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Extremely Loud and Incredibly Close by Jonathan Safran Foer
DATING DIAPERS AND DENIAL
YOU CAN WIN
Ready for Anything: 52 Productivity Principles for Work & Life
The No A****** Rule: Building a Civilized Workplace and Surviving One That Isn't
Go Put Your Strengths to Work: 6 Powerful Steps to Achieve Outstanding Performance
Winning: The Answers - Confronting 74 of the Toughest Questions in Business Today
Know How: The 8 skills that separate people who perform from those who don't
Made To Stick: Why Some Ideas Survive and Others Die
Blink: The Power of Thinking without Thinking
The Five Dysfunctions of a Team: A Leadership Fable
The Power of Nice: How to Conquer the Business World with Kindness
iWoz: From Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It
An Inconvenient Truth
The Daily Show with Jon Stewart Presents America (The Book): A Citizen's Guide to Democracy Inaction
Tough Choices: A Memoir
A Hand to Guide Me
Secrets of the Millionaire Mind
Rich Dad, Poor Dad
Teacher man: A Memoir
Cat O'Nine Tales
Partners in crime
Marley and Me
Freakonomics
The World Is Flat
Screw it, let's do it
Phishing : Cutting the Identity Theft Line
Manager's Guide to the Sarbanes Oxley Act
Security and Usability
THE SEA
Great Age Guides
Seeing What's Next
Blue Ocean Strategy
Follow This Path
The GE Work-out: How to Implement GE's Revolutionary Method for Busting Bureaucracy and Attacking Organizational Problems-Fast!
Sack The CEO
Competing for the Future
The 80/20 Principle: The Secret to Success by Achieving More with Less
Bringing out the best in people
A Practical Guide to Easing Tension and Conquering Stress
Working relationships : The simple truth about getting along with friends and foes at work
101 Great Answers to the Toughest Interview Questions
Good to Great: Why Some Companies Make the Leap.. and Others Don't
Competitive Advantage (The profitability differentiator)
Competing for the Future (Blueprint for the future)
Digital Capital
Pipe Dreams (Greed, Ego and Death of Enron)
A Good Hard Kick in the Ass (New rules of business)
What the CEO Wants You to Know (Explicating the building blocks of business)
It's Not the Big that Eat the Small...It's the Fast that Eat the Slow (Reaffirms credo of Business@the speed of thought)
My Forbidden Face by Latifa (Tragedy of women in Taliban's reign of terror)
Big Brands Big Trouble (Jack Trout studies common mistakes of big brands)
No Logo (Crusade that announced death on the brand bullies)
My Pedagogic Creed (John Dewey's famous declaration concerning education)
Lexus and the Olive Tree (Anti-globalization is a search for the Sixties high)
A woman is made not born (Beauvoir's radical statement led to the second feminist movement)
Against Method(Outline of an anarchistic theory of science)
The Structure of Scientific Revolutions (A paradigmatic work that changed the history of science forever)
The Dilbert Future
(Scott Adams applies his trenchant wit to forecast life in 21st century)
Swimming Across
(Intel chairman Andy Grove's journey to freedom)
Dot Bomb (A juicy insider account of the cyber madness of the Nineties)
Jack: Straight from the Gut (The global industrial titan paints a word picture of his self)
Next: The Future Just Happened (A mordantly funny exploration of the brave new world spawned by the Internet)
The Anatomy of Buzz (A groundbreaking guide to creating word-of-mouth magic that cuts through skepticism and information overload of today's consumers)
Rebel Code (A high-velocity chronicle of the open-source transformation taking place in the tech world)
The Attention Economy (An engrossing account of the human bandwidth deficiency facing employees in the internet economy)
An Excerpt from "Second Coming of Steve Jobs" (A fascinating, complex potrait of Apple's tech magician)
IBM and the Holocaust
(A powerful expose of IBM's collusion with Nazi Germany)
An Extract from "Pride Before the Fall" (A book on Microsoft's antitrust case)
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Digital Capital

