The Internet Paradox

Opportunities for airports in the wild wired world


Opportunities for airports in the wild wired world

The Internet

The Internet and e-commerce present unique opportunities for both producers and consumers of goods and services because of the way in which information is managed. This information relates to the products and services companies sell and the needs/wants of customers. It does this by giving producers information about who is buying what and providing consumers with detailed information about planned purchases, including the best price available. In this way, the Internet overcomes significant information asymmetries for both groups.

What remains fundamentally unchanged in the new business model, however, is the requirement that goods and services be transferred from the person that makes something to the person who buys that something. This essay explores some of the possibilities that the Internet offers to supply chain management, specifically in terms of airports.

The Paradox

More than anything else, the Internet revolution is about gathering, assembling and processing vast amounts of information. By using technology to quickly transmit data to anyone, anywhere at anytime, the Internet creates value for its users. Particularly interesting in the wired world are the new business models being created. Just about everyone recognizes the Internet's potential to redefine the economic landscape, but no one knows for certain what the new topography will look like. Much like the old Zen koan about imagining the sound of a single hand clapping, the notion of electronically enabled commerce — or e-commerce — is largely a paradox. The paradox is that the Internet's underlying value proposition is based on nothing of true substance, inasmuch as information is, after all, intangible. It is for this reason that most of the literature has focused on the debate about clicks and mortar (intangible) vs. bricks and mortar (tangible) businesses.

In the case of a Zen koan, thinking about the nature of the paradox can lead to important insights; so, too, with the Internet. Jay Walker, founder of Priceline.com has said that there are essentially four types of business models that can be created using the Internet. The key value drivers in these models are content, entertainment, price and convenience. Content-based models are unlikely to succeed in the long-term because of the wide availability of free content (why pay for something if you don't have to). Entertainment-based models will not work because of the prohibitive cost of creating online entertainment (also, why watch something on your computer when you can be more comfortable sitting in front of a TV). Price- and convenience-based business models do, however, hold the promise of commercial viability. This is because they offer consumers new and/or improved value propositions. (1) These value propositions are realized in terms of time savings (convenience) and enhanced resource allocation opportunities (price).

The Internet is having a major impact on three broad business trends:

  • Dis-intermediation/Re-intermediation
  • Product Commoditization/Information Branding
  • Dis-integration/Re-Integration

These trends are a manifestation — and further elaboration — of the fundamental value paradox represented by e-commerce business models.

The Intermediation Paradox — "Imagine a chain with no links"

In traditional business models, goods and services are produced by manufacturers who then trade part of the value of their production in exchange for the risk of holding inventories for resale. This is the primary reason why wholesalers and retailers exist in the supply chain; they assume the risk of warehousing, insuring and transporting stock from the manufacturer to the final consumer. This risk is information-based, inasmuch as the quantities and types of goods desired by consumers is only imprecisely known. Traditional middlemen manage their risk exposure through proprietary information systems, such as sales contacts, distributors, agents and brokers. But, with enabling technologies such as standardized communications protocols, the value added by middlemen is replaced and the physical supply chain becomes dis-intermediated. (2)

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