Reshaping industries with Internet Supply Chains

More than most courses, "Strategic Uses of IT" has to be reviewed and kept up to date, so I'm always looking for material that is relevant that might be used to update my thinking and perhaps the course. A treasure trove - I recently found a series of Stanford case studies. I'm not sure how much of this material will end up being used in my course (I need to get permission), but they have enlarged my knowledge whether they're used directly or not.

In the August issue of "Stanford Business" there is an article, Reshaping industries with Internet Supply Chains, by Garth Saloner and Michael Spence: -

Once the internet had emerged to become a mass phenomenon, everybody realised that it had the potential to revolutionise supply chains. The changes are taking time to work their way through the market however, and some of the early high flyers have crashed and burned. There are still surprisingly few examples of companies like DELL which use the Internet to restructure the entire supply chain process.

The full article is on line at

SAP and the On-Line Procurement Market

By the end of the 90's, SAP was the ERP gorilla. Its 30% market share was more than twice the next ERP vendor (Oracle), and it had revenues of more than $US5Bn. Yet its share price was punished as ERP sales slowed, caused by market saturation, and budgets being redirected to Y2K remediation. In addition, it was being challenged by the new Internet paradigm, with its emphasis on communication and interoperability rather than on internal efficiencies. Companies like Ariba and Commerce-1 were achieving similar market capitalization on zero profits and revenue of only a few million. Investors were reacting to their belief that the value of the new paradigm was much greater than the value of making the old paradigms more efficient.

This case study compares the strategies of SAP, Ariba, and Commerce-1. It was written in March 2000, just as the NASDAQ was peaking. It is interesting to compare the market cap. of the companies now. As with all tech stocks, SAP's share price is down, and is now trading at about $36 compared to its peak of about $80. Ariba and Commerce-1 however are now trading at about $4 from peaks of about $150.

Gateways to the Internet: America OnLine and Yahoo!

AOL and Yahoo vie for the position of "Top Website". For example, website traffic data for October 2000 showed AOL websites as having 64.7M unique viewers, compared to Yahoo!'s 63.7M. The two companies have very different revenue models and company strategies.

"By the end of 2000, AOL and Yahoo! offered competing visions for the structure of an internet media company. AOL, acquiring a trove of media titles and cable distribution assets, sought to supply much of the Internet experience, owning both the product and the pipes that delivered it. Meanwhile, Yahoo! focused on building out its agnostic platform, seeking to deliver whatever its users desired, in order to build its all-important traffic and leverage the revenue-generating opportunities represented by eyeballs from all over the world. If AOL’s vision proved correct, Yahoo! faced being marginalized. If Yahoo!’s vision proved correct, then the portal might ultimately surpass AOL as the most viewed Website in the world, reaping the revenues that would accompany that distinction".

On-line buyers expect the Internet to be a 24 hour fire sale - for example, a survey found that more than half of online shoppers expect a 20-30% discount. With the internet's lower entry and operational costs, many expect competition to intensify, prices to decline, and brand loyalty to be threatened. Empirical evidence however is mixed.

This excellent case study looks at several major internet companies. Which business and pricing models will prove to be sustainable remains unclear.

As with the CISCO case study, these studies primarily set up class discussions, but they also give interesting insight into the issues that an existing retail business faces in developing an Internet strategy. For those of this mailing list who attended the Stanford SUIT course, the Karen Brown case has many of the issues that we discussed with Edmunds.com.

On-line auctions have been one of the internet's early successes. In contrast to most Internet startups, eBay, the gorilla of consumer-to-consumer auctions, has been profitable from the start, and by August 2000 more than 400 sites offered C2C auctions. B2B and B2C auction sites have also proliferated. This case study is an excellent description of the on-line auction market.

And now for something completely different. "Everyone knows" that mainframes are obsolete, expensive, and inflexible, and the only reason that large companies use them is inertia. "Not so", say Saloner and Steinmueller. A study of 60 large European organizations found many that were following mixed client/server - mainframe models not as a transition strategy, but expecting this to be their permanent solution.