Strategy in the Digital Economy

J. McGee, H. Thomas & D. Wilson (Eds.), Strategy: Analysis and Practice (2nd ed.). UK: Maidenhead: McGraw-Hill,

42 Pages Posted: 28 Oct 2013

See all articles by Tanya Sammut-Bonnici

Tanya Sammut-Bonnici

University of Malta; University of Warwick

J. McGee


Date Written: October 13, 2010


This chapter is concerned with the ‘new’ world of information technology and knowledge intensity. This is a world marked by big investments in R&D, different cost structures and significantly changed demand conditions. You should read this chapter in conjunction with Chapter 19, which deals with knowledge, information and innovation. In this chapter we are concerned with how the logic of competitive advantage applies to the new conditions in which we find ourselves. To anticipate the conclusions, we will see that the strategic context has shifted a great deal. This means that funda- mental demand and cost conditions have changed, resulting in different strategies being pursued. The new world and the new economy does mean that the old strategic logic is outmoded. Instead we see a significant change in the strategic context that results in the logic of competitive advantage being applied in different ways.

The chapter presents and contrasts the differences between the old world of scale and scope economies and the new world of network externalities. There is an extensive discussion of what network externalities are and how they arise but the reader should read this in the context of addition, not replacement – scale and scope have not been replaced; there is, however, another important practical phenomenon to consider. Networks are supported by many layers of infrastructure and we go into some detail to show how the technological infrastructure can be identified and analysed. There are many implications for competition which we review. Finally, we summarize the implications for strategy – although it is a new world, the logic of competitive advantage still applies.

Keywords: strategy, digital economy, network effect, network externalities, innovation diffusion, critical mass, competition, innovation

Suggested Citation

Sammut-Bonnici, Tanya and McGee, J., Strategy in the Digital Economy (October 13, 2010). J. McGee, H. Thomas & D. Wilson (Eds.), Strategy: Analysis and Practice (2nd ed.). UK: Maidenhead: McGraw-Hill, . Available at SSRN:

Tanya Sammut-Bonnici (Contact Author)

University of Malta ( email )

Msida MSD 2080
Msida MSD 06

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

J. McGee


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