Established businesses have always had to worry about the power of technological change to generate fresh competition. But the question managers will have to ask themselves if they want to survive the current explosion in digital commerce is more gut-wrenching than ever before, warn technology consultants Larry Downes and Chunka Mui. What if a company suddenly appeared that could offer the same products or services as yours, at lower prices, in a way that’s more convenient for customers-and at far less cost to itself? In other words, what if the new “killer app” came along and you were the prey?
That’s the power the Internet and related technologies are giving to new businesses, Downes and Mui assert. As one example they cite Barnes & Noble bookstores, which have classically profited by providing a vast selection and volume discounts. This service requires that acres of books be stocked at each store. But a Web-based bookseller such as Amazon.com, because it deals in “bits” rather than “atoms,” can offer an even greater selection without having to build a single store or stock a single book. The Web, in this sense, is one vast killer app that threatens to do away with traditional retailing.
Hence one of the dozen provocatively counterintuitive principles of digital strategy that Downes and Mui offer to managers: Treat your perceived current assets as liabilities. “It’s important to shift your investment to bits, because those new competitors that have none of your fixed assets-no real estate, no manufacturing equipment, no distribution network-will suddenly look competitive in the new business environment,” they write.
Shifting to bits and inventing your own killer apps-in essence, devouring your own business model before you get devoured-won’t be easy, and at many points Downes and Mui imply that if you haven’t yet started, it may be too late. But the doomsaying, in the end, gives way to the radical yet well-reasoned counsel that makes the book truly eye-opening.
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