Strategy, Online

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STRATEGY, ONLINE

Businesses use online strategies to plan their Internet-based activities. Quite often, online strategies are designed to work in conjunction with other business strategies not related to the Internet. For example, traditional retailers like department store chain J.C. Penney, clothing chain The Gap, and book giant Barnes & Noble developed online strategies in the late 1990s, hoping to supplement existing revenues with online sales. In addition, leading software firms like Microsoft Corp. and Oracle Corp. sketched out their strategies for developing a leading presence on the Web by offering suites of Internet-related technology and services in addition to their more traditional products. An online strategy can also form the core of a company's business plan, as is the case with dot.com upstarts of all kinds such as Amazon, CDNow, and Ebay.

AMERICA ONLINE INC.

America Online founder Steven Case is considered by many industry experts one of the most successful online strategists. Case's early online efforts began in 1985 when he and partner Jim Kimsey established Quantum Computer Services, Inc. to offer Q-Link, a modem-based online service, to Commodore personal computer (PC) users. Case decided to extend the service to owners of PCs made by Tandy Corp. and other companies in 1987. The following year, Case offered online services to owners of IBM-compatible PCs; owners of Macintosh machines were targeted for the first time in 1989. One of the first in the industry to recognize the potential mass market for interactive online services and content, Case created America Online (AOL), a nationwide online network that included games, e-mail, and real-time chat capabilities.

In the early 1990s, Case devised a strategy designed to turn AOL into an online powerhouse. His plans called for consolidating operations to focus on IBM-compatible and Macintosh computer markets and growing the firm's subscriber base through aggressive marketing efforts such as giving AOL software to PC owners for free. The firm also began to grow its content by forging alliances with media firms. For example, to strengthen its position in the Midwestern U.S., AOL partnered with Tribune Co., publisher of the Chicago Tribune , to develop an online local news and information service for residents of the greater Chicago area. In 1993, AOL reached similar content deals with Knight-Ridder and CNN.

Case incorporated the development of an AOL version for the emerging Windows platform into his online strategy in 1994. When analysts began to predict the World Wide Web would render online services like AOL obsolete, Case began work on an Internet gateway, dubbed AOL.com, that would allow users to link directly to the Internet from AOL.

To broaden the firm's reach, Case expanded into international markets for the first time in 1995 by offering online services in Germany. With subscribers totaling three million, AOL moved into Canada, France, and the United Kingdom the following year. In perhaps one of his most important moves, Case played an integral role in negotiations with Microsoft, which culminated in AOL's decision to include Microsoft's Internet Explorer browser in its software, and Microsoft's decision to include AOL software on its landmark Windows 95 platform. In keeping with his growth strategy, Case reached similar cross marketing deals with AT&T, Apple, Sun Microsystems, Hewlett-Packard, and Netscape Communications. He also recruited Robert Pittman as president, chief operating officer, and head of AOL's e-commerce strategy. To develop the e-commerce potential of AOL, Pittman began working to convince online retailing giants like Amazon.com to sell their wares on AOL. Sales reached $1 billion for the first time in 1997, and subscribers exceeded ten million. AOL expanded its reach into Asia by offering services in Japan that year.

Case believed the reason for AOL's success was its simplicity. To reach as many users as possible, Case devoted considerable efforts to making AOL technology as easy to use as possible. He stated, in the October 1996 issue of Forbes , "If you want to reach a mainstream audience, you have to make it more plug and play. One-stop shopping. One disk to install. One price to pay. One customer service number to call."

The major flaw in Case's strategy that year was his underestimation of the technology AOL would need to handle its massive growth spurts. For example, when AOL launched a $19.95 per month flat fee program, with no limits on usage, it was unable to support the resulting surge in traffic. Users trying to log on to the service encountered busy signals more often than not, and the problems became so widespread that representatives from 36 state attorneys general offices eventually met to discuss the problem. Case responded by funneling $350 million into increasing AOL's system capacity and hiring 600 new customer service representatives. To counter the negative publicity and retain clients threatening to leave, the firm also issued refunds to those frequently unable to access their accounts.

