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Unformatted text preview: o you think this is risky and what would you recommend as an alternative? 4. I dentify two firms in the same industry that have different value chains. Why do you think these firms have different value chains? What role do you think technology plays in the way that each firm competes? Do these differences enable strategic positioning? Why or why not? 5. How can information technology help a firm build a brand inexpensively? 6. Describe BlueNile’s advantages over a traditional jewelry chain. Can conventional jewelers successfully copy BlueNile? Why or why not? 7. What are switching costs? What role does technology play in strengthening a firm’s switching costs? 8. I n most markets worldwide, Google dominates search. Why hasn’t Google shown similar dominance in e‐mail, as well? 9. How can technology be a distribution channel? Name a firm that has tried to leverage its technology as a distribution channel. 10. Do you think it is possible to use information technology to achieve competitive advantage? I f so, how? I f not, why not? 11. What are network effects? Name a product or service that has been able to leverage network effects to its advantage. 12. For well over a decade, Dell earned above average industry profits. But lately the firm has begun to struggle. What changed? 13. What are the potential sources of switching costs if you decide to switch cell phone service providers? Cell phones? Operating systems? PayTV service? 14. Why is an innovation based on technology alone often subjected to intense competition? 15. Can you think of firms that have successfully created competitive advantage even though other firms provide essentially the same thing? What factors enable this success? 16. What role did network effects play in your choice of an operating system? Of a social network? Of a word processor? Of a mobile phone? Why do so many firms choose to standardiz e on Microsoft Windows for PCs and laptops? 17. What can a firm do to prepare for the inevitable expiration of a patent (patents typically expire after twenty years)? Think in terms of the utiliz ation of other assets and the development of advantages through employment of technology. 2.3 Barriers to Entry, Technology, and Timing L E A RN I N G OBJ E C T I V E S 1. Understand the relationship between timing, technology, and the creation of resources for competitive advantage. 2. Argue effectively when faced with broad generaliz ations about the importance (or lack of importance) of technology and timing to competitive advantage. 3. Recogniz e the difference between low barriers to entry and the prospects for the sustainability of new entrant’s efforts. So me have co rrectly argued that the barriers to entry f o r many tech-centric businesses are lo w. This argument is particularly true f o r the Internet where rivals can put up a co mpeting Web site o r deplo y a rival app seemingly o vernight. But it’s abso lutely critical to understand that market entry is no t the same as building a sustainable business and just sho wing up do esn’t guarantee survival. P latitudes like “f o llo w, do n’t lead”N. Carr, “IT Do esn’t Matter,” Harv ard Business Rev iew 81, no . 5 (May 2003): 41—49. can put f irms dangero usly at risk, and statements abo ut lo w entry barriers igno re the dif f iculty many f irms will have in matching the co mpetitive advantages o f successf ul tech pio neers. Sho uld Blo ckbuster have waited while Netf lix pio neered? In a year where Netf lix pro f its were up sevenf o ld, Blo ckbuster lo st mo re than $ 1 billio n, and to day Blo ckbuster is bankrupt.“Mo vies to Go ,” Eco no mist, July 9, 2005. Sho uld So theby’s have dismissed seemingly inf erio r eBay? So theby’s made $ 171 millio n in 2011, but eBay earned o ver $ 3.2 billio n. Barnes & No ble waited seventeen mo nths to respo nd to Amazo n.co m. 2011 was a do wn year f o r Amazo n due to investments in the Kindle and o ther new businesses, but the f irm still earned $ 630 millio n in pro f its, while Barnes & No ble lo st o ver $ 73 millio n. To day Amazo n spo rts a market cap ro ughly 100 times greater than its o ne-time rival, and it has expanded f ar beyo nd being just a bo o ks and media business.FY 2011 net inco me and May 30, 2012, market cap f igures f o r bo th f irms. During that same year, Bo rders—o nce the natio n’s number two bo o k chain—declared bankruptcy and clo sed all o f its sto res. To day’s Internet giants are winners because in mo st cases, they were the f irst to mo ve with a pro f itable mo del and they were able to quickly establish reso urces f o r co mpetitive advantage. With f ew exceptio ns, established o f f line f irms have f ailed to catch up to to day’s Internet leaders. Table 2.1 A Tale o f Two Firms 2007 Amaz o n 2008 2009 2010 $476 million $645 million $902 million $1,152 million Barn es & No b le $150 million $135 million $75 million $36 million Barnes & No ble saw net inco me cut in half f ro m 2007 to 2009 then f all half again in 2010. O...
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