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Journal of Management 2004 30(5) 569–589
The Applicability of Porter’s Generic Strategies inthe Digital Age: Assumptions, Conjectures,and Suggestions
Eonsoo Kim
 Department of Management, Korea University, 5-1 Anam-dong Sungbuk-ku,Seoul, 136-701, South Korea
Dae-il Nam
 LG Economic Research Institute, LG Twin Towers, East Tower 33rd Floor, 20,Yoido-dong Youngdungpo-gu, Seoul, 150-721, South Korea
J.L. Stimpert
∗
 Department of Economics and Business, Colorado College, 14 East Cache La Poudre Street,Colorado Springs, CO 80903, USA
Received 16 October 2002; received in revised form 10 July 2003; accepted 16 December 2003Available online 15 June 2004
 Because current management theories evolved in the context of brick-and-mortar firms, this paper examines three key questions raised by the advent of e-business: (1) Will the strategytypes found among e-business firms resemblePorter’s (1980)generic strategies? (2) Will we  findperformancedifferencesamonge-businessfirmspursuingdifferenttypesofstrategies?(3)Will we find differences in the strategy-performance relationships of pure online firms (pure plays) and firms with both online and offline operations (clicks-and-bricks)? We conclude that integrated strategies that combine elements of cost leadership and differentiation will outper- form cost leadership or differentiation strategies. We also argue that, regardless of businessstrategytype,clicks-and-bricks firms thatcloselyintegratetheir on-andofflineoperations willenjoy performance advantages over their pure play counterparts.© 2004 Elsevier Inc. All rights reserved.
Enthusiasm for e-business has waned since the Internet boom of the late 1990s, but busi-ness activity on the Internet continues to grow. A recent
Business Week 
article claimed “theNet is actually delivering on many of its supposedly discredited promises
. . .
It is helping
∗
Corresponding author. Tel.:
+
1 719 389 6418; fax:
+
1 719 389 6927.
 E-mail addresses:
eskim@korea.ac.kr (E. Kim), dinam@mail.lgeri.co.kr (D.-i. Nam),LStimpert@ColoradoCollege.edu (J.L. Stimpert).0149-2063/$ – see front matter © 2004 Elsevier Inc. All rights reserved.doi:10.1016/j.jm.2003.12.001
 
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E. Kim et al./Journal of Management 2004 30(5) 569–589
companies slash costs. It is speeding the pace of innovation and jacking up productiv-ity
. . .
Of the publicly held Internet companies that survived the shakeout, some 40 percentwere profitable in the fourth quarter of 2002” (
 Business Week 
, 2003b:44). Expedia.com isnow the top leisure-travel agency online or off, while 13 percent of all traditional travelagency locations closed in 2002. Expedia also has higher profit margins than AmericanExpress. Nearly every public Internet-based financial services company is profitable. And,while less than five percent of all shopping is done online, eBay will become one of the top15 retailers in the United States during 2003, and Amazon.com will move into the top 40(
 Business Week 
, 2003b).Andy Grove, chairman of Intel, has recently stated, “Everythingwe ever said about the Internet is happening” (
 Business Week 
, 2003a:86).In surveying this new economic landscape,Scott and Walter (2003)concluded that In-ternet technologies constitute a major business innovation, and suggested that this is reasonenough for research into the challenges, problems, and opportunities facing e-businessfirms. And, based on their review of the e-business literature,Ngai and Wat (2002)notedthat e-business research is emerging as a major stream of management scholarship, and thatthe pace of e-business research is likely to quicken in the future.One important question is how this new information age differs from the machine age of the last 100 years. Managers and scholars alike are struggling to understand how economicand business rules have changed and should change. Many have claimed that existing busi-nessandmanagementconceptswillnotbeapplicableinthisnewenvironment.Othersarguethat the Internet is nothing but a new business tool and that not much has really changed. Intheir review of the e-commerce literature,Amit and Zott (2001)concluded that researchers have not yet articulated the central issues related to the e-business phenomenon, nor havethey developed theories that address the unique features of virtual markets. They suggestedtwo important questions for future research and scholarship: (1) What are the sources of competitive advantage in online markets, and how do they differ from the sources of advan-tageinofflinemarkets?and(2)Arestrategyperspectivesandtoolsthatwereformulatedinacompetitivelandscapeinhabitedbyofflinefirmsstillrelevantinthenewworldofe-business?This paper addresses these important issues by examining how existing strategy frame-works, models, and tools are, and are not, applicable in this new Internet age. We explore:(a) when the strategy types found among e-business firms resemblePorter’s (1980)generic strategies, (b) when we will find performance difference among e-business firms pursuingdifferent strategy types, and (c) when we will find differences in the strategy-performancerelationships of pure online firms (pure plays) and firms with both on- and offline opera-tions (clicks-and-bricks). Although current management theories evolved in the context of brick-and-mortar firms, we propose that Porter’s generic strategy framework is still appli-cable, albeit in need of some modification, to competition in the digital age.
