Business-level strategies for online brokerage and booksellers: A return to management fundamentals

The focus of my dissertation is on how firms can gain competitive advantage in electronic markets. There is considerable theoretical controversy regarding the Internet's impact on the nature of competition and subsequently on the ability of firms to gain competitive advantage in electronic markets. Traditional economic theory predicts that the Internet will decrease transaction costs and put downward pressure on prices. These changes will result in more perfectly competitive markets that will reduce or eliminate traditional sources of differentiation advantage. In contrast, traditional theories of strategic management are based on the assumption that firms gain competitive advantage through such differentiation advantages.; Based on the resource-based view, I developed three principle hypotheses. First, business-level strategies that utilize the Internet to create added value to products and/or services will lead to a competitive advantage for the firm. Second, simply transferring existing products and services to the Internet without added value will only lead to competitive parity, not competitive advantage. And third, I hypothesized that adoption of the Internet alone could not confer competitive advantage for the firm. I tested these hypotheses using a cross-sectional sample of online financial service firms. Tobit regression analysis was used to test the hypothesized models.; Results of my dissertation research suggest general support for the hypotheses. Online brokerage firms that offered direct access to the trading floor through electronic communications networks (ECN's), unlimited free real-time quotes and twenty-four hour per day, seven day a week live customer service had higher market share than other firms. For online booksellers, online order tracking was positively and significantly correlated with market share. Second, as predicted simply transferring existing products or services to electronic markets was not significantly correlated with market share. And third, results indicate that mere adoption of the Internet is not sufficient. Managers must develop capabilities around the Internet in order to achieve competitive advantage. Finally, pure e-commerce firms were just as likely to have high market share as companies with physical stores.