Strategy for the digital economy

Abstract

This chapter is concerned with the emerging structure of the new economy provided, particularly, by the digital economy of technology networks and knowledge intensity. This is a world marked by big investments in R&D, different cost structures and significantly changed demand conditions. You should read this chapter and also review material in Chapter 14, which deals with knowledge, information and innovation. in this chapter we are concerned with how the logic of competitive advantage applies to the conditions in which we find ourselves in an interconnected world dominated by the internet and telecommunication networks. To anticipate the conclusions, we will see that the strategic context has shifted a great deal. This means that fundamental demand and cost conditions have acquired new dimensions, resulting the different strategies becoming available and being pursued. The new structure of the digital economy does not mean that the old strategic logic is outmoded. Instead we see a significant change in the strategic contest that results in the logic of competitive advantage being applied in different ways. The chapter presents and contrasts the differences between the old world of scale and scope economies and the interconnected world of network externalities which we now call the digital economy. There is an extensive discussion of what network externalities are and how they arise but the reader should read this in the context of addition, not replacement - scale and scope have not been replaced. There is also an important practical phenomenon to consider. Networks are supported by many layers of infrastructure and we go into some detail to show how the technological infrastructure can be identified and analysed. There are many implications for competition, which we review. Finally, we summarize the implications for strategy, and argue that although it is a new world, the logic of competitive advantage still applies.