STRATEGIC PROPERTIES OF THE INTERNET

Internet business strategies and derived business models need to consider that doing busi­ness on the Internet is distinct from offline business due to the heavy impact of particular properties of the Internet, which will be briefly outlined in the following (see Afuah and Tucci, 2007, pp.

17.3.1 Distribution Channel

The Internet has become a powerful distribution channel for goods that can be digitized, such as music, video, information, software, tickets, brokerage, insurance, or vouchers. In case of tangible products that cannot be distributed through the Internet, information about their features can be made available on the Internet. For many industries, such as personal computers, media, and insurance, the Internet has emerged as a principal distribution channel that has heavily affected traditional distribution strategies.

17.3.2 Scalability

Many successful Internet business models are scalable in a business sense. This means that serving an additional customer or producing an additional unit of a product increases the associated revenues proportionally greater than its associated costs. For example, the expected value of an additional search engine request or an additional user of an online network outweighs the costs by far.

17.3.3 Ubiquity

In an informational sense ubiquity is ‘access to information unconstrained by time and space’ (Junglas and Watson, 2006, p. 578). Thanks to the global rise of mobile broadband and mobile access devices, using the Internet is no longer bound to wires. This enables a broad range of ubiquitous services in various sectors as diverse as manufacturing, media, healthcare, logistics, and commerce.

17.3.4 Universality

Universality refers to the Internet’s ability to both enlarge and shrink the world. The Internet enlarges the world as no matter where a product is created and who creates it, the product can be offered worldwide.

17.3.5 Mediating Technology

The Internet is a mediating technology that facilitates exchange relationships between parties distributed in time and space. It either interconnects market actors or employees intra-organizationally, in which case it is called ‘intranet’. Due to its universality and global accessibility, the Internet is also an important mediator in organizational exchange relationships leading to simultaneous re- and dis-intermediation. While the Internet makes it easier for sellers of goods to manage transactions with buyers independently (dis-intermediation), it also leads to the emergence of new forms of intermediaries (e.g., trust centers) and the lowering of coordination costs, which makes it more efficient to obtain intermediary services from the market (re-intermediation).

17.3.6 Network Externalities

A technology or product whose value increases with the number of users exhibits positive network externalities (Katz and Shapiro, 1994). This holds true for the Internet. The more people are using the Internet the greater the value of the network. This also applies for networks within the Internet. Besides these direct network effects, there are also indirect network effects in the sense that the more people join a network the more complementary products for these networks exist, which in turn makes the technology or product more attractive (Zerdick et al., 2000). However, network externalities can also be negative. Consider a job placement site, for instance, on which firms compete for the most qualified workers. The more firms use this site, the fiercer the competition among firms, resulting in negative (same-side) network externalities.

17.3.7 Customer Engagement

The Internet has changed the traditional role of customers. As customers’ self-conception changes they are no longer pure recipients or beneficiaries, but become an active element in the value creation process.

17.3.8 Information Asymmetry

In many markets the Internet reduces information asymmetries. These occur when­ever one party in a transaction has more relevant information than the other party. As consumers share experiences (e.g., product prices or quality) globally over the Internet and product information can be accessed online, the information asymmetries between buyers and sellers have diminished. At the same time, however, large online service pro­viders in particular can leverage individual ‘digital trace data’ on consumers to manipu­late information in ways that are hidden to consumers. This information can be used to personalize offerings and to fine-tune actions based on individual customer preferences (Bharadwaj et al., 2013).

17.3.9 Transaction Cost Reducer

Transaction costs involve the costs for searching, negotiating, writing, monitoring, and enforcing contracts associated with a transaction (Williamson, 1985; Picot et al., 1996). Owing to the Internet’s properties, such as universality, distribution channel, low-cost standard, and information asymmetry, the Internet decreases transaction costs substan­tially. The Internet makes finding information easier, which minimizes search costs and diminishes information asymmetries, which in turn reduces costs for negotiating, moni­toring, and enforcement.

17.4