STRATEGYANDTHEINTERNET:

TRENDSANDPREDICTIONSRealTechConferencePeterStangerSTRATEGYANDTHEINTERNET:

TE-COMMERCEISDEAD“E-CommerceIsDead,LongLiveE-Commerce”TheIndustryStandard,April2000“Going,Going,Gone:Business-to-ConsumerSectorGoesBust”F,April2000“Canyoubuildabrandonlinesellingthird-partygoods?Theanswerisno,eventhougheveryoneusedtothinktheanswerwasyes”BryanRutbert,WarburgDillonRead“Thelivingdeadhavegottenawaywithmurderbecausethepublicmarketshavefundedriskierventures.LookatA-ifcouldbethebiggestlivingdeadthepublicmarketshaveeverseen.”WarrenPackard,DraperFisherJurvetsonE-COMMERCEISDEAD“E-CommerceTOMSIEBEL

CEO,SiebelSystems“Ifyoucan’tgenerateprofits,significantmarketshareandcustomersatisfaction,youreoutofbusiness.”“OntheB2Bexchangeside,Idon’tthinkanyonewillsurvive.Theyareallgone.”TOMSIEBEL

CEO,SiebelSystemsTHECAPITALMARKETSHADITALLWRONGTravelocityBExpediaDEPricelineeBayAmazon$123BWebvaneBayAmazonAllOther$11.4BTHECAPITALMARKETSHADITALLISTHEREVOLUTIONOVER?

July28,1794ISTHEREVOLUTIONOVER?

July2THEBUMPYRIDEOFECONOMICREVOLUTIONS1860-18901895-1925THEBUMPYRIDEOFECONOMICREVFUNDAMENTALFORCESAREATWORK120100804060200177017801775IndexWorkersperbushelofmanufacturedcottonEngland1770-83PriceoftheModelTtouringcar1908-20191019151920198519901995PriceofCPUcomputingpower$/MIPS

1982-95Lowerprocessingcosts...…withincreasedthroughput...Fiber

capacityTime1050104103102…andpowerfulnetworkeconomics020406080100012345678910nValueincreasesasthesquareofconnectionsProfitLossValueCost02v6v12v20v30v42v56v72v90vn(n-1)vF+0F+2cF+3cF+4cF+5cF+6cF+7cF+8cF+9cF+10cF+

ncValue,

costConnectionsCostincreaseslinearlywithconnections…lowerstoragecosts...$/MBAverageHDsizeinPCatretail(GB)Harddrivesize(GB)Cost

($/MB)FUNDAMENTALFORCESAREATWORKLONGDISTANCEWholesale(Network)Design/buildOperations/maintenanceResale/interconnectionRetailSales/marketingAccountmanagementBillingRetailSales/marketingAccountmanagementBillingNetworkDesign/buildOperations/maintenanceResale/interconnectionRetailRetailNetworkintelligenceValueaddedservicesWholesaleservicecreationNetworkintelligenceValueaddedservicesNetworkmanagement/dispatchWholesalePHARMACEUTICALSResearchDevelopmentTrialsRegistrationManufac-turingSales&

marketingIncreaseddevelopmentcostsRoleofblockbustersincreasing

QualityoutsourcersavailableEasiercoordination1980s1990sResearchDevelopmentTrialsRegistrationManufac-turingSales&

marketingAcademiclabsBiotechfirmsContractresearchorganizationsContract

mfrsPBMsJVs/licensingELECTRICUTILITIESCOMPUTERINDUSTRYAT&T,MCIandSprint…fragmentedradicallyMicroprocessors,integratedcircuits,memorychipsComputersOperatingsystemsApplicationssoftwareMarketing,sales,anddistributionCommonstandardsTimebasedcompetition1995IntelMotorolaAMDCyrixCompaqDellApplePackardBellIBMDOSandWindowsUNIXMacOSOS/2MicrosoftOfficeWordPerfectOthersRetailSuperstoresOn-lineMailorderNeXtIBM,Digital1997PrimaryfuelPowergenerationTradingDistributionBackwardintegrationtoreduceriskForwardintegrationtoopensupplychannelsScalethroughfocusingonhugepowerplantsSynergythroughbundlingcapabilitiesofgeneraltradingandenergybusinessNewservicesforthecustomerRuhrkohleMobilBPShellNationalPower(UK)Electrobel(Belgium)RWE(Germany)NorskKraftmegling(Norway)EnronUnitedUtilities(UK)South-ernWaterEasternElect-ricity(UK)Stadt-werkeMunch-en(Ger-many)1990199519851990Statkraft(Norway)OsloEnergi(Norway)EVO(Germany)IVO(Finland)MANYINDUSTRIESEXPERIENCINGAREDEFINITIONOFCOMPETITIVEBOUNDARIESLONGDISTANCEWholesale(NetwoMASSIVEREDISTRIBUTIONOFTHEMARGINPOOLISOCCURING

