Value Creation

As we enter the twenty-first century, business conducted over the Internet (�e-business’), with its dynamic, rapidly growing, and highly competitive characteristics, promises new avenues for the creation of wealth.

E-business has the potential of generating tremendous new wealth. It is also transforming the rules of competition for established businesses in unprecedented ways.

Virtual markets refer to settings in which business transactions are conducted via open networks

based on the fixed and wireless Internet infrastructure. These markets are characterized by high

connectivity (Dutta and Segev, 1999), a focus on transactions (Balakrishnan et al), the importance of information goods and networks (Shapiro and Varian, 1999), and high reach and richness of information (Evans and Wurster, 1999). Reach refers to the number of people and products that are reachable quickly and cheaply in virtual markets; richness refers to the depth and detail of information that can be accumulated, offered, and exchanged between market participants. Virtual markets have unprecedented reach because they are characterized by a near lack of geographical boundaries.

As an electronic network with open standards, the Internet supports the emergence of virtual

communities (Hagel and Armstrong, 1997) and commercial arrangements that disregard traditional

boundaries between firms along the value chain. Business processes can be shared among

firms from different industries, even without any awareness of the end customers. As more information about products and services becomes instantly available to customers, and as information

goods (Shapiro and Varian, 1999) are transmitted over the Internet, traditional intermediary

businesses and information brokers are circumvented (�dis-intermediated’), and the guiding

logic behind some traditional industries (e.g., travel agencies) begins to disintegrate.

At the same time, new ways of creating value are opened up by the new forms of connecting buyers and sellers in existing markets (�re-intermediation’), and by innovative market mechanisms (e.g.,

reverse market auctions) and economic exchanges.

There are several other characteristics of virtual markets that, when considered together, have a

profound effect on how value-creating economic transactions are structured and conducted, including ease of extending one’s product range to include complementary products, improved access to complementary assets (i.e., resources, capabilities, and technologies), new forms of collaboration

among firms (e.g., affiliate programs), the potential