Electronic Commerce: Business Models, Strategies, Investment and
Implementation in the Network Economics
August, 2008
Minder Chen, Ph.D.Associate Professor of Management Information Systems
E-Mail: [email protected] or [email protected] Web site: http://faculty.csuci.edu/minder.chen/
EC(I) - 2 © Minder Chen, 1996-2008
Reference• EC Books 1. Net Ready, by Amir Hartman and John Sifonis, McGRaw-Hill, 2000. 2. Now or Never, by Mary Modahl, Harper Business, 20003. Designing Systems for Internet Commerce by G. Winfield Treese, Lawrence C. Stewart
(May 1998) Addison-Wesley Pub Co; ISBN: 0201571676 4. Net Results: Web Marketing that Works by Rick E. Bruner (Editor), Cybernautics, Usweb
Corporation Hayden Books; ISBN: 1568304145 5. E-Business : Roadmap for Success by Ravi Kalakota, Marcia Robinson, Don Tapscott
(June 1999) Addison-Wesley Pub Co (C); ISBN: 0201604809 6. Customers.Com: How to Create a Profitable Business Strategy for the Internet and Beyon
d by Patricia B. Seybold (Contributor), R. T. Marshak, Ronni Marshak 1 Ed edition (November 1998) Times Books; ISBN: 0812930371
7. Net Success : 24 Leaders in Web Commerce Show You How to Put the Web to Work for Your Business by Christina Ford Haylock, Len Muscarella, Ron Schultz, Steve Case (May 1999) Adams Media Corporation; ISBN: 1580621147
8. Creating the Virtual Store: Taking Your Web Site from Browsing to Buying, by Magdalena Yesil, Published by John Wiley & Sons, November 1, 1996
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Course Description
This course provides an overview of Electronic Commerce and Electronic Business based on new E-conomy (network economics) and unique characteristics of underlying web technologies. Topics covered include: electronic commerce overview, network economics, EC models and strategies, EC case studies, e-business components such as Enterprise Resource Planning and Customer Relationship Management from a reengineering process viewpoint; Internet and web technologies including web technologies, electronic payment systems, and Internet security. Critical success factors for building a successful EC will be discussed.
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Seminar Leader Dr. Minder Chen received a B.S. in Electrical Engineering from National Taiwan
University in 1977, an M.B.A. from National Chiao Tung University in 1983, and a Ph.D. in Management Information Systems from the University of Arizona in 1988.
He is currently Associate Professor of Management Information Systems and Decision Science and served as the Director of Technology Program (an Executive Master Program in Information Technology Management) in the School of Management at George Mason University. He has taught Executive MBA and undergraduate level courses in electronic commerce, as well as Business Process Reengineering and Change Management; Technology Assessment, Evaluation, & Investment; Global Information Technology Management at the Executive Technology Management master program.
He is the President of Advanced Information Technology Consulting (U.S.A), a consulting firm specialized in business engineering, electronic commerce, and emerging technologies. He is also one of the founder and Chief Technology Officer of KITE E-Commerce Training and Consulting Inc. (Taiwan). His primary research interests are electronic commerce, computer-aided instruction, collaborative and organizational learning, information engineering and business reengineering, computer-aided software engineering, client/server computing, collaboration technologies (groupware), and object-oriented systems development methodology. He has published papers in Journal of Management Information Systems, Database, Journal of Organizational Computing, Expert Systems with Applications, IEEE Transactions on Knowledge and Data Engineering, IEEE Transactions on Systems, Man, and Cybernetics, Journal of Small Group Research, and IEEE Software.
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Continued ...He has been involved in studying methods and tools for business process
reengineering and software reuse for DOD's Corporate Information Management Office. He has also worked with governments and private-sector businesses, such as Fairfax County Government, US Court, Industrial Technology Research Institute, DOD Center for Information Management, American Management Systems, and Wizdom Systems Inc. in their information engineering, client/server migration, and business reengineering efforts by providing them with training and consulting services. He has given presentations and one- to three-day business reengineering and electronic commerce and other advanced IT seminars in U.S., China (for Everbright Group), Taiwan (via National Taiwan University and Corporate Synergy Development Center), Singapore, and Hong Kong. Dr. Chen is also a well-known expert in systems development methodology, integrated CASE tools, and groupware. He has provided training courses such as HTML, DHTML, XML, JavaScript, Web Site Development and User Interface Design, IIS, ASP, ColdFusion, electronic commerce, CASE tools, Information Strategy Planning, Information Engineering methodology, client/server computing using PowerBuilder and Visual Basic for many firms, such as AT&T, Logicon, PSINet, KForce.com, TRW Inc., BDM, BTG, Lockheed Martin, International Monetary Funds, Computer Sciences Corporation, and Marriot Hotel.
He is the co-guest-editor of the March 1992 IEEE Software special issue on Integrated CASE, a CASE minitrack coordinator of Hawaii International Conference on Systems Sciences for several years, a program committee member of Methods and Tools for Business Engineering 1995 Conference, an international program committee member of 1995 Pan Pacific Conference on Information Systems.
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Outline (I)EC Introduction
IntroductionThe cycle of electronic commerceEC and Business ProcessEC statistics
Network Economy and Dynamic TradeInformation rulesNetwork externality and network economicsNew supply and demand curvesDynamic trade
EC Strategies 4Cs strategyContent, Community, CommerceRevenue streamsE-conomy Map and EC Strategies
EC Business ModelsB2C Virtual stores: physical and digital goods and servicesInfomediaries: Seller-sideInformediaries: Buyer-side Infomediaries: B2B marketspace
EC Case Studies: B2B: verticalnet.comAuction: eBaySubscription web sites: monster.come-tailing: 1800flowers.comFinancial investment sites: E*TradeOther interesting web sites
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Outline (II)E-Business and Extended Enterprise
Defining e-business and extended enterprise Supply Chain Management Customer Relationship ManagementBusiness-to-business analysis
Case StudiesAmazon.comDellFederal ExpressCisco
Web Technology and EC Software OverviewInternet infrastructure and servicesWeb technology overviewEC softwareInternet Security and Electronic Payment Systems
• EC Implementation Evolution of EC implementationEC site life cycle EC site design issuesPromotion and marketing Net readiness evaluation
• EC Investment and Opportunities Internet / EC industry analysisEC Firms and Stock marketEC investment pyramid
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EC Introduction
• Introduction• The cycle of electronic commerce• EC and business process• EC statistics
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Electronic Commerce: Introduction
E-Business
E-Commerce
Internet Commerce
Commerce
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Electronic Commerce
• Electronic commerce is broadly as the ability to execute business activities (transactions, contracts, and partnership) over a computer network. The execution of these activities lead to the exchange of goods, services, and money.
• Online business activities are changing market dynamics and structures of various industries.
• Electronic commerce adds a new dimension "information" to business activities involving information goods, information services, and electronic money.