DigitalPhotographyExample

CameraFilmEquipmentPaper,chemicalsPhoto-finisherReprint/enlargeStore/display

SharewithothersProcessingAnalogvaluechain–KodakandFujidominateMajorplayers(2000U.S.marketshare)CanonNikonOlympusMinoltaKodakFujiKodak(66%)FujiKodak(Qualex)(~40%)FujiPhotohutsAlbummanufacturersFramemanufacturersMailservicesdisposablesCameraManipulationCropAlterpixelsPrinterPaper,inkReprint/enlargeStore/displaySharewithothersProcessing(athome)Digitalvaluechain–HP,Sonyandotherswell-positionedMajorplayers(2000U.S.marketshare)Sony(35%)HP(19%)Olympus(13%)Kodak(12%)HP(70%)LexmarkEpsonHPLexmarkEpsonKodakPCIBMmicrodriveSonyCompactFlashE-mailpostingPersonalWebsiteZingShutterflySnapfishOfotoOthersAdobe(Photoshop)StandardwithcameraandavailablefreeonlineMASSIVEREDISTRIBUTIONOFTHEEXPLOSIVEGROWTHINONLINERETAILINGCONTINUES65.117.8Source: TheStateofOnlineRetailing2.0,3.0and4.0,SsurveysconductedbyTheBostonConsultingGroup;SECfilings;MediaMetrix andHarrisInteractivedata;industryassociationreports;analystreportsNote: Excludesfinancialbrokerage11.515.2NorthAmericanBusiness-to-ConsumerRevenues($B)20.6+132%+66%+46%26.744.5Onlinechannel>10%shareinseveralcategoriesEXPLOSIVEGROWTHINONLINERETCATALOGUERSAREWINNINGEBITMarginin%ofRevenues19992000Source: TheStateofOnlineRetailing2.0,3.0,4.0;SSurveysconductedbyTheBostonConsultingGroupCATALOGUERSAREWINNINGEBITMaADVANTAGEINCUMBENTSOnlineRetailingDsMarketplacesCLECsCataloguersGE,Big3ILECs/IXCsB2BTelecomADVANTAGEINCUMBENTSOnlineDotRENAISSANCEOFTHEFUNDAMENTALSIPOvalueCashflowGrowth=valueProfitablegrowth=valueCustomeracquisitionSegmentationInternettimeCompetitiveadvantageRENAISSANCEOFTHEFUNDAMENTALTHEVASTMAJORITYOFCHANGEAND

TRANSFORMATIONLIESAHEADIllustrativeviewoftransformingforces,Circa2010Technology)

GlobalizationDeregulationElectroniccommerceSource:BCGanalysisDeregulationandglobalizationindex(1999=100)Technologyandelectroniccommerceindex(1999=100)THEVASTMAJORITYOFCHANGEANAPERSPECTIVEONOPPORTUNITIESINREALESTATE:LEVERAGEYOURASSETS!Assetturns(sales/assets)Cashflowmarginin%ofsales(%)RetailConstructionMachineryAutomobileChemicalsUtilitiesRealEstateAirlineAutopartsAerospaceTelecomSource: BCGAnalysisAPERSPECTIVEONOPPORTUNITIESAPERSPECTIVEONOPPORTUNITIESINREALESTATE:LEVERAGEYOURASSETS!AccessFibreWirelessSatelliteAssetproductivityfocuse-Procuremente-SalesMarginfocusOpportunitySpaceSource: BCGAnalysisAPERSPECTIVEONOPPORTUNITIESSTRATEGYANDTHEINTERNET:

TRENDSANDPREDICTIONSRealTechConferencePeterStangerSTRATEGYANDTHEINTERNET:

TE-COMMERCEISDEAD“E-CommerceIsDead,LongLiveE-Commerce”TheIndustryStandard,April2000“Going,Going,Gone:Business-to-ConsumerSectorGoesBust”F,April2000“Canyoubuildabrandonlinesellingthird-partygoods?Theanswerisno,eventhougheveryoneusedtothinktheanswerwasyes”BryanRutbert,WarburgDillonRead“Thelivingdeadhavegottenawaywithmurderbecausethepublicmarketshavefundedriskierventures.LookatA-ifcouldbethebiggestlivingdeadthepublicmarketshaveeverseen.”WarrenPackard,DraperFisherJurvetsonE-COMMERCEISDEAD“E-CommerceTOMSIEBEL

CEO,SiebelSystems“Ifyoucan’tgenerateprofits,significantmarketshareandcustomersatisfaction,youreoutofbusiness.”“OntheB2Bexchangeside,Idon’tthinkanyonewillsurvive.Theyareallgone.”TOMSIEBEL

CEO,SiebelSystemsTHECAPITALMARKETSHADITALLWRONGTravelocityBExpediaDEPricelineeBayAmazon$123BWebvaneBayAmazonAllOther$11.4BTHECAPITALMARKETSHADITALLISTHEREVOLUTIONOVER?

July28,1794ISTHEREVOLUTIONOVER?

