of each of the Internet business models. INTERNET ACTIVITIES THAT ADD VALUE In his article, ‘‘Strategy and the Internet,’’ Michael Porter has emphasized that Internet technology becomes strategically significant only when its practical application creates new value. How are firms using the Internet to add value? By allowing companies to conduct business on-line and use digital technologies to streamline operations, the Internet is helping them develop new value propositions. Fig. 1 illustrates four related value-adding activities that are being revo￾lutionized by the Internet—search, evalua￾tion, problem-solving, and transaction. In this section, we address how companies can use these capabilities to add value and create competitive advantages. Search Activities Search refers to the process of gathering information and identifying purchase options. The Internet has enhanced both the speed of information gathering and the breadth of information that can be accessed. This enhanced search capability is one of the key reasons the Internet has lowered switch￾ing cost—by decreasing the cost of search. These efficiency gains have greatly benefited buyers. Suppliers also have benefited. Small suppliers that had difficulty getting noticed can more easily be found. Large suppliers can publish thousands of pages of informa￾tion for a fraction of the cost that hard-copy catalogs once required. Additionally, on-line search engines have accelerated the search process to incredible speeds. Consider the example of Google, a search engine developed as a project by two graduate students, which became the number-one search service in just four years. Why? Because it is capable of incredible FIGURE 1 INTERNET ACTIVITIES THAT ADD VALUE Evaluation Problem-Solving Search Transaction Service-Related Product-Related 162 ORGANIZATIONAL DYNAMICS

things: Using 10,000 networked compt Enhanced evaluation is a capability that it searches 3 billion Web pages in an average adds value to the process of selling products of 500 milliseconds. To do the same search or manufactured goods. Many Internet busi manually by thumbing through nesses, according to digital business experts pages at the rate of 1 minute per page, would Ming Zeng and Werner Reinartz, could take 5, 707 years. This ability has made Goo- improve their performance by making a gle an essential tool for many businesses. As stronger effort to help buyers evaluate pur a result, Google has built a powerful adver- chases. Even so, only certain types of products tising business. Mark Kini, who runs a small can be evaluated on-line. products such as limousine service in Boston, spends 80 per- CDs that appeal primarily to the sense of cent of his advertising budget on Google and sound sell well on the Internet. But products other search engines. " Its how we survive that appeal to multiple senses are harder to the recession, says Kini evaluate on-line. This explains why products Thus, enhanced Internet search capabil such as furniture and fashion have never been ities make it possible for firms to find critical strong on-line sellers. It's one thing to look at a information much more rapidly and have leather sofa, but to be able to sit in it and touch greatly increased the possibility that one firm and smell the leather on-line is impossible can be located by another firm or by custo- mers wishing to conduct business with it Problem-Solving Activities Evaluation activities Problem-solving refers to the process of iden tifying problems or needs and generating Evaluation refers to the process of consider- ideas and action plans to address those needs ing alternatives and comparing the costs and Whereas evaluation is primarily product benefits of various options. On-line services related, problem-solving is typically used in that facilitate comparative shopping, provide he context of services. Customers usually product reviews, and catalogue customer have unique problems; such problems, there- evaluations of performance have made the fore, are typically handled one at a time. For Internet a valuable resource. For example, example, on-line travel services such as Tra- bizrate. com offers extensive product ratings velocity help customers select from many that can help evaluate products. Sites such as ns to form a u travel packa CNET that provide comparative pricing have problem-solving often involves helped lower prices even for quality pro- providing answers immediately(compared to ducts that have traditionally maintained pre- he creation of a new product). Firms in indus- mium prices. Opinion-based sites such as tries such as medicine, law, and engineering epinions.comandplanetfeedback.compro-areusingtheInternetanddigitaltechnologies vide reports of consumer experiences with to deliver many new solutions. Some of these various vendors are quite remarkable. Exhibit 1 describes how Exhibit 1 Eli Lilly: Virtually Seeking Solutions-Worldwide In 2001, pharmaceutical giant Eli Lilly was anticipating a big drop in sales. That was the year the patent expired on its blockbuster drug Prozac, which accounted for 34 percent of Lilly's annual sales. But rather than launch a new drug, Lilly launched an Internet business--InnoCentive, LLC InnoCentive, as the name implies, provides incentives for innovation. It does so by providing a platform for scientists from around the world to work in virtual communities to solve complex problems. The effort does not just benefit Lilly, but provides a virtual, open source research and development(R&D)organization that any member company can use

things: Using 10,000 networked computers, it searches 3 billion Web pages in an average of 500 milliseconds. To do the same search manually, by thumbing through 3 billion pages at the rate of 1 minute per page, would take 5,707 years. This ability has made Goo￾gle an essential tool for many businesses. As a result, Google has built a powerful adver￾tising business. Mark Kini, who runs a small limousine service in Boston, spends 80 per￾cent of his advertising budget on Google and other search engines. ‘‘It’s how we survive the recession,’’ says Kini. Thus, enhanced Internet search capabil￾ities make it possible for firms to find critical information much more rapidly and have greatly increased the possibility that one firm can be located by another firm or by custo￾mers wishing to conduct business with it. Evaluation Activities Evaluation refers to the process of consider￾ing alternatives and comparing the costs and benefits of various options. On-line services that facilitate comparative shopping, provide product reviews, and catalogue customer evaluations of performance have made the Internet a valuable resource. For example, bizrate.com offers extensive product ratings that can help evaluate products. Sites such as CNET that provide comparative pricing have helped lower prices even for quality pro￾ducts that have traditionally maintained pre￾mium prices. Opinion-based sites such as epinions.com and planetfeedback.com pro￾vide reports of consumer experiences with various vendors. Enhanced evaluation is a capability that adds value to the process of selling products or manufactured goods. Many Internet busi￾nesses, according to digital business experts Ming Zeng and Werner Reinartz, could improve their performance by making a stronger effort to help buyers evaluate pur￾chases. Even so, only certain types of products can be evaluated on-line. Products such as CDs that appeal primarily to the sense of sound sell well on the Internet. But products that appeal to multiple senses are harder to evaluate on-line. This explains why products such as furniture and fashion have never been strong on-line sellers. It’s one thing to look at a leather sofa, but to be able to sit in it and touch and smell the leather on-line is impossible. Problem-Solving Activities Problem-solving refers to the process of iden￾tifying problems or needs and generating ideas and action plans to address those needs. Whereas evaluation is primarily product￾related, problem-solving is typically used in the context of services. Customers usually have unique problems; such problems, there￾fore, are typically handled one at a time. For example, on-line travel services such as Tra￾velocity help customers select from many options to form a unique travel package. Furthermore, problem-solving often involves providing answers immediately (compared to the creation of a new product). Firms in indus￾tries such as medicine, law, and engineering are using the Internet and digital technologies to deliver many new solutions. Some of these are quite remarkable. Exhibit 1 describes how Exhibit 1 Eli Lilly: Virtually Seeking Solutions—Worldwide In 2001, pharmaceutical giant Eli Lilly was anticipating a big drop in sales. That was the year the patent expired on its blockbuster drug Prozac, which accounted for 34 percent of Lilly’s annual sales. But rather than launch a new drug, Lilly launched an Internet business—InnoCentive, LLC. InnoCentive, as the name implies, provides incentives for innovation. It does so by providing a platform for scientists from around the world to work in virtual communities to solve complex problems. The effort does not just benefit Lilly, but provides a virtual, open source research and development (R&D) organization that any member company can use. 163

