Summary: Net Profit

Review and Analysis of Cohan's Book

BusinessNews Publishing

• Publisher: Must Read Summaries
• Year: 2016
• ISBN:
  9782511018064
• Topic: Business
• Subtopic: Industria informatica
• Index: Business

The must-read summary of Peter S. Cohan's book: `Net Profit: How to Invest and Compete in the Real World of Internet Business`.

This complete summary of the ideas from Peter S. Cohan's book `Net Profit` shows how thousands of businesses are in the process of migrating to the Internet because the entry barriers are so low at the present time. The leading Web players, however, are those companies that have shaped their business strategy so as to gain control of the choke points and economic levers within their respective industries. In his book, the author explains the strategies that all companies should follow if they wish to become valuable internet companies of the future and why you need to implement them now before everyone else.

Added-value of this summary:
• Save time
• Understand key concepts
• Expand your knowledge

To learn more, read `Net Profit` and find out how to develop the best strategies that will guarantee you internet success.

Summary of Net Profit (Peter S. Cohan)

Section 1
A Framework for Assessing the Value of Internet Based Business Models

Main Idea

To make business sense of the Internet and the valuation given Internet based businesses, three frameworks can be used:

1. Net Profit Evaluation -- for investors
2. Net Business Phases -- for Internet business managers
3. Net Application Phases -- for non-Internet managers

Supporting Ideas

These frameworks are useful in:

1. Evaluating Internet investment opportunities.
2. Analyzing Internet business strategies.
3. Deciding how to use the Web to improve businesses.

1. Net Profit Evaluator

An Internet based business is most likely to generate profits if it:

1. Has economic leverage -- that is, sells a product that is important to its customers and is in such short supply the company can charge a high price for it.
2. Offers a closed-loop solution -- that is, a total solution that generates economic value for customers.
3. Has a management team that can adapt well to the rapid changes that are occurring.

Those companies which offer products and services embodying these three characteristics will be the most likely to generate profits and should, therefore, attract the highest market valuations.

2. Net Business Phases

Most Internet business go through three distinct phases:

1. Lossware -- companies that lose money because of low entry barriers, low or no switching costs for customers and loads of competition. Lossware companies spend the bulk of their revenues on marketing.
2. Brandware -- companies that have established a brand name consumers become familiar with -- which saves customers the trouble of comparing offerings from numerous vendors. Brandware companies still spend quite a lot on marketing in the expectation of surviving industry consolidations.
3. Powerware -- companies that have a product which is in short supply (because competitors have been squeezed out) and which has high switching costs. Powerware companies generate consistently high returns.

Many companies start out as Lossware in the expectation they will evolve to Brandware and ultimately to Powerware at later stages. Few companies ever make it all the way to Powerware, however.

3. Net Application Phases

Business managers who have no Internet experience need to quantify what the incremental costs and benefits of moving their business to the Internet will be.

In essence, businesses moving to the Internet go through three distinct phases:

• Phase 1 -- Online Brochures
  These companies put product literature, annual reports and other information on their Web site.
• Phase 2 -- Front-End Transactions
  These companies use their Web site to gather order forms for their products. The orders are then handled by the company’s normal order fulfillment process.
• Phase 3 -- Integrated Operations & Transactions
  These companies use the Internet to exchange information with customers, to link with the internal operations of the company and in some cases to deliver products and services.

Most companies start out at Phase 1. Some companies then move to Phase 2 and still fewer commercial entities then move to Phase 3.

Key Thoughts

“The Internet has proven itself to be the most significant economic and social phenomenon of the latter half of the 1990s. The financial markets have been replete with tales of investment killings made in a day, simply because a company appended.com to its business model.

To managers and investors schooled in the notion that the value of a company is related to its future profits, the Internet is a perplexing phenomenon. So many of the publicly traded Internet companies have scant revenues and substantial net revenue losses: Why then are these companies worth so much more than many other companies that are much larger and earn substantial profits? And in asking this question, manager...