New Patterns of Power and Profit

Eric K. Clemons is Professor of Operations, Information and Decisions at the Wharton School of the University of Pennsylvania. For thirty years he served as the Founder and Project Director for the School's Sponsored Research Project on Information: Strategy and Economics. He worked with C-suite officers from organizations like Merrill Lynch, Marriott Hotels, Lever Brothers, and Continental Airlines, to develop research that advanced their daily decision making. His experience includes analyzing bet-the-farm decisions with individuals as varied as the Chairmen of the New York Stock Exchange and the London Stock Exchange and the Chief of Naval Operations, to the president and chief operating officer of a rapidly growing craft brewer. He is a pioneer in the digital transformation of business strategy.

How did Capital One and Uber implement nearly identical business models, focusing on customers that are most profitable to serve? Why are Google and Amazon so valuable to us? Why are Google, Apple, Microsoft, and Amazon so difficult for competitors to displace? And why can Google charge almost anything it wants for keywords, since no form of competition will force prices down? The information-based business models of these companies, and many more, are exploiting the patterns described in this book.

This book instills pattern-based thinking that will prepare all readers for greater success in our rapidly changing world. It will help executives, regulators, investors, and concerned citizens better navigate their way through the digital transformation of everything .

Professor Clemons presents six patterns for staying competitive and achieving profitable business models. The author's reframe-recognize-respond framework teaches readers how to transform unfamiliar problems into familiar patterns, how to determine which patterns to apply in different situations, and how to respond most effectively.
Information changes everything. This book is a guide to power and profit from understanding changes in the age of digital transformation.

First book to show how to develop an information-based strategy around patterns

Table of Contents

Chapter 1 - Introduction: You get control when you recognize the patterns

Introduction to Chapter 1                                                                                                                                                            

Section 1.1 -          The Structure of This Book                                                                                                                    

Section 1.2 -          Patterns, Pattern Recognition, and Thinking Strategically About Thinking Strategically

Section 1.3 -          Developing the Theory of Newly Vulnerable Markets

Section 1.4 -          The Complete Theory of Newly Vulnerable Markets

Summary of Chapter 1                                                                                                                                                                  

Chapter 2 - Information Changes Everything:  It's Not What You Know, It's What You Know Before Everyone Else!

Introduction to Chapter 2                                                                                                                                                            

Section 2.1 -          Information Asymmetry and Market Collapse

Section 2.2 -          Dealing with Information Asymmetry Through Signaling

Section 2.3 -          Dealing with Information Asymmetry Through Screening:                                                    The Theory, and an Explanation for Capital One's Success

Section 2.4 -          Dealing with Information Asymmetry Through Data Mining

Section 2.5 -          Versioning as a Form of Screening

Section 2.6 -          Working with Signaling, Screening, and Data Mining:  Specific Examples Where We Need to Address Information Asymmetry

Summary of Chapter 2                                                                                                                                                                  

Chapter 3 - The Power of Framing:  If You Can't Answer the Question, Turn it into a Question You Can Answer

Introduction to Chapter 3                                                                                                                                                            

Section 3.1 -          Introduction to Reframing for Easier Solution

Section 3.2 -          Learn the Useful Forms of Reframing

Section 3.3 -          Transforming a Problem for an Easy Solution: 

Section 3.4 -          Transforming a Problem for Easy Solution

Section 3.5 -          Reframing the Problem so it Looks Like Something You Have Already Analyzed

Section 3.6 -          Pushing the Problem to its Limit                                                                                                         

Section 3.7 -          Using a New Sequence of Questions

Summary of Chapter 3                                                                                                                                                                  

Chapter 4 - Resonance Marketing in the Age of the Truly Informed Consumer:  Creating Profits through Differentiation and Delight

Introduction to Chapter 4                                                                                                                                                            

Section 4.1 -          Resonance Marketing:  The Changing Marketplace for Craft Beer

Section 4.2 -          Resonance Marketing:  Information Changes Consumer Behavior and Corporate Strategy

Section 4.3 -          Hyperdifferentiation:  With Modern Technology Firms Can Make Anything

Section 4.4 -          Hyperdifferentiation Plus Information Yields Retailer Profits and Customer Delight

Section 4.5 -          Characteristics of a Successful Reviewing Site

Section 4.6 -          Hyperdifferentiation Plus Information Guides Manufacturers to Resonance Marketing and Customer Delight

Section 4.7 -          Unrewarded Excellence and the Need to be Better than Good Enough

Section 4.8 -          Not Just Better Enough to be Liked, But Also Different Enough to be Loved!