Here's how it works: Drug companies, called"Seekers, "put up"Wanted"posters describing problems that need addressing Bounty-hunting scientists, labeled"Solvers, sign confidentiality agreements that gain them admission to a secure project room where they can access data and product specifications related to the problem. If they solve the problem, they get a reward-around $25,$30,000 depending on the problem According to InnoCentive president and chief executive officer(CEO)Darren J. Carroll, what Lilly has done is unusual for two reasons. First, by creating a global community of scientists, We re punching a hole in the side of the laboratory and exposing mission-critical problems to the outside world, " says Carroll, "It's using the Net to communicate, collaborate, and innovate. "Second, it makes it possible for scientists to essentially become freelancers. According to Carroll, "Free agency has never been an option in the hard sciences-until now Eli Lilly &z Company has used the Internet to the cost structures of certain industries, is a form a virtual platform where top scientists key feature of the digital economy. Applica- help drug companies solve complex pro- tions of Internet-based technologies have blems already had an enormous impact Giga Infor- Many products involve both a service mation Group, Inc. estimates that the cost and a product component; therefore, both savings from business use of e-commerce problem solving and evaluation may be will reach $1.25 trillion by the mid-2000 needed. Dell Computers Web site is an There are numerous examples of how the example of a site that has combined the Internet is both lowering the cost of and benefits of both. By creating a Web site that speeding up the transaction process. Auc- allow for customization of individual com- tions of various sorts from raw materials puters, they address the unique concerns of used in manufacturing to collectibles sold customers"one computer at a time. But the on eBay, facilitate the process of arriving at site also features a strong evaluative compo- mutually agreed-on prices. Services such as nent because it allows users to compare the Pa ird-party intermedi costs and features of various options. Shop- that facilitates transactions between parties pers can even compare their customized who have never met. Amazons One-Click selection to refurbished Dell computers that technology, which allows for very rapid pur are available at a substantially lower cost hases, and Amazons overall superiority in managing order fulfillment has made its Transaction activities transactions process rapid and reliable. In fact, Amazon's success today can be attrib. Transaction refers to the process of complet uted to a large extent to the fact they have ing the sale, including negotiating and agree- sold this transaction capability to other com- ing contractually, making payments, and panies such as Target Corp. Toys R"Us taking delivery. Numerous types of Inter- Inc, and Borders books Music net-enabled activities have contributed These four factors are primary ways lowering that organizations go about adding value costs. Managing costs, and even changing Exhibit 2 describes several examples of how Exhibit 2 Value Adding in the Auto Industry The auto industry jumped on the Internet bandwagon in a big way. One of the early successes was Autobytel, and many on-line auto sales Web sites quickly followed. The majority of them have now fizzled away. The big auto makers also made huge investments in the Internet. Ford was especially aggressive and 164 ORGANIZATIONAL DYNAMICS

Eli Lilly & Company has used the Internet to form a virtual platform where top scientists help drug companies solve complex pro￾blems. Many products involve both a service and a product component; therefore, both problem solving and evaluation may be needed. Dell Computer’s Web site is an example of a site that has combined the benefits of both. By creating a Web site that allow for customization of individual com￾puters, they address the unique concerns of customers ‘‘one computer at a time.’’ But the site also features a strong evaluative compo￾nent because it allows users to compare the costs and features of various options. Shop￾pers can even compare their customized selection to refurbished Dell computers that are available at a substantially lower cost. Transaction Activities Transaction refers to the process of complet￾ing the sale, including negotiating and agree￾ing contractually, making payments, and taking delivery. Numerous types of Inter￾net-enabled activities have contributed to lowering this aspect of overall transaction costs. Managing costs, and even changing the cost structures of certain industries, is a key feature of the digital economy. Applica￾tions of Internet-based technologies have already had an enormous impact. Giga Infor￾mation Group, Inc. estimates that the cost savings from business use of e-commerce will reach $1.25 trillion by the mid-2000s. There are numerous examples of how the Internet is both lowering the cost of and speeding up the transaction process. Auc￾tions of various sorts, from raw materials used in manufacturing to collectibles sold on eBay, facilitate the process of arriving at mutually agreed-on prices. Services such as Paypal provide a third-party intermediary that facilitates transactions between parties who have never met. Amazon’s One-Click technology, which allows for very rapid pur￾chases, and Amazon’s overall superiority in managing order fulfillment has made its transactions process rapid and reliable. In fact, Amazon’s success today can be attrib￾uted to a large extent to the fact they have sold this transaction capability to other com￾panies such as Target Corp., Toys ‘‘R’’ Us Inc., and Borders Books & Music. These four factors are primary ways that organizations go about adding value. Exhibit 2 describes several examples of how Exhibit 2 Value Adding in the Auto Industry The auto industry jumped on the Internet bandwagon in a big way. One of the early successes was Autobytel, and many on-line auto sales Web sites quickly followed. The majority of them have now fizzled away. The big auto makers also made huge investments in the Internet. Ford was especially aggressive and Here’s how it works: Drug companies, called ‘‘Seekers,’’ put up ‘‘Wanted’’ posters describing problems that need addressing. Bounty-hunting scientists, labeled ‘‘Solvers,’’ sign confidentiality agreements that gain them admission to a secure project room where they can access data and product specifications related to the problem. If they solve the problem, they get a reward—around $25,000–$30,000 depending on the problem. According to InnoCentive president and chief executive officer (CEO) Darren J. Carroll, what Lilly has done is unusual for two reasons. First, by creating a global community of scientists, ‘‘We’re punching a hole in the side of the laboratory and exposing mission-critical problems to the outside world,’’ says Carroll, ‘‘It’s using the Net to communicate, collaborate, and innovate.’’ Second, it makes it possible for scientists to essentially become freelancers. According to Carroll, ‘‘Free agency has never been an option in the hard sciences—until now.’’ 164 ORGANIZATIONAL DYNAMICS

