Knowledge market value and prosperity as businesses

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Knowledge, Market Value, and ProsperityAs businesses shift from an asset-centric environment to a knowledge-centric environment,traditional value measures become increasingly fallible. When Netscape Corporation (lateracquired by America Online) went public a few years back, the market valued this $17million company at $3 billion at the end of the very first day of trading. Considering the factthat the average company on Wall Street has a market-to-book value ratio of 3, Netscape'sopening day trade ratio was a whopping 175. The reasons for this are obvious. The marketdid not value the company on the basis of its buildings and computers but on the basis of itsknowledge assets: its invention of the Web browser, its innovative projects, its patentedtechnology, and its employee-founder Marc Andeersen (who invented the Web browser andcontinues to work for America Online since that company acquired Netscape in 1998).Market value also matters to startups or growing small companies. Borrowing capital forexpansion into the rapidly opening international markets is not usually easy, since thetypicalcompany cannot always offer compelling assurances to venture capitalists andexternal financiers. In a knowledge-based economy, this security is the value of itsintangible assets and their perceived future value—which carry more weight than last year'sbalance sheet or income statement. Market valuation is a pervasive though riskydeterminant of its future potential and explains why companies like Apple[d]and Netscapeever got financed in the first place.
[d]The three-part PBS () documentary,Triumph of the Nerds, provides an interesting story about Apple'sfinancing, as told by its original venture capitalist. This series was later followed by another three-part series by RobertCringley,Nerds 2.0, which provides a historical account of the emergence of the Internet-centric computing businessmodels that have driven several successful multi-billion-dollar startups.Microsoft and Knowledge ApplicationKnowledge management can make a difference when it enables theapplication of knowledge. In the technology industry, companies thathave prospered are not the companies that invented new technology,but those that applied it. Microsoft is perhaps a good example of acompany that had first relied on good marketing, then on its marketshare, and now on its innovative knowledge—mostly external.The customer base it built for its Windows operating system wasprobably its strongest asset when it decided to seriously compete inthe Web browser market. Microsoft, a latecomer to the Internetmarket, came to the sweeping realization that the Internet was goingto change everything, including its own product markets. Its strategytook a U-turn in 1995 when it began focusing on the Internet (everysoftware product that Microsoft made in 1999 worked with theInternet in some manner). Microsoft's reputation and strong skillsbase, coupled with its cash flow provided it with all it needed tocompete in the car retail business (), then thetravel business (), and more recently in the toybusiness as well. Besides a strong brand recognition, the companyleveraged its existing collective skills to plan for the future.

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Term
Spring
Professor
JeffreyA.Bacha
Tags
knowledge management toolkit

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