Spider Vs Spider

STRATEGY

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Are "webs" a new strategy for the information age? The key question: should you adapt or shape? How much ofthe wealth do you share? Managing the dynamics of increasing returns

John Hagel III

I would like to thank Eric Beinhocker. Dick Foster, Joe Heel. Will Lansing. Tetsuya Mori, Mike Nevens, Patil Sagawa. Olivier Sibony, Jayanl SInha, Chuck Stucki. and Soimi Subtamaniam lor their contributions to the thinking on web stmlcgics. In addition. McKinsey's Strategy Theory Initiative and the Multimedia Practice have actively supported the development of the ideas presented in this article. 1 have also benefited from the writings of, and conversations with, Brian Arthur and Stuart KaulTman of the Santa Fe Institute.

John llafivl is a principal in McKinsey's Silicon Valley office. Copyright 'C 1996 McKinsey & Company. All rights reserved.

W

HAT DOES IT MEAN when oiie of the world's biggest matiufacturers of

personal computers fitids it difficult to stay itidependent? In the old days, bigger meant more powerful - and often a high market multiple too. But now, just the opposite may be true.

Think of Netscape, a company that barely existed 18 months ago, and even today numbers only a couple of hundred employees. Is Netscape overvalued? Perhaps. But if you consider how quickly it has mobilized other eompanies to support and implement its technology, you begin to see why the excitement may be justified. Netscape exemplifies a new form of industrial structure. "Webs" are clusters of companies that collaborate around a particular technology. Probably the best-known is the Microsoft and Intel personal computer web, in which hardware and component makers, software developers, channel partners, and training providers combine to deliver the overall value proposition of a Windows PC. Other webs have formed around Novell's PC networking systems and SAP's integrated enterprise IT solution for manufacturers.

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Webs emerge from the turmoil wrought by uncertainty and change. They spread risk, increase flexibility, enhance an industry's innovation capability, and reduce complexity for individual participants. They are characteristically the work of a single architect or shaper, which (unlike a monopolist) maximizes the size of the web by givitig away value lo other companies. The more companies - and customers - that join, the stronger the web becomes. Webs create powerful new ways to think about strategy, risk, technological uncertainty, and innovation. They help us see why the virtual company may be more than just an abstract concept. They influence management focus, organizational structure, perfortnanee measurement, and information systems. They may even represent the opening salvo in the transition frotn industrial-age to information-age strategies. What are webs? An economic web is a set of companies that use a common architecture to deliver independent elements of an overall value proposition that grows stronger as more companies join the set. Before a web can form, two Webs may represent the conditions must be present: a tech• ^.^.^^ ;^ ,|^g transition nolog.cal standard and increasing ,._.^^ industrial-age to returns." The standard reduces risk informatiotvage strategies by allowtng cornpanies to make irreversible investment decisions in the face of technological uncertainty. The increasing returns create a mutual dependence that strengthens the web by drawing in more and more customers atid producers. Webs are not alliances, however. They operate without any formal relationships between participants. Each company in a web is wholly independent; only the pursuit of economic seif^-interest drives it into web-likc behavior. It prices, markets, and sells its products autonomously Webs are a natural response to environments fraught with risk and uncertainty - which is why they are so prevalent in high-technology arenas. The "safety net" created by the other participants in a web allows a firm to focus exclusively on activities in which it can offer distinctive value. In this way, webs reduce overall itivesttncnt requirements, focus individual participants' investments on areas most likely to succeed, and promote the emergence of multiple suppliers for bottleneck components. " See W Brian Arthur, Increasing Returns and Path Dependence in the Econtwiy. University of Michigan Press, Ann Arhor, 1994; also "Positive leedhacks in the economy," The McKin.sey Quarterly. 1994 Number I. pp. 81 95.