launched several Web sites--Trilogy. com, CarOrder. com, FordDirect com--most of which never amounted to anything. But that was in the late 1990s, when it was still unclear how best to use the Internet. Now the automakers-and the auto-buying public--have found ways to use the Internet profitably. Here are a few Search Ebay, the on-line auction giant that makes searching for products of all sorts fast and simple, has become a player in the used car business. Beginning with a few private individuals, the auto auction business took off unexpectedly, so the company formed eBay Motors, which contributed about $100 million to eBay's total revenue of $1.2 billion in 2002. eBay's technology speeds the process of on-line search, and buyers who may have been reluctant to shop for cars on-line are comforted by eBays reputation. eBay and other on-line auto-sales sites make searching for insurance and auto financing easier as well Problem Solving To help its dealers manage inventories more effectively, General Motors Corp. developed SmartAuction. For vehicles that are coming off lease, SmartAuction notifies customers to bring in cars for an inspection before the lease expires. The condition of the car is logged into the system and sent to GM dealers who use it to purchase cars electronically. The system helps dealers find cars that fit their target audience, manages the auto-titling process, and shortens the time cars are carried in inventory Evaluation In the early days of the Internet, most thought that cars would never sell on-line because customers like to kick the tires and take a test drive. This is often still true. But customers who go for a test drive, and have also already researched the car on-line, usually save money when they buy. Economists researching this phenomenon have labeled it the "information effect"-auto shoppers who first gather information on-line are better able to evaluate their purchase Transaction Auto referral services such as CarsDirect have streamlined the transaction process by brokering purchases between dealers and consumers. Through these companies, both new and used cars can be purchased on-line, sight unseen. One shopper, who bought a used car on-line, flew to Fort Worth Texas to pick it up, and drove it 18 hours back home to Ohio said, " in retrospect, I had more information about this vehicle than if I had gone onto a dealer's lot and started haggling over price. " On-line auto shoppers typically save money due to the"contract effect" which occurs because third-party auto referral services monitor the quality of the information provided by dealers and facilitate the transaction. the automobile industry and car buyers have detailed and attractive content. But the used each of these four activities to benefit expense did not generate sales. Content only heir own value-adding efforts adds value if it contributes to the overall valuepropositionAsaresultGarden.com Content as a source of failed in early 2001(but the name is still being Competitive Advantage used by the burp mpany, a 125-year-old supplier of garden products who boug There are other factors that can be important rights to the name) sources of competitive advantage. One of the Three types of content can improve the most important of these is content. The Inter value proposition of a Web site--customer net makes it possible to capture vast amounts feedback, expertise, and entertainment pro- of content at a very low cost Rel.Com, example, a provider of recreational equip- Customer feedback: Buyers often trust ment and apparel, has over 78,000 items what other buyers say more than a com described on its 45,000-page Web site. But pany's promises. One type of content that firms have not always managed content in can enhance a Web site is customer testimo- ways that add value. Garden. com, a site that nials. Remember the leather sofa in the exam- started strongly in 1999 and raised enormous ple above? Even though individuals cant venture capital, spent millions on creating feel and smell a sofa on-line, the unbiased