Digital Capital
by Don Tapscott, David Ticoll and Alex Lowy
Table of contents
Preface ix
Origins ix
Part1
Introduction
1
Part II
The New Models of Wealth Creation
37
Agoras 39
Aggregations 67
Value Chains 93
Alliances 119
Distributive Networks 143
Part III
The Human and Relationship Elements of Digital Capital
167
People: The Human Capital in the Business Web 169
Marketing: Relationship Capital in the Web 189
Part IV
Strategies for Business Webs
207
How Do You Weave a B-Web? 209
Harvesting Digital Capital 231
Notes 249
259
About the Authors 271

Chapter One

Value innovation through business webs

What is a B-WEB?

If the corporation embodied capital in the industrial age, then the b-web does the same for the digital economy. In b-webs, internetworked, fluid sometimes highly structured, sometimes amorphous-sets of contributors come together to create value for customers and wealth for their shareholders. In the most elegant of b-webs, each participant focuses on a limited set of core competencies, the things that it does best.

Business webs are inventing new value propositions, transforming the rules of competition, and mobilizing people and resources to unprecedented levels of performance. Managers must master a new agenda for b-web strategy if they intend to win in the new economy.

As stated earlier, a b-web is a distinct system of suppliers, distributors, commerce services providers, infrastructure providers, and customers that use the Internet for their primary business communications and transactions. Several b-webs may compete with one another for market share within an industry; for example, the MP3 b-web competes with the SDMI (Secure Digital Music Initiative) b-web launched by the Recording Industry Association of America (RIAA) in December 1998.

Three primary structures of the b-web universe are internetworked enterprises, teams, and individuals; b-webs themselves; and the industry environment (figure 1-1). Internetworked enterprises, teams, and individuals are the fundamental components of b-web collaboration and competition. Typically, any single entity participates in several sometimes competing b-webs. Microsoft leads its own b-web and also participates, for better or worse, as a licensed developer in the competing Java b-web. Meanwhile, its fierce competitors, IBM and Oracle, contribute applications to Microsoft's b-web and (in IBM's case) sell Windows-compatible personal computers. An industry environment (e.g., the software industry) is a distinct space where several b-webs compete.

How do you tell a b-web when you see one? Look for nine features, which are also key design dimensions for an effective and competitive b-web (table 1-1).

