The key to competing in the digital economy is business model innovation that exploits the power of business webs. A B-web is a distinct network of suppliers, distributors, commerce services providers and customers that link via the Internet and other electronic media to produce value for end-customers and for one another. Industry by industry, business webs are destroying the old model of the firm.
Previous theories of e-commerce just scratch the surface of the Web's potential. Portal mania is myopic -- for starters focusing on the wrong body parts. Hearts, not eyeballs, count. More important, efforts to create a great web site are the digital economy equivalent of creating a great business card.
Business webs are replacing the industrial organization as the new model of the firm. Within these networks, each company focuses on a limited number of core competencies -- the things that it does best. Because internetworked enterprises are far more effective than traditional firms in creating value, they are displacing old business models.
There are five basic types of B-webs: Agora, Aggregation, Value Chain, Alliance and Distributive Network.
An Agora facilitates exchange between buyers and sellers. Prices are "discovered" through real-time, on-the-spot negotiations, whether through one-to-one haggling or through multi-party auctions and exchanges. A wide variety of goods and services are available, and access to the marketplace is relatively easy for those whose products or services fit the category. The highest profile examples are eBay and Priceline.
In an Aggregation B-web, one company usually leads in hierarchical fashion, positioning itself as a value-adding intermediary between producers and customers. The lead aggregator takes responsibility for value selection and fulfillment, pricing, and market segmentation. E*Trade has aggregated many companies to create a virtual stock broker, charging one-tenth the fees of a regular broker.
Historically, the brokerage industry depended on vertically integrated full-service providers. E*Trade disaggregates this value proposition into its elements and then through partners reaggregates it on the Net. These partners include stock quote services (Reuters, Quote.com), news (Reuters, PR Newswire, Businesswire), proprietary issues (Robertson, Stephens), research (Briefing.com, InvesTools), market trends and projections (Baseline Financial Services), to name but a few. These services give E*Trade's customers far more timely information and value than any traditional broker.
In a Value Chain, the focus is on producing a highly integrated value proposition through a managed process. A primary company leads in a more or less hierarchical fashion, maximizing value integration through operational effectiveness.
Cisco Systems makes networking products -- such as routers -- that shuffle data from one computer to another over the Internet or corporate computer networks. The company sits at the top of the business web, marketing and managing customer relationships, while community members perform all other functions.
For Cisco the Net is a platform for a new business model. The community, not just Cisco, designs Cisco products. Community partners working in a variety of different locations manufacture their products. Technology alone is not making this happen; it also takes a culture skilled at establishing trust and sharing knowledge.
In an Alliance B-web, a large number of companies or individuals embrace a common mission, with no single entity exerting complete control over the group. The PalmPilot software community is an Alliance. More than 5,000 software developers and 200 hardware manufacturers around the world produce products that make the PalmPilot more functional and appealing to the consumer.
A B-web like Palm Pilot develops its own momentum. The more units sold, the more incentive for software developers to create programs. Palm Pilot becomes more functional, users get greater value, and developers enjoy greater product demand. The value cycle is continuous and accelerating: as the Palm Pilot's value grows, more users will buy the product and add to the community.
The final type of B-web is the Distributive Network -- the kinds of businesses and industries that keep the economy ticking. These networks provide the infrastructure services for the new economy. In addition to the roads, postal services, telephone companies and electrical power grid of the industrial economy, distributive networks also include digital network operators, vast natural gas pipeline networks, the new logistics companies, and banks (which now run on networks).
With the rise of the business web, organizational models have become weapons for competitive strategy in every industry. These new networked business communities are transforming the rules of competition, inventing new value propositions, and mobilizing people and resources to unprecedented levels of performance. To be winners in this dynamic environment, business leaders need to master a new B-web strategy.
Don Tapscott, David Ticoll and Alex Lowy are co-founders of the Alliance for Converging Technologies. This think tank and consulting company specializes on business strategy in the digital economy.
The dynamics of Business Web are described in DIGITAL CAPITAL: Harnessing the Power of Business Webs, by Tapscott, Ticoll and Lowy. (Harvard Business School Press, May 2000.) It is a business strategy sequel to Tapscott's 1996 best seller "The Digital Economy," and is based on a multi-million dollar investigation conducted by the Alliance for Converging Technologies into new business models.