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Developing a theory-based conceptual framework of competitive advantage realization with intangible web goods

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Up to now in the literature on e-business not much research has been undertaken that systematically differentiates between different kinds of e-businesses.

This shortfall is one reason for this article, which focuses on one group of e-businesses – namely those firms offering intangible web goods via the Internet.

This article further differentiates between different categories of intangible web goods. Since the different categories of intangible web goods show different characteristics, it is not appropriate to assume that they can realize competitive advantages in exactly the same fashion.

It is rather assumed that different aspects lead to success with different intangible web-good categories.

In a first step, generic positioning options for intangible web-good providers are developed to give an overview of the general spectrum of the positioning possibilities for intangible web-good providers in their specific environment, taking into consideration the insights gained from the environmental analysis of intangible web-good provision as well as the theoretical contributions to competitive advantage realization from strategic management concepts.

The objective of the following section is to give a deeper insight into possible strategies on the basis of the outlined generic positioning options with regard to the achievement of competitive advantages in the field of intangible web goods.

In order not to limit the analysis to a static perspective, a dynamic perspective is integrated here.

This dynamic perspective is integrated not just by analyzing a point in time, but by taking into account possible developments of resources and capabilities over time.

It is acknowledged that different capabilities may be valuable in moderately dynamic as opposed to very dynamic markets.

Consideration of strategies to realize competitive advantages on the basis of generic positioning options for intangible web-good providers from a dynamic perspective is undertaken.

Generic positioning options for intangible web-good providers
For the purpose of this article it makes sense to come to a clear understanding of existent generic positioning options that can be applied to intangible web-good With regard to the generic options of positioning in the specific environment of intangible web-good providers, the insights from industrial organization-oriented contributions to strategic management theory are especially relevant.

In Porter’s sense it is acknowledged here that firms can influence the structure of the competitive forces and also that competitive forces do influence the positioning options.

Building on these insights it should be possible to derive generic positioning options that support intangible web-good providers in establishing the basis for competitive advantage realization in their specific environment (to be later augmented by the insights into the firm internal influences on competitive advantage realization).

Porter’s contributions to the explanation of competitive advantage in terms of his classification of sources of market power into five competitive forces applied to intangible web goods as well as to the identified mobility barriers that can be used to differentiate strategic groups of intangible web-good providers.

And Porter’s insights into the development of competitive generic strategies are integrated into the reasoning of this book.

Building on these theoretical insights, generic positioning options are developed to be later specified for the different groups of intangible web-good providers.

Putting the different approaches front the literature together and thinking in terms of basic possibilities of realizing revenue in the intangible web-good environment, two basic opportunities to gain revenue can be differentiated:

An intangible web-good provider can either simply sell an intangible web good to a customer via the web, or

Earn revenue by using the web as a marketing tool – or choose a combination of both.

Using the web as an actual selling platform can take different forms. The selling can happen in a way that the customer has to pay a specific amount of money for a specific intangible web good.

It is also possible that the customer subscribes to a specific service and pays a periodic fee. Prices can be set in different forms in this context.

If an intangible web-good provider charges the customer in one of the ways mentioned for the good to realize revenue, it is called traditional selling.

In the context of the second way to earn money, an intangible web good provider realizes revenue by drawing attention to the intangible web goods provided for own or third-party marketing purposes.

In such cases revenue is generated by placing advertisements on websites and getting paid for that by third parties, or by promoting other goods of the firm in this way.

Observing customer behavior and using the resulting valuable customer data for marketing research can also lead to revenue in this context.

Intangible web goods can also be used to draw attention to other products or services of a business (e.g. free access to the headlines of a weekly magazine such as Newsweek can promote the sale of the actual magazine in real shops).

In summary, firms can either put advertisements (e.g. in the form of banners) on websites to earn revenue, or try to get access to information about customers by, for example, building a community of buyers by providing free membership.

Both ways can be used with regard to third-party marketing objectives or with regard to marketing other products or services of the intangible web-good provider itself.’

If a firm uses one of these methods to generate direct or indirect revenue with intangible web goods, in this book it is called innovative marketing.

The two outlined opportunities to earn revenue have to be understood as the basis for generic positioning options of intangible web-good providers in their environment.

Every action of intangible web-good providers that aims to generate revenue in one way or another can be broken down into these two objectives. The table below summarizes the features of the outlined possibilities.

The basic possibilities to earn revenue are obviously based on possible sources of income.

This was one strategic dimension used to differentiate groups of intangible web-good providers in their specific environment in this article.

To come to generic positioning options, the other outlined strategic dimensions from the strategic group analysis are also taken into account.

One of these dimensions is the area of activity in terms of the field in which an intangible web-good provider does business.

Such a provider can choose to focus on a particular buyer group, segment of the product line or geographic market, or to go for the total market (Porter, 1985).

If an intangible web-good provider selects focus position in Porter’s sense, it selects a narrow area of activity; it selects a broad area of activity when deciding to go for the total market.