  1. Internet infrastructure: The participants in a b-web capitalize on the Internet's ability to slash transaction costs, using it as their primary infrastructure for interpersonal communications and business transactions. If you scratch a business exchange on the Net, then you will likely find a b-web. Spot ways that the Net can cut transaction costs, and you'll find b-web opportunities.
  2. Value proposition innovation: A b-web delivers a unique, new value proposition that renders obsolete the old way of doing things. MP3 doesn't just let fans play cheap tracks. It infinitely expands the music community, making tunes almost as easy to share as the printed word. B-webs deliver wildly diverse forms of value, ranging from liquidity in financial markets to restaurant supplies, computer operating systems, and X-Files fan clubs. End-customers don't always pay for these outputs. Often, third parties such as governments, advertisers, and volunteers subsidize the creation and delivery of customer value.
  3. Multienterprise capability machine: Leaders of b-webs increasingly prefer a market model of partnership to the "internal monopoly" of a build-or-acquire model. Relying on b-web partners helps maximize return on invested capital. For example, in 1999 eBay facilitated $3 billion in auction sales via a $200 million technology and marketing system, with profit margins that exceeded Wal-Mart's. Traditional distributors like Sony sign artists to exclusive long-term deals; MP3.com's agreements are nonexclusive, and artists can end them at any time. While a traditional corporation defines its capabilities as its employees and the assets that it owns, a b-web marshals the contributions of many participating enterprises. The advantages cost, speed, innovation, quality, and selection typically outweigh the risks of partner opportunism. And it's much easier to switch from a nonperforming partner than it is to drop a weak internal business unit.
  4. Five classes of participants: A typical b-web's structure includes five types, or classes, of value contributors:
    • Customers, who not only receive but also contribute value to the b-web (e.g., MP3.com's music consumers).
    • Context providers facilitate the interface between the customer and the b-web. A context provider leads the choreography, value realization, and rule-making activities of the system (e.g., the company MP3.com).
    • Content providers design, make, and deliver the intrinsic forms of value goods, services, or information that satisfy customer needs (e.g., musicians who distribute through MP3.com).
    • Content providers design, make, and deliver the intrinsic forms of value goods, services, or information that satisfy customer needs (e.g., musicians who distribute through MP3.com).
    • Commerce services providers enable the flow of business, including transactions and financial management, security and privacy, information and knowledge management, logistics and delivery, and regulatory services (e.g., Cinram International, which burns CDs for MP3.com on a just-in-time basis).
    • Infrastructure providers deliver communications and computing, electronic and physical records, roads, buildings, offices, and the like (e.g., CERFnet and Exodus Communications host MP3.com's Web servers).
  5. "Coopetition." Since participants cooperate and compete with one another, b-webs demand coopetition. Issuers of stocks, mutual funds, and other financial instruments have always cooperated by sharing press releases and other information, while competing for investor dollars. As financial markets shift to the Internet infrastructure, these processes accelerate and gain millions of new participants. Sometimes, as in the Wintel b-web, coopetition can be nasty. Its b-web participants, including the U.S. government, won a court case accusing Microsoft of using its control over the operating system context to deal itself unfair advantages in the applications content arena.
  6. "Customer-centricity." Effective b-webs function as highly responsive customer-fulfillment networks. Instead of building goods and services to sit in warehouses in accordance with an inventory plan, they closely monitor and respond to individual customers at the point of need. MP3.com has a tool that reviews customers' past selections and, based on their preferences, suggests other music that they might like. Members of a traditional supply chain, such as in the auto industry, tend to focus only on the next link to which they ship their products. Well-choreographed b-webs encourage all participants to focus on the end-customer: Cisco product assemblers Solectron and Celestica increasingly ship goods directly to consumers' homes. And, recognizing their own self-interest, these customers often willingly contribute knowledge value to such b-webs. Amazon devotees write book reviews and get virtual recommendations from other readers who share their reading preferences.
  7. Context reigns. The context provider typically manages customer relationships and choreographs the value-creating activities of the entire system. By defining, piloting, and managing the context, a b-web leader gets the captain's share of the spoils. The company MP3.com, having branded itself with the name of the popular MP3 standard, has levered this advantage into a market leadership position. Within its own b-web, MP3.com defines the core value proposition and is lead manager of the customer relationship, the competitive strategy, the admission of participants, the rules of engagement, and the value exchanges. Other sources provide content and other services; MP3.com plays a limited role in defining the specific day-to-day details of the content that its customers see.
  8. Rules and standards. Participants must know and adhere to the b-web's rules of engagement. Voluntary adherence to open standards and technologies minimizes dependence on the proprietary methods of individual b-web participants; the MP3 standard has attracted dozens of companies, including Amazon.com, Yahoo!, and America Online (AOL). Some rules can't just be voluntary. Stock markets have tough rules about disclosure and compliance; if you break some of these rules, the government might put you in jail. The context provider often originates rules and monitors compliance. But rules and enforcement can come from anywhere, including government, key customers, and suppliers.
  9. Bathed in knowledge. Participants in a b-web use the Internet to exchange operational data, information, and knowledge instantaneously among all participants who "need to know" sometimes in depth, other times to a limited degree. In addition to music, MP3.com offers personal playlist management, musician biographies and tour schedules (as well as links to their Web sites), industry news, message boards, online forums, and the preference-based selection tools mentioned above. Knowledge sharing is also important in a negative sense. In the baseline definition of a b-web, participants evidently share operational data, such as product information. But they do not necessarily share strategic or competitive information with one another.