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In such industries as multimedia, where companies are dealing with more than a dozen major technological discontinuities at once, it is only natural for this latest evolution in industrial dynamics to have occurred. But webs are by no means confined to technology providers, as we shall see. Within economic webs, technology webs organize around specific technology platforms. One prominent example of a technology web is the desktop computing business. Back in the 1960s, mainframe computer companies like IBM exhibited strong vertical integration and provided total solutions for large business customers. In the desktop computing business of the 1980s, by contrast, highly specialized participants acted both independently and interdependently to assemble a complex package of technology components and services. Some companies manufactured microprocessors and semiconductors; others assetnbled printed circuit boards or CPUs and peripherals. Some developed system software or software tools; others, specific application software. Yet others focused on integrating cotnputer systems, supplying consulting or training services, or offering after-sales support. Their relationships with one another were cotnplex and fiuid, but they were united in their quest to provide users with desktop computing capability that cotnpcted with more traditional mainframe and mid-range solutions. Online services represent a more recent example of a technology web. When Prodigy entered this field in the late 1980s, it had to develop a vertically integrated busitiess that included not just content but also network design and operation, server design and operation, and billing and network operating systetns. Later, the industry unbutidled rapidly as specialized providers emerged to supply virtually every element of an online service technology platform. The growth ofthis web has lowered barriers to entry; now. new competitors can concentrate on content creatton or packagmg, and source , u • J *• i.- J,. . . I . r .L .In such industries as multimedia, the remaining elements from other parti• , ,. ., . . , . " , '^ companies are dealing with more cipants in the web.

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' than a dozen major technological .,,.... , , , , r- , discontinuities at once Within technology webs, clusters of players participate in competing value webs, which seek to capture a disproportionate share ofthe value-creation opportunity. Whereas economic activity in technology webs focuses on maximizing value to the customer, value webs add a second objective: to create value for a specific group of companies that have adopted a common technology platform. In the desktop computing technology web, for example, at least two major value webs are in competition. One is organized and shaped by Apple, and promotes the Macintosh as the standard desktop computing platform; the other is controlled by Microsoft and Intel, and champions an

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alternative standard defined by the use ofthe Intel microprocessor and the Microsoft operating system.

What strategic roles are created by webs? Two different strategic roles may be played in webs: adaptation and shaping. Each has the potential to generate considerable value. In companies that opt for an adapting role, senior management deals with uncertainty by trying to stay one step ahead of other players in anticipating and responding to changes in the business environment. Rather than attempting to influence events, these companies endeavor to stay at the edge of them, and to capture value by spotting opportunities earlier and moving more quickly than the competition. Shapers, on the other hand, focus on thefiuidityof events and on opportunities to determine or influence outcomes. They believe it is possible to mold the environment in such a way that it enhances their ability to create value. Too often, senior management selects one of these approaches without explicitly considering either the choice itself or what it means for business strategy. Yet whether a company decides to be an adapter or a shaper has profound implications for the strategy and tactics that it must pursue to be successful {see exhibit). Consider, for example, the contrasting strategies of a leading shaper, Microsoft, and a leading adapter, Compaq, in the desktop computing technology web. Microsoft has concentrated on occupying key leverage points in the computer arena and using these positions to mobilize winning value webs. Winning strategies for major web players Web formation Get into the flow

Shaper

Adapter

Web mobilization Build momentum

—•^

Encourage lock-In

Pick the right technology as platform

Manage perceptions actively

Enhance platform technology frequently

Enter market quickly

Create economic incentives for others

Promote standardization

Accelerate adoption

Evangelize opportunity

Link and leverage

Identify winning web early

Compete aggressively for web share Link up with web shaper's strategy

Exploit customer lock-in

Focus on near-term profit opportunities Establish dense intormation links with other web participants

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Web evolution

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Undermine supplier/shaper lock-in or diversify into " * ^ ^^''^

