Developing A Sustainable Value Proposition In Web Services: Lessons From Strategic Management

One of the salient lessons from the dot.com era was the realisation that the business rules of the new (Internet) economy were no different from the old economy, even though many pundits claimed otherwise. Despite large venture capital funding of eBusiness start-ups, many of which stylising themselves as software-as-a-service firms (i.e. application service providers), very few achieved business success, measured by revenue generation and profit maximisation (Cassidy, 2002). In fact, many of these start-ups concentrated instead on developing their brand by spending large sums of money on advertising campaigns, with little emphasis on whether their products or services were attractive to potential customers. As the dot.coms began to fail, not having won enough paying customers to sustain their business models, venture capital firms decided not to offer second-round funding. This resulted in the dot.com crash with many investors becoming sceptical about the business potential of the Internet and associated emerging technologies. Following the fallout of the dot.coms, attention has focused upon more practical issues of how to develop and sustain eBusiness models (Currie, 2004). With the convergence of the telecoms and software industries to develop a service-oriented architecture (SOA) where firms will increasingly source their software applications from external service providers, the lessons from the dot.com crash will become more relevant. In this chapter, we explore these issues by examining the emerging technology of Web services. Our interest is on a vendor perspective with the aim of evaluating how Web service firms design and develop their eBusiness models to compete in this fast changing and dynamic marketplace. We suggest that, rather than restricting our analysis to the technical imperatives of Web services, a more fruitful approach is to relate our discussion to the strategic management literature. Our intention is to demonstrate the complexities of the Web services model by undertaking a market and firm analysis, rather than the narrow focus on specific key performance indicators. We develop a conceptual model, which incorporates three important elements of competitive advantage: market leadership, strategic differentiation, and revenue generation. We suggest that, in the absence of one or more of these elements, Web services firms are unlikely to survive. The means of achieving them will depend upon the careful design and execution of a business strategy, which will involve strategic choices related to market positioning, products and services, and cost structure. The transition from strategic choice to market leadership, however, will depend upon how the firm leverages its business through developing partnerships/alliances, integration and pricing models, which are attractive to its customers. The purpose of this conceptual model is to offer a template for Web services firms for competing in this volatile marketplace. How they develop their market, business and technical strategies will depend upon a complex balancing act between competing and conflicting factors. For example, the choice between developing a relationship building business where software products and services are customised for the client, or one which is purely a commodity-driven business, with distant relationships with customers (Carr, 2003). This chapter is divided into four parts. We begin with an overview of the Web services model and ask whether it offers a new paradigm for business. Next, we introduce our conceptual model, which links the strategic management, eBusiness and IT literature streams. We then introduce the three pillars of competitive advantage: market leadership, strategic differentiation, and revenue generation. Finally, we conclude by offering some new research directions for investigating how Web services firms can generate business value for their customers