Hoping the bulk of his troubles were behind him, Case retained his strategy of offering a user friendly and increasingly comprehensive online service to a growing number of subscribers. Continuing to grow AOL's services, as well as its subscriber base, Case oversaw two major acquisitions in 1998: instant messaging firm ICQ and rival CompuServe Inc. In 1999, AOL purchased browser software maker Netscape Communications. According to BusinessWeek Online writer Catherine Yang, Case's tenacity served him well. "More than any other leader in e-business, the 41-year-old chairman of America Online Inc. is responsible for bringing the Internet revolution to the masses."

After recognizing that an increasing number of Web surfers were using things like cell phones and broadband technology, rather than PCs, to access the Internet, AOL began offering online access to wireless consumers via AOL Mobile Messenger in 2000. In 2001, Case's growth strategy culminated in the completion one of the largest mergers in media industry history—the $183 billion union of AOL and Time Warner Inc. to form AOL Time Warner Inc.

ADOBE SYSTEMS INC.

Adobe Systems Inc., one of the largest PC software companies in the U.S., used successful business strategies to emerge in the mid-1980s as a major force in desktop publishing and in the late-1990s as a leader in Web authoring tools and other Internet publishing technology. Its first move toward an online strategy came in 1994 when Adobe approached Aldus Corp., maker of PageMaker, the leading desktop publishing program for both Macintosh and Windows operating systems. Adobe was hoping to acquire a desktop publishing application for its PostScript printing language, and the $450 million merger with Aldus accomplished that goal; it also secured Adobe's position as a leading PC software manufacturer among giants like Microsoft, Novell, and Lotus. More importantly, however, the deal also positioned Adobe as a market leader in design and illustration software, image editing, and electronic document technology—areas that would prove essential to its emergence as a leader in Web publishing.

The firm began developing its online strategy in earnest in 1996 when it acquired Web tools manufacturers Ceneca Communications and converted the popular PDF into a Web format. Adobe began focusing the majority of its efforts on Internet publishing that year, developing Web versions of its most popular applications. Although sales reached nearly $1 billion in 1997, an economic downturn in Asia hurt profits in 1998, prompting Adobe to reduce management staff by ten percent and dump additional resources into creating new products, particularly those that would help strengthen the firm's foothold in the booming Web authoring tools market. Roughly one-fourth of sales, more than $207 million, was allocated to research and development. Adobe also pursued strategic acquisitions. For example, the firm bought GoLive Systems Inc., a maker of Web development and design tools, in early 1999. The purchase proved fruitful as Adobe later used GoLive technology to power LiveMotion, an award-winning graphics and animation manipulation software package for both beginning and expert Web page designers.

Believing that electronic books, particularly educational and professional publications, would become a key online market, Adobe included in its online strategy plans to develop software and hardware for displaying such books, as well as technology for protecting authors and publishers from the illegal distribution of copyrighted material, a key concern of publishers looking to transact business online. In 1999, Adobe developed PDF Merchant, allowing publishers to prevent individuals from downloading PDF files until they purchased the right to do so. Web Buy, an Acrobat "plug-in" program, could be attached to purchased files to impede unauthorized distribution to non-paying recipients. To further develop its e-books holdings, Adobe purchased display software manufacturer Glassbook Inc. in August 2000. Adobe Content Server, a program permitting book merchants to sell e-books in a secure format online, was launched the following year in tandem with the Adobe Acrobat e-Book Reader, a product based upon the Glassbook Reader. Along with granting users electronic access to books, with both text and graphics in PDF, the new application also offered searching, marking, annotating, and other interactive capabilities.