Section 4.9 -          Information Changes Everything For Producers and Retailers

Section 4.10 -        This is Global.  Resonance Marketing is Everywhere.

Section 4.11 -        The Rise of Astroturfing and the Threat of Fake Grass-Roots Support

Summary of Chapter 4                                                                                                                                                                  

Chapter 5 - Online Brand Ambassadors and Online Brand Assassins:  Master The New Role of the Chief Perception Officer

Introduction to Chapter 5                                                                                                                                                            

Section 5.1 -          Tactical Implications for Companies:  The New Role of the Chief Perception Officer

Section 5.2 -          The First Role of the CPO

Section 5.3 -          Tactical Implications for Companies                                                                                                  

Summary of Chapter 5                                                                                                                                                                

Part II - Patterns for Power, Control, and Harvesting of Profits

Chapter 6 - Resources, Platforms, and Sustainable Competitive Advantage:  How to Win and Keep on Winning

Introduction to Chapter 6                                                                                                                                                            

Section 6.1 -          Introduction to Sustainable Competitive Advantage

Section 6.2 -          Sustainable Competitive Advantage Based on Acquiring a Unique Set of Resources

Section 6.3 -          Introduction to Platforms and Platform Envelopment

Section 6.4 -          An Early Example of Platform Envelopment at Rosenbluth Travel

Section 6.5 -          Platform Envelopment Strategies in Two-Sided Markets

Summary of Chapter 6                                                                                                                                                                  

Chapter 7 - Understanding the Power of Third Party Payer Businesses and Online Gateways

Introduction to Chapter 7                                                                                                                                                            

Section 7.1 -          Introduction to Third Party Payer Systems

Section 7.2 -         Mandatory Participation Third Party Payer Systems:

                                      Third Party Payer Systems in the Absence of Competition

Section 7.3 -         Learning the Lessons of Power

Section 7.4 -         When Mandatory Participation Third Party Payer

                                      Systems Combine with Online Gateway Systems

Section 7.5 -         Power is not Unlimited

Section 7.6 -         The Origins of the Credit Card Industry, Before it Became an MP3PP

Section 7.7 -         Mandatory Participation Third Party Payer Systems

Outside of Search:  Credit Cards' Transition to a Powerful MP3PP

Summary of Chapter 7                                                                                                                                                                  

Chapter 8 - The Continuing Power of Third Party Payer Businesses

Introduction to Chapter 8                                                                                                                                                            

Section 8.1 -          MP3PP Systems in the Internet Age: How Can They Still be Dangerous?

Section 8.2 -         The Recurring Pattern in Third Party Payer Models:

                                      When the System Really Start to Use Its Power

Section 8.3 -         And now ... Coming soon to a Search Engine near You ... Platform Envelopment and Vertical Integration

Summary of Chapter 8                                                                                                                                                                  

Chapter 9 - Power and the Potential for the Abuse of Power in Online Gateway Systems:  An Analysis of Google

Introduction to Chapter 9                                                                                                                                                            

Section 9.1 -          Quality Scores and the Power to Make and Defend Arbitrary Decisions

Section 9.2 -          Vickrey Auctions, Pseudo-Vickrey Auctions, and the Power to Charge Whatever You Want

Section 9.3 -          The Illusion of Choice

Section 9.4 -          Can We Show that Monopoly Power Has Been Abused in Search and Extended Beyond Search?  Is There Evidence?

