Good things during bad times

One of the great ironies of modern business is that while it’s only natural for companies to cut back and be cautious during market downturns, these are also the times when the greatest competitive gains are usually made.

The historical evidence is clear. It’s during prolonged slumps that market positions are strengthened and major gains in share are possible. Consider how much stronger companies such as Inc., Yahoo Inc. and Google Inc. are now compared with a year or two ago. Boom years are like a steadily rising tide; they lift all but the leakiest of boats, resulting in a false sense of security. But when the inevitable ebb comes, the weaker companies can’t keep pace and often disappear entirely.

How does this matter to you? Just about every major economic sector is still in the process of determining whether online market leadership will be largely the preserve of new players, or whether established pre-Internet companies will be able to extend their success into e-commerce domains. In a wide range of industries, what I refer to as value-chain control is at stake.

Consider three examples: iTunes, professional baseball and Orbitz LLC/Opodo Ltd. Apple Computer Inc. has been able to burst into the music business with iTunes mostly because the established recording industry has been unable to produce online services that customers want to buy. In sharp contrast, Major League Baseball successfully sells its games directly over the Web, bypassing traditional broadcasting partners. Somewhere in between are the major U.S. (Orbitz) and European (Opodo) airlines, which have decided that they shouldn’t just concede the online travel reservations business to Expedia, Travelocity and countless other specialists.

Perhaps the most surprising example of the old vs. new dynamic can be found in the world of online payment systems. Over the past 50 years, the banking industry has managed to own and operate just about every important technology-based payment system – credit cards, debit cards, ATMs and the rest. However, thus far, it has missed the opportunity to do this on the Internet. The fact that eBay owns PayPal is a compelling example of a start-up controlling part of the value chain that established banks have traditionally dominated.

Similar dynamics exist in the health care, insurance and automotive industries and many other consumer and business-to-business sectors. The reality is that the long-term online structure (and associated shareholder value) of most industries is still very much up for grabs. However, both business history and current trends suggest that the Internet leaders of tomorrow are much more likely to emerge out of today’s troubled times than during the dot-com boom, when far too much emphasis was put on long-disproved first-mover theories.

Today, many CIOs and IT shops are struggling to justify budgets and regain business support. Perhaps a good way to start is to make it clear that the current period remains both more promising and more dangerous than many people think. Restoring a sense of strategic urgency to IT’s high-profile projects would go a long way toward restoring the prospects for our business.

When was the last time you asked your business colleagues whether your company is gaining online value-chain control or losing it? With the end of the IT downturn now coming into view, the leadership window is clearly closing. There may never be better opportunities than there are right now.

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Jim Love, Chief Content Officer, IT World Canada

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