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Its early success stemmed from its ability to establish MS-DOS as the de facto operating system for PCs. An alliance with another leader, Intel, gave it access to a further leverage point, the microprocessor. The operating system and microprocessor represent leverage points because the functionality of the core technology influences the evolution of broader desktop computing architectures, thereby shaping the investments made by other web participants. The alliance with Intel also helped Microsoft to accelerate standards adoption and strengthened ..ft -ii J . I • the architectural leadership ofthe Microsoft will undertake niaior , . *^ „, , , 4 two companies, investments with long lead ^ times in order to pursue its ... c^, , , ,, , 1 , . . . L. i,u ^ Microsoft s technology focus has leadership in web architecture , . . . . . . . . always straddled the product and architectural levels. The company must offer strong products to succeed - but success is defined more by the opportunity to shape overall architectures than by the commercial fortunes of an individual product. For this reason, Microsoft tries to get its core technologies adopted as de facto standards. Its marketing tends to center on differentiating the architecture ofthe overall value web from competing webs such as Apple's, rather than on the attributes of individual products. This architectural approach leads to a long-term investment strategy; if an opportunity arises to establish or strengthen architectural leadership, Microsoft will undertake major investments with long lead times in order to pursue it. By contrast, Compaq, at least within its desktop business, has followed an adaptation strategy of exploiting near-term product opportunities within the Microsoft/Intel value web. In forming alliances, Compaq aims to boost its responsiveness by improving its access to technologies or markets. It maintains a sharp focus on product excellence, and its marketing accordingly stresses differentiation at the product level. Rather than trying to define new standards, it concentrates on promoting product standards within the established architecture ofthe web. In line with this overall strategy, Compaq invests ^ • . - i .^. , ^ u I Compaq invests with an eye to with an eye to near-term paybacks. ^ ^. , ,•' , promoting product standards ..,, ,, u * u u within the established Whether a company chooses to be a shaper ,. ^ , , , , ,, , . , . . .^ architecture of the web or an adapter has much more to do with its senior management's degree of ambition and willingness to take risks than with objective market conditions. Even small companies can pursue shaping strategies in web-based environments, as Netscape attests. Small companies should stop thinking of themselves as mere adapters and followers. No longer is it just the top revenue earners that can shape markets, particularly in high-growth industries. The game has been reversed; the tail really can wag the dog. THE McKINSEY QUARTERLY 1996 NUMBER

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Netscape has pursued an aggressive shaping strategy by commercializing a series of technologies designed to enable commerce on the Internet. Around these core technologies, it has mobilized a web of other companies that are developing complementary technologies to establish a broad platform for electronic commerce. These companies recognize the value of de facto standards on the Internet and r: 11 • believe that Netscape will be able to shape

Even small companies , • can now pursue shapmg strategies in web-based

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Companies supporting or implementing r-1=> r= hardware as Sun. Silicon Graphics, Netscapeproviders technology include such major DEC, IBM, and Apple, and such network providers as MCI and AT&T. Leading content providers are also adopting Netscape server software as a platform for their web sites on the Internet. While the success of this strategy has yet to be proven, Netscape's recent public offering indicated that it has been able to generate over $2 billion in shareholder value. environments

Success factors for shapers Within technology webs, the success of shaping strategics ultimately hinges on four conditions: • Ownership of a key platform technology that shapes broader architectures and provides the basis for longer-term lock-in. Take IBM's role in the emergence ofthe PC value web. By integrating numerous off-the-shelf technologies into a new desktop computing platform and helping to mobilize industry participants behind it. IBM created an attractive alternative standard. But it failed to retain ownership of a key platform technology within the new architecture, and thus lost its ability to shape the evolution ofthe value web. Instead. Microsoft and Intel seized architectural control and captured a disproportionate share of value. • Unbundling of the business to expand opportunities for other web participants. Consider Novell's decision in the late 1980s to divest its local area network (LAN) hardware business and focus exclusively on its network operating system. At the time, the company had a 40 percent market share in the LAN business, and LAN hardware sales represented 70 percent of its revenue. Writing off such a large chunk of income seemed a very risky move but this unbundling proved essential. By freeing up opportunities for other companies to launch products and allaying concerns that it might use its network operating system unfairly to benefit its hardware business, Novell gave new entrants incentives to participate in the emerging LAN value web. The results were impressive: between 1986 and 1994, Novell increased its market share in LAN software from 40 to 75 percent, and its revenues rose from $120 million to almost $2 billion.

