Revenge of the Bigcos?

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Date: Thu Aug 24 2000 - 09:14:33 PDT

[cross-post from magi-discuss at Greg's suggestion
 please add to FoRK - thanks, mark]

wish i had time to read and reply to this more fully, but in the absence of
more time i'll pitch in with some of the problems that persist for bigcos,
or more generally, for "oldcos" big or small...

bigcos may think they have untouchable revenue streams, and that they can
fatten margins by plugging in e-smoothed distribution, but this is not as
easy as it sounds. firstly, their existing revenues are based on old
distribution networks that both feed and hold them back. along comes
e-competitor without legacy distributors, retailers and support systems that
need fat margins to exist and is stealing their business. ouch.

so oldco decides to ape e-competitor by setting up e-bigco and amputate the
hand that feeds them. in fact, e-bigco is even more of a competitor than
e-competitor to their own comfy margins and screamingly unhappy partners,
distributors and retailers. it is not easy to maintain sales from the legacy
distribution system while replacing it with something else.

to set up e-bigco is more than tweaking the old business and lubricating it
with internet snake oil. it requires that they shift from a high margin
business to a low margin business. many companies don't realise that this is
imperitive - and so make do with an online brochure, take weeks to respond
to online enquiries etc etc - at least here in the UK! the surveys are
astounding. at least not until they are already feeling the lash of
e-competitor cutting into their exising business. by which time they have
put themselves and their risk averse investors in a, well, risky situation.

obviously their are businesses which e-competitor can't easily get at for
one reason or another. there are things that don't transfer well. i thought
cars was one, but here in europe that is now being tested too, and as
e-consumerism becomes more established (and accepted by the consumer) more
things will be e-amenable - so bigcos definitely need to look out. just cos
.com valuations are less fantasticly over the top than they were at the end
of 1999 should not be a source of comfort for bigcos. of course they can
make the most of this in their pr, but if they believe it themselves they
are on dangerous ground.

the era of having money thrown at without reason has passed,
probably forever, but the potential for to rip the market
from under a bigco (or in reality - from any oldco big or small) has not