B-WEB Corollaries

Everyone seems to agree that the new world of Internet commerce works differently. New modes of operation mean new rules, and several authors have offered up lists. Instead of rules, we would like to suggest corollaries of the b-web phenomenon: some obvious propositions, logical deductions and inferences, and natural consequences to consider as you ponder the implications of this new corporate form.

We are in uncharted territory. Unlike the traditional industrial corporation, b-web structures and processes are highly malleable. Creative business-model architects like the leaders of MP3, Priceline, Linux, and Cisco have already seized on the b-web to create arrestingly new and competitive value propositions and organizational designs. In 1999, the MP3 phenomenon took another leap into the unknown when a company called Napster.com (quickly sued by the RIAA) launched a free service to let users seek and share tunes directly from one personal computer to another. Who knows where all this will end up? The first twenty years of the new century will be a golden age of business model innovation, which will set the course for decades to come.

Exceptionally high returns on invested capital (the capital resources at a firm's disposal) can occur. A b-web requires less physical capital (stores, warehouses, and inventory) than do traditional firms, meaning lower fixed costs and higher operating margins. The b-web's leaders can leverage the capital assets of partners, but need to carry none of the associated liabilities. For such reasons, by our calculation, for several years Cisco's return on invested capital was about twice Nortel's. Moreover, firms in b-webs can exhibit exponential returns to scale where revenue growth is exponential, while costs grow at a modest linear rate. Amazon.com expects to increase revenues in new markets like toys and auctions by leveraging the relationship (brand, customers) capital and structural (business processes, technology) capital it amassed as an online bookseller. The company's high market capitalization of its early years assumed both high returns on invested capital and exponential returns to scale.

Industrial-age businesses (like supermarkets) often put customers to work doing physical labor (like picking and delivering their own groceries). In b-webs, where customers mainly contribute information and knowledge, customers have more power than ever before. They have the power of choice, because a move to a new supplier is only a click away. They have the power of customization, as new technologies increase their expectations that vendor offerings will match their unique needs and tastes. They have power coming from near perfect information: If Tide stops washing whiter than white, everyone will find out faster than fast. And customers have collective power. MP3 illustrates how customers can go "out of control" and change the course of an industry. Customers gain both tangible (cost, quality) and intangible (information, control, relationships) benefits while themselves contributing ever more value to the b-webs in which they participate. All of this means that to attract and retain customers, sellers must build trustworthy, two-way relationships that deliver real value.

Disaggregation leads to "disintermediation" and "reintermediation" the elimination and replacement of physical-world agents and other intermediaries between producers and customers. New, low-cost, knowledge-value-enhanced intermediaries like MP3.com have placed music distributors under siege. But, for the time being at least, the old intermediaries will not simply fold up their tents and disappear. Rather than a single "killer app" intermediary in each space, we see a growing variety of intermediation models, each offering a distinct form of value added. To acquire music, you can go directly to the Sony site, an alternative like MP3.com, an online distributor like Amazon. com, or any of the traditional physical-world options. For a music publisher or musician, each of these intermediaries is an element of the b-web distribution channel mix. Each has a place, depending on the customer's situation and needs of the moment. So, although some individual intermediaries may be gphping for air, as a species, intermediaries are alive and well in fact, busily mutating and multiplying. We (apologetically!) propose a neologism to describe this phenomenon: polymediation.