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• Reliance on economic incentives, rather than alliance structures or contractual relationships, to mobilize other web participants. Apple was one of the early creators of a value web. It established an entirely new category of employees known as "evangelists." Though not salespeople, they were charged with telling companies about the business opportunities generated by the Apple II. This simple and relatively cheap product could be easily expanded through add-in boards or peripherals, and enhanced through application software. Through the efforts ofthe evangelists, many new businesses appeared in such areas as board assembly, peripheral manufacturing, software development, retail distribution, value-added reselling, technical consulting, and after-sales support. Few had direct contractual relationships with Apple; indeed, the company did not even know the names of many of them. But the pursuit of a common set of economic incentives defined by Apple's product platform united them all. • Active management of increasing returns dynamics to accelerate web growth and promote customer and participant lock-in. Again, Netscape provides a useful example. Its first product was a browser that built on the established Mosaic technology developed at the University of Illinois by one of the company's founders. The browser also exploaed the r,ch resources already Netscape's controversial available: on the Internet. Leveraging ex.s^ ^f ^- -^^ ting technology and infrastructure allowed . ^^^,^ ^^^ •^ ^ Netscape to enter the market quickly and its ^^^^^ ^^ ^^^^ ^ controversial strategy oi givmg the browser away soon won it a market share of over 75 percent. All these steps encouraged rapid customer adoption and helped convince industry participants including AT&T and News Corporation to adopt the core technology. The resulting momentum hastened Netscape's entry into the web server software business and positioned it at the center of a powerful new value web emerging on the Internet. Web shapers can reap enormous rewards, but the source ofthis wealth is quite different from that of traditional monopolist returns. These tend to be generated by powerful economies of scale that accrue at the firm level. Monopolist strategies focus on expanding capacity, acquiring competitors, and employing predatory pricing to inhibit entry and discipline competitors. In contrast, shapers strive to catalyze and accelerate increasing returns dynamics at the web level. By speeding the adoption of core technologies, expanding the range of web participants, and generating expectations of web success, shapers set in motion increasing returns dynamics that raise entry barriers for competing shapers and switching barriers for web participants. For the web shaper, the source of advantage - and ofthe ability to extract above-average returns -

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lies at the level not ofthe firm, but ofthe web itself. Of course, the web shaper must own a technology component that allows it to shape the architecture defining the broader web, but the value of that component depends on the size and growth ofthe web. Success factors for adapters For those inelined to pursue adaptation strategies in technology webs, success depends on three factors: • Early participation in winning value webs. Aldus was able to build a sizable software business by recognizing at an early stage the value ofthe Macintosh computer as a platform for desktop publishing. It established a preemptive position in this attractive market and was able to form a close relationship with Apple that gave it insights into future architectural -rt. i r*u * i l , J I he value ot the technology ^ ^' component, and thus the ability to extract high returns, depends • Aggressive competition for ^, ^u r*ii. .. ..L- .1. . ._ . .. on the growth of the web share within the value web. In the 1980s, Compaq emerged as one of the early participants in the PC value web, but it lost sight of the imperative of competing for share. A decade later, having been turned around by new senior management, the company regained its focus on relative share position and became highly profitable once more. Having a leading share in the value web allowed Compaq to strengthen its relationships with Intel and Microsoft and improved its access to information generated within the web. • Linking and leveraging (or diversifying) position. Value web participants can build sustainable long-term positions by tightly linking their strategies to those of the web shapers, and leveraging this base into related areas. Alternatively, they can develop straddling positions across several value webs to protect against unexpected shifts in the strategies of web shapers or in the fortunes ofthe webs themselves. Compaq pursues a linking strategy through its close partnership with Microsoft in such ventures as the effort to make Microsoft NT a winning enterprise-level platform for full-service broadband networks. Straddling strategies are evident among software vendors that develop their products for both PC and Macintosh platforms. Why are web strategies so powerful? Web strategies are becoming prominent in high-technology arenas because they can help manage risk and generate innovation in complex, changing, and uncertain environments. Risk is reduced through focus, through the

