Academic journal article The McKinsey Quarterly

Spider versus Spider

Academic journal article The McKinsey Quarterly

Spider versus Spider

Article excerpt

Are "webs" a new strategy for the information age?

The key question: should you adapt or shape?

How much of the wealth do you share?

Managing the dynamics of increasing returns

What does it mean when one of the worlds biggest manufacturers of personal computers finds it difficult to stay independent? 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 companies 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.

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 giving away value to 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, performance measurement, and information systems. They may even represent the opening salvo in the transition from 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 conditions must be present: a technological standard and increasing returns.(*) The standard reduces risk by allowing companies 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 and 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 self-interest drives it into web-like 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 investment requirements, focus individual participants' investments on areas most likely to succeed, and promote the emergence of multiple suppliers for bottleneck components.

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. …

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