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The dynamics of E-commerce

Ubiquity, Volume 2001 Issue March, March 1 - March 31, 2001 | BY John Stuckey 

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"Unchained Value" provides insight into the successes and failures of the digital age.
Unchained Value: The New Logic of Digital Business by Mary J. Cronin, Professor of Management, Boston College Harvard Business School Press, 2000


Mary J. Cronin sneaked up on me. I expected her to write a gee-whiz encomium to the meteoric trajectory of e-commerce, still a positive story despite the investor apprehension and demand for performance that has deflated the speculator bubble over the past few months. She doesn't fail to do that; the Web's growth and reach are presented. She also acknowledges the decline in market share and price of many e-commerce ventures and the total disappearance of others. Key to her approach, however, is what she describes, sometimes in nearly mystical terms, as a "digital value system" that makes the difference between success and failure in the new economy. I confess that on first glance this model seemed to me unnecessary, if not artificial, but by dissecting the experience of quite a few winners, also-rans, and failures she offers what I eventually found a discerning view into e-commerce. Not by any means a specialist in business studies, I may not be persuaded that her digital-value-system notion is a necessary element, but I am impressed by her insight into the factors in success and failure, and I think her predictions for likely future trends are as plausible and persuasive as they were non-evident.

The basic questions she sets out to answer are two that many CEOs of major enterprises have no doubt asked themselves many times over the last five years: Why have so many of the world's largest and most prosperous corporations been unable to create a successful and profitable presence on the Web, often despite the dedication of significant effort and resources to the task, and what accounts for the remarkable success of many new and small players in the online economy.

Cronin argues that many of the very factors that accounted for Industrial-Age success (hence, the very habits that companies have nurtured and preserved) are barriers to success in the digital-value era. Tight control over supply and production, minimal interaction with outsiders (even customers), long-range projections, the sheltering and protection of cost and price information -- these are in the digital-value approach not only ineffective but often obstacles to growth, especially when they meet competition from enterprises that have rejected such rigidity. They are "the wrong road maps for the digital world." Cronin is not talking about a major World Wide Web presence, a popular site, or even a profitable level of e-commerce activity; in fact, the companies that enjoy those traits, believing that they have figured out the new economy, may not only fail to realize the larger potential of digital value but may leave themselves vulnerable to the newcomers who understand and in some cases write the new roadmap.

She offers four quick examples to demonstrate her point: Hancock Insurance, Compaq Computers, Toys 'R Us, and Warner Brothers Records. Each has mounted a major Web presence, and each has generated significant activity. Yet none has been willing to shake off significant aspects of the way in which they traditionally did business and delivered product. The first three could not shake free of the agent/dealer/retailer mode of business and used their sites as little more than marketing/promotion opportunities, sources of information, and sometimes catalogs of products. The fourth falls short in failing to develop the Internet's potential for being the distribution medium of the product, as well as a source of information. The recording industry's attention to the Internet as a threat to traditional distribution systems has, she believes, blinded it to the startlingly greater opportunities it offers. These and similar efforts represent "tactical decisions that are sensible for the short term but ultimately become detours on the road to digital value."

Cronin believes that those who focus on the much greater interaction speed and potential customer base that the Internet offers are seeing only the tip of the digital-value iceberg. They may fail to notice that the Net has developed as an interactive medium, a fact that may be inconsistent with traditional value-chain models but offers astonishing possibilities for those who can harness the principle.

Later, Cronin examines the insurance and automobile industries as two in which only newcomers have dared challenge traditional assumptions (and the agent and dealership foundations) of doing business. In the first few pages of the book, she had presented five critical elements of the digital value system: information, trust, real-time relationships, customized services, and e-marketplaces. They were hard to assimilate so early, but readers should underline them and be warned that they will be shown as fundamental departures from pre-Net ways of doing business. Cronin uses them to describe why the pioneering efforts of Time Warner's Pathfinder, Digital Equipment's AltaVista, PointCast, Security First Network Bank, Charles Schwab, and Peapod either failed or fell far short of their potential. She also points to the innovations and fresh approaches of Amazon, Yahoo!, and eBay, targeting as reasons for their early success factors you and I may not have considered.

There are many more case studies and corporate examples in her book, and each illuminates an aspect of her digital-value approach, which eventually won me over. The initiatives that have succeeded seem to illustrate her view that "[t]he Net makes relationships more complex, multidimensional, and volatile at the same time that it offers unprecedented opportunity to translate millions of online interactions into ties that will strengthen over time. Within a well-defined digital value system, these relationships are based on a rich vein of information and a solid foundation of trust."

At the outset, Unchained Value seemed insufficiently alert to the distinction between business reality and useful heuristic model; in fact, it seemed almost mystical in its attention to the five elements listed above. By the end, Mary Cronin had taken familiar isolated developments and knitted them together into a comprehensible and revealing approach to the new economy. Concepts like information sharing and pooling, the nurturing of trust, and new dimensions to pricing are the sort of threads she uses creatively to prove her point. Business success in the digital age is not merely old business with faster and more numerous transactions. Fundamental principles are changing and will affect every sector of the economy.

Who besides business students should read her book? In addition to the managers of old and start-up enterprises she intended it for, venture capitalists could use it as a roadmap for investment. Many may wish they had understood a year or so ago the dynamics she describes.


John Stuckey is the Director of University Computing at Washington and Lee University.

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