Defines killer apps and describes the digital environment that fosters them. The authors provide examples of killer apps and introduce three concepts, each powerful in itself and lethal when combined: Moore’s Law, Metcalfe’s Law, and the economic theories of Nobel prize-winning economist Ronald Coase. These come together in two critical observations of the authors’ own synthesis—the Law of Disruption and the Law of Diminishing Firms.

 

	Describes where killer apps come from and why they seem to be arriving in increasing numbers. The primary forces at work in spawning today's killer apps are both technological and economic in nature.

 

	Using an example from outside the world of high technology companies, the authors illustrate the broad reach and applicability of digital strategy. They trace the emergence of killer apps through history, from the stirrup to 800#'s to email and the World Wide Web. The interaction between Moore's Law and Metcalfe's Law is detailed to explain why killer apps are arriving faster and spreading more quickly than ever before. The Law of Disruption is introduced to describe the catastrophes that result when exponential technology adoption collides with systems that prefer to change far more slowly. Killer apps are manifestations of the Law of Disruption—-they not only revolutionize the activities they were meant to impact, but have far-reaching, unintended effects on society. For example, "email, as a killer app, starts by taking out the post office, but may end up redefining human communications." The authors introduce the Internet as "primordial soup,"—-"the closest environment we have today to the world of bits, and the place where the missing components, new technologies, and the new business models are being introduced, tested, and observed."    British Petroleum, U.S. Postal Service, Netscape

 

Drawing from Nobel Prize-winning economist Ronald Coase's theory of transaction costs, the authors explain why business executives now see technology as their main competitor rather than their chief weapon. According to Coase, firms exist because the cost of organizing and maintaining them is cheaper than the transaction costs involved with working in the open market. Downes and Mui say technology is increasing efficiency in the market faster than firms can increase their own efficiency. This is leading to what they call the Law of Diminishing Firms—-"as transaction costs in the open market approach zero, so does the size of the firm." They describe how and why some of the most significant business trends in the last ten years—-mergers and acquisitions, downsizing, outsourcing—-are direct responses to decreasing transaction costs in the open market. They also explore the powerful potential of information as public goods, and the shift of once-proprietary information to Cyberspace. In the new economy, "new rules and new structures will rise and fall with increasing velocity, new operating models and new competitors will come and go, and activities will morph into others or disappear altogether."  Digital Knowledge Assets, Jewel grocery stores

 

Downes and Mui describe the key differences between digital strategy and the model that has dominated for the last 20 years—-strategic planning. Downes and Mui say sustaining competitive advantage in the digital age is made even more difficult by the introduction of three new forces: digitization, globalization, and deregulation. These forces, they say, generated by the interaction of digital technology and Coasean economics, exert tremendous new pressure on the competitive environment, superceding the old "Five Forces" (customers, suppliers, competitors, new entrants, and substitutes) as the focus of planning. While traditional strategy is implemented through what Michael Porter called the value chain, Downes and Mui argue that the new forces mandate that CEOs find ways to either alter the value chain dramatically—or destroy it altogether.    Playboy Enterprises, Barclay's Bank

	Demonstrates digital strategies in action, and outlines twelve essential new rules for developing, encouraging, or simply taming killer apps. These Twelve New Rules—-demonstrated with success and failure examples from organizations in a wide variety of industries—-are described from the outside-in: moving from the organization's environment (Chapter 4), through the interface between an organization and its business partners (Chapter 5) to the core of the organization itself (Chapter 6).

 

Downes and Mui present new rules for dealing with the quickly changing marketplace. In cyberspace, say Downes and Mui, "customers want to do our work for us, cannibalizing markets is necessary to our survival, customizing every product for every customer is possible and inexpensive, and enhancing communities rather than markets will create the best opportunities to extract new margin."     Holiday Inn, FedEx, Dell Computer, Saturn, Marshall Industries, Wall Street Journal Interactive, Intuit's Quicken Financial Network, Backroads, AOL.

 

Downes and Mui describe ways of building interfaces that not only generate dramatic new changes for organizations, but move much of the interaction between an organization and its business partners into the interface itself. Here, they say, "everyone benefits from the superior economic behavior of the medium." In creating these windows to your organizations, Downes and Mui say you must be sure to choose designs that are appropriate for their users—even if they represent traumatic changes inside your own business. Rather than blindly hoarding proprietary information, the authors say to weigh the true value of these "bits" against the potential for business partners to increase their value by using them.    GetSmart, Peapod, Cybercash, United Airlines, Toyota, Security-First, Baxter Travenol, LEXIS/NEXIS, Hewlett-Packard, Wit Capital, General Magic.

 

Downes and Mui focus on the creation of a new internal corporate self, "one that is flexible enough to squeeze through the barrier between physical space and cyberspace." Downes and Mui say that the reinvention of the corporate self in many organizations will require trauma equivalent in force (but faster in velocity) to the movement in the nineteenth century from an agrarian economy to an industrial one.    Bowne & Company, Virtual Fuel Company, Amazon.com, British Post Office, Lotus Notes, Rocket Science.

	Describes how digital strategy integrates the New Rules with an organization's planning process, ultimately becoming a new operating model for the organization. Downes and Mui describe how organizations can make the transition from digital strategy explorers to integrated digital enterprises, and in particular, how the role of senior executives changes in the process. The focus is on the early stages of planning: the learning, collaborating, prototyping, and strategic efforts-that are the most difficult activities of digital strategy, but also the most important.

 

Downes and Mui go inside two organizations—German industrial powerhouse VEBA AG and fast-food industry leader McDonald's Corporation—-to demonstrate how the process of developing a digital strategy worked and didn't work the first time through. Critical elements in the success or failure of these efforts included how the project was categorized—-as a technology or a strategic initiative—-and whether or not corporate planning took a leadership role in the development of the digital strategy.    McDonald's Corporation, VEBA AG
	Downes and Mui focus on how organizations can manage their innovations as a portfolio of options. They describe an ongoing process for creating a "technology radar," feeding a technology pipeline, and picking and choosing the investments and partnerships that maximize their ability to develop and implement winning digital strategies. This first requires a new attitude toward technology itself, which must be seen as the basis for forming strategy rather than just as a tool for implementing strategy. The new role for technology also mandates a new role for senior executives and I/S professionals, who must align with the new, common goal of unleashing killer apps. Companies know they've achieved technological "readiness" when "it becomes impossible to determine where the business stops and the technology starts." Examples of such companies include FedEx, Charles Schwab, Firefly, Mastercard, Security-First Bank, Amazon.com, and Hewlett-Packard.  DIY Exchange, British Post Office, McDonald's.
	Downes and Mui argue that one of the most burning questions of the digital age—"How do we make money on the Web?"—-has remained elusive because the perspective is wrong. The real question, they say, is "How do we make money?" The people making money with digital technology are "people who are just doing their business"—people who view killer apps as business initiatives, not technology initiatives. Such forward-thinkers exploit their digital future by the process of prototyping—-the implementation paradigm for organizations that want to unleash killer apps. Involving every member of the organization, prototypes may be developed purely to test and demonstrate a single good or service, or may be working models of an entirely new business that will formally spin out of the existing organization to develop the ideas independently.  Nike, McDonald's, Marvel Entertainment Group, VREAM (software company), British Petroleum.
	Downes and Mui discuss the unsettled nature of cyberspace, and offer advice on what entrepreneurs and entrepreneurial managers can do to navigate this new frontier. Most important is "simply to go there and start doing business," because it's likely that your competitors are already there.