The b-web poses a challenge to asset-based models of market control. As the world shifts from physical to digital distribution models, it is obvious that assets like music stores become less relevant to controlling markets. But big, capital-heavy assets are also losing clout in other, less obvious places. Sometimes, as in telecommunications, the pace of mergers and acquisitions camouflages this deeper industry challenge. The value and performance of a telecom company have traditionally depended on physical capital (wires and rights-of-way) and physical capital metrics (return on assets). With the emergence of wireless networking, such physical assets decline in relative value. A wireless network whether for voice or data can be cheaper to set up and run, and more flexible, than a wire-based one. Such networks will empower both customers and content providers with new kinds of flexibility and choice. Customers will be able to choose among a variety of competing service providers. Meanwhile, a galaxy of services, comparable to those on the Internet itself, will emerge for the new wireless communications infrastructure. Constellations of converging customer and content provider power will squeeze the economics of telecom even more. The result will be a competitive commodity market for mobile communications, in which network assets become less relevant than customer choice and value-added services. As we describe in chapter 6, this type of analysis applies to several other asset-oriented industries.

Proponents of b-webs tout big ideas of business excellence as good medicine. Take a dose of the virtual corporation, process redesign, or knowledge management, and your company will feel better in the morning. Whether b-webs seem attractive or not, ignoring them is perilous. Unlike other big ideas, b-webs are inevitable. The MP3 b-web arose spontaneously, not because a manager read an illuminating book on business strategy. The b-web is emerging as the generic, universal platform for creating value and wealth. Like the corporation itself, the b-web concept is descriptive, not prescriptive; it will come in many different flavors, shapes, and sizes. Management practices and everyday life in a b-web will take many forms. Some b-webs will be wonderful places to work and do business, while others will be nasty and brutish. Some will succeed, others will fail. There is no single path to b-web success. Approaches that seem vitally important in most situations will be irrelevant, even counterproductive, in others.

To paraphrase Mao Tse-tung, the b-web revolution is not a tea party! A b-web is a market space in which organizations both collaborate and compete with one another. The competition is often aggressive, sometimes wicked, and even unfair. Consider how Microsoft's treatment of its b-web partners landed it in court. At the same time, collaboration and partnerships are critical to the performance of most b-webs. Cooperation with competition coopetition is a b-web theme song.

B-webs breed internetwork effects, a form of digital fusion among business entities. Physics describes how the fusion of hydrogen atoms releases energy. Under conditions of critical mass, a chain reaction occurs, with explosive results. Internetwork effects can display similar critical mass. MP3 experiments on the Net began in 1995-1996 and required vast amounts of energy just to keep moving. At a certain point in 1998, MP3 achieved critical mass of users and market momentum, took a quantum leap, and began to grow exponentially. In physics, fusion has a dark side the release of terrible, destructive forces. Similarly in business, the internetwork effect blasts the bastions of the old economy.

Digital Capital

Former Citibank chairman Walter Wriston observed that information about money has become almost as important as money itself. Since this prophetic statement, new business models that deploy digital capital have wreaked havoc in the financial services industry, challenging the very existence of traditional banks, stockbrokers, and insurance companies. When intellectual capital moves to digital networks, it transforms entire industries and creates wealth in entirely new ways.

Digital capital adds new dimensions to the three kinds of intellectual capital described by knowledge-management thinkers Leif Edvinsson and Hubert Saint-Onge: human, structural, and customer. One explanation for the high valuations of Internet stocks is the market's growing recognition of digital capital.

Knowledge-management theory describes human capital as the sum of the capabilities of individuals in the enterprise. It consists of skills, knowledge, intellect, creativity, and know-how. It is the capability of individuals to create value for customers. The IBM stock of human capital includes the knowledge and experience of technology developers and consultants and the creativity and moxie they apply to innovation; the expertise of its sales people in closing deals; and the brain and determination of its CEO Lou Gerstner. A problem with human capital, as the saying goes, is that "it rides down the elevator every night." More than one IBM brain has made off to Hewlett-Packard, Sun, or a Silicon Valley start-up.

