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Summary
Summary
Once upon a time, it was widely thought that Internet commerce could exist apart from traditional business strategy, and that all the known financial models previously relied on could be disregarded. What has become eminently apparent since the dot-com collapse is that standard economic theories apply to Internet business just as much as they do to any other enterprise. Many dot-coms have failed,but e-commerce isn't going away, and business leaders need to understand what went wrong in order to dominate in the real new economy. Rethinking the Network Economy examines exactly where, how, and why so many e-commerce firms went wrong, and how, utilizing traditional economic concepts, businesses can build the foundation for success in the future. The book analyzes issues such as: * How tried-and-true formulas such as network effects, first-mover-wins, and supply-and-demand relate to e-businesses * Why companies counting on locking in consumers will need to rethink their strategies * When selling products over the Internet makes sense (and when it doesn't) * The dangers of comparing profits of brick-and-mortar firms with Internet firms" "
Author Notes
Stan Liebowitz (Dallas, Texas) is a respected economist and a professor of managerial economics at the University of Texas at Dallas
Reviews 1
Choice Review
The magnitude of the economic nonsense written about e-commerce has become widely evident since the technology crash in the stock market. Liebowitz (Univ. of Texas) clearly spells out the myths that led investors, the companies they invested in, and even the business press to act so foolishly in the last few years. Two primary myths that held great credence are brought low by Liebowitz's analysis. The first is the myth that new rules of economics apply to e-commerce but not to "bricks and mortar" firms. With countless examples Liebowitz dispels this notion, pointing out the truism that building a better product (in the eyes of consumers), at the lowest cost, stills wins the market. The second shattered myth is that network effects create a "first-mover advantage," which allows the first firm to gain a significant share of a market in e-commerce to be the ultimate winner and dominant firm in that market. This supposed first-mover advantage evaporates under a second set of examples showing that the old economic rules apply just as well to Internet firms. Liebowitz's clear and sharp analysis avoids unnecessary economic detail. Full citations make this work an excellent starting place for student research regarding Internet commerce. Highly recommended. Lower-division undergraduate through research collections. B. P. Keating University of Notre Dame
Table of Contents
| Preface | p. ix |
| Chapter 1 Introduction | p. 1 |
| What You Will Find in Later Chapters | p. 3 |
| Chapter 2 Basic Economics of the Internet | p. 9 |
| How the Internet Creates Value | p. 9 |
| Special Economics of the Internet--or Maybe Not So Special | p. 13 |
| Network Effects | p. 13 |
| Economies of Scale | p. 15 |
| Winner-Take-All | p. 16 |
| How the Internet Alters the Likelihood of Winner-Take-All | p. 18 |
| Chapter 3 Racing to Be First: Faddish and Foolish | p. 25 |
| From Winner-Take-All to First-Mover-Wins | p. 26 |
| The Concept of Lock-In | p. 30 |
| Strong Lock-In | p. 32 |
| Weak Lock-In | p. 35 |
| Impacts of Lock-In on First-Mover-Wins | p. 36 |
| What Does the Real World Tell Us About Strong Lock-In? | p. 38 |
| The Internet and First-Mover-Wins | p. 43 |
| Additional Evidence | p. 44 |
| Business Lessons | p. 48 |
| Chapter 4 The (Non) Ubiquity of E-Tailing? | p. 58 |
| How Might the Internet Transform Business? E-Ordering vs. E-Tailing | p. 60 |
| Characteristics of Products That Are Likely to Determine the Extent of the Internet Transformation | p. 61 |
| Size and Bulk Relative to Value | p. 62 |
| Immediate Gratification Factor (Impulse Buying) | p. 63 |
| Perishability | p. 64 |
| Experience Products and Free-Riding | p. 64 |
| Thin Markets | p. 67 |
| The Role of Taxes | p. 68 |
| What Types of Products Are Most Compatible with Full-Fledged E-Tailing? | p. 69 |
| Digitized Products | p. 69 |
| Information | p. 71 |
| Books and CDs | p. 73 |
| Examples of Markets Likely to Resist the Internet Assault | p. 75 |
| Grocery Items | p. 76 |
| Automobiles | p. 83 |
| Furniture | p. 84 |
| Prescription Drugs | p. 85 |
| The Nature of Selling on the Net | p. 86 |
| The Evolution of the Current Pricing System | p. 87 |
| The Concept of Price Discrimination | p. 89 |
| What About Auctions? | p. 92 |
| Chapter 5 The Value-Profit Paradox: The Cruelty of Competition and Internet Margins | p. 96 |
| The Diamond-Water Paradox | p. 99 |
| The Cruelty of Competition and Attempts to Subvert It | p. 101 |
| Implications for Internet Companies | p. 106 |
| Future Competition and Performance | p. 108 |
| Margins and Profits on the Net | p. 110 |
| Understanding Profit Margins | p. 110 |
| The Nature of Competition in Internet Markets | p. 114 |
| Chapter 6 Can Advertising Revenues Support the Net? | p. 121 |
| The Inadequacy of the Television Model | p. 124 |
| Advertising Effectiveness on the Internet | p. 126 |
| Size of Audience | p. 126 |
| Advertising Effectiveness on the Net | p. 127 |
| Advertising Budgets | p. 131 |
| Positive Aspects of Internet Advertising | p. 132 |
| Advertising Revenues on the Internet | p. 134 |
| Chapter 7 Copyright and the Internet | p. 144 |
| The Economic Impacts of Copying | p. 147 |
| Direct Economic Effects of Copying Technology | p. 148 |
| Indirect Economic Effects of Copying Technology | p. 150 |
| The Economic Impacts of Previous New Technologies on Copyright Owners | p. 155 |
| Photocopying | p. 155 |
| Videocassette Recording: The Betamax Case | p. 157 |
| Audiotaping | p. 158 |
| Digitized Networked Copying: Lessons from the Napster Case | p. 159 |
| The Impact of Peer-to-Peer Networks on Revenues--The Theory | p. 161 |
| Indirect Appropriability | p. 162 |
| Exposure Effects | p. 165 |
| The Impact of Napster on Revenues--The Evidence | p. 167 |
| Pure Peer-to-Peer Technologies: The Devil You Don't Know | p. 174 |
| Digital Rights Management | p. 176 |
| DRM Will Not Harm "Fair" Use or Any Use | p. 179 |
| DRM Will Not Reduce Production of New Works | p. 181 |
| Public Goods, DRM, and Other Alternatives | p. 183 |
| The Bottom Line | p. 188 |
| Chapter 8 Conclusion: Whither Supply and Demand? | p. 206 |
| Lessons | p. 210 |
| Index | p. 215 |
