Back to Reality : Unique Value Proposition & Value Chain
The Internet as One Sales Channel

Update

At the time this article was first written, the "new, new" thing, and the metaphor for the Net as one sales channel was are Bluelight.com, not only a web site, but as complementary kiosks inside Kmart's traditional brick and mortar stores where a customer could go and order " online-only" items and specials. At home or at work, the Internet made Bluelight.com only a click away. Bluelight.com, indeed, developed a hard to beat value proposition and self reinforcing value chain that was at once cool, trendy and practical with the Net, as an indispensable link, but only one link in the value chain. Since that time, not only has Bluelight.com been folded into the parent Kmart website, but all the giants, from auto makers like General Motors and Ford to huge discount stores like Costco and Sam's to more elegant retailers like Martha Stewart have woken up to the fact that the Net is a force that can really push product, even, and perhaps particularly, for those retailers with a bricks and mortar counterpart.

Experience has taught us that, according to author Michael Porter, "the winners ( on the Net) will be those that view the Internet as a complement to, not a cannibal of, traditional ways of competing," and that is particularly true of sales.

To capture the advantages of the Internet requires new perspective on what many now believe to be the benefits and disadvantages to using the Net for business.

A primary advantage of the Net is its use as an efficient and relatively inexpensive means to deliver information about products and services. Geographic reach is increased and need for a sales force is diminished, allowing many types of transactions to be completed seamlessly on the Net. But, as Michael Porter notes in Strategy and the Internet in a Harvard Business Review article, "the great paradox of the Internet is that its very benefits - making information widely available; reducing the difficulty of purchasing, marketing and distribution; allowing buyers and sellers to find and transact business with one another more easily - also make it more difficult for companies to capture those benefits as profits."

Porter goes on to describe the type of dynamic seen in automobile retailing where customers are given much more information and many more options. The geographic market is vastly expanded from local to regional or national, but so is the potential competition and the online dealer does not have certain brick and mortar points of distinction, such as his location, friendly service, experienced sale personnel, a generous test drive policy, free tickets to sporting events or coffee and doughnuts. The Net's advantages can be wiped out by competitive pressure and the challenges of creating a unique value proposition.

Competitive Advantage - Unique Value Proposition & Value Chain

The challenge, of course, is also the solution. What experience has taught is that ebusiness may be a misnomer. On the Net or not, ebusiness is still business and is fundamentally no different than traditional business, in that it is about competitive advantage. A business must be able to define a unique value proposition in a highly integrated value chain which is self reinforcing. Dell Computers, for example, began with the unique value proposition that it would custom build a computer, exactly as and when a customer orders it, and deliver it at a very competitive price, because its "just in time" system eliminated the cost of overhead and mistakes in calculating demand.

The Internet, harnessing powerful new software, enabled Dell to improve on their value proposition by allowing the customer to go online and configure his own computer, selecting all the options herself, with the final selection becoming a purchase order fed into the Dell manufacturing system, which could complete the assembling of the individual computer, bar coded with all the unique specs, within an 8 hour time frame. Internet technology eliminated another layer of costs, and introduced another level of customer control and self service, which enhances Dell's system of delivering value and underscores the validity of its basic value proposition.

Businesses Which Are Able or Unable to Leverage the Advantages of the Net

Another business which is able to derive valuable benefits from the Internet is eBay which is essentially an information marketplace in that it neither maintains inventory or pays the cost of shipping but has aggregated a huge number of buyers and sellers to exchange information about their offerings. In essence, buyers and sellers put up their own content so eBay achieves another cost efficiency. By understanding their own value proposition, racing to critical mass, investing in technology and remaining responsive to customer needs, eBay has remained the dominant competitor in the online auction field while refusing to compete on its sales fee.

Two other bell weather companies, first thought of as "pure internet plays", which have moved towards more traditional business models in the hope of stabilizing revenue streams are Yahoo and Amazon.com.

Yahoo was one of the top dozen companies on the Net, in terms of traffic, or eyeballs, which were able to capture 85 % of Net advertising. But now that Google Adwords and Adsense have transformed advertising on the Net, making it much more competitive, Yahoo is trying to leverage its brand with the sales of other items like magazines and computer keyboards.

In the same vein, Amazon.com has had to reach into the bricks and mortar world, creating warehouses and distribution centers in order to increase its margins and move towards profitability.

In effect, as these companies try to gain traction as profitable businesses, by offline branding and building back-end infrastructure, they are leaving their core competencies behind. Operating these new potential profit centers, requiring different competencies and expertise, is akin to launching a start up within your own company, and so is, almost inevitably, inefficient. As these Net companies move into the bricks and mortar world, they are also thrust into the role of competing with legacy companies who know and protect their turf.



The Winners Use the Net As One of Multiple Sales Channels

As missteps and cautionary tales have a tendency to become crystal clear with hindsight, most of us now realize it was not a good idea for Pets.com to try to sell heavy bags of dog food over the Internet using UPS for delivery. Perhaps not too much credit should be given to giant companies for being slow to get on the Internet and therefore reaping the benefit of experience.

None the less, to give credit where it's due, legacy companies with impeccable old economy breeding are able to launch today with a sound business plan , a complete infrastructure, proven expertise, hundreds of employees, an installed customer base, and expansive reach. For them the Net is as an indispensable link, but only one link in the value chain.

On the flip side , and what surely must be sobering to giants , who are huge and lumbering and burdened with enormous expenses like rising health care costs, are the nimbleness and exponentially expanding tools available on the Net for savvy entrepreneurs. Today, one can put up cars or almost anything on eBay, and have it drop shipped to the successful bidder, without any of the cost, effort and friction of inventory or back end operations.

It remains to be seen whether legacy companies will have to scale back and become increasingly more specialized in the face of competition; whether Net companies like Amazon and Yahoo will become the new legacy companies and go through the same cycle of expansion then consolidation in the face of competition; and whether companies like eBay and Google can produce enough tools to enpower any Net citizen to become an army of one, competing on an increasingly level playing field with the giants.