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Market Relationships
TravelocityMicrosoft expediaPriceline.com
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The Low-Friction Market
"[The Internet] will carry us into a new world of low friction, low-overhead capitalism, in which market information will be plentiful and transaction costs low."
-- Bill Gates, The Road Ahead
"Where there is a friction, there is opportunity!"
-- Net Ready.
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The Cycle of Electronic Commerce
Customers Online Ads Online Orders
Standard Orders
Access
SearchesQueriesSurfing
Distribution
Online: soft goodsDelivery: hard goods
Electronic Customer Support
Follow-on Sales
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Components of Electronic Commerce
Institution
• Government• Merchants• Manufacturers• Suppliers• Consumers
Processes
• Marketing• Sales• Payment• Fulfillment• Support
Networks• Intranet• Extranet• Internet
Source: adapted from David Kosiur, Understanding Electronic Commerce, Microsoft Press, 1997.
ElectronicCommerce
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Generic Framework of Electronic Commerce
Common Business Services Infrastructure(Security/Authentication, Electronic Payment, Directories/Catalogs)
Messaging & Information Distribution Infrastructure(EDI, E-Mail, HyperText Transfer Protocol)
Multimedia Content & Network Publishing Infrastructure(Digital Video, Electronic Books, World Wide Web)
Information Superhighway Infrastructure(Telecom, Cable TV, Wireless, Internet)
Electronic Commerce ApplicationsSupply Chain Management Online Marketing and Advertising
Procurement & Purchasing Online Shopping
Audio and Video on Demand Online Financial Transaction
Entertainment and Gaming Education and Research
Pu
blic
po
licy
, leg
al, ec
on
om
ical
de
velo
pm
ent, an
d p
riva
cy iss
ues
Tech
nical stan
dard
s for electro
nic
do
cum
ents, m
ultim
edia co
nten
ts, bu
siness
transactio
ns, an
d n
etwo
rk pro
toco
ls
Adapted from: Kalakota and Whinston, Frontiers of Electronic Commerce, Addison Wesley, 1996, p. 4.
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EC and Business Processes
Seller Customer
Co
rpo
rate
Dat
abas
es
Provide Info
Get customer
Provide info
Fulfill order
Support
Identify need
Find source
Evaluate offerings
Purchase
Operate, Maintain, Repair
Phone, fax, e-mail
Web site
Newsgroups
Net communities
Web site
EDI
Web site, phone, fax, e-mail, e-mailing list
Credit cards, e-cashP.O.s
Demos, reviews
Send info
Data sheets, catalogs, demos
Request info
Web surfing
Web searches, web ads
Deliver soft goods electronically
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World Wide Internet Commerce
Forester Research, Inc. June 1999
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Business Internet Commerce Trends
B2C: Business to ConsumerB2B: Business to Business
Reference: http://cyberatlas.internet.com/
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Business-to-Business E-Commerce
• International Data Corporation forecasts that business-to-business e-commerce revenue will jump from $80 billion worldwide in 1998 to $1.1 trillion in 2003. Forrester Research believes that number will go even higher to $1.3 trillion by 2003.
• Business-to-Business -- Vertical Industries – Computing and Electronics: For this year, businesses will invest
$50 billion in computers and other electronic equipment online. Increase to $319 billion by 2002.
– Motor vehicles: Companies will spend $9 billion online to purchase fleets of cars and trucks this year. 2002—grow to $114 billion—more than a 1000% increase.
– Online utilities: Online trades of $15 billion in 1999 will grow to $110 billion by 2002.
– Food and agriculture: Expected to be about $3 billion in 1999--$20 billion by 2002.
– Pharmaceutical and medical: Forecasted $1 billion this year. Increase 20-fold by 2002. (Source: Business 2.0, March, 1999 re: Forrester Research)
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Statistics• Holiday Season 1998
– 2.1 million households shopped online for the first time
– Generated $2.3 billion
– Virtually all (98%) of AOL shoppers said they would shop online again in the next 6 months (Source: Jupiter Communications)
• By 2003 . . . – Consumers on the Web will spend more than $177 billion
worldwide.
– There will be an eight-fold increase in Web buyers worldwide to 143 million (International Data Corporation, March 1999)
– In Europe, 43 million households will be online. (Source: Nua Internet Surveys 12/98 re: DataMonitor)
– In Japan, buyers will spend one trillion Yen online. (Source: Nikkei Multimedia, 12/98)
• 1% of 5 million US merchants are able to collect payments via the Internet in 1999.
• 10% E-merchants by year 2003.
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Retailing Trends
1950s 1960s-1970s 1980s 1990s
Main street
Main street
Malls
Malls
Superstores
Superstores
Web
Web
• Home Depot• CompUSA• Barnes and Nobles• Border
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AOL Findings
• Buy brands
• Seek convenience
• Are increasingly time-starving
• Are not solely motivated by price
• Require simplicity
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Network Economy and Dynamic Trade
• Information rules• Network externality and network
economics• New supply and demand curves• Dynamic trade
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Changes in the Net Economy
• Business environment – Local / Physical Global /Virtual
• Business assets – Tangible Intangible
• Business change – Periodic Continuous
• Business production– Mass Production Mass Customization
Mass Personalization
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Net Economy• 1940s - 1980s
– Manufacturing to information economy
– Local - regional - national - multinational
– Tangible brick-and-mortar assets: offices, shops, service centers, and warehouse
• 1990s - 21st Century– Net economy:
» Information & Knowledge
» Communication and interactions
– Global and virtual
– Business Focus: Information, channel, flow, customer loyalty, reliable service, relationship
– Intangible assets: Knowledge, experiences, relationships
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Internet Economy Driving Forces
• Changing customer demands
• Globalization
• Internet ubiquity
• New technology
• New marketplace and intermediacies
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Network and Information Economy• Information is costly to produce but cheap to reproduce.
– Price information according to its value not its cost.
• Managing intellectual property. – Maximize the value of your intellectual property, not the terms and
conditions that maximize the protection.
• Information as an “experience good”– Consumers must experience it to value it.
– Brand and trust building is critical.
• The economics of attention– A wealth of information creates a poverty of attention.
Source: Information Rules
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Characteristic of Information Economy
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Information Commodity Market
• Competition among sellers of commodity information pushes prices to zero.
• Personalize your product and personalize your pricing
• Know your customer
• Differentiate your prices when possible
• Use promotion to measure demands
• Network effects lead to demand side economies of scale and positive feedback.
• Information has its greatest value when it is fresh.
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Popularity Adds Value in a Network
Val
ue
to U
ser
Number of Compatible User
Vicio
us c
ycle
Vir
tuou
s cy
cle
Networks• Real: LAN, Internet, Fax • Virtual: Virtual community, Chat
room, Instant messenger
Positive Network
Externality
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Supply/Demand FlipP
rice
Quantity
Demand
Supply
Classic Economics
Pri
ce
Quantity
Demand
Supply
Network Economy
• In the network economy, the supply curves slope down instead of up and demand curves slope up instead of down.
