European IT Forum: Internet is the enemy of profits

Traditional business models will not secure your future according to Harvard professor

Delegates at this week's IDC European IT Forum in Monte Carlo were told that the Internet was the "enemy of profits" Monday and that the worst dotcom businesses have confused their "HTML with their P and L".

The controversial statements by Professor Gary Hamel of the Harvard Business School were an attempt to warn traditional businesses from relying on lazy customers to pay a premium for goods or services.

He explained that company profits often spring from firms taking the "friction" out of purchasing goods and services. For example, the insurance salesman can advise and recommend a package for you, but you pay a premium for the privilege of having your needs analysed and a suitable package recommended. The "friction" is taken out of your insurance planning -- but at a price that generates additional revenue for the insurance company.

As this moves online to click and go services, the opportunity for charging a premium for doing the research, or "taking out the friction", disappears.

Much of Hamel's presentation addressed how Europe could embrace the spirit of Silicon Valley.

At the heart of the valley spirit is the democratisation of organisations, great cultural diversity, and a free flow of ideas and capital. The progressive firms "take Silicon Valley inside" -- into the firm itself, and into the hearts and minds of its employees so that they can feel as challenged and empowered as any valley start-up.

But whilst cultural diversity was one essential element required to re-create a Silicon Valley state of mind, this was only part of the puzzle. Europe would also have to address the issue of rewarding entrepreneurs properly for their successes, and embracing failure in a less damaging way.

The issue of stock options would also have to be addressed, excellent ties with universities were essential, and a world class communications information infrastructure also needed to be present.

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