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Relevant strategic groups of intangible web-good providers

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Firms providing intangible web goods are segmented into different strategic groups with regard to various strategic dimensions to achieve a further basis for deeper insights into their ability to create value and realize competitive advantages.

A strategic group is a set of firms that are similar to one another and different from firms outside the group in one or more key dimensions of their strategy (Hunt, 1972). The concept stems from the desire to better understand the competitive environment.

The method of strategic groups in this context has been developed by strategists to segment firms in a market in a meaningful way that reflects the nature of competition.

Analyzing strategic groups requires the recognition that not all firms compete directly or equally with each other in a certain market. This makes this concept useful for the analysis of intangible web good providers.

Even though the concept was developed to better understand different segments in a certain industry, it seems justifiable to use the concept to differentiate different sub-groups of firms competing in the area of intangible web goods.

The analysis will give insights into the structure applicable to this group of firms and will outline similarities as well as differences between different firms providing intangible web goods.

The concept of strategic groups emanates from the understanding that competition within a market is not homogeneous.

In the understanding of this concept firms compete on the basis of targeting and acquiring different market segments in a business field due to similar resource endowments and strategic intent.

As a result, competition played out in different ways and with differing levels of intensity.

Theoretically the concept of strategic groups emerged from psychological and economic paradigms, and is today dominated by industrial organization economic interpretations.

It can be interpreted as an economic method to counteract a decision-maker’s imperfect knowledge of the competitive environment.

However, the determination of strategic groups mainly happens atheoretically. It could be stated that the group determination is often a result of a series of semi-educated guesses, so it frequently causes some debate.

Characteristics of firms are used as a basis for the division into different groups. Research dictates that at minimum two dimensions (firm characteristics) are used to determine strategic groups.

In spite of the above-mentioned criticism, the concept of strategic groups implies various advantages with regard to strategic decision-making.

By identifying strategic groups, a firm can more readily find its near and distant competitors, as well as analyze the likely competitive implications of changes in firm strategy.

Insights into performance and profit differences between films and better understanding of the nature of rivalry can be derived from strategic group analysis.

Strategic group analysis provides an intermediate level of analysis, taking into account that the environment does not influence firms in a homogeneous way but that heterogeneous firms exist in the same environment.

In the following paragraphs, strategic dimensions are shown with regard to segmenting intangible web-good providers into different strategic groups.

Strategic dimensions are developed that give an insight into a first systematic differentiation between the different strategic directions of intangible web-good providing firms.

Examples of intangible web-good providers are given in a systematic fashion to deliver an overview of possible areas of intangible Web-good provision.

The strategic dimensions can be seen as providing a relevant insight into the basic determinants of value-creation possibilities for intangible web-good providers.

With regard to value creation of intangible web-good providers, the main source of income generation is certainly relevant.

As mentioned above, advertisers play a crucial role with regard to revenue achievement. Another way to earn revenue with intangible web goods is to charge the customer a fee for the good (e.g. pay per view for an article, or pay to download specific software or for the use of a good over a longer period – e.g. subscription to an online newspaper or encyclopedia).

Combinations of both ways to realize income are conceivable (e.g. a newspaper that posts advertisements on its online sites and also charges the customer for reading certain articles).

Thus it makes sense to select the different main sources of income generation as one strategic dimension in an analysis of strategic groups of intangible web good providers.

Another strategically relevant feature can be seen in whether the Internet is the only distribution channel or is used as an additional channel.

For instance, many traditional newspapers have chosen to have all additional online edition of their newspaper.

New firms have also been established with the advent of the Internet, which came into being only because of the Internet (e.g. auction providers such as eBay) and have the Internet as their only distribution channel.

It can be highly relevant with regard to the strengths of competitive forces such as offline substitutes if ‘a firm does only engage in online provision of intangible web goods, but also engages in offline provision of substitutes and/or complements.

Because of this relevance, the second strategic dimension for dividing intangible web-good providers into strategic groups is whether the Internet is the main or an additional distribution channel for an intangible web good.

Strategic group analysis seeks to look at a specific market from different perspectives. Thus it makes sense to differentiate intangible web-good providers into different sub-groups by additional characteristics.

Another feature that varies between intangible web-good providers is their area of activity.

This means that intangible web goods, although they are globally available, can focus customers in certain regions, language zones or the whole world.

The area of activity is selected here as another relevant strategic dimension to come to a more holistic understanding of intangible web-good providers, since one major result in terms of the PEST analysis was that certain constraints do exist, with regard to a global activity of intangible web-good provision.

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