The key shift in the digital economy is that the enterprise's human capital now extends to people across the b-webs in which it participates. MP3.com's human capital is internetworked. It includes the Net awareness and creativity of the 31,000 musicians who use it as a distribution channel; customers' willingness to set up their own "My MP3" home pages; and their involvement in personal playlist management, message boards, online forums, and preference-based selection tools. Sometimes, customers even participate in the design and creation of products. Users created the entire Linux operating system. The Java b-web depends on the design contributions of many different business partners and customers. When human capital becomes internetworked, participants share knowledge and commitments, dwarfing what was possible in the old economy. We describe the challenges and opportunities of choreographing internetworked human capital in chapter 7.

Customer capital is the wealth contained in an organization's relationships with its customers and, according to most thinkers, its suppliers. It is IBM's brand equity, its depth (penetration) and breadth (coverage) in customer accounts, the trust of its customers, its deals with universities to seed IBM technology in the experience of future decision makers, the willingness of CIOs to share their plans with its sales force, and its customers' reluctance to switch suppliers. It also refers to relationships with Intel (which manufactures microprocessors for IBM personal computers), contract manufacturers that assemble its products, and software developers.

When internetworked in your b-web, customer capital becomes relationship capital. In the digital world, customer capital intensifies into profoundly reciprocal linkages. It is also multidirectional, involving all b-web participants customers and providers of context, content, commerce services, and infrastructure. Dynamic two-way relationships replace the concept of the brand as a one-way image that a vendor defines through print and broadcast media. Old marketing mind-sets become obsolete, as we describe in chapter 8.

Structural capital consists of the codified knowledge and business processes that enable an enterprise to meet market requirements. Because structural capital does not reside in the minds of individual people, it helps mitigate the human capital brain drain. IBM's structural capital includes software development methodologies, project management tools, and development platforms for designers, analysts, and programmers. It includes sales management systems, product descriptions, training courses, and marketing databases. And it includes business processes for manufacturing, customer support, and myriad other functions.

The digital extension of structural capital consists of, first, networked knowledge, processes, and tools available at the point of need and, second, new b-web business models that change the rules of market leadership. "MP3 shock," which combined networked knowledge, processes, and tools with new business models, quaked the industrial-age music business. Similarly, the Linux b-web ambushed Sun and Microsoft, mobilizing a volunteer army to create a new computer operating system that anyone can get for free. A major focus of this book is the transformation of structural capital that occurs in the digital economy.

B-WEB Taxonomy

Not all b-webs are equal. We have investigated many hundreds and have written more than two hundred case studies. A number of distinct patterns emerged, with direct bearing on competitive strategy. Central to our analysis is a new typology of business models (figure 1-2).

The typology applies to the physical business world almost as well as to the digital world. However, its digital application has some key differences.

First, organizations often shift the basis of competition from one type to another as they move from the physical world to a b-web approach. A traditional full-service broker works (at least in theory) as a Value Chain, expertly tailoring advice to each individual investor. An online broker like Charles Schwab or E*Trade shifts the model to an Aggregation of advisory information and investment services, available to their customers for picking and choosing.

Second, business model innovation becomes the basis of competitive advantage. Innovators like eBay, Cisco, and Priceline develop new ways to create and deliver value. In the process, they dramatically change the playing field and the rules of the game.

Finally, in the physical world, one of the types of business models the Alliance is rare and primitive. In the world of b-webs, however, Alliances, including innovation collaboratives like Linux, become highly visible as powerful and dynamic drivers of change.

Dimensions of Differentiation: Control and Value Integration

Business webs differentiate along two primary dimensions: control (self-organizing or hierarchical) and value integration (low or high).

