June 15, 1998

One of the most reliable human characteristics is aversion to change. And when it comes to embracing technology, it is a characteristic that even today’s newest celebrity class, the business executive, seems to possess in abundance.

Whether they run banks or chemical companies or media conglomerates, and despite the clear impact that technology is having on their industries, many executives shy away from technology. Often they seem reticent to do much more than apply it as though it were some kind of medicinal leech, slapping on a Web site here or an online database there when someone tells them they have to.

And especially in older, more traditional companies, they rarely consider technology crucial to their survival.

Who can blame them? Every other day, it seems, the technology landscape changes and everything new is old again. But company leaders may be inclined to reconsider this point of view after reading “Unleashing the Killer App: Digital Strategies for Market Dominance,” a new book by Larry Downes and Chunka Mui (Harvard Business School Press, 1998).

Despite the rather overheated title, these two Chicago-based consultants have written a practical and persuasive guide that focuses on how all businesses, even risk-averse old-line organizations, have an opportunity “not just to survive but to exploit dramatic changes” wrought in their markets by technology.

Instead of shrinking from the hard problems facing existing corporations, Downes and Mui attack them head-on with 12 technology strategies to help build what the authors call “killer apps.”

By their definition, killer apps, or applications, are innovative goods or services that establish an entirely new category and, by being first, pay off lavishly for shareholders, investors and, especially, customers.

The way to unleash them, the authors assert, is to deploy some radical strategies, including: “cannibalize your markets,” “give away as much information as you can,” “treat your assets as liabilities” and “destroy your value chain.”

They dissect many success stories, including Amazon.com, British Petroleum, Fedex, Intuit and McDonald’s. Others remain nameless but are impressive nonetheless: For example, a home heating oil company that is a small division of a larger oil and gas retailer. It owns only 4 percent of its market for selling directly to homes, but that share represents 75 percent of the company’s revenue, and the company sells at a much-reduced margin to independent local dealers.

With little to lose, it “wrecked the business model for everyone” and designed Virtual Fuel Co. It will first sell directly to customers via telephone and the Internet; long-term plans are to connect sensors in home oil tanks to the production plant over a network, so delivery orders are generated automatically when fuel levels get low.

Partners who are already warehousers and shippers for the home oil business will allow Virtual Fuel to compete with local dealers on price and, especially, on service, since the new company will be online for its customers 24 hours a day.

Kicking sand in the face of local suppliers or using just about any of these apparently outrageous strategies sounds like suicide to most traditional retail or service businesses. But Downes and Mui say the alternatives are grimmer still.

Already, technology’s most aggressive practitioners — today’s digital commerce start-ups, which have no existing distribution channels to alienate, no preconceived notions of how businesses “should” be run, no old anything — are beginning to bulldoze markets for existing products and are exploding traditional relationships with suppliers, regulators and partners.

These pioneers — including Netscape Communications Corp., which gave away its browser software and started the commercial Internet; Amazon.com, the online bookseller; E-Trade, the all-cyberspace stock trading company, and Auto-By-Tel, the online car seller — use technology to completely redefine service and value in their industries.

Because of the already tumultuous effect of such start-ups, both Downes and Mui scoff at the spate of record-breaking mergers and acquisitions that have been making front-page news.

Like many other digitally savvy business experts, the authors view recent deregulation laws for the cable, telecommunications, media and banking industries as government entitlements to help old industries protect their markets by sheer bulk — what they call “a 20th century industrial approach to a 21st century digital problem.”

“We’re learning that a lot of what we were told was consumer-protective regulation is actually industry-protective regulation,” Downes said. For example, the authors wrote in a recent article for American Banker magazine that the “crazed consolidation” of banks in response to deregulation is “like mosquitoes mating in a giant cloud.”

Any consolidation strategy, the authors say, locks companies into the old ways of doing business, making them vulnerable in a more efficient marketplace.

“The fact is that the business guys get caught up in their existing value chain — the transfer of value between the layers” of buyers, sellers and service providers, Mui said. “They forget that at the end of the value chain are billions of consumers with much more negotiating power than any one of those layers.”

And that negotiating power, the authors predict, will be fueled by technology. Thus the core of their message is that the companies must reach for a new understanding that technology itself is the primal force of change today, no matter what the industry. That unless they rebuild their businesses with this fact in mind, others will do it for them. That in fact, they may already have.

Denise Caruso

Copyright 1998 The New York Times Company