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leverage eonferred by increasing returns dynamics, and through enhanced flexibility Innovation is promoted through distributed information flows. The emergence of a technology web enables all participants to unbundle their businesses and focus only on activities where they can offer distinctive value. The web promotes specialization by gathering many players around a common technology platform. If a given company is not distinctive in a particular business activity, several others will probably be able to perform it instead. This safety net reduces risk by cutting overall investment requirements, by directing investment toward the areas most likely to succeed, and by encouraging the supply of bottleneck components by multiple producers. Technology webs' ability to provide such a safety net - and indeed, even their very existence - is closely related to the advent of open architectures with widely available interface specifications, like the Windows/Intel computing platform and the Internet. The proprietary architectures of the mainframe computer platforms of the 1960s, and even the early mid-range platforms designed by DEC and Wang, did not allow technology webs to form and imposed major internal development burdens on the company defining the architecture. While value creation could be enormous if the proprietary architecture gained widespread adoption, the risk was equally huge because of the concentrated investment required to make the architecture successful. Technology webs also limit risk by unleashing powerful drivers of increasing returns that help to create early advantage and reduce vulnerability. They do so by accelerating and extending investment around technology platforms, thereby speeding customer adoption. Apple's evangelists, for example, succeeded in mobilizing far more investment around the Apple II platform in the year or two after its introduction than the company could ever have mustered by itself With risk shared between many players, more investment got made sooner. In turn, this investment boosted the „,., . ^. r *i i ,c ^ r .,-. J • . platforms lunctionality and gave rise to a '. . r . . rich service lnirastructure.

Wide adoption drove a further c* * i.

wave ot investment by even more • . i ..L . .1 companies convinced tbat tbe platform would be a winner ^

rr. c . J . . These factors encouraged customers to adopt the technology, and wide adoption then drove a further wave of investment by even more companies convinced that the Apple platform would be a winner. In this way, a virtuous cycle was set in motion that helped to guarantee the platform's success. Ironically, when Apple migrated to a new generation of technology, it strayed from the design principle that had made the Apple II such a

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powerful platform for web formation. The Lisa and the Macintosh were more self-contained, with only limited expansion slots and interfaces for peripherals. At about the same time, IBM and its partners were striving to shape a value web around their competing architecture. Apple's change of approach gave IBM the chance to spread the word about opportunities to design add-in boards and peripherals for its own platform. Apple subsequently introduced much more open CPUs in its Macintosh line, but it had lost considerable momentum. Another way in which webs limit risk is by enhancing the flexibility of participants. Companies in a web enjoy expanding sourcing and distribution options, while their fixed investment and Companies in a web expand their sourcing and distribution +• Ul +u • • * » options, while their investment and skill requirements fall ^ ^

f " '<=^""<'"^^"^^, f""- As a result, they face '^^^ severe petialties for making wroiig bets, and can shirt to new bets more quickly, ^ ^ ^ , , , , • , ,Technology webs also improve the climate for innovation. Webs are largely shaped by information flows; in them, information is distributed far more widely and intensely than in conventional markets. Webs disperse innovation to many participants and provide robust mechanisms for disseminating learning via information links and interdependencies. The web created by Apple for the Apple II platform spawned the first spreadsheet product from Visicalc; the web for the Macintosh platform generated the first desktop publishing software. Both innovations shifted the position ofthe core technology platform; probably neither would have occurred if innovation had been tightly concentrated within Apple.