• The accelerating expansion of knowledge and technology simultaneously pushes up the demand curve while pushing down the supply curve.
• Upward demand curves: Network externality • Downward Supply Curves: Compounded learning curve, Moore's Law
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The Internet Increases Apparent Supply
Old apparent supply
New apparent supply
Actual supply
Internet increase apparent supplyApparent quantity risePrice fall
Price
Quantity
Source: Now or Never, Mary Modahl, HarperBusiness, 2000
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Challenge
• Consumers: Everything on the Internet should to be free.
• Merchant: How can I make a profit if everything is free.
• Examples: – Free web browsers: Netscape Communicator and Internet Explorer
– Free email: Juno, mail.yahoo.com and hotmail.com
– Free Internet Access: Freeserve in Britain
– Free PC: eMachine and CompuServe; Free-PC
– Free web hosting: Geocities, Angelfire, Zoom
– Free ...
Pri
ce
Year
$250
$0
1930 1999
Cost of a 3-minute Long Distance Call
Gilder's Law All tangible and intangible items that can be copied adhere to the law of inverted pricing and become cheaper as they improve.
Anticipate this cheapness in your pricing strategy and product/service development strategy
All tangible and intangible items that can be copied adhere to the law of inverted pricing and become cheaper as they improve.
Anticipate this cheapness in your pricing strategy and product/service development strategy
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Dynamic Trade: Perfect Market
• Customer service is more important than product selling
– Federal Express: Certainty
• Real-time demand drives production– Dell: Build-To-Order
• Pricing matches market conditions– Name your price (reversed auction): PriceLine.com
– Auction: Ebay
Leveraging technology to satisfy current customer demand and with customized response.
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Traditional vs. Dynamic Trade
• Speed from engagement to transaction– Weeks vs. Minutes
• Product distribution– Seller-selected vs. Buyer-selected
• Pricing– Product price list vs. Market-determined price
• Production– Pre-sale vs. Post-sale (Dell’s BTO)
• Customer relationships– Standard vs. Targeted and Customized
• Strategic asset– Location vs. Visibility and Customer Database
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Dynamic Trade Self-Test
Rate each of the following criteria in your market.(3=high, 2=medium, 1=low)
Commodity market
Perishability of inventory
Capital intensity
Configurability of products
Customers' perceived investment level
Threat from new kinds of competition
Channel volatility
TOTAL: _____________
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Electronic Commerce: Strategies and Business Models
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Moving Your Business Online
• Companies are motivated by either fear or greed to move to their businesses to the net.
• To .com your company is becoming an imperative.
• They have to obsolete their current business models and work very hard to search a new business model.
Your competitor is just one-click away
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Electronic Commerce Applications and the Cycle of Commerce
Enterprise Information Server
Marketing
Sales
Production/Logistics
Billing/C
ollections
ServiceSeller's Cycle of Commerce
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Electronic Commerce Applications and the Cycle of Commerce
Shopping/Testing
Procurem
entR
eceiving/Logistics
Paym
ent
Operation
Enterprise Information Server
Buyer's Cycle of Commerce
Time
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EC Strategies
• 4Cs strategy• Content, Community, Commerce• Revenue streams• E-conomy Map
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EC Strategies: 4 Cs
CommerceCommerce
ContentContentCommunityCommunity
CustomersCustomers
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Customers
• Obsess over your customers
• Remember that the Web is an infant– What do you have to offer that the physical world
cannot in order to attract customers?
• If you make one customer unhappy, he won't tell five friends -- he'll tell 5,000 on newsgroups, list servers, and so on.
– "Word of mouth" factor gets amplified on the Net
• The shifts of balance of power away from business and toward customer.
- Jeff Bezos
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Self Assessment: Customer Caring
What do your customers need? What requests do they make of you?
How do you respond to customer’s requests?
What kind of information can they get from you?
What process do they go through? How do you produce and distribute it to them?
What are the steps that your customers have to take
to complete a purchase transactions?
How do they get shipment status?
How are exceptions handled?
What do you need from customer? What do you know about customer preferences?
What information could you use to better target your
product and service offerings?
What can you do to build relationships? How can you engage customers in an ongoing dialog?
How can you continue to provide information, products,
and services to reinforce your ongoing relationships?
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• Consumers are increasingly engaged in an active and explicit dialogue with companies.
• The role of the consumer is being transformed from passive buyer to active participant in co-creating value
• The market is no longer a "target," but must be recognized as an ecosystem. It's a forum for value creation and extraction, and the company is part of an enhanced network--one that includes its suppliers and partners, and its customers. The network's fulfillment goes beyond business-to-business or business-to-consumer relationships to a consumer-to-business-to-business relationship.
• Consumer Centricity at http://www.informationweek.com/781/prahalad.
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5 Steps to Success in EC• Set strategy
– Make it easy for customers to do business with you!
• Focus on the end-customer– Identify end-customers and their needs– Distinguish from channel partners– Identify other internal and external stakeholders
• Redesign customer-facing business processes• Wire your company for profit and success• Foster customer loyalty
– Determine and prioritize objectives– Decide what to measure and how to measure– Measure profitability and other critical success
indicators
Source: Adapted from Customer.com by Patricia Seybold, 1998
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Foster Customer Loyalty • The key to profitability in EC• Achieving higher revenues via customer acquisition and
customer retention– Acquisition costs– Base profit– Revenue growth– Cost savings– Referrals– Price premium
• Benefits: – No-cost acquisition – Experienced customer
• Strategies– Increase customer "inventory" – Increase customer "tenure"
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8 Critical Success Factors
• Target the right customers
• Own customer's total experience
• Streamline business processes that impact the customer
• Provide a 360-degree view of relationships with your customers
• Let customers help themselves
• Help customers do their jobs
• Deliver personalized services
• Foster community
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Target the Right Customers
• Know who your customers and prospects are
• Find out which customers are profitable
• Decide which customers you want to attract (or keep from losing)
• Decide which customers influence key purchases
• Find out which customers generate referrals
• Don't confuse customers, partners, and stakeholders
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Own the Customer's Total Experience
• Deliver a consist and branded experience
• Focus on saving customer time and irritation
• Offer a peace of mind
• Work with partner to deliver consistent service and quality
• Respect the customer individuality
• Give customers control over their experience
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Streamline Business Processes That Impacts the Customers
• Start identify the end customer
• Streamline the process from the end customer's point of view
• Streamline the process from the end customer's point of view
• Streamline the process for key stakeholders
• Continuously improve the process based on customer feedback
• Give everyone involved a clear view of the process
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Customer Information• Processes:
– Marketing– Pre-sales– Sales– Post sales support– Delivery– Field service– Quality control– Billing– Product development & production
• Media– Web– Kiosh– E-mail– Phone– Mail– Fax– Hand-held
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Virtual Communities
Virtual Community
Users
• Money
• Content• Demographics
Providers
• Content• Hard goods• Games• Services
Other Websites
Advertisers
• Advertising
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Consumers' Needs for Community• Communities of transaction: Facilitate the buying and selling of
products and services and deliver information related to those transactions.