the automobile industry and car buyers have used each of these four activities to benefit their own value-adding efforts. Content as a Source of Competitive Advantage There are other factors that can be important sources of competitive advantage. One of the most important of these is content. The Inter￾net makes it possible to capture vast amounts of content at a very low cost. REI.com, for example, a provider of recreational equip￾ment and apparel, has over 78,000 items described on its 45,000-page Web site. But firms have not always managed content in ways that add value. Garden.com, a site that started strongly in 1999 and raised enormous venture capital, spent millions on creating detailed and attractive content. But the expense did not generate sales. Content only adds value if it contributes to the overall value proposition. As a result Garden.com failed in early 2001 (but the name is still being used by the Burpee company, a 125-year-old supplier of garden products who bought rights to the name). Three types of content can improve the value proposition of a Web site—customer feedback, expertise, and entertainment pro￾gramming:
Customer feedback: Buyers often trust what other buyers say more than a com￾pany’s promises. One type of content that can enhance a Web site is customer testimo￾nials. Remember the leather sofa in the exam￾ple above? Even though individuals can’t feel and smell a sofa on-line, the unbiased launched several Web sites—Trilogy.com, CarOrder.com, FordDirect.com—most of which never amounted to anything. But that was in the late 1990s, when it was still unclear how best to use the Internet. Now the automakers—and the auto-buying public—have found ways to use the Internet profitably. Here are a few examples: Search Ebay, the on-line auction giant that makes searching for products of all sorts fast and simple, has become a player in the used car business. Beginning with a few private individuals, the auto auction business took off unexpectedly, so the company formed eBay Motors, which contributed about $100 million to eBay’s total revenue of $1.2 billion in 2002. eBay’s technology speeds the process of on-line search, and buyers who may have been reluctant to shop for cars on-line are comforted by eBay’s reputation. eBay and other on-line auto-sales sites make searching for insurance and auto financing easier as well. Problem Solving To help its dealers manage inventories more effectively, General Motors Corp. developed SmartAuction. For vehicles that are coming off lease, SmartAuction notifies customers to bring in cars for an inspection before the lease expires. The condition of the car is logged into the system and sent to GM dealers who use it to purchase cars electronically. The system helps dealers find cars that fit their target audience, manages the auto-titling process, and shortens the time cars are carried in inventory. Evaluation In the early days of the Internet, most thought that cars would never sell on-line because customers like to kick the tires and take a test drive. This is often still true. But customers who go for a test drive, and have also already researched the car on-line, usually save money when they buy. Economists researching this phenomenon have labeled it the ‘‘information effect’’—auto shoppers who first gather information on-line are better able to evaluate their purchase. Transaction Auto referral services such as CarsDirect have streamlined the transaction process by brokering purchases between dealers and consumers. Through these companies, both new and used cars can be purchased on-line, sight unseen. One shopper, who bought a used car on-line, flew to Fort Worth, Texas to pick it up, and drove it 18 hours back home to Ohio said, ‘‘in retrospect, I had more information about this vehicle than if I had gone onto a dealer’s lot and started haggling over price.’’ On-line auto shoppers typically save money due to the ‘‘contract effect’’ which occurs because third-party auto referral services monitor the quality of the information provided by dealers and facilitate the transaction. 165

testimonials of other buyers can build con- sharing expert knowledge help build commu fidence and add to the chances that the pur nity in industry or professional groups chaser will buy on-line"sight unseen. " This Entertainment programming: The Inter- is one way that content can be a source of net is being used by more and more people competitive advantage. Being able to interact as an entertainment medium With technol- with like-minded customers with shared ogies such as streaming media, which interests by reading their experiences or allows the internet to send television-like hearing how they have responded to a new images and sound, computers can provide product builds a sense of belonging that is everything from breaking news to video otherwise hard to create games to on-line movies. In fact, a stud Expertise: The Internet has emerged as a by the Pew Internet American Life Project tremendously important learning tool. Fifty indicates that among people using high one percent of users compare the Internet to a speed broadband service, Tv viewing is library. The primereason many users go to the down, and on-line activity has increased Web is to gain expertise. Web sites that pro- One reason is because the technology is vide new knowledge or unbiased information interactive which means that viewers don' are highly valuable. Additionally, the pro- just passively watch but use the Web to blem-solving function often involves educat create art or play on-line games. Businesses ing consumers regarding options and lave noticed this trend, of course, and are implications of various choices. For example creating Web content that is not just infor- endingTree. com, the on-line loan company mative but entertaining. Exhibit 3 tells how provides a Help Center that includes ex- on-line game developer Skyworks Technol tensive information and rces about obtaining loans, maintain od credit sales Exhibit 3 Advergaming". Making Advertisements Interactive and Fun Video games were popular well before the Web came along. But new digital technologies have made it possible to feature some of the best games on-line. Combine this with advertisers' need to use the Net's interactivity to make on-line ads more interesting and what do you get: Advergaming--on-line games that weave advertisements into the experience. Here are some examples A game designed for Pepsi involves an auto race in which the goal is to recover a stolen shipment of Mountain Dew Code Red. The top 100 gamers received a free case of the soft drink. Some games make you buy something to play. To play the Pebbles Big Barney Chase game, players must answer a question; to learn the answer, you have to purchase a box of Post Cereal Candystand. com, a Web site developed by Skyworks to promote Life Savers for Kraft Foods, features dozens of card, racing, and arcade games and ranks as the sixth most popular gaming destination on the Web According to Skyworks Technologies founder Garry Kitchen, advergaming can leave a deeper and more positive impression than television commercials. The idea is catching on--in a recent year, Skyworks made $4.3 million in revenues. Industry analyst Kent Allen of the Aberdeen Group expects the trend to continue, especially among consumer packaged-goods marketers "The consumer guys are starting to understand advergaming, says Allen. They re realizing it's a great way to connect with people and so forth. Further, the expertise function These three types of content-customer is not limited to consumer sites. In the case feedback, expertise and entertainment of b2b businesses Web sites that facilitate programming-are potential sources of 166 ORGANIZATIONAL DYNAMICS

testimonials of other buyers can build con￾fidence and add to the chances that the pur￾chaser will buy on-line ‘‘sight unseen.’’ This is one way that content can be a source of competitive advantage. Being able to interact with like-minded customers with shared interests by reading their experiences or hearing how they have responded to a new product builds a sense of belonging that is otherwise hard to create.
Expertise: The Internet has emerged as a tremendously important learning tool. Fifty￾one percent of users compare the Internet to a library. The prime reason many users go to the Web is to gain expertise. Web sites that pro￾vide new knowledge or unbiased information are highly valuable. Additionally, the pro￾blem-solving function often involves educat￾ing consumers regarding options and implications of various choices. For example, LendingTree.com, the on-line loan company, provides a Help Center that includes ex￾tensive information and resources about obtaining loans, maintaining good credit, and so forth. Further, the expertise function is not limited to consumer sites. In the case of B2B businesses, Web sites that facilitate sharing expert knowledge help build commu￾nity in industry or professional groups.
Entertainment programming: The Inter￾net is being used by more and more people as an entertainment medium. With technol￾ogies such as streaming media, which allows the Internet to send television-like images and sound, computers can provide everything from breaking news to video games to on-line movies. In fact, a study by the Pew Internet & American Life Project indicates that among people using high￾speed broadband service, TV viewing is down, and on-line activity has increased. One reason is because the technology is interactive which means that viewers don’t just passively watch but use the Web to create art or play on-line games. Businesses have noticed this trend, of course, and are creating Web content that is not just infor￾mative but entertaining. Exhibit 3 tells how on-line game developer Skyworks Technol￾ogies is using games to increase product sales. These three types of content—customer feedback, expertise and entertainment programming—are potential sources of Exhibit 3 ‘‘Advergaming’’: Making Advertisements Interactive and Fun Video games were popular well before the Web came along. But new digital technologies have made it possible to feature some of the best games on-line. Combine this with advertisers’ need to use the Net’s interactivity to make on-line ads more interesting and what do you get: Advergaming—on-line games that weave advertisements into the experience. Here are some examples:
A game designed for Pepsi involves an auto race in which the goal is to recover a stolen shipment of Mountain Dew Code Red. The top 100 gamers received a free case of the soft drink.
Some games make you buy something to play. To play the Pebbles Big Barney Chase game, players must answer a question; to learn the answer, you have to purchase a box of Post Cereal.
Candystand.com, a Web site developed by Skyworks to promote Life Savers for Kraft Foods, features dozens of card, racing, and arcade games and ranks as the sixth most popular gaming destination on the Web. According to Skyworks Technologies founder Garry Kitchen, advergaming can leave a deeper and more positive impression than television commercials. The idea is catching on—in a recent year, Skyworks made $4.3 million in revenues. Industry analyst Kent Allen of the Aberdeen Group expects the trend to continue, especially among consumer packaged-goods marketers. ‘‘The consumer guys are starting to understand advergaming,’’ says Allen. ‘‘They’re realizing it’s a great way to connect with people.’’ 166 ORGANIZATIONAL DYNAMICS