Background
Porter’s Typology
A major stream of strategy research examines the relationship between strategy type andfirmperformance(Carter,Stearns,Reynolds,&Miller,1994;Dess&Davis,1984;Fahey&
 
 E. Kim et al./Journal of Management 2004 30(5) 569–589
571
Christensen, 1986;Kim & Lim, 1988;Miller, 1987;McDougall & Robinson, 1990).These strategy types, sometimes called generic strategies (Porter, 1980),archetypes, or gestalts (Robinson & Pearce, 1988), simplify a myriad of possible strategies into a limited set of  strategy types.Here, we focus on Porter’s framework of generic strategies for a couple of reasons. First,Porter’s framework of generic strategies is inherently tied to firm performance. Second,Porter’s framework overlaps with other typologies. For example, Porter’s strategy of differ-entiation resemblesMiles and Snow’s (1978)prospector strategy, and Porter’s strategy of  cost leadership is similar to Miles and Snow’s defender andHambrick’s (1983)andDess and Davis’s (1984)cost leadership strategies. Porter’s strategy of focus is very much likeMiller and Friesen’s (1986)niche innovator strategy.Porter’s framework proposes that firms must choose whether to serve broad or narrowmarketsegmentsandwhethertoseekadvantagethroughlowcostsorperceiveduniqueness.Firmschoosingtoservebroadmarketsandtoderiveadvantagethroughlowcostsaretermed“cost leaders,” while those that seek to derive advantage through uniqueness are termed“differentiators.” Firms may also pursue “focus” strategies by targeting narrow marketsegments and by emphasizing either low costs or uniqueness.According to Porter, some firms do not pursue a viable business strategy, and he labelsthesefirms“stuckinthemiddle.”AccordingtoPorter,firmsbecomestuckinthemiddleforone of two reasons. First, they might fail to pursue successfully any of the generic businessstrategies. For example, a firm might fail to differentiate itself from its competitors, but itmay also fail to develop the capabilities or resources needed to be a successful cost leader.Porter has also suggested that firms can become stuck in the middle by trying to pursuemore than one generic strategy simultaneously.
Characteristics of the E-Business Environment 
WhilePorter’stypologyhasreceivedagooddealofempiricalsupportintraditionalbusi-nesscontexts(Dess&Davis,1984;Hambrick,1983;Miller&Friesen,1986;Miller,1988), we do not know whether Porter’s generic strategies or any other strategy typology can beappliedtoe-business firms (Smith,Bailey,& Brynjolfsson,1999).Anextensivebodyoflit- eraturehasalreadydescribedtheessentialcharacteristicsofthee-businessenvironmentandhow it differs from and is similar to traditional business environments (e.g.,Armstrong &Hagel, 1996;Bakos, 1997; Burke, 1996;Cross & Smith, 1996;Murphy, Hofacker, & Bennett, 2001;Porter, 2001;Schlauch, & Laposa, 2001). Here, we highlight aspects of  the e-business competitive landscape that are most relevant to the concept of competitivestrategy.
 How is e-business different?
The Internet allows firms to overcome physical boundariesand distance and it also allows them to serve larger audiences more efficiently. At the sametime, and perhaps more importantly, Web technologies allow companies to target specificconsumer groups, which may be difficult to do in traditional markets due to the high costof obtaining information about a particular customer segment. Furthermore, traditionalmarketing methods usually emphasize only one-way communication from marketers toconsumers, while the Internet is an interactive medium (Yelkur & DaCosta, 2001). Since
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