STRATEGY AND THE INTERNET:
TRENDS AND PREDICTIONS
Real Tech Conference
Peter Stanger
E-COMMERCE IS DEAD
“E-Commerce Is Dead, Long Live E-Commerce”
The Industry Standard, April 2000
“Going, Going, Gone: Business-to-Consumer Sector Goes Bust”
, April 2000
“Can you build a brand online selling third-party goods? The answer is no, even though everyone used to think the answer was yes”
Bryan Rutbert, Warburg Dillon Read
“The living dead have gotten away with murder because the public markets have funded riskier ventures. Look at - if could be the biggest living dead the public markets have ever seen.”
Warren Packard, Draper Fisher Jurvetson
TOM SIEBEL
CEO, Siebel Systems
“If you can’t generate profits, significant market share and customer satisfaction, you re out of business.”
“On the B2B exchange side, I don’t think anyone will survive. They are all gone.”
THE CAPITAL MARKETS HAD IT ALL WRONG
Travelocity
Expedia
Priceline
eBay
Amazon
$123B
Webvan
eBay
Amazon
All Other
$
IS THE REVOLUTION OVER?
July 28, 1794
THE BUMPY RIDE OF ECONOMIC REVOLUTIONS
1860 - 1890
1895 - 1925
FUNDAMENTAL FORCES ARE AT WORK
120
100
80
40
60
20
0
1770
1780
1775
Index
Workers per bushel of manufactured cotton
England 1770-83
Price of the Model T touring car
1908-20
1910
1915
1920
1985
1990
1995
Price of CPU
computing power
$/
MIPS
1982-95
Lower processing costs ...
… with increased throughput ...
Fiber capacity
Time
105
0
104
103
102
… and powerful network economics
0
20
40
60
80
100
0
1
2
3
4
5
6
7
8
9
10
n
Value increases as the square of connections
Profit
Loss
Value
Cost
0
2v
6v
12v
20v
30v
42v
56v
72v
90v
n(n-1)v
F+0
F+ 2c
F+ 3c
F+ 4c
F+ 5c
F+ 6c
F+ 7c
F+ 8c
F+ 9c
F+ 10c
F+
nc
Value, cost
Connections
Cost increases linearly with connections
… lower storage costs ...
$/MB
Average
HD size
in PC at
retail
(GB)
Harddrive
size
(GB)
Cost ($/MB)
MANY INDUSTRIES EXPERIENCING A REDEFINITION OF COMPETITIVE BOUNDARIES
LONG DISTANCE
Wholesale (Network)
Design/build
Operations/maintenance
Resale/interconnection
Retail
Sales/marketing
Account management
Billing
Retail
Sales/marketing
Account management
Billing
Network
Design/build
Operations/maintenance
Resale/interconnection
Retail
Retail
Network intelligence
Value added services
Wholesale service creation
Network intelligence
Value added services
Network management/dispatch
Wholesale
PHARMACEUTICALS
Research
Development
Trials
Registration
Manufac-
turing
Sales & marketing
Increased development costs
Role of blockbusters increasing Quality outsourcers available
Easier coordination
1980s
1990s
Research
Development
Trials
Registration
Manufac-
turing
Sales & marketing
Academic labs
Biotech firms
Contract research organizations
Contract mfrs
PBMs
JVs/
licensing
ELECTRIC UTILITIES
COMPUTER INDUSTRY
AT&T, MCI and Sprint
… fragmented radically
Microprocessors, integrated circuits, memory chips
Computers
Operating systems
Applications software
Marketing, sales, and distribution
Common standards
Time based competition
1995
Intel
Motorola
AMD
Cyrix
Compaq
Dell
Apple
Packard Bell
IBM
DOS and Windows
UNIX
Mac OS
OS/2
Microsoft Office
WordPerfect
Others
Retail
Superstores
On-line
Mail order
NeXt
IBM , Digital
1997
Primary
fuel
Power
generation
Trading
Distribution
Backward integration to reduce risk
Forward integration to open supply channels
Scale through focusing on huge power plants
Synergy through bundling capabilities of general trading and energy business
New services for the customer
Ruhrkohle
Mobil
BP
Shell
National Power
(UK)
Electrobel
(Belgium)
RWE (Germany)
Norsk Kraftmegling (Norway)
