Big Data and value chains: Will horizontal be the new vertical?
To prepare for this week’s lecture, we were required to read about pricing information (Shapiro & Varian, 1998). This reading material included an example about Encyclopedia Brittanica, which used to be the a well-established encyclopedia brand. Coincidentally, while watching Philip Evans’s Ted Talk “How data will transform business” (2013), I came across the same example. Instead of illustrating pricing information, the example was used more broadly to relate to the transformation of business strategy.
Evans tells that Henderson (1975) gave the first introduction of the advantages of economies of scale. Therefore, Henderson found a logic in investing in scalability in order to achieve competitive advantage. Porter (1980) added that business components may have different drivers and came up with the value chain. The value chain implies that what holds a business together is transaction cost.
However, Evans argues that those premises are invalidated. Transaction cost have been falling and scale is polarizing. This causes that there is less need to have vertical integration within a chain so that the chains might split up. This creates the possibility to attack the industry.
Here the Encyclopedia Britannica example comes in: distribution of information goods became cheaper because of the invention of the cd-rom. Later on, the encyclopedia industry became even more fragmented. Wikipedia caused that companies were not even needed anymore, due to the rise of user generated content.
So what will the next phase be? Evans thinks that, when patterns of our data are recognized and accessible for everyone it can be considered as a commodity. Then, how will this fit into current business models? How can businesses use data as an asset? He argues they cannot. Value chains will become more horizontal than vertical. This will transform the way we are doing business. I am not sure I would fully agree. At the moment, many information could be seen as a commodity and still there are businesses using it to achieve competitive advantage. It seems to be how to use it. Would this be different for the patterns we will discover?
Evans, P. (2013) How data will transform business, http://www.ted.com/talks/philip_evans_how_data_will_transform_business#t-704545, Octobre 7, 2014.
Shapiro, C., and Varian, H. 1998. Pricing Information.pdf In Information Rules: A Strategic Guide to the Network Economy. Cambridge, MA: Harvard Business School Pre