competitive advantage. That is, they create for putting buyers and sellers together, eBay advantages by making the value-creation earns a commission Reverse auctions run b process even stronger. Or, if they are companies such as FreeMarket. com have handled poorly, they diminish perfor also gained importance by generating sub mance. Quality content that is strategically stantial savings in procurement costs for deployed provides companies with a way to business-to-business users effectively differentiate their product or ser- Advertising-based models are used by vice offerings. This can be especially impor- companies that provide content and/or ser- tant in an on-line environment where the vices to visitors and sell advertising to busi- opportunities to differentiate may be con- nesses that want to reach those visitors. It is strained compared with the opportunities similar to the broadcast television model in to compete on the basis of low costs which viewers watch shows produced with Next, we turn to the topic of Internet advertising dollars. A key difference is that business models. How the Internet creates on-line visitors can interact with both the ads value depends to a great extent on how a and the content. Large portals such as yahoo value proposition is enacted. Business mod com are in this category as well as specialty els provide a guide to the effectiveness of the portals such as iNest. com, a portal that pro- value-adding process vides services for buyers of newly constructed homes. ePinions. com, a recommender system, is just one example of the many types of INTERNET BUSINESS MODELS content that are often available Markup-based models are used by busi The Internet provides a unique platform or nesses that add value in marketing and sales staging area for business activity which has (rather than production)by acquiring pro- become, in some ways, like a new market- ducts, marking up the price, and reselling place. How do firms conduct business in this hem at a profit. also known as the merchant new arena? One way of addressing this ques model, it applies to both wholesalers and tion is by describing Internet busi- retailers. Amazon. com is the most well- ness models. a business model is a method nown example in this category. It also and a set of assumptions that explains how a includes bricks and mortar companies such business creates value and earns profits in a as Wal-Mart Stores, which has a very suc competitive environment. Some of these cessful on-line operation, and vendors whose models are quite simple and traditional even products are purely digital, such as fonts when applied in an Internet context. Others com, which sells downloadable fonts and have features that are unique to the digitally photographs. networked, on-line environment. In this sec- Production-based models are used by tion we discuss seven internet business companies that add value in the production models that account for the vast majority process by converting raw materials into of business conducted on-line value-added products. Thus, it is als Commission-based models are used by referred to as the manufacturing model businesses that provide services for a fee. The The Internet adds value to this model in business is usually a third-party intermedi- two key ways: first, it lowers marketing costs ary and the commission charged is often by enabling direct contact with end users based on the size of the transaction There Second, such direct contact facilitates custo- are many different types of commission- mization and problem-solving. Dells on-line based businesses The most common g system is supported by a state-of- is a brokera ge service such as a stockbroker the-art customized manufacturing process (e. g, ameritrade. com) or real estate broker Travelocity uses its rich database of travel (e.g, remax. com). This category also includes options and customer profiles to ident ies such as eBay. In exchange produce, and deliver unique solutions

competitive advantage. That is, they create advantages by making the value-creation process even stronger. Or, if they are handled poorly, they diminish perfor￾mance. Quality content that is strategically deployed provides companies with a way to effectively differentiate their product or ser￾vice offerings. This can be especially impor￾tant in an on-line environment where the opportunities to differentiate may be con￾strained compared with the opportunities to compete on the basis of low costs. Next, we turn to the topic of Internet business models. How the Internet creates value depends to a great extent on how a value proposition is enacted. Business mod￾els provide a guide to the effectiveness of the value-adding process. INTERNET BUSINESS MODELS The Internet provides a unique platform or staging area for business activity which has become, in some ways, like a new market￾place. How do firms conduct business in this new arena? One way of addressing this ques￾tion is by describing various Internet busi￾ness models. A business model is a method and a set of assumptions that explains how a business creates value and earns profits in a competitive environment. Some of these models are quite simple and traditional even when applied in an Internet context. Others have features that are unique to the digitally networked, on-line environment. In this sec￾tion, we discuss seven Internet business models that account for the vast majority of business conducted on-line.
Commission-based models are used by businesses that provide services for a fee. The business is usually a third-party intermedi￾ary and the commission charged is often based on the size of the transaction. There are many different types of commission￾based businesses. The most common type is a brokerage service such as a stockbroker (e.g., ameritrade.com) or real estate broker (e.g., remax.com). This category also includes auction companies such as eBay. In exchange for putting buyers and sellers together, eBay earns a commission. Reverse auctions run by companies such as FreeMarket.com have also gained importance by generating sub￾stantial savings in procurement costs for business-to-business users.
Advertising-based models are used by companies that provide content and/or ser￾vices to visitors and sell advertising to busi￾nesses that want to reach those visitors. It is similar to the broadcast television model in which viewers watch shows produced with advertising dollars. A key difference is that on-line visitors can interact with both the ads and the content. Large portals such as yahoo.- com are in this category as well as specialty portals such as iNest.com, a portal that pro￾vides services for buyers of newly constructed homes. ePinions.com, a recommender system, is just one example of the many types of content that are often available.
Markup-based models are used by busi￾nesses that add value in marketing and sales (rather than production) by acquiring pro￾ducts, marking up the price, and reselling them at a profit. Also known as the merchant model, it applies to both wholesalers and retailers. Amazon.com is the most well￾known example in this category. It also includes bricks and mortar companies such as Wal-Mart Stores, which has a very suc￾cessful on-line operation, and vendors whose products are purely digital, such as fonts.- com, which sells downloadable fonts and photographs.
Production-based models are used by companies that add value in the production process by converting raw materials into value-added products. Thus, it is also referred to as the manufacturing model. The Internet adds value to this model in two key ways: first, it lowers marketing costs by enabling direct contact with end users. Second, such direct contact facilitates custo￾mization and problem-solving. Dell’s on-line ordering system is supported by a state-of￾the-art customized manufacturing process. Travelocity uses its rich database of travel options and customer profiles to identify, produce, and deliver unique solutions. 167