– Bring in a critical mass of sellers and buyers to facilitate certain types of transactions.
– Virtual Vineyards
• Communities of Interest: Bring together participants who interact extensively with one another on specific topics.
– Higher degree of interpersonal communication.
– GardenWeb: www.gardenweb.com
– Motley Fool created by David and Tom Gardners on AOL
– Parents Place: www.parentsplace.com
• Communities of Fantasy – Chat rooms: Red Dragon Inn
– Virtual Team competition at ESPNet: espnet.sportszone.com
• Communities of Relationship: People come together around certain life experiences that are very intense and can lead to the formation of deep personal connections.
– Cancer Forum on CompuServe
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www.parentsoup.com
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Geocities: www.geocities.com• This collection of themes cyberhoods is populated by a half-million
"homesteaders" who get free home pages.
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The Well: www.well.com
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Talk City: www.talkcity.com
• LiveWorld Production Inc. hopes to create a clean, well-lighted place to chat on the Web.
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Major Portals
• AOL/Netscape
• Yahoo
• Excite
• MSN
• Lycos
• InfoSeek/GO: Disney's go.com
• Snap
• AltaVista
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Revenue Streams
• Advertising / Sponsorship
• Transaction
• Subscription / Listing Fee
• Value-added services
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Sources of Revenue on the Web
• Transaction: Net merchants this year will hawk some $518 million worth of goods, from CDs to Computers. Total cybersales could swell to $6.6 billion by 2000, figures Forester Research.
• Subscription: For now, most content on Web is free. Still sales of subscription services on the Web will hit $ 120 million this year, says Jupiter Communications. By 2000, the number is expected to be $966 million.
• Advertising: The Net is emerging as a medium uniquely suitable for advertisers looking to reach target customers directly. Spending on Web ads will hit $312 million this year, growing to $5 billion by 2000, Jupiter figures.
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Multifaceted Model for Web-Based EC Design• ATTRACT: Hits
– Communities of interest
– Changing topics for repeat customers
– Features that encourage customers to explore
• ENGAGE: Leads– Special areas encourage customer to register (i.e. selection of articles customized for
visitors interests)
• PARTICIPATE: Sales revenue– Free download (video, audio, & software)
– Shopping– Chat and News
– Subscription
• JUMP: Advertising revenue
– Other products of interest to customer– Other sites of interest to customer
Adapted from Netscape Communications Inc., 1996.
Attract
Engage
Participate
Jump
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EC Companies Transform the Revenue Mix
Pricing
Value
Customers
NewCustomers
NewValues
NewPricing
The mix: Who pays for what and how much.
Highly interrelated!
Source: Now or Never, 2000
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The Revenue Mix: Examples• Finding new customers
– Onsale.com sales at costs– Buy.com creates advertising as a revenue stream
• Offering new value– eBay buyers see auction as a new form of entertainment– At eBay there are some specialized sellers for them selling on
eBay has become an official part-time job
• Building new pricing structures– eBay
» If you want to bid or browse at eBay, it's free. You don't pay a penny in fees.
» If you're a seller, you'll be charged: • An insertion fee. This fee is usually between 25 cents and $2.00, depending on your
opening bid. • A Final Value (final sale price) fee at the end of your auction. This fee generally
ranges from 1.25% to 5% of your final sale price.
– Compare eBay with classified ad
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The Revenue MixWhy is it difficult for the traditional companies to change?Why is it difficult for the traditional companies to change?
• Finding new customers– "The rearview mirror trap". Existing customers reflect an industry's past
more than its future. A traditional company in the market leader position makes it hard to see new customers coming.
– "Investor want to talk to their broker on the phone!"
– It delayed a deployment of online trading of a major brokerage house by more than two years.
• Offering new value– Traditional companies have difficulty understanding new value.
– One baby bell executive think Yahoo is just another damn yellow pages. "People want to find local businesses!"
• Building new pricing structures– Equity investors hold traditional players to a higher profit standard than
they do to the dotcoms.
– In the US, venture funds and individual investors can bankroll tears of big losses of dotcoms in a bid to win market share from traditional companies.
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Consumer Technographics Segments in the US
Fast Forward12%
New Age Nurturers
8%Mouse Patatoes
9%
Techno-strivers7%
Digital Hopeful
7%Gadget Grabbers
9%
Handshakers7%
Traditionalists8%
Media Junkies5%
Sidelined Citizens28%
Primary MotivationPrimary Motivation
Career Family Entertainment
Att
itu
de
To
wa
rd T
ec
hn
olo
gy
Att
itu
de
To
wa
rd T
ec
hn
olo
gy
PessimistsPessimists
Inco
me L
eve
lIn
com
e Le
vel
High
High
Low
Low
Source: Forrester Research Inc.
Early Adopters
Laggards
OptimistsOptimists
Mainstreams
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Quick Test for Technographics
More Men More Women
More Educated Less Educated
High Income Low Income
Have Children No Children
Younger Age Older
LaggardsEarly Adopter
Mainstreams
Time
Nu
mb
er o
f n
ew u
sers
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Technology-Fit: Customer and Product
Cu
sto
me
r N
ee
d fo
r P
rod
uct I
nfo
rmat
ion
High
Low
Customer Demographics MatchPoor High
Earlier AdopterSecond Wave
Second WaveWeb Laggards
TideDenny's
AAFedExpMicrosoft
NikePepsi
Jenny CraigChrysler
Source: Forrester Research
EC(I) - 71 © Minder Chen, 1996-2008
EC Development Process
• Competitive and capability analysis
• Knowledge building and market evaluation
• EC Business model design and feature identification
• EC technical architecture design
• Application development and deployment
• Continuous performance evaluation and innovation
EC(I) - 72 © Minder Chen, 1996-2008
Opening Online Business
• Identify a need and a niche
• Determine what you have to offer
• Set your business goals
• Design your EC architecture
• Assemble your EC teams
• Build your web site
• Set up a system to handle sales
• Provide customer services
• Advertise your online business (online and offline)
• Evaluate your performance and moving on
EC(I) - 73 © Minder Chen, 1996-2008
Keys to Long Term Success
• Fast deployment
• Evolutionary implementation
• First mover advantages
• Promotion, promotion, promotion
• Customer focus and services
• Interaction with customers
• Integrating emerging technologies
• Redefining and redesigning business models
• Comprehensive database and data warehouse design
• Integrating back office operations with the virtual store fronts
•
EC(I) - 74 © Minder Chen, 1996-2008
Selling Points of Virtual Stores
• "The Internet is going to become a channel of distribution." -- The president of a major U.S. advertising agency
• Another firm advertise its virtual store as "The parking is easy, there are no checkout lines, we are open 24 hours a day, and we deliver right to your door."