Thus, with regard to positioning options we can differentiate between nature and broad market areas of activity.

The third strategic dimension identified earlier is also considered in generic positioning options.

The third relevant strategic dimension is whether the Internet is used as the only or as an additional distribution channel.

In terms of this dimension, we can differentiate between isolated businesses (when the Internet is the only distribution channel) and complementary businesses (when the Internet is an additional distribution channel).

Combining the outlined dimensions “area of activity,” “source of income” and “main or only distribution channel,” different generic positioning options for intangible web-good providers in their environment can be derived, as shown above.

The outlined generic positioning options show the possibilities for intangible web-good providers to position themselves in their specific environment. In general, all the outlined positions are possible options.

Possible dynamic strategies for intangible web good providers
Strategic management theory in the recent past has increasingly acknowledged that firm internal resources and capabilities have to be taken into account, in addition to positioning options, when competitive advantages are to be realized.

The firm internal influences on the realization of competitive advantages thus additionally have to be included in strategies that lead to competitive advantages.

Besides, the environmental influences for firms have increasingly dynamic features in many fields that have to be taken into account when realizing competitive advantages.

Hence, in this section the dynamic strategic opportunities to gain competitive advantages for intangible web-good providers on the basis of the insights of the resource-based view and the dynamic capabilities view have to be developed.

These strategies are, however, not developed specifically for one particular firm. Rather, general strategic options are outlined that have to be specified with regard to the existing resources and capabilities of “real life” intangible web-good providing firms when used in the area of strategy development.

These dynamic strategic possibilities build on the outlined generic positioning options, additionally taking firm-internal and the dynamics of firm-external influences on competitive advantage realization into account to come to a holistic understanding of competitive advantage realization.

A dynamic perspective is selected in the respect that tile process of realizing competitive advantages with intangible web goods is analyzed.

Developments in the business environment are creating an increasing need to take a more dynamic approach to the explanation of business.

The gathered insights are then further adapted to the different categories of intangible web goods.

The aspects outlined here are based on the resource-based view assumption that firms are heterogeneous and thus possess different resources and capabilities, and produce at different levels of efficiency and/or supply customers with different levels of satisfaction so that profits between intangible web-good providers are distributed along a continuum that delivers superior firm profitability at one extreme and inferior firm profitability at the other extreme.

Firm differences with regard to information, luck or capabilities make rent generation for intangible web-good providers possible by owning valuable, scarce resources.

Superior profits can also be derived if firms use their resources and capabilities to restrict the market output of goods and services so as to generate monopoly rents through creating competitive barriers to market entry and exit.

Resource heterogeneity makes scarcity of certain resources possible. It is further assumed that there is imperfect knowledge that implies that the level of knowledge is distributed unevenly between intangible web-good providers.

Uncertainty about the prospects that individual intangible web-good providers may face when entering a new market or offering a new intangible web good is the consequence, i.e. ex ante limits to competition do exist.

With regard to the development of dynamic strategic possibilities for intangible web-good providers, it is assumed that resources are heterogeneous and there are ex ante limits to competition in the sense of the resource-based view.

In this context, advantages may derive from a situation where one intangible web-good provider recognizes the potential of a particular resource which is not recognized by other intangible web-good providers, and is able to secure the property rights to the resource at a price which is substantially less than would be the case if other intangible web-good providers had recognized the potential of the resource and bid for the same resource.

In such situations intangible web-god providers can achieve first-mover advantages on which competitive advantages can be based.

The dynamic capabilities view can be seen as a recent extension of the resource-based view.

A dynamic view in this book is taken in terms of acknowledging that intangible web-good providers continuously have to build, adapt and reconfigure internal as well as external competencies (consisting of specific resource and capability combinations).

“Dynamic” here refers to the capacity to renew resources and capabilities and thereby achieve congruence with the changing business environment.

The most important characteristic of capabilities and competencies is seen in the fact that it is not possible readily to assemble them through markets and that they are not reflected in the balance sheet in an appropriate way.

Dynamic capabilities are accumulated over time, and because they are inimitable cannot be bought but must be built and renewed.

Different resources and capabilities fit in situations of moderate and very dynamic markets.

To gain competitive advantage with intangible web goods, it is crucial to analyze on which valuable resources or capabilities the strategy can build.

Resources or capabilities are valuable (i.e. able to realize Ricardian rents) when ex post limits to competition in the form of isolating mechanisms do exist and when the resources or capabilities are imperfectly mobile, i.e. firm specific.

The first mentioned feature of valuable resources and capabilities in the form of isolating mechanisms builds on assuming the inability to reproduce the heterogeneous resources and capabilities which provided some intangible web-good providers with the initial potential to obtain superior market performance.

No competitor should be able to imitate or substitute the underlying resources or capabilities of the intangible web-good provider; the resource or capability needs to be inimitable – i.e. “isolating mechanisms” should exist.

