Devising Competitive Posture in the Web 2.0 World

November 25, 2008

In my view, new competitive dynamics unleashed by Web 2.0 and Enterprise 2.0 technologies necessitate a new approach to running a business, no matter your vertical.

As such, I have constructed a model to aid in navigation of this new world and new realm of management. A realm requiring simultaneous, thoughtful and analytical consideration of your business, macro and micro economics, geo-political dynamics as well as global, societal and enabling foundation technology and industry value-chain events.

To begin, conduct a scan of macro and micro economic factors while also carefully considering key sector success factors and value-chain shifts due to discontinuities. Next evaluate your stock price considering your product mix vs. services mix as compared to your competitors and ascertain, with deep analytical considerations, where your stock price should be when compared to the same set of criteria relative to your competitors’. Conduct the same current vs. real adjustments form your competitor’s perspective on their stock, product and services mix relative to yours. Devise a trajectory map depicting a grid of Product and Service Mix vs. Stock Price Grid.

Now, shift your focus on to two elements: Firstly, why you may be under-priced or over-priced relative to your real product and services mix when compared to your peers. And, secondly, and more importantly, why are some players placed way above the equilibrium price zone and in to “Super Premium Realm”. This is a realm of incomprehensible stock multiples such as Google’s, for example, was trading at for a while.

At this point, a natural question that would present itself is to what extent the premium levied on your peers’ stock price is driven by hype vs. reality. Hype would be grounded on perception vs. real revenue opportunity pockets that those players are pursuing. Example of revenue pockets would consist of the shift advertising Dollars from off-line to the on-line medium (interactive advertising) where size of the overall advertising opportunity pie is $247b in the US alone. Similarly, the global market for Network Centric Operations (NCO and SOA) for the public sector is nearly $350b with better that 1/2 located outside the United States. In yet another example, wringing out unproductive SG&A costs residing in the US corporate cost structures is itself another $500b opportunity pie. To understand why some market players (particularly those in the Web 2.0 and service world) are placed in the “Super Premium Realm”, consider Google.

Google’s stock price multiple assumes that all $247b advertising budget has migrated or will soon migrate on-line. The fact is that only about $16b out of the total of $247b of Ad Dollars is on-line and Google has 70% (nearly $12b) of that on-line advertising market. However, due to the CAGR of migration from off-line to on-line advertising, Google is afforded the “Super Premium Realm – The Web 2.0 Service Effect” as apparent by its stock price multiple. To better visualize the very real effect of services and Web 2.0 in creating a super premium in stock values, devise a grid evaluating the role of services vs. products and capture the key success factors as well as the basis of competition associated with each link. This is known as value-chain analysis.

Value chains are tools for monitoring the upstream and downstream components of an industry, sector or solutions. They break down the complexity in to granular components and can be individually mapped, analyzed and monitored on rolling basis. Value chains are also the foundation of being able to conduct scenario analysis or what of analysis based on facts, assumptions, validated hypothesis or just what-it sensitivity analysis.

The Web 2.0 value chain, by way of an example, can be characterized as very chaotic: shifting value chain components; players integrating forward and backward; relationships formed “Coopetitively” to form vertically integrated value chains; new technologies disrupting business models and putting out players and or micro-sectors entirely; offerings that are more malleable and gray such as SaaS services.

Nonetheless, formulation of this outside view is good indicator of flags and shifts to come if done on rolling basis but it is not the whole picture for your enterprise.

The Value-Chain Model in Action as Applied to Nokia’s Web 2.0 Strategy

Below is an example of the model referenced above to assess Nokia’s competitive position within the context of its industry and to devise a Web 2.0 and Services Strategic Path Forward for Nokia’s, as a case in point. Wireless handset and networking equipment manufacturers such as Nokia face the following industry value-chain dynamics:

Value-Chain Dynamics of Nokia’s Network Side of Business:

Licensed and Un-Licensed Networks Continue to Proliferate
Ultra Wide Band (U-WB)
PCS 1800, GSM, WCDMA
700 MHz Broadcast Vertical Blanking Interval (VBI) use for Wi-Fi
Mesh Networks
Fixed Wireless, DMR, P-MPT
Satellites

Conclusion: Rapidly Heading Toward Ubiquity and Massive Commoditization

Value-Chain Dynamics of Nokia’s Handset Side of Business:

Endless Device Proliferation
Uni-Function to Converged Multi-Function Devices in the Market
Revolutionary Devices in Design and Prototype Phases by Japan and Korea
Laptops go Ultra Thin and Light in Form Factor
Tablet Computing and eBooks Take Off
Apple’s iPhone, iPod Set Stage

Conclusion: Other players will Enter the Handset Market as Well with Variety of Nomadic, Mobile, Portable, Smart and Single Purposes Devices. This Nokia Line of Business is also Heading Toward Commoditization and Price Pressures albeit as a Slower Pace than the Network Side of Its Business. Nokia, therefore, must act rapidly.

Nokia’s Web 2.0 and Services Path Forward

Nokia faces unprecedented set of dynamics and survival forces. It must leverage its dominance in the handset market and move in to Mobile 2.0, a combination of Web 2.0, mobile handsets and a Nokia-Specific Web 2.0 Services Delivery Portal with widget based mobile applications through a comprehensive navigation blue print.

It is critical to note that the your approach should heavily rely upon accurate, ever fresh data and constant analysis to keep track of dynamic external factors, shifting value-chains, rapid technological discontinuities, revolutionary business models in support of every business decision within the organization. The model should further leverages use of Web 2.0 technologies within the enterprise to enhance collaboration and information sharing. And, finally, the approach should rely on superb, holistic and constantly refreshed formulation of strategy and flawless execution of tightly coupled strategic and operational plans that are backed by visible business processes, realistically defined KPIs, superb control on metrics to achieve the goal. Last but not least, approach sighted heavily relies on creating a malleable organization structure that morphs as needed to respond to the market needs and shifts rather than internal desires and conveniences in a structure.