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Strategies for Electronic Commerce and the Internet

Author: Henry C. Lucas, Jr.
Publisher: Cambridge, MA: MIT Press, 2002
Review Published: April 2003

 REVIEW 1: Edward Castronova

The intended audience for this book seems to be senior management personnel in large corporations; more specifically, it seems to be written for senior management personnel with pointy hair and no mouse functionality. Unfortunately, the author does not seem to be the Dilbert in this cartoon, or the Tina, or even the Wally. The author is the outside consultant hired by Dogbert Ė the one whose vague, jargon-laden presentation never fails to impress the pointy-haired boss, despite its general lack of useful content.

I feel justified in brutalizing you with these Scott Adams metaphors because my father worked for General Motors for many years and, in a moment of clarity, he once leaned over the breakfast table, pointed at Dilbert in the comics, and said "Itís true. Itís all true." He would know. Having read this book, I get a sense of what he was talking about.

Henry C. Lucasí book claims to offer the reader analysis and models that will help in the development of business strategies. I guess these are supposed to be strategies for using the internet, or something, but nothing specific to the internet ever materializes. Lucas does analyze internet start-ups and traditional companies that are doing things on the internet, but he also analyzes the Port of Singapore Authority and Sabre, the old airline reservations system. He claims to present and defend a "model" for analyzing business strategy, but it is basically a box and arrow diagram in which every box dyad is connected with a bi-headed arrow. The idea seems to be that a business should identify resources that are rare and valuable but inimitable and nonsubstitutable. This gives the business an "advantage." Then it should add more resources, that are also rare, valuable but inimitable, etc., to "sustain and build" that advantage. Then you can maybe get to "critical mass." And then youíre set. It sounds to me like this strategy is: "Go find a highly-demanded good that you can monopolize. Monopolize it, then use the money to monopolize other goods." None of which has anything to do with the internet or e-commerce, by the way. In other words, this strategy advises you to just go do what Andrew Carnegie and J.P Morgan (and Bill Gates) did. And if you accept that this is a sound and helpful model of business strategy, let me offer you two more: "Win the lottery" and "Beat the house in Vegas." The point is, you donít need a book about business strategy to know that having advantages and profitable product lines is good; you need the book to tell you how to find such things. And if the book is about the internet, it should tell you where to find these things using the internet. Lucasí book fails to deliver on both accounts.

Unfortunately, if you happen to be senior management in 2002, you might not grasp how empty this book is because these "models" are presented with just enough jargon to keep things feeling tech-y. Terms like "critical mass," "network effects," and "punctuated equilibrium" are either misused or only vaguely explained. And, even though we are actually still living in the plain old competitive economy we always lived in, Lucas insists that our economy has become "hypercompetitive" Ė apparently just because stuff happens really, really fast now. Oh, and those firms that are on the cutting edge? They are called "virtual firms" now because, letís see . . . well, some of them donít have stores or warehouses. Or is it because the customer can sometimes place orders from a distance? Or maybe itís because the power structure is kind of distributed, or . . . well, I guess itís mostly just because they are cutting edge.

The incoherence of the text extends beyond the authorís analysis; it seems to be poorly edited as well. There are typos throughout the book. And consider the following text: "The Web uses hypertext links produced with the Hypertext Markup Language (HTML) to link documents and files. Hypertext is created by placing links on words to reference other sections of text or other documents. Clicking on a highlighted piece of text with a computer mouse results in the retrieval of a new file or document." For a book published in 2002, this text could only be appropriate for upper management types who are truly and completely disconnected from contemporary society. If that really is the audience of a book about internet commerce, this text needs to appear on page 1. But instead we find it only on page 175! The hand of the editor is sorely missed in many other places as well.

In the end, the best use of this book might be for cultural writers trying to unpack the mindset of business just before the dot-com collapse. This book exemplifies that mindset; all that is internet, is good; if you donít hurry up and get on the internet, competition from nappy-haired Gen-X-ers is going to eat you alive; being "virtual" is more important than making money (page 101: "Amazon has been very successful as a Web store, if one discounts the fact that it has yet to make a profit." Argh!). Reading this book helps you understand how so many intelligent business people, scared into being "strategic" in a Lucasian sort of way, poured so much money into unprofitable e-commerce ventures. But if you want to understand how not to do that, I would recommend the work of economists, not management theorists. Carl Shapiro and Hal Varian (Information Rules: A Strategic Guide to the Networked Economy, Harvard Business School Press, 1998) have done an excellent job of applying economic theory to internet, and I would advise readers to start with that book.

Edward Castronova:
Edward Castronova is an Associate Professor of Economics at Cal State Fullerton.  <ecastronova@Exchange.FULLERTON.EDU>

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