This is the case if resources or capabilities are characterized by physical uniqueness, path dependency, causal ambiguity or high social complexity and are thus difficult to imitate by competitors.

Heterogeneity has to be preserved so that superior intangible web-good providers continue to derive rents front either restricting tile supply of resources or restricting the amount and quality of output demanded, or both.

Intangible web-good provider value derives from the ability to maintain these restrictions, and thus resources and capabilities, to have any lasting value, must contribute to tile preservation of these restrictions.

They do this by becoming difficult to replicate or imitate, and by making it difficult for other intangible web-good providers to produce alternatives which act as effective substitutes.

The second mentioned feature of valuable resources and competencies, namely that valuable resources or capabilities should be immobile or imperfectly mobile, points out situations which involve asset specificity, excessively high transaction costs, jointly specialized assets and firm-specific assets that, for example, embody elements of resource immobility and mean these types of resources cannot be purchased by other intangible web-good providers at prices which reflect the value placed on them by the intangible web-good provider which employs the resources.

In this context, it is seen as relevant that valuable resources result in rents that can be appropriated by the intangible web-good provider itself.

Dynamic capabilities are valuable (i.e. able to realize Schumpeterian rents) when the managerial and organizational processes of a firm aimed at coordination, integration, reconfiguration, transformation or learning are their basis. In this context, resource configurations are relevant.

The process of utilization of resources from this perspective is accomplished through complex and dynamic organizational capabilities, which are used to mobilize resources efficiently and effectively to secure competitive advantages that are reflected in firm performance.”

Capabilities in this perspective represent a form of resource for an intangible web-good provider.

Depending on the features of the resources and capabilities of’ an intangible web-good provider, different dynamic strategies seem possible.

A comfortable position can be reached when the firm has the potential to build resources and capabilities that are valuable because they are difficult to imitate, and firm-specific in the sense of ‘a low mobility so that the firm itself is able to appropriate the resulting rents from the value creation.

However, from a dynamic point of view in most environments such a comfortable position can only be defended by permanently nurturing these resources and capabilities and adapting them to the requirements of the environment.

In such a situation, Ricardian as well its Schumpeterian rents can be generated. Here, this dynamic strategy is known as “feel comfortable but stay alert with regard to environmental changes.”

The worst starting position for an intangible web-good provider lies in situations where resources and capabilities are dominant in the area of competition but cannot be protected against invitation and are also highly mobile, so the firm always has to fight for rent generation as well as rent appropriation.

In such a situation the only possible strategy for survival is always to be one step ahead of the competition and never to lean back or have a rest because then competitors will overtake.

Schumpeterian rents may be generated, but not Ricardian rents. When able to realize such rents, ways have to be found to appropriate them – i.e. ways have to be found from the perspective of the firm to be the actor that receives the earned revenue.

The possible dynamic strategy for this situation may be known as “always one step ahead, while grabbing as many pieces of the pie as possible.”

Two other combinations of factors are left that imply other optional dynamic strategies in the area of intangible web goods.

One of these combinations is to build a business in an area with resources and capabilities that have the potential to be difficult to imitate but at the same time are mobile, so that appropriation of the created value implies difficulties for the intangible web-good provider with these resources or capabilities.

In this case it is crucial not only to foster the valuable resources and adapt them to a possible changing environment but also to make them stick to the particular firm so that mobile resources and capabilities become immobile resources and capabilities to as high a degree as possible.

In such a situation, Ricardian as well as Schumpeterian rents can be generated. Nevertheless, the high resource and capability mobility leads to a more dynamic environment for firms, making Schumpeterian rents more achievable.

The dynamic strategy possible in such situations here is known as “nurture valuables and bind them to the firm while grabbing as many pieces of the pie as possible.”

Finally, intangible web-good providers can do business in areas where resources and capabilities are dominant, even though they are not mobile and possible rents thus could be appropriated, but are not valuable because they are easy to imitate.

This situation is a difficult one, and a successful dynamic strategy can only be established when an intangible web-good provider in such a segment is quicker than the competitors, not leaving the competitor the time to imitate and create value in terms of already relying on new assets when the competitors are copying the previous ones.

Schumpeterian rents can be realized in such situations. The possible dynamic strategy for this situation may be known as “always be one step ahead to get the whole cake.”

The resulting theory-based conceptual framework of competitive advantage realization with intangible web goods

In the previous sections generic positioning options for intangible web-good providers have been developed from insights into the environment of intangible web-good providing firms and theoretical industrial organization concepts.

The theoretical insights into internal factors determining competitive advantages for intangible web-good providers have led to basic dynamic strategies to be pursued by intangible web-good providing firms on the basis of their positioning options.

Both components together are now adapted to the specifications of the different groups of intangible web goods to show value-creating intangible web good/market combinations and their expected characteristics with regard to strategic competition in the different groups of intangible web goods.

By applying the generic developed positioning options and the adherent dynamic strategies to the different groups of intangible web goods, it becomes obvious which potential for competitive advantages generation exists in the different cases.

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