Q-1 Describe about the forces behind E-business?

Ans. e - b u s i n e s s strategy - competitive forces

In their groundbreaking book about the eBusiness, Downes and Mui (1998) 1 identified three
‘New Forces’ to consider alongside Porter’s Five Forces of competitive strategy.

These new forces, Globalisation, Digitalisation and Deregulation, each describe certain
characteristics of the environment of an eBusiness economy.

Globalisation
Globalisation describes the way that businesses using eCommerce as a channel in its various
forms, potentially reach a global audience. Globalisation offers the chance to grow a market
beyond the locale of the business.

This means that depending upon the nature of the product or service offered, there are issues
of language, culture and local regulations to consider as well as the practicalities of fulfilment
and customer service.

Importantly, as information is so freely available, millions of individuals and firms from around
the world become potential partners, customers and competitors – when only a couple of
decades ago, it would have been practically impossible to communicate with them, let alone
transact with them.

Note that although economists would cite the growth of the Internet as a factor in
‘globalisation’, Downes and Mui have coined a rather different meaning for the term in
describing the drivers of eBusiness that that used by economists.

Digitalisation,
Digitalisation describes the way in which storage, processing and transmission of information
impacts processes such as sales and customer service, and in many cases, the product or
service itself can be re-packaged or delivered electronically.

Information is costly to produce but cheap to reproduce (Shapiro & Varian 1999 2), in fact the
marginal cost may reach zero.

There have been many examples of established suppliers of information seeing their market
share attacked and undermined by cheap competition, including telephone directory CD-ROMs
and encyclopaedias.

Encyclopaedia Britannica is a very stark example of how a market can be transformed

completely. For over 200 years a direct sales force sold sets of encyclopaedias, recently from
around £1500 per set. Microsoft recognised the possibilities of a CD-ROM based product and
initially approached Britannica to create an electronic version of their product. Britannica was
concerned about the impact on their revenues and their business structure, so Microsoft went
ahead and created their own Encarta product based on a lower cost published encyclopaedia,
and public domain media (Evans & Wurster 2000) 3.
When Encarta was offered at $100 or even bundled with new computers free of charge or at a
lower price, Britannica rapidly saw its market eroded. Ultimately, Britannica abandoned its
business model and copied the Encarta approach but it has never regained its market share,
and the company has changed hands several times.

More recently, the free online Wikepedia, which anyone can contribute to, or edit, has
completely turned the encyclopaedia model on its head and effectively made printed
encyclopaedias redundant.

Deregulation
Deregulation broadly represents the opening up of markets that were previously closed by
factors such as monopoly, state owned or controlled production or by restrictive legislation or
trade practices.

Key industries affected by Deregulation and which are vital to eBusiness include
telecommunications and broadcasting. As new operators have entered the markets, there have
been notable innovations created, as these new entrants have not necessarily had the benefit
or burden of legacy systems and processes.

The pressures of having to compete have forced new operators to consider fresh ways of doing
things. In particular, in the UK, we now see a vast array of telephone services; prior to
deregulation, BT held an effective monopoly and offered a very narrow range of services and
pricing options.

Now, in addition to landlines, there are also telephone service options via cable, mobile and
VOIP telephony, as well as a multitude of tariffs, many of which are carefully tailored to
different niche target marks.

1 Downes, L, Mui, C (1998): Unleashing the killer app digital strategies for market
dominanceHarvard Business School Press

2 Shapiro C, Varian H (1999): Information rules: A strategic guide to the network

economy Harvard Business School Press.

3 Evans P, Wurster T (2000): Blown to bits: How the new economics of Information transforms
strategy Harvard Business School Press