Spawning new businesses
The information revolution is giving birth to completely new industries in three distinct ways. First, it makes new businesses technologically feasible. For example, modern imaging and telecommunications technology blend to support new facsimile services such as Federal Express’s Zap mail. Similarly, advances in microelectronics made personal computing possible. Services such as Merrill Lynch’s Cash Management Account required new information technology to combine several financial products into one.
Second, information technology can also spawn new businesses by creating derived demand for new products. One example is Western Union’s Easylink service, a sophisticated, high-speed, data-communications network that allows personal computers, word processors, and other electronic devices to send messages to each other and to telex machines throughout the world. This service was not needed before the spread of information technology caused a demand for it.
Third, information technology creates new businesses within old ones. A company with information processing embedded in its value chain may have excess capacity or skills that can be sold outside. Sears took advantage of its skills in processing credit card accounts and of its massive scale to provide similar services to others. It sells credit-authorization and transaction-processing services to Phillips Petroleum and retail remittance-processing services to Mellon Bank. Similarly, a manufacturer of automotive parts, A.O. Smith, developed data-communications expertise to meet the needs of its traditional businesses. When a bank consortium went looking for a contractor to run a network of automated teller machines, A.O. Smith got the job. Eastman Kodak recently began offering long-distance telephone and data-transmission services through its internal telecommunications system. Where the information technology used in a company’s value chain is sensitive to scale, a company may improve its overall competitive advantage by increasing the scale of information processing and lowering costs. By selling extra capacity outside, it is at the same time generating new revenue.
Companies also are increasingly able to create and sell to others information that is a by-product of their operations. National Benefit Life reportedly merged with American Can in part to gain access to data on the nine million customers of American Can’s direct-mail retailing subsidiary. The use of bar-code scanners in supermarket retailing has turned grocery stores into market research labs. Retailers can run an ad in the morning newspaper and find out its effect by early afternoon. They can also sell this data to market research companies and to food processors.