With strategic partnerships a key component of its strategy to remain abreast of the latest developments in Internet publishing technology, Adobe continually sought relationships with other top players. For example, in the second half of 2000, Adobe integrated its GoLive software with WebTrends Corp.'s web tracking technology to allow clients creating Web sites with GoLive the ability to monitor things like site traffic. The firm reached a similar technology integration agreement, at roughly the same time, with e-commerce software and services provider Allaire Corp.

Reflecting the success of Adobe's online strategy was the percentage of revenues in 2001 accounted for by Internet publishing products: more than 50 percent. In addition, Adobe's presence on the Internet had become widespread. According to Forbes columnist Elizabeth Corcoran, "Pull up the Bridgestone/Firestone Web site to learn about defective tires and it tells you to use Adobe's free Acrobat Reader to see a graphical interpretation of the hieroglyphics on your tires' sidewalls. On ESPN's extreme sports site teeth-gritting images have been tweaked with Adobe tools. At Barnes & Noble on the Web you will find e-books viewable with readers from Microsoft and Adobe." In fact, more than 90 percent of all Web sites make use of Adobe's Photoshop software, while nearly three-fourths of all Web pages are designed with Adobe Illustrator.

COMPUWARE INC.

Like many technology industry players in 1997, software and computer services provider Compuware Corp. revisited its strategic plan in an effort to prepare for the future. The firm had recently acquired NuMega Technologies, Inc., one of the world's largest manufacturers of error detection and debugging software for Windows and Java systems. Because the mainframe computers Compuware's software applications were designed for had lost ground to Internet-based networks, the firm decided to reinvent itself as a Y2K troubleshooter. Essential to Compuware's strategy was the goal of retaining as many Y2K customers as possible after the millennium by offering them e-commerce services and solutions.

To set its new online strategy in motion, Compuware published Millennium , a newsletter about the effects the year 2000 would have on the computer industry, in an effort to position itself as an authority on the impending Y2K transition. In 1998, Compuware published Millennium online for the first time. To boost its e-commerce offerings, Compuware acquired CACI Products Co. in 1999. The firm integrated CACI's application capacity planning tools into its existing EcoSystems suite, enhancing its clients' ability to manage the performance of their e-commerce applications. Compuware was ultimately successful in its efforts to become a leading Y2K consultant for companies operating mainframe systems; however, a shortcoming in the firm's online strategy soon emerged. Compuware had simply overestimated how many clients would be looking to move into e-commerce early in 2000. The firm had also sorely underestimated the amount of time and level of complexity involved in training its Y2K specialists to work as e-commerce consultants. The resulting failure to meet earnings forecasts prompted stock prices to plummet that year.

Despite these setbacks, Compuware continued to work toward becoming a leading e-commerce service provider. In 2000, the firm added to its online strategy the creation of Digital Development Centers (DDCs) to offer full-scale e-commerce services to clients wishing to undertake e-business ventures. That year, two acquisitions—Montreal, Quebec-based Nomex, Inc., a provider of Web design and development services, and Kansas City-based Internet consulting services provider BlairLake, Inc.—were converted into Compuware's first DDCs. A third DDC was opened in Farmington Hills, Michigan, at the firm's headquarters complex, shortly thereafter. Other acquisitions that year included Optima, an e-business performance measuring software developer.

Along with making acquisitions, the firm's online strategy also called for the development of new e-commerce technology. One of Compuware's most successful new products, Application Expert, was developed in response to growing demand by e-business operators, particularly those with increasing traffic, for Web site performance management tools. Application Expert allowed clients to pinpoint problems, as well as their causes, and also recommended solutions. Network Computing magazine named Compuware's Application Expert 2.1 the recipient of the Editor's Choice Award in 2001. Also that year, the firm unveiled a version of its Abend-AID fault diagnosis program designed specifically for e-business applications and upgraded its EcoPredictor to include the ability to use simulation to predict potential network bottlenecks. Like most players engaged in Internet-related operations, Compuware will likely revise its online strategy many times as the e-commerce landscape continues to evolve.