What is distinctive about web strategies? Web strategies demand a completely different mindset from that employed in traditional strategic thinking. For one thing, they tend both to narrow and to broaden management focus. The former, because they encourage unbundling and the outsourcing of undifferentiated business activities. (The extreme form ofthis is the virtual corporation, where the scope of activities conducted within the enterprise and subject to direct management control is radically reduced.) The latter, because the context for defining strategy expands from maximizing value for the enterprise to maximizing value for the web. If the web does not maximize value, neither can the enterprise within it. Admittedly, web value maximization does not necessarily translate into enterprise value maximization, as IBM's experience with the PC web suggests. But to neglect web value maximization is certainly dangerous; consider what happened when Apple did just that while focusing on near-

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term profitability in the late 1980s and early 1990s. Other participants in the web either shifted to straddle the Macintosh and PC value webs, thus eroding the differences between them, or migrated completely to the PC web. By choosing not to license its Macintosh operating system. Apple was able to capture the lion's share ofthe revenues in its web, but the web itselfat least in terms of market share - began to shrink. In contrast, Microsoft captures only about 4 percent ofthe revenues in its web, but that web has grown to a size of more than $66 billion. Striking the right balance between maximizing value for the web and for the enterprise is one of the main strategic challenges facing web shapers, and one of the chief concerns of other web participants. Web strategies turn traditional strategic thinking on its head in other ways, too. The conventional approach dictates that firms first define their own strategy and then negotiate alliances that are consistent with this strategy and advance its aims. Web strategy asserts that the two basic choices confronting senior management are which webs to participate in (or to form), and what role (shaper or adapter) to play within them. Once these choices have been made, the firm's strategy comes into focus, ln other words, firm strategy follows web strategy. In addition, web strategies have a profound impact on organization, especially for companies seeking to be shapers. Performance measurement for managers, for example, needs to T, * * r J c • * * expand to place much greater The context ror detitime strategy ^, . , ,. '^ . ,. *^. . ^-^ emphasis on web periormance. expands rrom maximizing ^ ^ value for the enterprise to ^- -, • •• , ••, . • •• 1 r *u u Similarly, aspiring shapers will need maximizing value (or the web , , * , , .,, to develop the skills to create appropriate economic incentives for other web participants, to manage increasing returns dynamics, and to market the web. These skills include understanding the business economics of potential participants and knowing what is likely to motivate them to join the web. Product design must be conceived not only in terms of the value it delivers to customers, but also in terms ofthe appeal it holds for providers of complementary products and services. Investment decisions must take account of increasing returns dynamics: for example, what is the economic return from deploying a cadre of evangelists who make others aware ofthe economic benefits of joining a web, yet who do not themselves generate any revenue? Companies participating in webs must learn to manage organizations whose boundaries have become much more porous, with denser information links to other web participants. Just as MIS is coming to grips with

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the enormous challenge of reengineering IT platforms to integrate an entire enterprise, it will encounter the even more daunting task of integrating systems aeross the web. Since value webs tend to concentrate information flows in the key leverage points occupied by web shapers (indeed, this is one ofthe main advantages of being a shaper), other participants will need to be proactive in extracting and interpreting this information. For those that succeed, there will be enormous scope for learning. Where else are web strategies relevant?

This article has focused on technology webs in just one business environment: multimedia. Other forms of web are emerging that are likely to be far more relevant to non-technology providers. New technologies are enabling the formation of powerful customer webs, for instance. Unlike technology webs, which focus on technology architectures, customer webs are organized around the behavior and spending patterns of specific target customer segments. Whereas technology webs /- * . • j ° . . . . . I- c Customer webs are organized are shaped by the ownership of a J .i i_ i_ • j y ^c . \. y u around the behavior and platlorm technology such as an ,^^ r. .^ ^ ,. , ^ . spending patterns of Specific operating system or microprocessor. \ * . . ^, . customer , , .1. target customer segments ownership of relationcustomer webs revolve around the offers the ^opportunity to establish ^ ships. Owning a platform technology a de

facto standard; owning customer relationships provides the chance to build a unique customer database. Such a database creates the necessary economic incentives to mobilize other web participants interested in reaching the same customer segment. When a web shaper provides access to its database, it develops an even richer profile of its target customers, and sets in motion a powerful increasing returns dynamic. Customer webs already exist today, albeit in a rudimentary form. Thanks to its sophisticated approach to compiling profiles of its target audience, Reader's Digest has shaped one such web. It has leveraged its database to deliver a broad range of new products and services to its customers. Another example is provided by American Express, which has developed a vast direct marketing business based on its detailed knowledge of chargecard users. The advent of interactive multimedia networks provides an opportunity for customer web shapers to deepen their customer databases and thus enhance their shaping power. Before customer webs can truly fiourish.