Referral-based models are used a third-Party intermediary and earns fees br firms that steer customers to another com- referring viewers to other sites through its pany for a fee. One type is the affiliate model affiliate programs. As noted earlier, Ama in which a vendor pays an affiliate a fee each zon. com not only earns revenues by reselling time a visitor clicks through the affiliates marked-up merchandise but also has gener Web site and makes a purchase from the ated income by charging fees for providing vendor. Many name brand companies use expertise based on its transaction capabil- affiliate programs. For example, Wedding- ties. Major manufacturers such as Ford Channel. com, which provides a bridal reg Motor Co and Dell Computer not only use istry where wedding guests can buy gifts their sites to manage procurement with sup- from companies such as Tiffany,s, Macys pliers, but also to advertise their services and or Crate barrel. receives a fee each time provide consumers with information that is a sale is made through its Web site. Another used to order customized products referral-based example is Yesmail. com, Table 1 summarizes the key feature of which generates leads using e-mail market each Internet business model, suggests what role content may play in the model, and Subscription-based models are used by businesses that charge a flat fee for providing ties-search, evaluation, problem-solving, either a service or proprietary content. Inter and transaction--can become sources of net service providers are one example of this competitive advantage model. Companies such as America On-line Clearly, Table 1 provides a framework and Earthlink supply Internet connections for exploring means by which a compa any can for fees that are charged whether buyers enhance its sources of competitive advan- use the service or not. Subscription-based tage. By using Internet-specific value-adding models are also used by content creators such activities in the context of viable business as The Economist or New York Times. Although models, many new avenues for using the these recognizable brands often provide free Internet to add value may come to light content, only a small portion is available free. Firms seeking to add value by using Internet The Economist, for example, advertises that 70 capabilities might ask: percent of its content is available only to How has the internet affected our subscribers value-adding processes? Is there some are use aspect of our value chain that needs to by companies that provide ongoing services be reevaluated or realigned? Are we similar to a utility company. Unlike the com- relatively strong in our use of the sion-based model. the fee-for-service Internet, or has it exposed new weak- model involves a pay-as-you-go system. That nesses that are making us vulnerable? is, activities are metered, and companies pay How might our firm make better use only for the amount of service used Applica- f search, problem-solving, evalua- ion service providers fall in this category tion, or transaction capabilities to For example, pRoject. com provides virtua mprove its value proposition or save work space where people in different physi costs internally? cal locations can collaborate on-line. users How can we enhance the content of essentially rent Internet space, and a host of our Web site with testimonials, ex tools that make it easy to interact, for a fee tise, or entertainment programming in based on their usage. order to strengthen the usefulness of It is important to keep in mind that many the Internet? companies combine these models to achieve Has the digital economy created new competitive advantages. For example, a com- opportunities that our firm can seize pany such as Lending Tree not only sells by deploying its unique competencies dvertising but also earns a commission a and capabilities? Conversely, do 168 ORGANIZATIONAL DYNAMICS

Referral-based models are used by firms that steer customers to another com￾pany for a fee. One type is the affiliate model in which a vendor pays an affiliate a fee each time a visitor clicks through the affiliate’s Web site and makes a purchase from the vendor. Many name brand companies use affiliate programs. For example, Wedding￾Channel.com, which provides a bridal reg￾istry where wedding guests can buy gifts from companies such as Tiffany’s, Macy’s or Crate & Barrel, receives a fee each time a sale is made through its Web site. Another referral-based example is Yesmail.com, which generates leads using e-mail market￾ing.
Subscription-based models are used by businesses that charge a flat fee for providing either a service or proprietary content. Inter￾net service providers are one example of this model. Companies such as America On-line and Earthlink supply Internet connections for fees that are charged whether buyers use the service or not. Subscription-based models are also used by content creators such as The Economist or New York Times. Although these recognizable brands often provide free content, only a small portion is available free. The Economist, for example, advertises that 70 percent of its content is available only to subscribers.
Fee-for-service-based models are used by companies that provide ongoing services similar to a utility company. Unlike the com￾mission-based model, the fee-for-service model involves a pay-as-you-go system. That is, activities are metered, and companies pay only for the amount of service used. Applica￾tion service providers fall in this category. For example, eProject.com provides virtual work space where people in different physi￾cal locations can collaborate on-line. Users essentially rent Internet space, and a host of tools that make it easy to interact, for a fee based on their usage. It is important to keep in mind that many companies combine these models to achieve competitive advantages. For example, a com￾pany such as LendingTree not only sells advertising but also earns a commission as a third-party intermediary and earns fees by referring viewers to other sites through its affiliate programs. As noted earlier, Ama￾zon.com not only earns revenues by reselling marked-up merchandise but also has gener￾ated income by charging fees for providing expertise based on its transaction capabil￾ities. Major manufacturers such as Ford Motor Co. and Dell Computer not only use their sites to manage procurement with sup￾pliers, but also to advertise their services and provide consumers with information that is used to order customized products. Table 1 summarizes the key feature of each Internet business model, suggests what role content may play in the model, and addresses how the four value-adding activ￾ities—search, evaluation, problem-solving, and transaction—can become sources of competitive advantage. Clearly, Table 1 provides a framework for exploring means by which a company can enhance its sources of competitive advan￾tage. By using Internet-specific value-adding activities in the context of viable business models, many new avenues for using the Internet to add value may come to light. Firms seeking to add value by using Internet capabilities might ask:
How has the Internet affected our value-adding processes? Is there some aspect of our value chain that needs to be reevaluated or realigned? Are we relatively strong in our use of the Internet, or has it exposed new weak￾nesses that are making us vulnerable?
How might our firm make better use of search, problem-solving, evalua￾tion, or transaction capabilities to improve its value proposition or save costs internally?
How can we enhance the content of our Web site with testimonials, exper￾tise, or entertainment programming in order to strengthen the usefulness of the Internet?
Has the digital economy created new opportunities that our firm can seize by deploying its unique competencies and capabilities? Conversely, do we 168 ORGANIZATIONAL DYNAMICS