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> -----Original Message----- > From: Gregory Alan Bolcer [] > Sent: Saturday, August 19, 2000 8:16 PM > To: FoRK > Cc: Magi Discuss > Subject: [magi-discuss] [Fwd: [digital-strategies] Revenge of the > "Bigcos"?] > > heh, heh. He said "fat assets". I am on the diamtech > email list. The three "disruptive" technologies > they see are wireless, information appliances, and broadband. > > Any kind of information over any device anywhere. You don't > necessarily need broadband to do peer-to-peer, but it helps. > > Greg > > > -------- Original Message -------- > Subject: [digital-strategies] Revenge of the "Bigcos"? > Date: Fri, 18 Aug 2000 14:42:35 > From: "Mel E. Bergstein" <> > Reply-To: > To: "Digital Strategies" <> > > Gregory, > > To judge from the huge sighs of relief from many large-company chief > executives, this spring's market revaluation of dot-coms was greeted like > a > death-row reprieve from the governor. > > In Forbes recently, General Electric's legendary CEO Jack Welch > euphorically proclaimed: "The big, old guys are going to beat the > daylights > out of the pure-play dot-commers. The existing business already has sales > and expenses. Digitize it and costs fall. Sales climb. Instantly [the > established company] gets to break even. Then the margins just pour in." > > So, does that mean the game is over? Bigcos can sit back on their fat > assets? > > I asked my partner, Chunka Mui, co-author of the digital strategy > bestseller "Unleashing the Killer App," for his take. Attached is his > reply, which he has since turned into a column for the October/November > issue of Context magazine. I'd be interested in your reactions. > > > Regards, > Mel > > P.S. To continue this conversation, join Chunka and me Sept. 12-14 in San > Francisco at the next Insight Seminar. For more information, go to > > > > -------- Original Message -------- > From: Chunka Mui <> > To: > Sent: Monday, August 14, 2000 11:20 PM > Subject: Re: Revenge of the Bigcos? > > Mel, Jack Welch is right. Wall Street will no longer throw money > indiscriminately at dot-coms. That means the advantage is indeed shifting > to the bigcos. Bigcos have the brand, customers, industry expertise, > transactions, liquidity, and investment budgets to dominate. But here > comes > the inevitable "but": > > Bigcos still have plenty to fear. The Internet is quickening the spread > and > adoption of three disruptive technologies, which will radically change the > > business environment once again. > > First is wireless. Once, you pretty much knew where a customer was when he > > was interacting with your business. He was either at a facility of yours, > or he was attached to a phone or computer at his home or office. Now, with > > wireless phones and modems, the customer can literally be anywhere--at his > > home, in his car, overseas, outside your store, outside a competitor's > store. > > Second is new information appliances. Your customer won't just deal with > you in person, over a phone, or via a personal computer. The customer > might > use your Web site from a Nintendo machine, a Palm organizer, or a pager. > His car might communicate directly with you via satellite. Eventually, his > > pantry might call to order food. His air conditioner might confirm an > order > after holding an auction for the cheapest electricity. > > Third is high-speed, "broadband" networks. We won't just send words, or > even still images, to each other. We'll send huge amounts of data, > including audio and video. Among other things, broadband will accelerate > the move toward "peer-to-peer" uses of the Internet, such as Napster. > People will be able to cut companies and their Web servers out of the > loop, > sending rich information such as Napster's music files directly to each > other. (The move to peer-to-peer communication will happen even if the > music-industry lawsuit puts Napster out of business.) > > These three innovations mean that we'll be sending each other any kind of > information, via any device, from any place, at any time. It's not exactly > > clear how these trends will alter the e-commerce landscape. But they will. > > A lot. > > So what should big guys do? > > First, they must be sure they don't repeat history. Instead of going after > > niche markets, as start-ups did, or finding a way to put part of a > business > online, as they might have a year ago, I think bigcos should explore ways > to reinvent their core markets. The time is ripe. A huge percentage of the > > economy is connected to the Internet, is comfortable with it, and is > prepared to use it for conducting business. The coming technologies will > only make e-commerce broader and richer. > > Second, bigcos must redirect the focus away from creating interesting > dot-com businesses by carving out assets. Instead, established businesses > should think about "spinning in" their e-commerce efforts. The good > example > of the old approach is, which took bits and pieces of a > food-distribution business and set out to create a stand-alone, online > business that addresses a broad array of restaurant owners' needs. Now, > though, the stock market isn't as enamored of one-off businesses, so > spinning them out isn't as valuable. In addition, these types of > e-commerce > programs are almost certainly the future growth engines of their > businesses. Why give them away cheaply to other investors through some > sort > of spinout? > > There needs to be some way to use e-commerce killer apps to renew the > business's core. Charles Schwab is the classic example. It kept its online > > brokerage unit separate at the start, then basically told the rest of the > business to start playing by the embryonic venture's rules, such as very > low fees. The approach was a huge success. > > These two changes in strategy--focusing on mass markets, not niches, and > reinventing the whole company, rather than creating an entrepreneurial > spinoff--mark a fundamentally new approach for big companies. > > To reiterate: Companies used to win by unleashing a single killer app. In > the future, companies will need to remake themselves into what I think of > as killer "platforms." In other words, companies must find the right > organizational, process, and technology approaches to let them launch a > series of killer apps that addresses an array of markets and draws on all > the companies' resources. > > Microsoft, first with DOS and then Windows, built its dominance on killer > platforms. More recently, Yahoo! and eBay have set themselves up as > platforms for launching a series of killer ideas. The "big, old guys" that > > Jack Welch mentions can play this game, too, but to win they'll need to > learn some tricks from the big, new guys. > > Regards, > Chunka > > ________________________________________ > Mel Bergstein is Chairman and CEO of Diamond Technology Partners. Each > month, via Digital Strategies, Mel > addresses tough questions that CEOs and other senior executives must > answer as they battle for both market > share and market value in the age of e-commerce. > > Chunka Mui is a partner with Diamond Technology Partners. He is also the > executive editor of the business > magazine Context and directs the Diamond Exchange, an executive forum that > brings together senior executives > with leading strategy, technology, and learning experts to explore issues > in digital strategy. > > To REPLY to this letter, send your message to > - > > Pass it on / SUBSCRIBE > - If you know someone who might find this information useful, please pass > it on. To subscribe on-line, go to > > > UNSUBSCRIBE > - To remove yourself from this list, send an e-mail message to > with the word "stop" > in the message body. (But we hope > you'll stay; you might miss out on some pretty interesting discussions.)

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