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shapers will need to become adept at mobilizing a cluster of other participants that seek access to customer profiles. Market webs represent a third form of web. Unlike customer webs, which focus on the behavior and preferences of an individual customer segment, market webs are organized around a specific type of transaction. The customer web shaper wants to develop the broadest possible relationship with its chosen segment, and to serve these customers across a wide range of needs. The market web shaper tries to build the deepest possible relationship with all the buyers and sellers involved in a particular kind of market ^. , , , , •, , The market web shaper builds transaction. , , . ,. • , ,, , deep relationships with all the A ^ \ * u u • K* f 1 buyers and sellers involved in a A market web shaper might, tor example, .• t t • . c (. , |,„. . ^ particular kind of transaction locus on buildmg a compelhng environment __^ for the formation and evolution of a market in residential mortgages. Its objective would be to assemble a critical mass of buyers and sellers and serve all their needs in relation to the purchase and sale of residential mortgages. However, it would take little or no interest in the broader needs of these buyers and sellers beyond the transaction category that defines the market web. While customer web shapers exert their influence by owning unique customer profiles and databases, market web shapers exert theirs by controlling a physical or virtual space where Once again, market webs exist so far only in a rudimentary form. The New buyers and sellers come to execute a specific York Stock Exchange, with its critical mass oftransaction. buyers and sellers, represents an early example. The efforts of financial information providers such as Reuters to offer certain kinds of electronic trading capability illustrate the formation of market webs on electronic networks. In fact, as common electronic networks that are "commerce-enabled" become increasingly available, opportunities for market web formation may well multiply. Consider Microsoft; adept at shaping a technology value web. it is now trying to leverage its leadership position to build related technology value webs and shape customer and market webs. While its current technology web focuses on the architecture of desktop computer devices, it is actively moving into related technology webs such as enterprise servers, multimedia broadband networks, and portable access devices. At the same time, it is working to develop a powerful customer web through the launch of Microsoft Network, which will enable it to assemble detailed profiles of its subscriber base and mobilize other web participants to deliver services to these customers. Bill Gates has also stated his intention to build electronic market environments, or market webs, that will act as the locus for certain transactions.

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Not only is there potential for other forms of web, but webs are likely to become important in markets beyond multimedia. We believe tbat webs will form in any environment characterized by rapid and profound change, by the prospect of increasing returns that are appropriable by consumers, and by the need for providers and consumers to make large and irreversible commitments of resourees. Webs already appear to be a notable feature of fashion dominated markets. They can also be expected to play a growing role in markets that are experiencing major discontinuities, such as healthcare and financial services. ^V

-V

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In multimedia, at least, webs are becoming a prominent new dimension in competition. They can make or break a company in this rapidly changing world, yet traditional models of strategy offer little help with decisions about when and how to participate in them. .., , * 1 I Some of the most expert players in Webs represent a whole new way , . j. -.•.*-• i^ ,..-,• , .• J . ' multimedia - companies like Mierosort, ol thinking about lnduslry ^ v, „ j v, . • . -.- • 1 ^- , • . . Compaq, Novell, and Netscape - intuitively structure, relationships between K M^ • ^ • I I I J , ^. pursue web strategies. Survival, let alone companies, and value creation ^ „ ^ , •,, . . •_ success, for many others will depend on acquiring a new set of strategy tools to assist senior management as it tries to navigate through major discontinuities. The lessons learned by multimedia companies are likely to grow ever more relevant to players in many other industries Iraught with technological and regulatory upheavals. Webs represent a whole new way of thinking about industry structure, relationships between companies, and value creation. Though not monopolies, they are just as powerful. For the rest ofthis decade perhaps much longer - we shall see industries being shaped by competing webs that relentlessly devour one another. O

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