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Internet Technology

The development of Internet technologies and e-commerce forms the economy of the future and generates new business opportunities, including the formation of the Internet infrastructure; it leads to the formation of a global e-commerce environment.

The desire of new and traditional companies to realize the potential of the Internet generates innovative business models and fundamentally new approaches to competition and positioning in the market. Traditional companies, whose business is under threat for any reason, are trying to modify their business models and strategies with the help of electronic technologies in accordance with the requirements of the modern business environment.

The desire to use the capabilities of the Internet economy encourages companies to look for innovative business models and fundamentally new competitive strategies:

1. Suppliers of communication equipment, mainly those producing equipment for Internet-communications, adhere to the traditional business model of selling manufactured equipment at prices that provide a sufficient level of profit and return on investment.

The main strategic problem of these companies is the presence of several competing technologies for the creation of infrastructure for the Internet and the global electronic economy. Naturally, companies that have invested in the development of a solution are interested in making it such a standard.

Several strategies are used to achieve technological leadership:

  • Intensive investment in R&D to achieve competitive advantage in technology;
  • Creation of strategic alliances with suppliers, potential consumers and companies developing related technologies;
  • Acquisition of companies with experience and know-how in related fields;
  • Reduction of entrepreneurial risk through development of alternative technologies.

2. Communication service providers build business models for selling services at fixed tariffs or on a time-to-time basis. As the task of Internet service providers is to provide connection to the Internet, they invest significant amounts of money in the development of communication networks and equipment.

The desired level of profitability is achieved not at once, but with such an increase in load, which provides an excess of income over the level of break-even. The main task of the companies is to introduce communication lines and attract subscribers faster than competitors. Recognizability of the brand and advertising are important elements of the strategy of Internet access providers, contributing to an increase in market share.

3. Manufacturers of computer equipment. Like manufacturers of equipment for the Internet infrastructure, manufacturers of computer equipment and components use mostly traditional business models, selling products at prices that cover costs and provide acceptable profit.

The pace of technological progress in this industry is also very high, so companies are forced to invest heavily in R&D and quickly replicate new products and technologies offered by competitors in order to remain competitive. Success depends on the ability of firms to stay ahead of, or at least keep pace with, competitors in introducing next-generation models to the market.

4. E-commerce software developers create software packages for all types of commercial operations on the Internet. Their business model is to invest resources (mainly programmers’ labor) in the development and improvement of specialized programs, followed by promotion and sale to corporate clients (e-commerce, Internet service providers, content providers, etc.) at a price that covers costs and provides a sufficient level of profit.

As the basic expenses of the companies-developers of software fall on the period previous to creation of programs, and the most part of them is connected with noncurrent assets, profitableness of this activity directly depends on volume – if incomes from sales do not exceed level of break-even, the considerable part of profit goes on a covering of constant expenses.

To withstand the decline in revenue as the market saturation, developers upgrade programs and create new ones.

Some e-commerce software developers have modified their business model: instead of implementing programs at a fixed price for a copy, they are switching to assigning a small fee for each operation performed with the help of these programs.

This pricing approach ensures a constant revenue stream for them. The transaction fee model is particularly attractive when there are millions of similar transactions and a limited number of websites on which software is installed. Transaction fees depend on the level of competition; they increase when similar software cannot be obtained from a competitor and the software product is technically superior.

5. Electronic retailers. There are two main groups of e-retailers: the first group sells goods mainly to corporate customers (this group is also called B2B), and the second group to end users (B2C). These categories of Internet companies use specific strategies. The simplest and most revolutionary strategy is to sell goods at cost and make a profit by advertising to other traders interested in attracting visitors to e-commerce sites.

6. Combined strategies as an alternative to purely traditional and electronic strategies. Many traditional retailers, fearing the spread of Internet commerce, have rushed to open their websites. This combined approach gives customers the choice of buying from traditional stores or online, and is an effective means of competing against e-commerce only, especially if the customer wants to consider and hold the product before purchasing it.

7. E-commerce service providers. The Internet economy has created another new industry – providing services to e-commerce companies. For example, optimization of warehouse management and product delivery is one of the most serious problems of electronic retailers; today many companies specialize in providing warehouse services and delivery of goods to electronic traders.

8. Media companies are content providers. Media companies use intellectual capital to create texts, videos, games and music. Some companies, provide access to their electronic publications on a subscription basis, while others charge a fee for each visit to the site, which ensures a steady flow of revenue.

The production of digital content is relatively inexpensive, so it is possible to operate at a profit even with modest sales. Since the majority of users in principle do not want to pay for information on the Internet, the main clients of electronic media companies have become so-called content providers.

Content providers, such as Yahoo, are mainly engaged in collecting information and supporting portals. Their business model is to create an information product that can attract users and sell advertising space to companies wishing to enter into advertising contact with content users (standard business model of newspapers and television).

The more viewers, readers, users (in other words, the wider the audience), the better the advertising space is sold and the more expensive it is. In addition, content providers are constantly expanding the range of goods and services, hoping to stimulate growth in sales and profits by charging commissions.