• The trend toward point-of-sale moving into the home is accelerating.
EC(I) - 75 © Minder Chen, 1996-2008
Benefits to the Merchants
• Increased sales of existing products to generate additional revenues
• Use the web to target their offers to a niche market
• "The store is always open!"
• Establish better relationships with customers.
• Low cost information distribution
• Increased speed to market
• Expanded delivery channels
• Global exposure and reach
EC(I) - 76 © Minder Chen, 1996-2008
Benefits to the Consumers
• Convenience
• Informative
• Value presented upfront: Demo and free download
• No long wait times
• Easy flow and navigation
• Search capabilities
• Engaging presentation
• Constant updates
• Easy to buy
EC(I) - 77 © Minder Chen, 1996-2008
Five Strategies for .com-ming Your Business
1. Check Your DNA– Is the Net part of who you are as an enterprise? Or is
it something foreign to you? – Are you ready to embrace the Net economy? – Do you have people on your team who have
experience in this area? People who get it? More important, do you have people on your team who are passionate about the Net? Or are they expecting business as usual? Do you have the right people on the right projects?
– Think about connections outside your enterprise-are you working with customers, partners and suppliers to help you retool your business. Are you learning from them and are they learning from you? Are you identifying key areas where you can make your interactions more productive and successful?
EC(I) - 78 © Minder Chen, 1996-2008
2. Think Portal– Think in terms of "portal". It's not about the site per se, it's
about the community you create. – It's about building and maintaining services that build
customer and partner loyalty and make your employees more efficient in providing service to your customers and partners.
– Examples: automobiles/enthusiasts, airlines/travel agents, insurance/health care, agricultural/food and nutrition.
– Find and create that home on the Web, and leverage it for competitive advantage.
3. Think Services– It's not enough anymore just to put information on a Web site. – Today you need to be offering services. What those services
are will be up to you, but that's where users are finding value in the Net Economy.
– Examples: Insurance, auto buying, auctioning, customer support, supply chain management, etc.
– Services equal customer loyalty and retention.
EC(I) - 79 © Minder Chen, 1996-2008
4. Think Anywhere, Anytime– Once you've developed those services --which ideally will grow out of
your enterprise's core competencies -- you need to deliver them ubiquitously.
– If they're only available on PCs, you're going to severely limit their utility -- and your enterprise's growth and profits.
5. E-commerce is Not the Future. It is now!– The marketplace is moving now. Your competition is moving now.– E-commerce is not about the future; it's about today. Start doing e-
commerce. – If you haven't prepared for holiday season 2000 for consumers,
partners, and suppliers, you're already behind.– Convert your communication, supply chain and customer relationship
channels to the Web. Many companies have had difficulty with this due to existing relationship conflict, but the reality is that you have to do it.
– Identify one area of high leverage and start there, time is your enemy so get moving today.
– The Web is proving to be more reliable, lower cost, and user-friendly. Use it to its full potential.
EC(I) - 80 © Minder Chen, 1996-2008
What To Do Now
1. Define your eBusiness strategy FAST
2. Assess readiness: – customers
– products/services
– organization
– technology
– infrastructure
Rap
id in
novati
on
Rap
id in
novati
on
EC(I) - 81 © Minder Chen, 1996-2008
What To Do Now3. Identify the target:
– Business objectives– Customer segment– Application area
4. Build it in less than 6 months -- Flexibility -- Scalability -- extendibility
5. Keep extending the function -- new products and services, new customer interfaces, enhance performance, security and capability
6. START NOW !
You are never done!You are never done!
EC(I) - 82 © Minder Chen, 1996-2008
Four Strategies to Start Online Business
• Integration
• Subsidiary
• Partnership
• Buyout
Co
st
Low
High
Tim
e to
Mar
ket
Slow
Fast
Ris
k
Low
High
EC(I) - 83 © Minder Chen, 1996-2008
Brick and Mortar
EC(I) - 84 © Minder Chen, 1996-2008
Soruce: Harvard Business Review, Get the Right Mixes of Bricks and Clicks, May-June 2000
EC(I) - 85 © Minder Chen, 1996-2008
In-House vs. Spin-off
EC(I) - 86 © Minder Chen, 1996-2008
The Four Stages of E-volution
Source: Strategy + Business, From Clicks to Bricks, 3q, 2000.
EC(I) - 87 © Minder Chen, 1996-2008
EC(I) - 88 © Minder Chen, 1996-2008
Becoming Virtual
• Egghead to Egghead.com
• Computer Literacy to Fatbrain.com
• Romac International to KForce.com
Kinder Toys is Moving to www.toydomain.com
(Find us on the web after June 1st)
Kinder Toys is Moving to www.toydomain.com
(Find us on the web after June 1st)
EC(I) - 89 © Minder Chen, 1996-2008
Your 3 Biggest Problems/Opportunities
• What should our strategy be?
• How do we build it in 3 to 6 months?
• How do we stay on the edge of innovation for life?
EC(I) - 90 © Minder Chen, 1996-2008
E-conomy Map
Co
nsu
mer
sB
usi
nes
s
Individual
AffinityGroups
Enterprise
COINs
The Delivery Vehicle(The Container)
The Message(The Content)
Adapted from: Net Ready, 2000
HP Testing &
Measurement
VerticalNetTestandmeasurement.com
HomeCareProducts
HomeCareInfoCenter
COINs: Community of Interests
EC(I) - 91 © Minder Chen, 1996-2008
GE's Destroy Your Business Approach
• Each business unit– Use cross-functional team
– Benchmark competitors'» Business operations
» Products / Services
» The economics of ordering online, sales force, and call centers
– DYB - Destruction Your Business: Present a hypothetical internet-based business plan that a competitor could use to erode your customer base.
EC(I) - 92 © Minder Chen, 1996-2008
GYB: Grow Your Business Approach
• How the business unit should change their existing business model in response to the threats.
• Find fresh ways to reach new customers and better serve existing ones.
• Best practices: – Focus: Your e-business application should focus
on how your customers can grow their business, streamline processes or reduce costs.
– Speed matters: Mare sure what you are offering customers via the web, whether they are B2C or B2B, is faster, cheaper and better than any other delivery mechanism.
– Value: New internet services should enhance value for existing customers rather than simply reaching new ones.
