1. Introduction 2

Table of Contents 1. Introduction 2. Business Strategies 3. Co-opetition 4. The Technology Adoption Life Cycle 5. Networked Computing 6. Conclusion 7. References Send all questions and comments about this site to: [email protected] University of California at Berkeley School of Information Management and Systems (SIMS) 1. INTRODUCTION Microsoft co-founder Bill Gates’ vision is, "A computer on every desktop, in every home." This was the beginning of a new paradigm within the computer industry from large centralized mainframes to decentralized personal computers dedicated to single users. As we enter the 21st century, a new paradigm promises to radically alter the landscape of the computer industry once again: the era of networked computing. Networked computing implies that all computers (from large mainframes to desktop PCs to handheld PDAs) are networked together to allow communication with one another. From a technological standpoint, networked computing results in the convergence of two traditionally separate industries -- computers and telecommunications. But the social and economic ramifications of this convergence are huge -- the ability to see and hear people from across the world as if they were next door, instant dissemination of timely information, collaboration and sharing of data, and mass product and service customization are just a few of the applications networked computing promises. The Internet has provided us with a glimpse of what networked computing can offer, but this is only the tip of the iceberg for this new era of "Connected: anytime, anywhere." For companies hoping to ride the networked computing wave to financial success, it is imperative that they understand the dynamics of this new infrastructure paradigm. Entrepreneurial cowboys need to be aware of the characteristics and behaviors of developing new markets. Established companies must be open to change in order to adapt to new business conditions. Indeed, networked computing has changed the game. You need to understand the rules if you want to play, and win, this new game. This paper discusses several strategies for competing in the era of networked computing, with emphasis on a unique strategy called "co-opetition." As the name implies, co-opetition is a combination of competition and cooperation. As we shall see, in many circumstances co-opetition is a more optimal strategy than the traditional methods of competition. In this paper we discuss 1) the motivation and fundamentals of networked computing, 2) a survey of traditional business strategies, 3) co-opetition as an emerging business strategy, 4) a brief presentation of the Technology Adoption Life Cycle, and an analysis of the different business strategies applied to networked computing. 1.1 Rules of the New Game The computer industry has gradually evolved from a centralized computing model to a decentralized model. In the 1950s-60s mainframe computers emerged. Since these were large and expensive, they were only affordable by large corporations. The shift to time-shared computing in the 70s allowed more users to interact with applications on the mainframes through dumb terminals. The 80s saw a shift to decentralized computing with the emergence of the PC, which provided users with their own suite of desktop applications. In conjunction with this technological evolution, several industry trends have also emerged: The computer industry has embraced open systems and standards. The PC is a classic example of this. Since it has an open architecture, each component of the PC can be supplied by a separate vendor -- microprocessors from Intel, modems from 3Com, memory from Micron, OS from Microsoft, etc. This environment promotes competition and innovation at each level (component) of the PC, allows faster time-to-market by allowing vendors to specialize by working on their parts in parallel, provides interoperability among vendors, and reduces vendor lock-in. A trend from vertically integrated companies to horizontally diversified companies. In the old mainframe era, vertically integrated companies competed by offering the best full system solution. In the open systems model, companies compete by offering the best solution within their horizontal layer (i.e. component of the PC). As we move towards networked computing these trends are likely to continue. In addition, networked computing introduces even more rules: Network effects and network externalities become much more influential in the networked model of computing. This is true since network applications only have value if there is someone else to connect to. For example, the first fax machine sold had little immediate value since it could not send faxes to anyone. Once the second fax machine was sold however, the first machine was immediately worth something since it could then send faxes to the second machine. Thus, each subsequent fax machine sold adds value to the first machine since it represents another machine to send faxes to. Mathematically stated, as the number of nodes in a network increases linearly, the value of the network increases exponentially. Industry convergence. Networked computing results in the convergence of two very different industries: computing and telecommunications. Traditionally, not only were these two industries technologically different, but also fundamentally different. The computer industry has a history of rapid-change and high-competition. The telecommunications industry, on the other hand, has a more stable history due to its dominance by the AT&T monopoly. Indeed, as these two industries converge, merging the two ways of thinking may be more difficult than merging the two technologies. 1.2 Winning the Game Just as the mainframe and PC eras produced the likes of IBM, Intel, and Microsoft, networked computing will likely produce immensely successful companies as well. Indeed, the networked computing industry will be so large that many companies will emerge victorious -- that is, profiting from the networked computing wave. However, without an understanding of the rules of this new game, a company has no chance of winning. But, simply understanding the rules does not guarantee winning. You must be actively aware of your position within the industry, and select appropriate strategies to carry out your business plan. Furthermore, you must be willing to change strategies as your position in the industry changes and/or the industry itself evolves. A summary of traditional business models follows. 2. BUSINESS STRATEGIES 2.1 Traditional Business Strategies In deciding how to conduct your business, one of the traditional and most widely accepted approaches of the past twenty years has been to conduct a competitive analysis. Harvard Business School professor and independent consultant Michael Porter formalized this approach with his competitive forces model which identifies five basic forces with which a commercial organization must contend. This model provides a framework for collecting and organizing industry information. Traditional business strategy emphasized a firm’s internal strengths and weaknesses while neglecting or considering only one aspect of industry structure. Porter’s notion of competitive strategy requires a knowledge of both the firm’s internal strengths and weaknesses and the industry structure. His thesis is that the more competitive an industry is, the thinner the profit margins are likely to be, and vice versa. As mentioned above, the competitive forces model considers five forces for a competitive analysis. These are: The Threat of Potential New Entrants Assessing the threat of new entrants can be accomplished by identifying barriers to entry. Potential barriers to entry include economies of scale, proprietary product differences, capital requirements, and absolute cost advantages. Customer Bargaining Power In some instances buyers can exert considerable influence upon the providers of goods and services (e.g. volume purchases, long-term contracts). The Threat of Substitution When assessing how readily buyers will substitute a different type of product for the one the commercial organization sells, four factors should be considered. Availability of substitutes Relative price performance of substitutes Switching costs Buyer propensity to substitute Supplier Bargaining Power Factors that determine how powerful an organization’s suppliers are in setting the price of supplies include: Differentiation of inputs Switching costs Presence of substitute inputs Importance of volume to the supplier Cost relative to total purchase Impact of inputs on cost or differentiation of the final product / service Rivalry Among Competition Assessing the level of competition that exists between the various players in an industry can become a very involved exercise. In lieu of a comprehensive industry analysis, one should at least appraise The industry’s growth prospects Competitors? capacity to take aggressive actions The quality and size of competitors Barriers to exit - the effort and costs associated with withdrawing from this market Government Regulation Although it is not part of Porter?s model, it is generally accepted that government regulation is a sixth and very important force which must be considered. As a barrier to entry, Porter considers the impact of regulatory influences when evaluating the threat of potential entrants. In some industries / economies, government regulation may represent a pervasive factor which needs to be considered explicitly as a competitive force (e.g. utilities,

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