He clearly explains that managers should use the internet to complement their current ways of competing, rather than making the nternet a strategy in itself. The internet should be part of business activities, rather than being a standalone approach. Porter provides a distinctive perspective to the use of the Internet in business Interactions, unlike several authors who have suggested that the internet leads to greater success. In a rush to launch their Internet business, companies have dropped their root strategy and principles for competitive advantage.
They have been confused by distorted market signals of this new business phenomenon. Companies misinterpreted sales fgures and rather pictured the Internet Business as a cash generating strategy on its own. Porter highlights that we should be cautions with these figures. First, prices on the Internet do not reflect the actual value of the product – they are subjected to heavy discounts. Therefore, when prices are artiflcially low, unit demand in turn becomes artificially high.
Second, the newness of the internet has attracted millions of customers out of curiosity, but they do not have a sense of loyalty towards these brands, and hence the company will need to return to normal business to sustain competitive advantage. Finally, some revenues from on-line commerce have been received as stock. Porter also argues that the internet as a levelling effect on the Industry. It alters the Industry’s structure In ways to lower profitability. companies are no longer able to establish operational advantage it can sustain.
Though, on the other side, the Internet has created new industries, namely On-line auctions and Digital marketplaces. A widespread belief that the internet would unleash forces that would enhance industry profitability could be sensed. Porter’s depicts two myths which have yet to be proven real In that optic. One of which Is that the Internet would provide first movers with competitive advantage & robust profitability though in the real world witching costs are lower, not higher, on the internet, and the openness of the Internet makes it difficult for any particular firm to capture benefits of network effects.
Secondly, “partnering win is a win”-whereby win means to improve industry economics, but this does not generally apply in reality. Widespread partnering Is Just as likely to exacerbate an Industry’s structural problems as mitigate them. Porter to enhance service, increase efficiency and leverage existing strengths. Technology and the Internet will then ultimately integrate with the business activities and restore competitive advantages.