EC(I) - 93 © Minder Chen, 1996-2008
E-Business Creation Process
E-Vision
BusinessDrivers
TechnologyDrivers
E-BusinessStrategy
RapidImplementation
• Customer feedback• Benchmark data• Competitive analysis• Market forces• Usage statistics• Customer needs• Current capabilities
• Personalization• ROI• Profiling• Segmentation• Experience
modeling• Expanded
business opportunities
• Systems and networks
• Web architecture• Business
infrastructure• Technology
components• Web technology
strategy
Source: Digital Transformation, 2000
EC(I) - 94 © Minder Chen, 1996-2008
Internet Industry
Internet Economy
Consulting
Contentand
Activity
ElectronicCommerce
Infrastructure
Client/ServerSoftware
ISPNetworkServices
InternetEquipment
Commerce InstrumentsPortalsCommerce Servers
SportsMallsEntertainmentNewsfeedPublications
System Integrationand Design Browsers
Web ServerApplication ServersSecurityTools
Internet ServiceConsumer ServicesCarriers
Backbone RouterAccess EquipmentServer Computers
EC(I) - 95 © Minder Chen, 1996-2008
EC Business Models
• B2C Virtual stores: physical and digital goods and services
• Infomediaries: Seller-side
• Informediaries: Buyer-side • Infomediaries: B2B marketspace
EC(I) - 96 © Minder Chen, 1996-2008
Types of Virtual Stores• Hard goods:
– Food – Clothes– Computer hardware and Electronics– Packaged software
• Soft goods (Bits delivered on-line) – Information
» Database» Publishing » Research
– Software» Computer games» Java applets» Application software
• Services– Selling time:
» Computer game play» Consulting » Legal and medical services
– Selling information (subscriptions) » Dating services» Legal and medical advice
– Reservations and tickets» Airline tickets» Event tickets» Hotel and restaurant
EC(I) - 97 © Minder Chen, 1996-2008
Is EC Appropriate for You?
Industries who set up virtual storefronts
EC(I) - 98 © Minder Chen, 1996-2008
What Consumers Are Buying Online• Computer-related products 49%
• Books 35%
• Consumer electronics 34%
• Travel Reservations 28%
• Cars, boats 19%
• Clothing and apparel 18%
• Recorded music, CDs 18%
• Larger household goods (furniture, major appliances) 15%
• Filmed entertainment, videos 13%
• Gifts delivered by mail (flowers, candy) 12%
• Publication subscriptions 8%
• Investment or financial services 8%
• Food and drink 8%
• Artwork, poster, etc 4%
• Other 13%
» Source: Ernst & Young Internet Shopping Study 1998
EC(I) - 99 © Minder Chen, 1996-2008
Why?
• The most affected industries: – Books
– Stock trading
– PCs
– Automobiles
– Travel
• The least affected industries– Food
– Consumer durable goods
– Clothing
– Local services
– Banking and insurance Enterprise.com, 1998
EC(I) - 100 © Minder Chen, 1996-2008
Three Business Models• Payment direction:
– Buy-side– Sell-side– Marketplace: Business is being transacted with both suppliers
and customers.
• Trading parties: Most analysts predict the B2B model will have a more rapid adoption rate, but that the volume of transactions in the B2C model will, in the long run, greatly surpass that of B2B.
– Business to Business– Business to Consumer
• Type of product or service that is being provided. – Physical goods and services– Digital goods (contents) – Digital services
EC(I) - 101 © Minder Chen, 1996-2008
Sell-Side E-Commerce Model
Selling Merchant
Buyer A
Buyer C
Buyer B
EDI
HTML & FormsHTML & XML
OBIOnline Selling
EC(I) - 102 © Minder Chen, 1996-2008
Sell-Side Storefront
• Primary model used in current business-to-consumer scenarios
• Single seller, typically a distributor, constructs a Web storefront to sell to many consumers (i.e. Amazon.com)
• Unless a single distributor can aggregate all the suppliers in a given industry, the buyer remains responsible for comparison shopping between stores
• Expensive for buyer; does not meet the needs of corporate procurement organizations.
EC(I) - 103 © Minder Chen, 1996-2008
Buy-Side E-Commerce Model
Buyer
Seller A
Seller C
Seller B
EDI
HTML & FormsHTML & XML
OBIOnline Procurement
EC(I) - 104 © Minder Chen, 1996-2008
Buy-Side eProcurement• Buy-side applications generally consisting of a
browser-based self-service front end to ERP and legacy purchasing systems
• Corporate procurement aggregates many supplier catalogs into a single “universal” catalog and allows end-user requisitioning from the desktop, facilitating standard procurement for the organization and cutting down on “maverick” purchasing
• Purchases made through this system are linked to the back-office ERP or accounting system, cutting time and expense from the transaction and avoiding potential bookkeeping errors
• Model yields reduced transaction costs but not lower purchase costs; no impact on size of supplier base, no enablement of dynamic trade; buying organizations must set-up and maintain catalogs for each of their suppliers; too costly and technically demanding for most medium and small-sized businesses.
EC(I) - 105 © Minder Chen, 1996-2008
Marketplace E-Commerce Model
VirtualMarketplace
Seller A
Seller C
Seller B
EDI
HTML & Forms
HTML & XML
OBI
Buyer A
Buyer C
Buyer B
EDI
HTML & Forms
HTML & XML
OBI
• eBay.com• Pricelines.com• Egghead.com• Amazom.com Auction• www.chemdex.com
Infomediacy (Content Aggregator)
EC(I) - 106 © Minder Chen, 1996-2008
• No vendor loyally• No switching costs• Time-insensitive• Short-term• Casual• Many vendors• Products differentiated
on price, image
• Relationship-based• Very high switching costs• Extremely time-sensitive• Long-term• Mission-critical• Few partners• Partners differentiated on
reliability, flexibility
Business-to-ConsumerBusiness-to-Consumer Business-to-BusinessBusiness-to-Business
Business-to-Business vs. Business-to-Consumer
EC(I) - 107 © Minder Chen, 1996-2008
B2B Marketplace
• Latest evolution of B2B eCommerce, enabling a many-to-many relationship between buyers and suppliers
• Buyers and suppliers leverage economies of scale in their trading relationships and access a more “liquid” marketplace
• Sellers find buyers for their goods, buyers find suppliers with goods to sell
• Many-to-many liquidity allows the use of dynamic pricing models such as auctions and exchanges, further improving the economic efficiency of the market.
• Web Site: http://www.netmarketmakers.com/
EC(I) - 108 © Minder Chen, 1996-2008
Direct-to-Customer (D-to-C)
• Large, global, e-energized corporations (e.g., Fortune 1000) begin to squeeze intermediary companies.
• Stop & Shop [a large supermarket chain] is launch its own delivery service and is expected to end its partnership with Peapod [a dotcom delivery service]. -- The Boston Globe, April 2000
• June 20, 2000. Peapod announced online shopping and delivery services in Connecticut through grocery chain Stop & Shop. Stop & Shop is owned by Royal Ahold, which recently took a 51 percent interest in struggling Peapod.
B-to-C B-to-B D-to-C
EC(I) - 109 © Minder Chen, 1996-2008
Channel Conflicts • Channel conflicts arise when a new venue for selling products - such as
the Web for selling goods or services - threatens to cannibalize one or more existing conduits for selling goods within the same organization, such as a retailer or a manufacturer.
• The company's internal e-commerce team had already recommended direct Web sales as a way to better manage its supply chain and interact more directly with customers… But when the team presented its proposals to the company's CEO, his response was terse: "We've done business with our distributors for 30 years, and I certainly don't want to sell around them. I don't even want to discuss it."
