Transcript INTERNET BUSINESS MODELS:

Internet Economics and the Creative
Destruction of Telecommunications
Instituto Superior Tecnico
Lisbon, Portugal, October 25-26, 2000
INTERNET BUSINESS MODELS:
CREATIVE DESTRUCTION
AS USUAL
Professor Lee W. McKnight
Fletcher School of Law and Diplomacy
Tufts University
Medford, Masssachusetts, USA
[email protected]
Outline
From Tulips to Virtual Tulip Communities: If
There Really Is So Much Internet Innovation, Why
Can’t You Show Me the Money?
Internet Business Models: Business as Usual
Implications for Technology Policy and Innovation
McKnight 2000
A Preview of:
Lee W. McKnight, “Internet Business Models:
Business as Usual,” in INFO, 2001;
and in Lee W. McKnight, Paul Vaaler, Raul Katz,
eds., Creative Destruction or Just Destruction?
Business Survival Strategies In The Global
Internet Economy, MIT Press, 2001
McKnight 2000
Internet Businesses: A Tulip
Craze by Another Name?
The Frugal Dutch Were
Once Maniacally
Obsessed with ‘Investing’
in Tulips - Until the Last
Fool Came to His Senses
Many Markets, e.g.,
Tokyo and Texas Real
Estate, Have Suffered
Through Similar Manias,
Panics, and Crashes
Look Around the RoomWho Will be the Last
Internet Fool?
McKnight 2000
Internet Marketing 101
Baby, We Love You!
We Are Your Friend!
And Have We Got a
Deal for You!
It’s Free!
Then,Add New Age
Nonsense About a
New Cyber Borderless
Virtual Community
To qualify for the free offer you must sign a three year service contract,
endure an incessant stream of obnoxious advertisements, tell us
everything about you and your family, let us follow you around the
Net without your knowledge, and browse your hard drive.
McKnight 2000
The Internet Economy Needs
Internet Business Models
E-Commerce
• B2C
• B2B
• Vertical Portals (Vertals)
Access
Services
Software
Equipment
Source: McKnight, Lehr, and Stiller, The Internet Economy, MIT Press, forthcoming
McKnight 2000
Internet Characteristics and
Business Innovation Needs
Openness, Interoperability, Scalability,
Extensibility: IP Rules
Perpetual Security, Privacy, and Customer
Service: ‘24X7’
Aggregation & Integration for
Disintermediation:‘Frictionless Commerce’
McKnight 2000
E-Commerce:
Show Me the Profits
Vertical
Portals
Technology:
Standardized
or
Proprietary?
Profitable?
B2B Portals
Standardized, a Standardized
little
Proprietary
No
No
McKnight 2000
ECommerce
Superstores
(B2C)
Standardized
No
Internet Access:
The High-Speed Future Has a Price
Pricing Model
Profitable?
‘Free’ email/
ISPs/computers/
local and/or
long distance
phone
Telephone access
charge
+subscription +
advertising
support + other
possible phone
charges +
possible price of
other bundled
goods or services
No – in buildout phase
High-speed
services
(T-1s /ADSL/
Cable Modems/
Satellite/LMDS)
Mainly flat rate,
with variable
usage – sensitive
pricing plans on
the horizon
No - in buildout phase
(except for very
profitable
T-1s)
McKnight 2000
Subscription
dial-up services
(wireless and
fixed modems)
Wireless
typically has
usage charge,
fixed typically
does not. Higher
data rate wireless
available. Good
mobile high data
rate still some
years away.
Yes – except for
a few billion
dropped on
Iridium and
ICO.
Internet Services
Application Service Providers
Content Delivery Networks
Web Hosting
Advertising/Marketing
Music
Entertainment
Information
Communication
McKnight 2000
Internet Equipment:
Arms Merchants
Innovating in Internet Time
Telco or
Computer
strengths
dominant?
Profitable?
Edge (Access) Routers and
Equipment
Servers
Computer
Computer
Yes – but
highly
competitive
(Dell, Nokia,
Palm among
the leaders)
Carrier-Class
Telco (at
present)
Yes –
Yes – where
especially for Cisco, Lucent,
Cisco and Sun & Nortel
struggle for
dominance.
McKnight 2000
And the Winners Are
the Usual Suspects:
Bankers, Consultants, Lawyers
VENTURE CAPITAL (Hambrecht & Quist,
Kleiner Perkins); SYSTEMS INTEGRATION
(IBM, Lucent, Cisco, KPMG, Ernst & Young,
Arthur Andersen I & II, PriceWaterhouseCoopers
Cambridge Technology Partners, CSC, USWeb);
STRATEGY (McKinsey, Yankee Group, BCG,
Booz-Allen & Hamilton, LECG, Charles River
Associates, Forester, Gartner, IDG, Renaissance,
Monitor, Mercer - even Marengo Research); &
TOO MANY LAWYERS TO NAME
McKnight 2000
IMPLICATIONS FOR
TECHNOLOGY POLICY AND
INNOVATION I
Government CAN Make a Huge Difference
40 years of US funding computer science educators,
education, and R&D created the Internet
at substantial cost to taxpayers
• Thanks for helping spend our $$ wisely, Al AND George Sr.
But Vision is Not Enough
Japan since 50s and Europe since 70s foresaw the
Information Society
But their Governments Opposed the Internet Until
1995-1996.
McKnight 2000
IMPLICATIONS FOR
TECHNOLOGY POLICY AND
INNOVATION II
What Worked:
Patient Support for Generic, Pre-Competitive, Research
and Development, in a Targeted Area of Strategic
Interest, with industry and academic interest and
participation in design and use of:
Robust High Performance Communications Systems
and Self-Healing Networks.
What Did Not Work (Usually):
Hands-On Government Involvement in Standards.
McKnight 2000
IMPLICATIONS FOR
TECHNOLOGY POLICY AND
INNOVATION III
Innovation Is a Process, Not an Event
Internet and Web standards, and
Linux/GNU/Free Software are examples of a
public, open, and Jeffersonian technology and
business and policy innovation process
Businesses must either learn to coopt or
cooperate
McKnight 2000
CONCLUSION
THE INTERNET: CREATIVE DESTRUCTION
AS USUAL, BABY!!!
WATCH OUT FOR TULIPS AND OTHER
SIGNS OF MANIA, PANICS, AND CRASHES
BUT DO NOT OVERLOOK THE NEW
OPPORTUNITIES CREATED BY INTERNET
INNOVATIONS
McKnight 2000
References
Lee W. McKnight, “Internet Business Models: Business as Usual,” in INFO,
Special Issue on Internet and Communications Business Models, 2001.
Joseph P. Bailey and Lee W. McKnight, “Internet Economics: When
Constituencies Collide in Cyberspace,” IEEE Internet Computing, December
1997.
William Lehr and Lee McKnight, “Next Generation Internet Bandwidth
Markets,” in Communications and Strategies, Special Issue on Internet
Economics, No. 32, 4TH Quarter 1998.
Lee McKnight & Joseph Bailey, eds.., Internet Economics, MIT Press, 1997.
Lee W. McKnight, William Lehr, David D. Clark, Internet Telephony, MIT
Press, 2001.
W. Russell Neuman, Lee W. McKnight, Richard Jay Solomon, The Gordian
Knot: Political Gridlock on the Information Highway, MIT Press, 1997.
McKnight 2000