Economic control. In our analysis, control is about economics. Some b-webs are hierarchical; they have a leader who controls the content of the value proposition, the pricing, and the flow of transactions. General Motors designs and leads the integrated supply networks to produce preconceived products (e.g., the Cadillac Catera). Retailers like Amazon.com and Wal-Mart function hierarchically, taking responsibility for product selection, pricing, and customer satisfaction. Other b-webs self-organize. The market and its dynamics define the value and price of goods and services. Open-source software follows no management-imposed blueprint, because the product evolves through an organic development process open to all programmers. In stock exchanges and other types of auctions, the participants, not a single leader, drive content and price. Anyone can sell anything on an eBay auction (with the exception of prohibited items like weapons, animal parts, and other contraband!). Trading activity in the stock market continually responds to internal and external forces, whether a crisis of confidence in Asia, a speech by the chairman of the U.S. Federal Reserve, or a stampeding herd of institutional investors.

Value integration. Some b-webs focus on high value integration, that is, facilitating the production of specific product or service offerings (like cars, computers, consulting services) by integrating value contributions from multiple sources. We define value as the benefit that a user gains from a good or service. IBM achieves high value integration by taking contributions from many suppliers and turning them into a computer. Other b-webs focus on selection (low value integration); that is, providing a basket of choices rather than a single integrated solution. Ingram Micro, a leading wholesaler of computer hardware and software, does not alter the product offering. It focuses on distributing high-tech products, not making them. It currently offers products from more than 1,500 manufacturers. In between high and low value integration lie services like Instill, a restaurant industry supplier, which aggregates online catalogs from food producers, but also manages part of the restaurant supply chain, reducing inventory and minimizing stock outs.

Five Types of B-Webs

These two parameters economic control and value integration define the fundamental characteristics of five basic types of b-web: Agora, Aggregation, Value Chain, Alliance, and Distributive Network (table 1-2). As we describe later, each type also has subtypes. Agoras, for example, include open markets, sell-side auctions, buy-side auctions, and exchanges.

Typically, a b-web is recognizable as a single, specific type. At the same time, as with most such models, every real-world b-web blends features of several types. Business design entails crafting a competitive b-web mix that draws on the many shades of this typology.

Agora. The agora of ancient Greece was originally the assembly of the people, convoked by the king or one of his nobles. The word then came to mean the place where assemblies gathered, and this place then evolved to become the city's center for public and especially commercial intercourse. We apply the term to markets where buyers and sellers meet to freely negotiate and assign value to goods (figure 1-3).

An Agora facilitates exchange between buyers and sellers, who jointly "discover" a price through on-the-spot negotiations. Price discovery mechanisms in Agoras include one-to-one haggling, multiparty auctions, and exchanges. Examples include eBay, an Internet-based consumer auction, and Freemarkets, an innovative online business procurement site.

Typically in an Agora, many participants can bring goods to market, or decide what the price should be. Because sellers may offer a wide and often unpredictable variety or quantity of goods, value integration is low. Internet Agoras offer significant benefits: many more sellers with a wider variety of products (benefiting buyers) and many more buyers to push prices up (benefiting sellers); convenience, low distribution and marketing costs, lots of information about all phpects of the deal and entertainment the thrill of the chase.

Aggregation. In an Aggregation b-web, one company-like Wal-Mart-leads in hierarchical fashion, positioning itself as a value-adding intermediary between producers and customers (figure 1-4). The lead aggregator takes responsibility for selecting products and services, targeting market segments, setting prices, and ensuring fulfillment. The aggregator typically sets prices and discount schedules in advance. An Aggregation offers a diverse variety of products and services, with zero to limited value integration. Retailers and wholesalers are prime examples of Aggregations.

HomeAdvisor, Microsoft's Web context for home buying, not only offers half a million listings, but also provides real-time mortgage calculators, crime and school statistics, maps covering every U.S. metropolitan area, live e-mail updates, and loan qualification all made possible through partnerships with b-web content providers. HomeAdvisor offers a total solution from searching to financing under one virtual roof. By bundling real estate information and services around a mortgage offering, it captures this profitable portion of the financial services industry away from banks and other lending institutions.

