What We Learned In The New Economy

So while transparency is forcing prices down, that need not turn into a simple race for the bottom. Rather, "the process of value creation is changing, driven by the changing nature of patterns of intersection between consumer and firm," says C.K. Prahalad, a professor at the University of Michigan and coauthor of The Future of Competition: Co-Creating Unique Value With Customers (Harvard Business School Press, 2004). "Value does not reside any longer in the products and services that people create. Now it is the experience that creates value."

Prahalad (like Fast Company columnist Shoshana Zuboff) believes we are entering an era in which consumers and companies must create value jointly. Successful sellers, recognizing consumers' power, will abandon adversarial relationships and embrace cooperation. Exhibit A comes from none other than General Motors, whose Web site features "Auto Choice Advisor," which matches consumers' needs and tastes to appropriate vehicles--even those made by competitors. GM hopes to create a relationship with potential customers rooted in trust--and, not incidentally, to collect information on visitors' priorities.

"The relationship," Prahalad says, "has become mandatory." That's the real power of the Internet--one that sellers must reckon with or fail. Armed with nearly infinite information, the consumer-as-adversary will win every time. --Keith H. Hammonds

Boom-Time Buzz: Destroy your business, or someone else will.
Cold Reality: Incumbent businesses aren't so easily destroyed.

It was the late-1990s catchphrase for every big-company CEO facing the threat of dotcom-induced obsolescence: "Destroy your business, or someone else will." In the face of rapidly evolving technology, the thinking went, old-line business models were obsolete. And the only sound strategy was to continually reinvent strategy. The notion became scarily concrete in 1999 when General Electric, the decade's It Company, established destroy-your-business.com, a task force staffed by young hotshots charged with inventing Internet businesses independent of GE's mainstream units.

Giant incumbents weren't the only ones to feel threatened. Founded in 1947, Hal Leonard Corp. was easily the largest publisher of sheet music in the world, an old company in an old industry. And in 1998, it watched as an upstart called Music notes.com produced a powerful Web site that let musicians download and print sheet music directly from an online catalog.

"There is no more perfect distribution model for sheet music than the Internet," Musicnotes founder Kathleen Marsh says today. And she's right: On the Internet, customers can choose from thousands of songs and get what they want in seconds. A traditional music store may or may not have that song in stock; if not, ordering it can take weeks.

How did Hal Leonard respond? Cautiously. It didn't destroy its business. Instead, it upgraded sheetmusicdirect.com, a modest joint venture founded the year before with Music Sales Ltd., Europe's biggest music publisher, to sell downloads from a limited library. To avoid alienating the company's network of 10,000 traditional music stores, the mainstay halleonard.com site simply referred visitors to its retail partners.

Today, Musicnotes.com says it sells 87% of all sheet music downloads in the United States; its sales were up 60% in 2003. Ah, but downloads represent just a small portion of music sales. And Hal Leonard, with its retailers, its huge library, and its longtime licenses with music companies, is thriving. In the end, says president Larry Morton, "The Internet is just another outlet."

It's a telling lesson. At the dawn of the Internet era, many old-line companies were indeed unresponsive and inflexible, leaving themselves vulnerable to new competition. Many still are. But those big corporations, it turned out, had other things going for them. One was, well, bigness, which brings leverage over suppliers and customers, plus access to capital markets. Established companies also enjoy powerful distribution channels, brand awareness, and relationships that aren't toppled quickly.

So, "Destroy your business. . . "? "It's not true. It just didn't happen." The speaker: former GE CEO Jack Welch himself. "The new businesses just made people faster, more efficient, and more effective." Despite eBay's success, Welch points out, Wal-Mart still thrives. "The vast majority of beneficiaries of the dotcom era were old-line businesses that became more competitive--not by abandoning their businesses, but by enhancing them." As for destroy-your-business.com, Welch says it "turned out not to be a very good idea." It helped to shake up GE's culture, but it also isolated Internet technology from the company's mainstream businesses. Within 18 months, it was disbanded. --Keith H. Hammonds