July2THEBUMPYRIDEOFECONOMICREVOLUTIONS1860-18901895-1925THEBUMPYRIDEOFECONOMICREVFUNDAMENTALFORCESAREATWORK120100804060200177017801775IndexWorkersperbushelofmanufacturedcottonEngland1770-83PriceoftheModelTtouringcar1908-20191019151920198519901995PriceofCPUcomputingpower$/MIPS

1982-95Lowerprocessingcosts...…withincreasedthroughput...Fiber

capacityTime1050104103102…andpowerfulnetworkeconomics020406080100012345678910nValueincreasesasthesquareofconnectionsProfitLossValueCost02v6v12v20v30v42v56v72v90vn(n-1)vF+0F+2cF+3cF+4cF+5cF+6cF+7cF+8cF+9cF+10cF+

ncValue,

costConnectionsCostincreaseslinearlywithconnections…lowerstoragecosts...$/MBAverageHDsizeinPCatretail(GB)Harddrivesize(GB)Cost

($/MB)FUNDAMENTALFORCESAREATWORKLONGDISTANCEWholesale(Network)Design/buildOperations/maintenanceResale/interconnectionRetailSales/marketingAccountmanagementBillingRetailSales/marketingAccountmanagementBillingNetworkDesign/buildOperations/maintenanceResale/interconnectionRetailRetailNetworkintelligenceValueaddedservicesWholesaleservicecreationNetworkintelligenceValueaddedservicesNetworkmanagement/dispatchWholesalePHARMACEUTICALSResearchDevelopmentTrialsRegistrationManufac-turingSales&

marketingIncreaseddevelopmentcostsRoleofblockbustersincreasing

QualityoutsourcersavailableEasiercoordination1980s1990sResearchDevelopmentTrialsRegistrationManufac-turingSales&

marketingAcademiclabsBiotechfirmsContractresearchorganizationsContract

mfrsPBMsJVs/licensingELECTRICUTILITIESCOMPUTERINDUSTRYAT&T,MCIandSprint…fragmentedradicallyMicroprocessors,integratedcircuits,memorychipsComputersOperatingsystemsApplicationssoftwareMarketing,sales,anddistributionCommonstandardsTimebasedcompetition1995IntelMotorolaAMDCyrixCompaqDellApplePackardBellIBMDOSandWindowsUNIXMacOSOS/2MicrosoftOfficeWordPerfectOthersRetailSuperstoresOn-lineMailorderNeXtIBM,Digital1997PrimaryfuelPowergenerationTradingDistributionBackwardintegrationtoreduceriskForwardintegrationtoopensupplychannelsScalethroughfocusingonhugepowerplantsSynergythroughbundlingcapabilitiesofgeneraltradingandenergybusinessNewservicesforthecustomerRuhrkohleMobilBPShellNationalPower(UK)Electrobel(Belgium)RWE(Germany)NorskKraftmegling(Norway)EnronUnitedUtilities(UK)South-ernWaterEasternElect-ricity(UK)Stadt-werkeMunch-en(Ger-many)1990199519851990Statkraft(Norway)OsloEnergi(Norway)EVO(Germany)IVO(Finland)MANYINDUSTRIESEXPERIENCINGAREDEFINITIONOFCOMPETITIVEBOUNDARIESLONGDISTANCEWholesale(NetwoMASSIVEREDISTRIBUTIONOFTHEMARGINPOOLISOCCURING

DigitalPhotographyExample

CameraFilmEquipmentPaper,chemicalsPhoto-finisherReprint/enlargeStore/display

SharewithothersProcessingAnalogvaluechain–KodakandFujidominateMajorplayers(2000U.S.marketshare)CanonNikonOlympusMinoltaKodakFujiKodak(66%)FujiKodak(Qualex)(~40%)FujiPhotohutsAlbummanufacturersFramemanufacturersMailservicesdisposablesCameraManipulationCropAlterpixelsPrinterPaper,inkReprint/enlargeStore/displaySharewithothersProcessing(athome)Digitalvaluechain–HP,Sonyandotherswell-positionedMajorplayers(2000U.S.marketshare)Sony(35%)HP(19%)Olympus(13%)Kodak(12%)HP(70%)LexmarkEpsonHPLexmarkEpsonKodakPCIBMmicrodriveSonyCompactFlashE-mailpostingPersonalWebsiteZingShutterflySnapfishOfotoOthersAdobe(Photoshop)StandardwithcameraandavailablefreeonlineMASSIVEREDISTRIBUTIONOFTHEEXPLOSIVEGROWTHINONLINERETAILINGCONTINUES65.117.8Source: TheStateofOnlineRetailing2.0,3.0and4.0,SsurveysconductedbyTheBostonConsultingGroup;SECfilings;MediaMetrix andHarrisInteractivedata;industryassociationreports;analystreportsNote: Excludesfinancialbrokerage11.515.2NorthAmericanBusiness-to-ConsumerRevenues($B)20.6+132%+66%+46%26.744.5Onlinechannel>10%shareinseveralcategoriesEXPLOSIVEGROWTHINONLINERETCATALOG