- ComputerWorld.com Quick Study
EC(I) - 110 © Minder Chen, 1996-2008
Case in Point
• For example, about a year ago (1999), General Motors Corp. in Detroit attempted to buy back some car-dealer franchises as a possible step toward selling directly over the Web. Dealers protested so adamantly that both GM and Ford Motor Co. in Dearborn, Mich., spent a lot of time at a recent industry convention reassuring dealers that the automakers wouldn't sell directly to consumers. And in a recent survey by Cambridge, Mass.-based Forrester Research Inc. of 50 consumer-goods manufacturers, 66% cited channel conflict as the No. 1 obstacle to selling online.
EC(I) - 111 © Minder Chen, 1996-2008
Channel Conflict: How About the Distributors
• The concept of complete disintermediation - the elimination of the middleman - remains a theory. New intermediaries are emerging.
• Cisco System has 2 billion dollars annual sales on the Web.
• 70% of Cisco online business comes from VARs and distributors.
• Distributors have to do lot of value-add and customer support to survive.
• Fruit of Loom Inc. has 31 of its 55 distributors up on its extranet called Activewear Online.
EC(I) - 112 © Minder Chen, 1996-2008
Retailers and Manufacturers Co-exist on the Web
• US retail sales revenues 1998:– Brick-and-mortar stores 93%
– Catalog sales: 6%
– E-commerce 1%
• Cases: – Levi Strauss sells jeans at www.levis.com but won't allow retailers
to sell them online.
– Estee Lauder sells Clinique cosmetics at www.clinque.com but doesn't offer retail promotion.
– Waterford sells a limited selection at www.waterford.com like chandeliers and corporate gifts.
• Strategies: – Manufacturers want to maintain channels while stay in direct touch
with their customers.
– Provide online dealer locators.
– Share customers information back and forth.
EC(I) - 113 © Minder Chen, 1996-2008
Extended E-conomy Business Models
• E-buisness storefront
• Informediary– Seller broker
– Buyer broker
– Transaction broker / Exchange
– COINs
– Portals
• Trust intermediary
• E-business enabler
• Infrastructure providers / Communities of commerce
Source: Net Ready, 2000
EC(I) - 114 © Minder Chen, 1996-2008
Any-to-Any Technologies Connect Everything to Everyone
Consumers
Businesses
Institutions
PCsWeb TV
PDASmartcards
Specialty DevicesOther
HighHighValueValue
SolutionsSolutions
Transactionsand
Payments
PhysicalInfrastructure
Banks
Brokerage
Insurance
Retail
Distributors
Transport
Other
EC(I) - 115 © Minder Chen, 1996-2008
Clicks-and-Mortar
• Clicks-and-mortar has become the new buzzword in retailing circles.
• It means having an integrated, multi-touchpoint strategy that takes advantage of your physical retail outlets and integrates them seamlessly into your Web strategy.
• A good clicks-and-mortar strategy uses the Web to drive traffic to your stores and uses your stores to drive traffic to the Web.
YourSherpa.com
Brick-and-Click
EC(I) - 116 © Minder Chen, 1996-2008
Vulnerability Grid
Source: Net Ready, 2000
Velocity: How critical is the need for speed in the delivery of the product or service?
Attitudinal Readiness: How ready are customers to accept new ways?
Fragmentation: How fragmented is the market in which you operate?
Commodity: How commodity-like is the product or service?
Asymmetries of Information: What is the balance of power in the buyer-seller equation?
Customizability: How customizable is the product or service?
Digitizability: How digitizable is the product or service?
Efficiency: how efficient is the relationship between buyer and seller?
Your Risk/OpportunityLow Medium High
Risk/Opportunity Exposure
EC(I) - 117 © Minder Chen, 1996-2008
Move to Consumer-Centric View
Supply Supply BaseBase
MyMyCompanyCompany
DistributionDistributionChannelChannel
TargetTargetConsumersConsumers
ERPERP CRMCRM
Supply-chainmanagement
CustomerFirewall
SCMSCM
Conventional View
Consumer-Centric View
VirtualVirtualEnterpriseEnterprise
Supplier networkChannel
ConsumerConsumerCommunitiesCommunities
C2B2B: Customer-to-Business-to-Business
Adapted from: Customer Centricity, InformationWeek, April 10, 2000
EC(I) - 118 © Minder Chen, 1996-2008
Creating Sustainable Value in EC
• Develop a brand based on consumer experiences– The brand emerges as the two-way communication on
the net and off the net.
• Develop superior physical distribution– Physical distribution is a choke point in EC
• Leverage customer information – Use personal information to more convenience
shopping and customized services» Privacy issue
» Ask customer explicitly for such data
» Require a more subtle approach
– Use collective data » Use it to adjust pricing, product offering, and target market
EC(I) - 119 © Minder Chen, 1996-2008
Price Pressure Shrink Retail MarginsA
vera
ge
reta
il n
et m
arg
in
Time
Increasing apparent supplyIncreasing apparent supply
Managing current demandManaging current demand
New services and loyalty programs Auctions
Economies of scale
Aggressive pricing for online plays Comparison
shopping engines
Increasingly price-sensitive online shoppers
Source: Now or Never, 2000
EC(I) - 120 © Minder Chen, 1996-2008
Business Models Based on the Value Chain in the Market Place
Raw material producer
Manufacturer
Distributor
Retailer
Consumer
ExchangeExchange
Examples: • B2B: Vericalnet.com• B2C: Amazon.com
• C2B: Priceline.com• C2C: eBay.com
C2B
B2C
B2C C2CNew Middleman
• Independent market operators
• Consortia
Service Providers: • Logistics• Financial
EC(I) - 121 © Minder Chen, 1996-2008
Business Models from a Strategic Viewpoint
• "In the new economy, the unit of analysis for innovation is not a product or a technology-it's a business concept. ….To be an industry revolutionary, you must develop an instinctive capacity to think about business models in their entirety."
• Hamel's business concept that comprises four major components and several subcomponents:
– Core strategies
– Strategic resources
– Customer interfaces
– Value networks
Source: Leading the Revolution by Gary Hamel
EC(I) - 122 © Minder Chen, 1996-2008
Business Concepts (I)
• Core Strategy: It is the essence of how the firm chooses to compete. – Business Mission: This captures the overall 'objective' of the strategy-
what the business model is designed to accomplish or deliver.
– Product / Market Scope: This captures the essence of 'where' the firm competes-which customers, which geographies, and what product segments-and where, by implication, it doesn't compete.
– Basis for Differentiation: This captures the essence of 'how' the firm competes and, in particular, how it competes 'differently' than its competitors.
• Strategic Resources: These are unique firm-specific resources. – Core Competencies: This is what the firm 'knows.' (skills and unique
capabilities)
– Strategic Assets: They are what the firm owns such as brands, patents, infrastructure, proprietary standards, customer data, and anything else that is both rare and valuable.