Section 9.5 -          Should You Care About Reverse Price Wars?  Do Higher Prices Charged to Sellers Really Affect Consumers?   Some of the Money Goes to You, Right?

Section 9.6 -          Why Should Anyone Do Anything About Monopoly Power in Search?  Won't Technological Progress Fix any Problems Better and Faster than Regulation?

Section 9.7 -          Is it Fair to Complain?  After All Google has Done for Us?

Section 9.8 -          But What Should Regulation Look Like? 

Section 9.9 -          A Final Cautionary Note on Regulation

Summary of Chapter 9                                                                                                                                                                  

Appendix 9.A. - Showing that there is Monopoly Power in Search -  How Would You Know?

Part III - I got it!  Learning to work with these Patterns?

Chapter 10 - Scenario Analysis and Managing Strategic Ambiguity:  How to Remember Future Events, before They Actually Occur!

Introduction to Chapter 10                                                                                                                                                         

Section 10.1-         Remembering The Future and Using Scenarios for Rapid Recognition and Rapid Response

Section 10.2 -        Learn to Ask the Right Questions, Even If You Can't Answer Them

Section 10.3. -       When "Good Data Goes Bad", or What to do When "Convincing Data Actually Lies to Us"!

Section 10.4. -       Learn to Ask the Right Questions, Even If You Can't Answer Them:  Lessons from The Future of Chinese Consumer Behavior

Section 10.5 -        Working with Questions if All You Have is Questions:  Remember What  They Say About Making Lemonade if Life Gives You Nothing But Lemons

Section 10.6 -        The Future of Consumer Behavior in China

Section 10.7 -        Working with the Scenarios for the Future of Consumer Behavior in China

Section 10.8 -        What's So Special about Four Scenarios?

Summary of Chapter 10                                                                                                                                                             

Chapter 11 - Examining the Wide Range of Business Models Currently in Use in Online Businesses:  How to Understand A New Business Using Existing Frameworks

Introduction to Chapter 11                                                                                                                                                         

Section 11.1 -        Fully Digital Business Models and Partly Digital Business Models

Section 11.2 - The Full Range of Online Business Models

Section 11.3 -        Selling Real Stuff

Section 11.4 -        Using Ads to Sell Real Stuff

Section 11.5 -        Selling Content Online

Section 11.6 - The Digital Transformation of Higher Education

Section 11.7 -        Selling Online Services

Section 11.8 -        Creating Exchanges for Business-to-Consumer and Direct Consumer-to-Consumer Interactions

Section 11.9. - If the Sharing Economy is Transformational, Maybe We Should Say a Bit More about Building Sharing Economy Websites

Section 11.10 -      Control of Search and Charging for Customer Access

Section 11.11 - Selling Virtual Experiences and Virtual Stuff

Section 11.12 - Harnessing Social Networks the Right Way

Section 11.13 - Selling Referrals Based on Snooping or Context

Section 11.14 - Using Contextual Referrals to Direct Ads to Mobile Users

Summary of Chapter 11                                                                                                                                                             

Chapter 12 - Information Changes Everything:  Implications for Society

Introduction to Chapter 12                                                                                                                                                         

Section 12.1 -        Let's Just Do the Right Thing

Section 12.2 -        Fake News:  Is this really a big deal?  Isn't this just bigger, faster, more personal, and efficient?

Section 12.3 -        How Price Discrimination Affects Fairness for All of Us

Section 12.4 -        How Much Should We Value Efficiency?  How Much Should We Value Fairness?

Section 12.5 -        Why is Fairness a Social Policy Issue?

Section 12.6 -        Privacy in the Online World

Section 12.7 -        Fairness Considerations in Platforms and the Sharing Economy

Section 12.8 -        Why is it So Hard to Agree on Fairness?

Section 12.9 -        So Where Should We Draw the Line?

Section 12.10-And, Finally, What Should We Do Now?

Summary of Chapter 12                                                                                                                                                             

Chapter 13 - Epilog: What could go really, really, wrong?

Introduction to Chapter 13