book.chapter Information reach tradeoff

Information exchange is the glue that holds together value chains, supply chains, and business organizations. Historically, companies gained competitive advantage from proprietary information which they selectively shared across their business networks. Most business structures evolved around gathering and disseminating data. With the Internet's connectivity explosion, the nature of information flow is transforming: First, companies can now communicate richly with customers directly. Rather than relying on intermediate channels, firms engage customers through owned platforms. The capacity for direct interaction is rapidly increasing as communication bandwidth grows exponentially each year. Second, physical goods and related information were historically bundled together. But the Internet enables decoupling. Separating the economics of atoms and bits creates substantial value. For instance, consider a retail store's shelf space, embodying the information-inventory tradeoff: more variety requires more capital tied up in slow-moving products. By removing this compromise, online retail adds value. While the exact impact varies, most industries will see significant gains. We can depict information sharing on two axes - richness and reach. Reach measures participation, clearly defined as the number of people exchanging information. Richness is multi-faceted, encompassing timeliness, exclusivity, customization, interactivity etc. It means different things across contexts. Consumers navigate this tradeoff during product search, first consulting mass market but low richness sources like the Yellow Pages before shifting to personalized but narrow options like a sales rep. Brands ease search costs. The Internet transforms the richness-reach balance through parallel forces: First, ubiquitous connectivity - for the first time, everyone can access the same electronic network with negligible cost or delay. Information is decoupled from physical proximity. Second, open technical standards are overwhelming closed proprietary systems. "Good enough" common platforms like IP and HTML foster universal participation. Previously, companies operated at points 1, 2 or 3 on the richness-reach spectrum based on business model economics. The Internet now enables point 4 - mass customization, delivering information-rich offerings to a wide audience. By erasing the richness-reach tradeoff, the Internet utterly transforms market possibilities. Historical examples suggest open standards unlock tremendous value, as with railroad gauges, AC power, and QWERTY keyboards. The Internet's common languages - IP, TCP/IP, HTML, HTTP - are the digital era's new infrastructure. In short, the vanishing richness-reach compromise restructures economic relationships: First, distribution networks and information gatekeepers that took years to erect - sales forces, retail chains, printing presses - become expensive liabilities rather than formidable barriers. New entrants will disrupt established players. Second, replacing restricted legacy systems with inexpensive open networks facilitates supply chain bidding, virtual integration, and alternate ecosystem formation. Finally, universal internal communication protocols like intranets enable cross-functional coordination, flattening corporate hierarchies and their closed data stacks. The crumbling richness-reach tradeoff thus enables unprecedented business model innovation. Competitive advantage will come from leveraging the Internet's connectivity and communities to reimagine value creation and capture. Companies must pursue digital transformation with a sense of urgency and vision. Legacy business models will grow obsolete. Only decisive action today will ensure market leadership tomorrow.