TABLE 1 INTERNET BUSINESS MODELS SOURCES OF COMPETITIVE FEATURES AND CONTENT ADVANTAGE Commission-based Commissions charged for brokerage or intermediary Search services. Adds value by providing expertise and/or Evaluation access to a wide network of alternatives Problem-solving advertisi Web content paid for by advertisers. Adds value b Search providing free or low cost content-including Evaluation customer feedback, tise, and entertainment programming-to audiences that range from very broad (general content) to highly targeted (specialized content) Mark thro- g marked-up merchandise. Adds value Search through selection, distribution efficiencies, and by Transaction leveraging brand image and tion may use entertainment prog to enhance sales Selling manufactured goods and custom services. Search Adds value by increasing production efficienci Problem-solving capturing customer preferences, and improving Referral-based Fees charged for referring customers. Adds value by s product or service offering D tracking referrals electronically, and g demographic data. Expertise and customer feedback are often included with referral information ubscription-based Fees charged for unlimited use of service or content. Adds value by leveraging strong brand name, Problem-solving providing high quality information to specialized markets or access to essential services. May entirely of entertainment programming Fees charged for metered services. Adds value by providing service efficiencies, expertise, and Transaction practical outsourcing solutions. face new threats because of the adop field, referred to more broadly as customer tion of Internet technologies by our relationship management(CRM). But sales petitor force. com has taken a slightly different In addition to what we are now doing approach. Instead of installing software on with our Web site, how mi each user's pc. salesforce. com rents out its utilize other business models and / or service for $65 to $125 per user. Users ombine complementary activities to he software by going on-line; accounts are add greater value? managed and maintained on the Internet. Questions such as these can help man According to Marc Benioff, CEO of salesfor agers evaluate new avenues for adding value ce. com,Were a utility.. Were like elec- from using digital and Internet technologies tricity. You only pay us if you use us. Thus, Additionally, there are a number of illustra- salesforce. com has utilized a fee-for-service tive examples of firms that have used these business model to create a business system value-adding techniques in unique way that is seriously challenging Oracle and Sie- An interesting example is the fast-gro Ow. bel Systems, its close competitors. With other ing company salesforce. com, a provider of enterprise software, there is typically a large sales management services. Many companies upfront expense and additional training and have jumped into the sales management consulting is required to get it working. This

face new threats because of the adop￾tion of Internet technologies by our competitors?
In addition to what we are now doing with our Web site, how might we utilize other business models and/or combine complementary activities to add greater value? Questions such as these can help man￾agers evaluate new avenues for adding value from using digital and Internet technologies. Additionally, there are a number of illustra￾tive examples of firms that have used these value-adding techniques in unique ways. An interesting example is the fast-grow￾ing company salesforce.com, a provider of sales management services. Many companies have jumped into the sales management field, referred to more broadly as customer relationship management (CRM). But sales￾force.com has taken a slightly different approach. Instead of installing software on each user’s PC, salesforce.com rents out its service for $65 to $125 per user. Users access the software by going on-line; accounts are managed and maintained on the Internet. According to Marc Benioff, CEO of salesfor￾ce.com, ‘‘We’re a utility ... We’re like elec￾tricity. You only pay us if you use us.’’ Thus, salesforce.com has utilized a fee-for-service business model to create a business system that is seriously challenging Oracle and Sie￾bel Systems, its close competitors. With other enterprise software, there is typically a large upfront expense and additional training and consulting is required to get it working. This TABLE 1 INTERNET BUSINESS MODELS TYPE FEATURES AND CONTENT SOURCES OF COMPETITIVE ADVANTAGE Commission-based Commissions charged for brokerage or intermediary services. Adds value by providing expertise and/or access to a wide network of alternatives. Search Evaluation Problem-solving Transaction Advertising-based Web content paid for by advertisers. Adds value by providing free or low cost content—including customer feedback, expertise, and entertainment programming—to audiences that range from very broad (general content) to highly targeted (specialized content). Search Evaluation Markup-based Reselling marked-up merchandise. Adds value through selection, distribution efficiencies, and by leveraging brand image and reputation. May use entertainment programming to enhance sales. Search Transaction Production-based Selling manufactured goods and custom services. Adds value by increasing production efficiencies, capturing customer preferences, and improving customer service. Search Problem-solving Referral-based Fees charged for referring customers. Adds value by enhancing a company’s product or service offering, tracking referrals electronically, and generating demographic data. Expertise and customer feedback are often included with referral information. Search Problem-solving Transaction Subscription-based Fees charged for unlimited use of service or content. Adds value by leveraging strong brand name, providing high quality information to specialized markets or access to essential services. May consist entirely of entertainment programming. Evaluation Problem-solving Fee-for-service-based Fees charged for metered services. Adds value by providing service efficiencies, expertise, and practical outsourcing solutions. Problem-solving Transaction 169

