Journal of E-Business, Vol. 4, Issue 1, June 2004 Copyrights: Journal of E-Business (International Academy of E-Business). All rights reserved. 1 E–BUSINESS: A FRAMEWORK FOR EXAMINING CREATION AND APPROPRATION OF VALUE Fabrizio Noboa IDE Business School ABSTRACT Strategy is basically about the creation, appropriation, and sustainability of value. The Internet has witnessed a huge amount of ventures willing to create, appropriate, and sustain value in this new competitive setting. However, competitiveness in e–commerce has been highly tough and the web has experienced high mortality rates. The Internet has made it more difficult for firms to appropriate value, even though it has also made it easier to create value. For this reason, there is an enormous academic interest in examining whether the value that is created through the Internet may be captured by firms or may flow entirely to customers. Based on an exploratory study of two Spanish online travel agencies, the present paper offers a framework that may serve to analyze the potential of a site to create and appropriate value. INTRODUCTION Success in e–commerce has proved to be a difficult task. Many supposedly smart businesses in cyberspace have collapsed and investors are becoming more cautious when a new e-business venture is set. This disappointment is not without reason. Web sites are hardly showing any profit and the few that are not in the red are certainly not achieving superior performance. While there may be numerous explanations as to why some online firms have survived and others died, this paper wants to explore a traditionally accepted statement within the economics and strategy literature. Scholars coming from both traditions claim that firms that do not appropriate value would hardly survive in the marketplace and, by extension, would not achieve a competitive advantage. Therefore, many firms may not have survived in cyberspace simply because they were unable to capture part of the value created through the site, letting it flow entirely to other agents of the market (e.g., customers). The purpose of this paper, then, is to develop a framework to analyze the potential of an e- business venture to create and appropriate value. We start by defending why it may be reasonable to differentiate between creation and appropriation of value, and how this may be done; followed by a discussion on the adequate unit of analysis for examining these issues; then, two Spanish virtual travel agencies are examined through the lenses of the framework suggested, which is firmly anchored in accepted constructs in the literature. Finally, conclusions are given. CREATION AND APPROPRIATION OF VALUE Value has been one of the main interests among finance scholarship. Concretely, it has been interested in measuring firms performance, i.e. profitability, and in the development of adequate proxies for that purpose. On the other hand, strategists and economists have been also interested in value, but their research has been more concerned with the variables that affect firms’ performance than with adequate mechanisms to measure it. Moreover, strategists in general suggest managers trying to affect the variables that influence firm’s performance in order to outperform the market. Therefore, unlike finance scholars, strategists are interested in finding what managers can do in order