Dot-Com Profitability and Longevity: According to Porter's Fundamentals

Abstract

The recent ‘dot-com’ bust has raised several questions regarding the economic and market structure of dot-com enterprises. This paper analyzes the success and failure of six dot-com enterprises in context of the Internet Strategy Model. According to Porter, there are two fundamental factors that determine profitability and eventual business success: industry structure and sustainable competitive advantage. When applied to our sample companies, it becomes clear that the pure-plays (or pure dot-com enterprises) do not have any advantages over their counterparts, the clicks-and-mortar (or companies that operate, an Internet e-commerce channel in addition to their established storefronts). By lowering the barrier to entry and intensifying the rivalry among competitors, the pure-plays increase the bargaining power to consumers, giving up their chance of gaining and holding a sustainable competitive advantage. This paper utilizes a qualitative approach to show how ignoring fundamental strategic principles as outlined by Porter have contributed to the demise of the pure-plays. It draws the results from theoretical reviews and analysis of corporate data to investigate the comparison of six dot-com companies, three of them Internet pure-plays and three clicks-and-mortar hybrids. The results of this qualitative analysis will help us to outline what strategies did or did not work with the pure-plays and the clicks-and-mortar? Our analysis will hopefully provide answers to this question.