Enron
United Utilities
(UK)
South-
ern
Water
Eastern Elect-ricity (UK)
Stadt-
werke
Munch-
en (Ger-
many)
1990
1995
1985
1990
Statkraft
(Norway)
Oslo Energi (Norway)
EVO (Germany)
IVO
(Finland)
MASSIVE REDISTRIBUTION OF THE MARGIN POOL IS OCCURING
Digital Photography Example
Camera
Film
Equipment
Paper, chemicals
Photo-finisher
Reprint/ enlarge
Store/ display
Share with others
Processing
Analog value chain – Kodak and Fuji dominate
Major players (2000 . market share)
Canon
Nikon
Olympus
Minolta
Kodak
Fuji
Kodak (66%)
Fuji
Kodak (Qualex) (~40%)
Fuji
Photohuts
Album manufacturers
Frame manufacturers
Mail services
disposables
Camera
Manipulation
Crop
Alter pixels
Printer
Paper, ink
Reprint/ enlarge
Store/
display
Share with others
Processing (at home)
Digital value chain – HP, Sony and others well-positioned
Major players (2000 . market share)
Sony (35%)
HP (19%)
Olympus (13%)
Kodak (12%)
HP (70%)
Lexmark
Epson
HP
Lexmark
Epson
Kodak
PC
IBM microdrive
Sony
Compact Flash
E-mail posting
Personal Web site
Zing
Shutterfly
Snapfish
Ofoto
Others
Adobe (Photoshop)
Standard with camera and available free online
EXPLOSIVE GROWTH IN ONLINE RETAILING CONTINUES
Source: The State of Online Retailing , and , surveys conducted by The Boston Consulting Group; SEC filings; Media Metrix
and Harris Interactive data; industry association reports; analyst reports
Note: Excludes financial brokerage
North American
Business-to-
Consumer
Revenues ($B)
+132%
+66%
+46%
Online channel >10% share in several categories
CATALOGUERS ARE WINNING
EBIT Margin in % of Revenues
1999
2000
Source: The State of Online Retailing , , ; Surveys conducted by The Boston Consulting Group
ADVANTAGE INCUMBENTS
Online
Retailing
Marketplaces
CLECs
Cataloguers
GE, Big 3
ILECs/IXCs
B2B
Telecom
RENAISSANCE OF THE FUNDAMENTALS
IPO value
Cash flow
Growth = value
Profitable growth = value
Customer acquisition
Segmentation
Internet time
Competitive advantage
THE VAST MAJORITY OF CHANGE AND
TRANSFORMATION LIES AHEAD
Illustrative view of transforming forces, Circa 2010
Technology)
Globalization
Deregulation
Electronic
commerce
Source: BCG analysis
Deregulation
and
globalization
index
(1999=100)
Technology and
electronic
commerce index
(1999=100)
A PERSPECTIVE ON OPPORTUNITIES IN REAL ESTATE: LEVERAGE YOUR ASSETS!
Asset turns
(sales/ assets)
Cash flow margin in % of sales
(%)
Retail
Construction Machinery
Automobile
Chemicals
Utilities
Real Estate
Airline
Auto parts
Aerospace
Telecom
Source: BCG Analysis
A PERSPECTIVE ON OPPORTUNITIES IN REAL ESTATE: LEVERAGE YOUR ASSETS!
Access
Fibre
Wireless
Satellite
Asset productivity
focus
e-Procurement
e-Sales
Margin focus
Opportunity Space
Source: BCG Analysis
While it may appear that we have already seen most of the change, much of it is still to come
This slide shows the potential evolution of the four well known forces to the year 2010. The year 1999 has been indexed to 100, and the forces have been projected based on accepted growth rates
Globalization and deregulation are represented on the left scale, as these are two forces that are closer to reaching their end state than the others. One point to note here is that there is a lag effect on these two forces that is not represented on the graph. For example, the full impact of deregulation takes several years to play out
Technology and the Internet are represented on the right side scale. Quite clearly, these two forces have much more impact left to come. As a result, the changes of the past decade, we believe, will be dwarfed by the changes in the current decade
