The Internet Paradox

Opportunities for airports in the wild wired world


Capitalizing on the opportunities presented by the Internet and gaining value from nothing means extracting it from the information that moves freely through the fibre optic cable all around us. But, to ensure that airports obtain the value being redistributed in the supply chain, they must think differently about their role and how they generate revenues. This means redefining the fundamental nature of the airport as a business, becoming more focused on managing aeronautical properties rather than maintaining a public utility. In this context, airports can develop dedicated-use cargo facilities and specific types of manufacturing capabilities to take advantage of the insights gained from the Internet paradox. (14) This can be done either in partnership with experienced outside operators or through management agreements. (15) In this way the value of nothing becomes something as the Internet paradox leads to important insights about airport strategy and business development opportunities.

About the Author: Ron Messer has extensive experience in accounting, auditing, financial analysis and information systems. His essays have appeared in journals in Canada, the United States and the United Kingdom and he has recently published chapters on aviation finance in the Handbook of Airline Finance and aviation strategy in the Handbook of Airline Strategy. He has also written articles on airports and e-commerce, which have appeared in Airports International and Ground Handling International. He can be contacted at Ron_Messer@yvr.ca.

Endnotes

1 "Jay Walker: The Thought Leader Interview," Strategy and Business, Issue 19, Second Quarter 2000, pp. 87— 94.

2 See John Sviokla, "The Price is Wrong," Context Magazine, July/August 1999, www.contextmag.com and Laurie J. Flynn, "Let's Make A Deal", Context Magazine, Fall 1998, www.contextmag.com.

3 Compare "The Brand and the Bland," The Manager, August 2000, www.themanager.com.

4 Cisco and Dell are excellent examples of companies that have focused on their core competencies, using technology to generate value for consumers. They have done this by outsourcing all non-core functions, such as manufacturing and distribution.

5 Nobel prize-winning economist Ronald Coase's classic 1937 paper on The Theory of the Firm argues that companies organise vertically to minimise transaction costs. However, with advances in information technology, transaction costs have been dramatically reduced and vertical integration is no longer the least costly alternative — hence the emergence of strategic alliances and outsourcing.

6 The value attributed to an item is based on buyer behaviour in the destination market; for example, Japanese consumers will pay significantly more for salmon from British Columbia than will local purchasers.

7 See here Jacquelyn L. Jackson, "The Air Cargo Boom — Are We Ready," Airport Magazine, May/June 2000, www.airportnet.org.

8 Homegrocer.com, an online e-commerce grocery store's strategic plan calls for using the cost savings realised on lower land prices for its remote warehouses to offset delivery costs. (See Ric Mazereeuw, "One Foot in the Door.com," October 8, 1999, www.canbus.com.) For business-to-business e-commerce, the trend towards shorter product lifecycles and shorter development times will increase the value and use of air transport.

9 See here "Whither E-Commerce? John Hagel Shares Some Insights," Knowledge at Wharton, July 19, 2000, www.knowledge.wharton.upenn.edu.

10 Compare "To Be or Not to Be First," Context Magazine, Winter 1999, www.contectmag.com.

11 Compare, "The Dangerous Dictum of John Hagel," The Manager, August 2000, www.themanager.com.

12 First mover advantages in the e-commerce world include domination of an industry, according to Brian Arthur of the Sante Fe Institute, who argues convincingly that old economic models do not apply to the Internet. (See Joel Kurtzman, "An Interview with W. Brian Arthur," Strategy and Business, Issue 11, Second Quarter 1998, pp. 95— 103.)

13 See Barbara Cook, '"Air Cargo Goes high Tech," Airport Magazine, May/June 1999, www.airportnet.org.

14 Compare "Big Rigs' Lucky Break," The Economist, June 3, 2000, p. 66 for the trucking industry's response to e-commerce opportunities.

15 In this regard, consider the development of the massive Worldport complex outside Denver in the United States; an airport dedicated exclusively to air cargo. (See here "Ground Broken on Worldport Complex," World Airport Week, July 17, 2000, pp. 1— 2.)

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