When the internet boom occurred, it was all a new economy, until it was even thought that the end had come for business strategy and that the network would achieve everything. Now when we have all landed the perception is not the same.
The great fever that internet companies generated in the markets and the economy in general, until the month of April 2000 when NASDAQ collapsed, seriously affected the decision-making sense of managers of traditional companies, that of analysts and directors of investment funds and that of new dot-com entrepreneurs. There are several notorious cases of managerial errors that cost not only the head of the manager but the destruction of much value for shareholders and in some cases even bankruptcy.
Today when all the boom and market distortions have disappeared, it is worth asking: why so much error? and the answer could be given by the lack of strategy of the dotcom companies, by the absence of a search for sustainable competitive advantages, even the leaders failed in this.
Distortions
In many occasions the market distorts the managers' vision and their decisions are not the best ones, when the dotcoms were overvalued many mistakes were made.
According to Michael Porter, one of the world's greatest experts on business strategy, there are five underlying forces of competition: the intensity of rivalry between existing competitors, the barriers to entry for new competitors, the challenge to substitute products or services, the bargaining power of suppliers and that of buyers; When deciding to analyze an industrial sector, a company or the economy of a region, these five forces must be considered and the structure of the industry must also be considered, which determines the profitability of the average competitor.
What can be seen in a quick and shallow analysis of the internet industry is that it generates advantages and conditions for the benefit of the consumer, creating increasingly powerful clients that are difficult to retain as they have realized that the cost of change is low. It can also be seen that there are benefits for the companies' purchasing area, it can improve their position to negotiate, but it also generates benefits for suppliers that may reduce costs. Another important aspect is that internet technologies allow reducing variable costs to establish fixed cost structures.
The Internet is not a competitive advantage, it is a tool.
Porter also cautions that there are basically two ways to differentiate yourself, one is through costs and prices, and the other is through strategic positioning or both.
There is light at the end of the tunnel
Internet companies are not bad in themselves, although the market seems to reflect otherwise, if we add good strategies to the benefits that the network has generated, the returns will be better.
It has already been mentioned that internet technologies allow the creation of cost structures inclined towards fixed costs, which has driven dot-com companies to line their batteries towards this kind of differentiation. That is why almost everything on the internet started for free, although nowadays what was free is starting to be charged or it is planned to charge. Dotcoms focused on the strategy of reducing costs and low prices, thinking that this could wipe out the "traditional economy", which does not turn out to be true and, already proven, profitability is not obtained by aiming only at this strategy.
Profitability is obtained to the extent that the technologies and advantages offered by the internet are used to generate sustainable competitive advantages, that is, there is no need to cannibalize competitors, what is important is the strategic position, the differentiation is achieves based on quality. The myth of the first player no longer exists, everything has been copied on the Internet and will continue to be done, so as the song says: you don't have to get there first, you have to know how to get there.
The conclusion is that quality creates difference, just as in the physical world, in the virtual world of the internet, total customer satisfaction must be sought, and this satisfaction is not only constituted by low prices.
