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    Getting Real About Virtual Commerce

     
    1/18/2000
    Pressed for time, today's consumers demand fast, no-nonsense means of getting their hands on goods and services. That works to a company's best interests, according to consultants Philip Evans and Thomas S. Wurster, when an e-business understands the rules of navigation and crafts a careful strategy for steering customers in its own direction. And not only that: navigation can even be a separate business in itself. In a future increasingly dominated by e-commerce, tapping into such vast potential is a necessity. "Navigation," write Evans and Wurster in this excerpt from the Harvard Business Review, "is the battlefield on which competitive advantage will be won or lost."

    by Philip Evans and Thomas S. Wurster

    Navigation as a Separate Business
    In the familiar world of physical commerce, shoppers have it tough. If you want to buy a shirt, for instance, you have a million different choices and, to make comparisons among them, you have to hop in your car and drive to malls and downtown department stores. A broad search is time-consuming, difficult, and, inevitably, incomplete. Nobody does it. Instead, consumers rely on product suppliers and retailers to help them navigate among their choices. Those businesses, in turn, exploit the consumers' search costs to build competitive advantage. They create navigational tools—everything from branding and advertising to relationship building and merchandising—to help consumers short-circuit the complexities of a comprehensive search and find products they're willing to buy. Sellers, in other words, exercise some control over the navigation function because it is comparatively difficult and expensive for the consumer to navigate this web of information unaided. Indeed, in most consumer businesses, far more profitability derives from influencing navigation—by means of a strong brand identity, say—than from manufacturing or distributing the physical product itself.

    On the Internet, by contrast, millions of people exchange massive amounts of information directly, quickly, and for free. Consumers can search much more comprehensively and at negligible cost. Navigation and selection occur independently of physical warehousing and distribution. Physical shopkeepers, who used to exert enormous influence over consumer choice, no longer enjoy special advantages. Product suppliers can sell directly to customers. Electronic retailers can focus on navigation and outsource fulfillment. And "pure" navigators, like the Yahoo! search engine and Quicken software, can organize information, helping people make sense of it without being party to the transaction at all.

    The importance of this shift—wherein navigation can be a separate business, unbundled from production, marketing, and distribution—cannot be overemphasized. Navigation is the battlefield on which competitive advantage will be won or lost. At stake is much of the profit potential of most consumer products suppliers and retailing businesses. For navigation is a business with enormous potential scope. The services navigators provide will correspond only coincidentally to any physically defined business or industry. Many people continue to view Amazon.com, for example, as an on-line bookseller, but its true business is navigation. It has rapidly broadened its offerings from books and CDs to movies to drugs to toys. Precisely because it is not clear what limits the domain for which Amazon is the preferred navigator, Amazon is worth more than the entire publishing industry put together.

    Navigation has three dimensions. Reach is about access and connection. It means simply how many customers a business can access or how many products it can offer. Affiliation is about whose interests the business represents. Richness is the depth and detail of the information that the business gives the customer or collects about the customer. It is along these dimensions that the struggle for competitive advantage will take place. (See the sidebar "The Three Dimensions of Navigational Advantage.") And different players start with very different advantages.

    Excerpted with permission from "Getting Real About Virtual Commerce," Harvard Business Review, Vol. 77, No. 6, November-December, 1999.

    [ Order the full article ]

    Philip Evans is a senior vice president of the Boston Consulting Group in Boston.

    Thomas S. Wurster is a vice president of the Boston Consulting Group in its Los Angeles office. They are the global coleaders of BCG's Media and Convergence Practice.

    This article is adapted from their book, Blown to Bits: How the New Economics of Information Transforms Strategy (Harvard Business School Press, 1999).

    The Three Dimensions of Navigational Advantage

    Reach is about access and connection. It means, simply, how many customers a business can connect with and how many products it can offer to those customers. (Reach has come to mean "eyeballs" on the Web, but we're broadening the definition here to include upstream reach to a variety of products and suppliers as well.) Reach is the most visible difference between electronic and physical businesses, and it has been the primary competitive differentiator for e-businesses thus far.

    Richness is the depth and detail of information that the business can give the customer, as well as the depth and detail of information it collects about the customer. Electronic businesses haven't yet learned to compete seriously on the richness dimension. (They've made far more progress on reach.) But richness holds enormous potential for building close relationships with customers in a future dominated by e-commerce.

    Traditional businesses have always had to make a trade-off between richness and reach. Doing both—getting highly detailed, customized information to and from a massive audience—was prohibitively expensive. E-commerce businesses can exploit the dramatic displacement of the trade-off permitted by electronic connectivity and information standards. For very little money, an e-business can provide a wide base of customers (reach) with access to a broad range of products (also reach) and detailed, complete information about each product (richness). It can also collect huge amounts of information about each customer (richness again) and use it to sell more products and services.

    The same technological forces that blow up the trade-off between richness and reach also open a third competitive dimension—affiliation, or whose interests the business represents. Until now, affiliation hasn't been a serious competitive factor in physical commerce because, in general, no company ever devised a way to make money by taking the consumers' side. However, it's a natural progression for pure navigators to affiliate with customers; they aren't selling anything except, possibly, information—and therein could lie a huge competitive advantage. E-retailers with navigational functions are also shifting their affiliation toward customers. Traditional manufacturers and retailers must find ways to fight, co-opt, or imitate their e-commerce competitors' affiliation strategies.

    Excerpted with permission from "Getting Real About Virtual Commerce," Harvard Business Review, Vol. 77, No. 6, November-December, 1999.

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