E-Business Is Business

Recently coined, yet already clichéd, the expression "e-business is business" speaks the truth--despite an opportunistic Big Five consulting firm having registered it as its own service mark! In fact, as pundits the world over have well observed, the word e-business stands to enjoy a life span perhaps only slightly longer than that of your average goldfish. To speak of e-business a few years down the road will sound foolish; the "e" will simply stand for enhanced or everyday. At that point, e-business will have become ubiquitous--and invisible. Until then, however, during this somewhat confusing and unsettling period of transition, as companies everywhere scramble to gather their bearings and find their new place in the world, "e-business" is a verbal crutch-in much the same way that "horseless carriage," a term that came into popular usage at the dawn of the last century, created a cognitive bridge before the concept of the automobile could fully take root in the American psyche.

Like the impact of the automobile, which revolutionized far more than just the transportation industry, e-business is anything but an isolated event, touching a smattering of companies in a handful of markets. If its impact has yet to be felt close to home, be forewarned: It's coming soon to a business near you. Moreover, it's not a comedy. The director Alfred Hitchcock once remarked that his mission in life was "to simply scare the hell out of people." This, in essence, has been the effect of e-business on a massive audience of corporate executives. Following years of discounting, ignoring, and even dismissing the potential threats posed by fast-moving companies unconstrained by clouded lenses and legacy businesses, few among them have not by now come to understand that the equivalent of a Travelocity (travel), Wells Fargo (retail banking), Enron (energy), or Charles Schwab (financial services) may well lurk somewhere in their industry. Make no mistake: The genie is out of the bottle. E-business tools are everywhere that you want to be, to borrow a phrase from Visa, available to current competitors as well as to new players in the wings, awaiting their grand entrance onto the stage.

Timing is everything. At least so it seemed until the spring of 2000, when the tables abruptly turned on the dotcom insurgents, bringing their boisterous party to an eventual halt. For the several years leading up to that point, conventional wisdom had been that a lead time of even a few months could make for an enormous head start, to the point that catching up would pose a nearly impossible challenge for those who trailed behind. Pointing to rising stars like eToys (toys) and E*Trade (investing), analysts predicted that the slow-moving bricks-and-mortar incumbents would simply have to learn the hard way about the dynamics of increasing returns--that is, successes that continue to mount at a disproportional rate--that supposedly went with being the first to market. Lending credence to the contention that slow and big lose the race, author Kevin Kelly put forth the notion that significance precedes momentum.1 Using the metaphor of lily leaves on a pond, he asked his readers to compress a season into four days, while imagining that the number of lily leaves doubles every day. The first day you venture out to the pond, no more than an eighth of it is covered with lily leaves. Naturally, you barely notice. The next day a quarter of it is covered; still, you pay no attention, except perhaps to note the beauty! The day after, half of it is covered, and at this point it finally dawns on you that a major transformation is under way. Before you can even think to react, let alone mobilize your forces, another day has gone by, and now the entire pond is covered with a blanket of lily leaves. Kelly suggested that by the time a company became aware of the severity of the change disruption unleashed in its environment, it was already too late to do a whole lot about it.

However eloquent the insight, it fails to adequately predict the reality of who wins and who loses in e-business. With all due respect to Poor Richard, it is not always the early bird that catches the worm, which in this case amounts to an ability to generate sustainable businesses and profits. Rather, the prize invariably goes to the first to get it right. Few get it right the first time around. The reasons for failure can range from issues of funding and timing to vision and even positioning. Consider Motorola's Iridium project: Aiming to provide cellular phones with global roaming capabilities to the mainstream market, Iridium no doubt would have done better with its $5 billion investment if it had instead targeted underserved vertical markets, such as geological surveyors or military personnel stationed in remote locations that lacked readily available substitutes. Or consider the humbling experience of the pure play dotcoms in a wide range of businesses, including banking and retailing. With very few exceptions, traditional assets such as brands, retail store presence, and buying power have proven to be more than enough to counter the initial lead of the startups. In the final analysis, significance may well precede momentum, but for it to matter, profitability must follow close behind.

