One thing is clear; managing in the new economy is a lot more demanding than it ever was running those old line firms of the past. If managing in the old economy was like piloting an ocean liner, managing in the new economy is like negotiating white water rapids in an inflatable raft. Technology is driving the new economy at an enormous rate of knots and producing turmoil in the business world.
In piloting the corporate ship of the past, a steady course was set and adjusted according to circumstances. Those traditional management strategies can no longer be applied in today's fast changing business environment. Only those businesses with very fast reactions will survive.
Hasn't the shakeout of the technology stocks in the capital markets scuppered the new economy?
It's true there have been casualties and indeed some fatalities, such as boo.com and e-toys. However, even though the two leading players, Amazon and Yahoo, have lost around 65% of their peak value, they are still more valuable than when they started. So depending on exactly when investors bought, there are winners as well as losers. I rather think that the new economy is very much alive and kicking. A case in point is the enormous response provoked by Napster and how it took Uncle Sam's entire judicial system to stop it. This just goes to show how much of a real threat companies such as Napster and Gnutella are to the entertainment industry. Another clear example is the women's lingerie and swimwear site, Victoria's Secret. Whether it was just to see the skimpily clad models or not, there is no getting away from the huge response this site had after its commercial during the last Super Bowl. One million hits in the following hour.
Dotcoms are very much making their presence felt and are still keeping executives in some old line firms awake at night. Moreover, you can't disregard the number of worldwide internet users, which has hit nearly 350m and is predicted to reach almost 800m by 2005. Though the US obviously is way out front in terms of online PC users, Europe is catching up. In Denmark, Sweden and Holland more than 50% of households have internet access. When you add to this the implications for the internet of the third generation of mobile communications, the possibilities are boundless. The number of internet users from mobile devices is predicted to overtake internet users from fixed access before the end of the decade.
Is there an ideal business model for such digital enterprises?
The truth is that as yet we don't know what these business models will be. Let's just cast our minds back to earlier technological revolutions such as the telephone and the motorcar. Alexander Graham Bell had no idea of the extent to which his invention would be used or that it would lead to the opening up of telephone companies. Henry Ford couldn't have imagined as he sat on his first model-T that it would lead to worldwide production lines of mass-produced cars. Both these inventions had a tremendous impact on business and the way we live our lives. They both required the complete root and branch reform of earlier business models, as indeed will the internet. The world wide web has also recast some basic economic principles too, the ever decreasing cost of technology for one thing, especially in computing and communications, has changed the reach/richness trade-off. Amazon.com is a prime example of this, managing to reach more people with a richer content through the enhanced personalisation of that content. The lowering costs of search, coordination and supervision have all lead to lower transaction costs.
So what conclusions can be drawn from all this turmoil?
Well, for one thing the internet is here to stay, and though it is not clear what business models will survive, you can be sure that they will be different from the current ones. Business models have a tendency to converge with both pure e-commerce players and the traditional businesses moving towards one another and meeting somewhere in the middle. Pure dot.com models, other than businesses with a very high information content, are hard to sustain. There are advantages there to be had for existing companies that learn to adapt and hard-wire the internet into their core business activities.
E- players will need to lower their costs and face lowering margins because of the ease with which comparisons can be made on the net. Cost differentials will become increasingly important in a world of zero search costs.