makes the salesforce. com solution especially Thus, the Internet is having a strong attractive to small and young firms that are impact on many business sectors. In some trying to hang on to their cash. The company it is clearly creating opportunities to attract has become successful by developing a sim- customers and generate new revenues. But ple business model which provides a solu- successfully creating wealth requires that tion that is both differentiated and relatively companies identify which technologies and low cost to the longstanding problem of sales solutions can be enacted to add value. Mon- management. It is creative combinations itoring the effect of these technologies and such as this that are helping Internet compa- the changes that they stimulate will become nies develop strong new value propositions an increasingly important task for strategic There is a contrasting view, however, managers as firms adjust to the new practices the perception that enlightened applications and possibilities of the Internet-enabled digi of Internet technologies are creating value At tal economy the industry level, what may be good for a few companies has been devastating for others. That is, there are whole industries CONCLUSION that have lost value because of adopting Internet solutions The Internet and digital technologies have Consider the following example: Makers created new opportunities for firms to create of color-printed cardboard boxes such as value. This paper has examined ways in those used to package frozen dinners and which companies are using the Internet breakfast cereals have been forced. in add value. Four value-adding activities that essence, to participate in reverse auctions have been enhanced by Internet capabilities in order to make sales. Reverse auctions were addressed-search, evaluation, prob- get their name from flipping the traditional lem-solving, and transaction Search activities one-seller, many-buyers" model to create include processes for gathering information auction systems where many sellers bid for and identifying purchase options. Evaluation the business of one buyer With traditional activities refers to the process of considering auctions, the bidding drives prices up; but alternatives and comparing the costs and ben with reverse auctions bidding drives prices efits of various options. Problem-solving down. In many industries, including the activities include identifying printed cardboard box industry, this bidding needs and generating ideas and action plans process has driven prices down to levels that to address those needs. Transaction activities were unthinkable prior to the advent of Inter- involve the process of completing a sale, net-based auction processes. Some Internet including negotiating and agreeing contrac observers claim that Internet-enabled reverse tually, making payments, and taking delivery. auctions not only create economies, but also These four activities are supported by three allow small suppliers who would not other- different types of content that Internet busi- wise have a chance to participate to be nesses often use--customer feedback, exper included in the bidding. But cardboard box tise, and entertainment programming companies and manufacturers of many other Internet business models provide a con industrial products claim that these Internet text for enacting value-adding activities techniques have increased the bargaining Seven business models have been identified power of buyers to such a degree that their that are proving successful for use by Internet industry has been seriously compromised firms. These include commission, advertising, The long-term impact of this intense price mark-up, production, referral, subscription, competition is uncertain, but to the extent and fee-for-service based models. Strategic hat it damages whole industries, it is doubt use of value-adding activities, as well as the ul whether the net effect will be to create seven business models, can help firms build value across the whole economy competitive advantages and contribute to 170 ORGANIZATIONAL DYNAMICS

makes the salesforce.com solution especially attractive to small and young firms that are trying to hang on to their cash. The company has become successful by developing a sim￾ple business model which provides a solu￾tion that is both differentiated and relatively low cost to the longstanding problem of sales management. It is creative combinations such as this that are helping Internet compa￾nies develop strong new value propositions. There is a contrasting view, however, to the perception that enlightened applications of Internet technologies are creating value. At the industry level, what may be good for a few companies has been devastating for others. That is, there are whole industries that have lost value because of adopting Internet solutions. Consider the following example: Makers of color-printed cardboard boxes such as those used to package frozen dinners and breakfast cereals have been forced, in essence, to participate in reverse auctions in order to make sales. Reverse auctions get their name from flipping the traditional ‘‘one-seller, many-buyers’’ model to create auction systems where many sellers bid for the business of one buyer. With traditional auctions, the bidding drives prices up; but with reverse auctions bidding drives prices down. In many industries, including the printed cardboard box industry, this bidding process has driven prices down to levels that were unthinkable prior to the advent of Inter￾net-based auction processes. Some Internet observers claim that Internet-enabled reverse auctions not only create economies, but also allow small suppliers who would not other￾wise have a chance to participate to be included in the bidding. But cardboard box companies and manufacturers of many other industrial products claim that these Internet techniques have increased the bargaining power of buyers to such a degree that their industry has been seriously compromised. The long-term impact of this intense price competition is uncertain, but to the extent that it damages whole industries, it is doubt￾ful whether the net effect will be to create value across the whole economy. Thus, the Internet is having a strong impact on many business sectors. In some, it is clearly creating opportunities to attract customers and generate new revenues. But successfully creating wealth requires that companies identify which technologies and solutions can be enacted to add value. Mon￾itoring the effect of these technologies and the changes that they stimulate will become an increasingly important task for strategic managers as firms adjust to the new practices and possibilities of the Internet-enabled digi￾tal economy. CONCLUSION The Internet and digital technologies have created new opportunities for firms to create value. This paper has examined ways in which companies are using the Internet to add value. Four value-adding activities that have been enhanced by Internet capabilities were addressed—search, evaluation, prob￾lem-solving, and transaction. Search activities include processes for gathering information and identifying purchase options. Evaluation activities refers to the process of considering alternatives and comparing the costs and ben￾efits of various options. Problem-solving activities include identifying problems or needs and generating ideas and action plans to address those needs. Transaction activities involve the process of completing a sale, including negotiating and agreeing contrac￾tually, making payments, and taking delivery. These four activities are supported by three different types of content that Internet busi￾nesses often use—customer feedback, exper￾tise, and entertainment programming. Internet business models provide a con￾text for enacting value-adding activities. Seven business models have been identified that are proving successful for use by Internet firms. These include commission, advertising, mark-up, production, referral, subscription, and fee-for-service based models. Strategic use of value-adding activities, as well as the seven business models, can help firms build competitive advantages and contribute to 170 ORGANIZATIONAL DYNAMICS