0.2 The attraction of the internet for businesses

This is an adaptation of an excerpt from "Electronic Commerce: The Strategic Perspective" © 2008 by Richard T. Watson, Pierre Berthon, Leyland F. Pitt, and George M. Zinkhan, used under a Creative Commons Attribution license: Creative Commons Attribution 3.0 License .

Who should use the Internet?

Every organization needs to consider whether it should have an Internet presence and, if so, what should be the extent of its involvement. There are two key factors to be considered in answering these questions.

First, how many existing or potential customers are likely to be Internet users? If a significant proportion of a firm's customers are Internet users, and the search costs for the product or service are reasonably (even moderately) high, then an organization should have a presence; otherwise, it is missing an opportunity to inform and interact with its customers. The Web is a friendly and extremely convenient source of information for many customers. If a firm does not have a Web site, then there is the risk that potential customers, who are Web savvy, will flow to competitors who have a Web presence.

Second, what is the information intensity of a company's products and services? An information-intense product is one that requires considerable information to describe it completely. For example, what is the best way to describe a CD to a potential customer? Ideally, text would be used for the album notes listing the tunes, artists, and playing time; graphics would be used to display the CD cover; sound would provide a sample of the music; and a video clip would show the artist performing. Thus, a CD is information intensive; multimedia are useful for describing it. Consequently, Sony Music provides an image of a CD's cover, the liner notes, a list of tracks, and 30-second samples of some tracks. It also provides photos and details of the studio session.

The two parameters, number of customers on the Web and product information intensity, can be combined to provide a straightforward model for determining which companies should be using the Internet. Organizations falling in the top right quadrant are prime candidates because many of their customers have Internet access and their products have a high information content. Firms in the other quadrants, particularly the low-low quadrant, have less need to invest in a Web site.

Why use the Internet?

Along with other environmental challenges, organizations face three critical strategic challenges: demand risk, innovation risk, and inefficiency risk. The Internet, and especially the Web, can be a device for reducing these risks.

Demand risk

Sharply changing demand or the collapse of markets poses a significant risk for many firms. Smith-Corona, one of the last U.S. manufacturers of typewriters, filed for bankruptcy in 1995. Cheap personal computers destroyed the typewriter market. In simple terms, demand risk means fewer customers want to buy a firm's wares. The globalization of the world market and increasing deregulation expose firms to greater levels of competition and magnify the threat of demand risk. To counter demand risk,