The arrival of the Internet offers new opportunities for value creation. The new technology simultaneously affects demand and cost structures, leading to a radical transformation of existing market structures. As a result, appropriation of any value created has become more challenging. Furthermore, as the Internet impacts industries in several ways simultaneously, we find that simply analyzing the effect of the Internet on pricing behavior and price dispersion misses the point that whole industries are being transformed, which clearly affects the pricing power and possibilities of individual firms. In this paper we provide a conceptual model for analyzing the different elements within the dynamics of industry transformation, and for understanding the impact of the Internet on market structure. We illustrate the different concepts with real-life examples.
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