E*Trade has aggregated many companies to create a virtual brokerage firm, charging one-tenth the fees of a traditional broker. Its dozens of content and service providers include stock quote services (Reuters, Quote.com), news (Reuters, PR Newswire, Businesswire), proprietary issuers (Robertson, Stephens), research (Briefing.com, InvesTools), market trends and projections (Baseline Financial Services), and personal financial tools (Quicken) to name but a few. Internet delivery reduces customer costs; more important, customers gain intelligence that was formerly only visible to the high priests of the investment industry.

Value Chain. In a Value Chain, the context provider structures and directs a b-web network to produce a highly integrated value proposition (figure 1-5). The output meets a customer order or market opportunity from an individual's buying of a Jeep with custom trim or Procter & Gamble's manufacturing of 20,000 case lots of Crest, to EDS's implementation of an electronic commerce infrastructure for one of its clients. The seller has the final say in pricing. It may be fixed (a tube of toothpaste), somewhat negotiable (the Jeep), or highly negotiable (the EDS deal).

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 a $12 billion Web-enabled Value Chain. It reserves for itself the tasks of designing core technologies, coordinating processes across the b-web, marketing, and managing relationships. Other b-web participants do just about everything else, including most manufacturing, fulfillment, and on-site customer service.

Alliance. An Alliance, the most "ethereal" of b-webs, strives for high value integration without hierarchical control (figure 1-6). Its participants design goods or services, create knowledge, or simply produce dynamic, shared experiences. Alliances include online communities, research initiatives, games, and development communities like the PalmPilot and Open Source innovation initiatives. The MP3 phenomenon is an Alliance.

Alliances typically depend on rules and standards that govern interaction, acceptable participant behavior, and the determination of value. Often, end-customers or users play a prominent role in value creation, as contributors to an online forum or as designers (e.g., of PalmPilot software or of the next piece of encoding in the Human Genome Project). Where products come from an Alliance, the end-customer often handles customizing and integrating the solution.

Alliance b-webs often enjoy network effects. The more customers who buy PalmPilots, the more developers who decide to create applications. The value cycle is continuous and accelerating: As the value increases, usage mushrooms, and the applications market grows.

Smart managers appreciate the power of Alliance b-webs. They willingly sacrifice some control over product evolution for the extra momentum that hundreds or even thousands of contributors can provide.

Distributive Network. The fifth type of b-web to have emerged from our research thus far is the Distributive Network (figure 1-7). These are the b-webs that keep the economy alive and mobile.

In addition to the roads, postal services, telephone companies, and electrical power grid of the industrial economy, Distributive Networks include data network operators, the new logistics companies, and banks. These networks play a vital role in ensuring the healthy balance of the systems that they support. Like the human blood system, Distributive Networks neither create nor consume their essential cargo. But when these services fail, their host systems can die. And when a Distributive Network clots, its host can turn severely ill.

Distributive Networks, in their purest forms (which is not always how you find them), service the other types of b-webs by allocating and delivering goods whether information, objects, money, or resources from providers to users. Along with Alliances, Distributive Networks often evince network effects: The more customers who use a Distributive Network (e.g., a telephone network), the more value it provides to all its customers.

In relation to our two axes of b-web analysis value integration and nature of control Distributive Networks are "pure" hybrids. Their value integration is both high and low. It is high, because Distributive Networks must vouchsafe the integrity of their delivery systems, often a critical performance metric, for example, in a bank or a courier company. The value integration of Distributive Networks is also low, because their outputs can be diverse and unpredictable; from one day to the next, you can't foresee with certainty the pattern flow of cash through the banking system, or the flow of packages through UPS. Control of a Distributive Network's value is both hierarchical (tight network management is critical) and self-organizing (the continuous fluctuation of supply and demand determines value and price, as in electrical power and financial capital systems).

In the following chapters, we present business model innovation strategies for the five types of b-webs: Agoras, Aggregations, Value Chains, Alliances, and Distributive Networks.

© Don Tapscott, David Ticoll and Alex Lowy

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