Of course, that first movers frequently stumble and fall before ever crossing the finish line is the way of the world and not merely an e-business phenomenon. History shows that pioneers often end up with arrows in their backs; it is those who move swiftly and wisely down trails already blazed that generally reap the rich rewards. Examples abound. Quicken, for instance, was far from being the first personal finance software package to be launched in the consumer market. Similarly, Sega's Dreamcast may have been the first to enter the video game console business, but its early refusal to support DVD-ROMs caused it to lose its footing, allowing Sony and Nintendo to race ahead.

As the century drew to a close, the dotcoms were widely hailed as the paragons of speed and agility. To borrow a phrase from Muhammad Ali, they could dance like a butterfly and sting like a bee. Launched by fresh-faced kids out of garages, eToys, Drugstore.com, CDNow, and many others did, in fact, manage to bloody the noses of their bricks-and-mortar heavyweight rivals. Yet in a world where stamina is largely a function of expendable energy, also known as capital, many of these same startups, failing to capture value from their activities in the form of operating profits and seeing their funding spigots run dry as a result of this not-so-trivial shortcoming, simply ran out of steam. Meanwhile, from the perspective of the established companies, getting one's nose bloodied tends to have a focusing effect. Major corporations that could only watch in dismay as their businesses failed to be rewarded by the capital markets--which, for a brief period in history, had repealed the rules of business and the laws of economics--have recently begun to pay a certain amount of attention to their fast-footed rivals, to the point of copying some of their moves.

That so many of the dotcoms with disruptive businesses ultimately saw their valuations stumble and fall to the point that they could no longer carry on the attack, at least not as a solo effort, again suggests that at the end of the day the winner is likely to be not the first mover but the first finisher. Being the first mover might only prove to the competition that stirring the hornet's nest can cause one to get badly stung, evoking a grateful response of "Oh, thanks for showing that to us."

Increasing returns confer upon a company an advantage along only one dimension of a business--usually, customer acquisition. But what if a company coming from a completely different direction could easily replicate that advantage? Fact is, the customers that the dotcoms spent so much time, money, and effort trying to "acquire" already have relationships with existing brands and companies. These analog points of presence--the billions of store visits to Wal-Mart, the billions of hamburgers served by McDonald's, the billions of boxes of Macaroni & Cheese sold by Kraft Foods--may ultimately prove to be far more powerful than the pure play websites that have depended largely on banner ads and desperate TV campaigns to drive traffic. Only now, it seems, are the established companies waking up to the untapped potential of their brands, their customer relationships, and their domain expertise.

Every company wants to "get it right." But in a world where new businesses are constantly emerging and the lines between opportunity arenas rapidly blurring, what does it mean to get it right? Arguably, grand master Garry Kasparov got it right during his fifteen-year reign as world chess champion. Before losing the crown to his former protégé in November 2000, he had been the best at his game--with one minor hiccup. That hiccup came in 1997, when Deep Blue, an IBM RS/6000 computer, took the contest to a whole new level. But however formidable an opponent, Deep Blue nonetheless adhered to the same rules of engagement as Kasparov. Neither opponent was allowed to deviate from the universally accepted parameters by which they could move their chess pieces. In contrast, e-business ushers in not only the possibility of superior opponents playing the same game, but ones actually playing a different game--for example, Star Trek tri-dimensional chess, in which case the chess pieces can move in myriad new directions. Given that disquieting possibility, long-term success would seem to depend as much on "getting it right" as it does on "keeping it right," even as the dimensionality of the game expands.

Today there is no such thing as sustainable advantage. This notion has given way to leverageable advantage, which means using the position that has been secured on one hill to take the next hill and the next and the next.2 Using its existing assets as a springboard, Microsoft is an example of a company that has repeatedly jumped--to paraphrase its own tag line--from where it is to "where it wants to go today." In its incessant quest to take new hills, Microsoft has leveraged from operating system to office to networking applications, without ever leaving any of its previous hills undefended (and, in fact, Windows and Office remain its biggest cash cows). Novell, by contrast, failed to take new hills, remaining king of the local-area-network (LAN) market even as the Net steadily chipped away at its core business. The questions every established firm must ask are: In what new directions can we take our business? What are the leverage points? What are the springboards that we can use? What is the next hill that we need to capture?


Source: The Seven Stps to Nirvana