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September 14, 1998

The New Value Chain

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Rather, when you think of what electronically adds value to your product or service, compelling new opportunities emerge. The best way that technology can add value is by offering more time-the most precious commodity to businesses and individuals alike.

For example, automation has certainly armed manufacturers with rich databases filled with customers' likes, dislikes, and precise demographics that help them reduce inventories, the number and length of manufacturing cycles, and assembly costs. Again, the main-and largely unexploited-way that technology can help such businesses is to give consumers more time. For example, once your favorite clothing-brand supplier has your precise measurements, ordering a new suit requires a five-minute phone call, instead of six hours at the mall.

Also, consider how the online shopping-delivery service Peapod Inc., barely 10 years old, has used technology to redefine the traditional distribution chain and has "added" an electronic middleman that increases the end customer's costs. Despite these higher costs, Peapod's business is booming because the substantive value of time is offered. The company posted revenue of $59.6 million last year, up 104% from the previous year; the number of orders rose 97% over the same period in 1996.

My prediction is that as the digital economy develops, entire industries will be created to fill gaps in the various electronic value webs that emerge.

Car Service
Here's another example: In the past, if you wanted to buy a Jaguar sports car, you had to go to a dealer. But now an enterprising businessman in Britain sells these luxury cars over the Internet. He will deliver to your door whatever model you choose through his Web site, with all the legal paperwork in order-for a whopping 35% discount.

When your Jag needs a tune-up, that's no problem, either, because another business on the Web puts you in touch with a dealer or repair shop. The second business adds further value to this particular electronic value web by using consumer-purchasing databases, global positioning technologies, and sophisticated telephony call-center software.

This lets you summon people directly to your house when your car needs servicing; they deliver the car to the appropriate shop, verify that the work is done properly, clean and wash it, and park it in your driveway.

Of course, all these services come at a hefty fee-but one that people are willing to pay.

In the first instance, technology is used to swap one middleman (the local Jaguar dealer) for another one (the virtual Jaguar dealer), all for the most traditional reason of all: to save the consumer money. In the second instance, technology is used to expand the value web, and the overall service costs more. But because value is offered, the business model works.

We encourage clients to think differently when developing strategies in the digital economy. It involves a concept called container vs. content. Traditionally, products have been either predominantly containers (physical objects such as automobiles), or content (a service such as a book or magazine). But successful products in the digital economy will combine both content and container attributes in stunningly creative ways.

This concept often means bringing together previously unrelated technologies, products, services, and information-often from widely disparate sources. In short, it means building a value web.

We see how this happened in the home-banking software market. Products such as Quicken and Managing Your Money have been available for more than a decade, but they failed to attract large followings, primarily because consumers were unwilling to manually enter checking transaction data into the computer.

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