– Core Processes: This is what people in the firm actually 'do.' (activities)
EC(I) - 123 © Minder Chen, 1996-2008
Business Concepts (II)
• Customer Interface – Fulfillment and Support: This refers to the way the firm 'goes to
market,' how it actually 'reaches' customers-which channels it uses, what kind of customer support it offers, and what level of service it provides.
– Information and Insight: This refers to all the knowledge that is collected from and utilized on behalf of customers.
– Relationship Dynamics: This refers to the nature of the 'interaction' between the producer and the customer.
– Pricing Structure: This refers to the price choices depending on the traditions of your industry.
• Value Network: It surrounds the firm, and which complements and amplifies the firm's own resources.
– Suppliers
– Partners
– Coalitions
EC(I) - 124 © Minder Chen, 1996-2008
Bridge Components
• These four major components are linked together by three 'bridge' components:
– Configuration: Intermediating between a company's core strategy and its strategic resources is first bridge component.
– Customer Benefits: Intermediating between the core strategy and the customer interface is second bridge component.
– Company Boundaries: Intermediating between a company's strategic resources and its value network is third bridge component.
EC(I) - 125 © Minder Chen, 1996-2008
Market Structure on the Internet
Nu
mb
er o
f co
mp
anie
s
Size of company
Many smaller players with high rate of entry
Few large and dominate companies
Transition
Source: Now or Never, 2000
EC(I) - 126 © Minder Chen, 1996-2008
Three Top Three Concerns
• Retailers– Conflict with investment in physical stores; – Technology issues; and – Lack of distribution and fulfillment network.
• Manufacturers– Products not appropriate for online sales; – Potential risk to channel relationships; and – Consumers won’t buy online– Many manufacturers simply weren't capable
of shipping a single box of Tide or a bottle of Advil. They had no experience in dealing directly with consumers.
EC(I) - 127 © Minder Chen, 1996-2008
Dynamic Trade: Perfect Market
• Customer service is more important than product selling
– Federal Express: Certainty
• Real-time demand drives production– Dell: Build-To-Order
• Pricing matches market conditions– Name your price (reversed auction): PriceLine.com
– Auction: Ebay
Leveraging technology to satisfy current customer demand and with customized response.
EC(I) - 128 © Minder Chen, 1996-2008
Traditional vs. Dynamic Trade
• Speed from engagement to transaction– Weeks vs. Minutes
• Product distribution– Seller-selected vs. Buyer-selected
• Pricing– Product price list vs. Market-determined price
• Production– Pre-sale vs. Post-sale
• Customer relationships– Standard vs. Targeted and Customized
• Strategic asset– Location vs. Visibility and Customer Database
EC(I) - 129 © Minder Chen, 1996-2008
Dynamic Trade Self-Test
Rate each of the following criteria in your market.(3=high, 2=medium, 1=low)
Commodity market
Perishability of inventory
Capital intensity
Configurability of products
Customers' perceived investment level
Threat from new kinds of competition
Channel volatility
TOTAL: _____________
EC(I) - 130 © Minder Chen, 1996-2008
Business Channel: Multi-Channel Presence
Buyer Seller
• Brick-and-mortar – Face-to-Face
• Mail order– Mail – Printed catalog
• Phone order – Telex– Phone– Fax
• Electronic commerce • EDI• Email• Web
Multi-channel plays will have extraordinary power if companies elegantly blend and synchronize those channels.
Cli
ck a
nd
Mo
rtar
Pure Play
EC(I) - 131 © Minder Chen, 1996-2008
Internet Companies?
"Within five years, ALL
companies will be
Internet companies."
-- Andy Grove,
Intel Chairman
EC(I) - 132 © Minder Chen, 1996-2008
Web Experiences for Consumers
• A many-to-many rather a one-to-many experience
• Fresh content
• Access to detail information
• Communities unbounded by space and time
• The multimedia appeal of TV
• A redefinition of privacy and identity
• Hyper-impulsivity: The web permits a closer conjunction of desire, transaction, and payment than any other environment.
EC(I) - 133 © Minder Chen, 1996-2008
All 3 Steps in One Medium
Get Attention Give More Information/Answer Questions
Information The Sale
• TV Ads
•Magazines
• Brochures• Sales People• Print/editorial
• Store• Telephone• Catalogue
Transact/Service
Branding
EC(I) - 134 © Minder Chen, 1996-2008
• Most Visited Retailers:1. Bluemountainarts.com
2. Amazon.com
3. AOL.com
4. Ebay.com
5. Etoys.com
6. Barnesandnoble.com
7. CNet.com (software)
8. Egghead.com
9. CDNow.com
10. Musicblvd.com
11. ColumbiaHouse.com
12. Classifieds2000.com
13. Beyond.com
14. Coolsavings.com
15. Valupage.com
Not in Top 25:• Towerrecords.com• Borders.com• Toysrus.com• Target.com• Gap.com• Macys.com• Sears.com• Walmart.com• “BigCompany.com”• • • YourCompany.com??
New Competition From Surprising Places
EC(I) - 135 © Minder Chen, 1996-2008
What is your new industry structure?
• Powerful new intermediaries– travelocity.com; travel.yahoo.com; expedia.msn.com;
golfclubexchange.com, eBay.com, priceline.com
• Increasing commoditization– Your competitors are just a mouse click away
– Camparison shopping: singleshop.com, mySimon.com
• New competition from surprising places– realguide.real.com; headline.yahoo.com; www.nytimes.com
• Be aware of new industry forces– amazon.com; yahoo.com; msn.com; etrade.com;
priceline.com; etoy.com; aol.com
EC(I) - 136 © Minder Chen, 1996-2008
What are the new economics?
• Different revenue models–wsj.com; match.com; yahoo.com;
monster.com
• Different cost models–buy.com; dell.com
• Different use of assets–Amazon.com
EC(I) - 137 © Minder Chen, 1996-2008
What's the best E-business model for your company? • An online subsidiary
– Barnesandnorbles.com by Barnes and Nobles to compete with amazon.com
– Toysrus.com by Toys "R" Us Inc. to compete with eToys Inc.
– MagazineOutlet.com by NewSub Services Inc.
• Partnering with an online company– PetSmart Inc., invested $16 million in PetJungle.com to
create PetSmart.com
– a virtual company and a big-box retailer teaming up to attack a category
• Converting to an online-only company– Egghead.com, Homebid.com
• Integrating E-business throughout the company– Prudential California Realty
EC(I) - 138 © Minder Chen, 1996-2008
EC: Case Studies• B2B: verticalnet.com
• Auction: eBay
• Subscription web sites: monster.com
• e-tailing: 1800flowers.com
• Financial investment sites: E*Trade• Other interesting web sites
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www.verticalnet.com
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Company Background and Capabilities• Own and operate 55 industry-specific Web sites designed as online B2B
communities, known as vertical trade communities.
• These vertical trade communities provide users with comprehensive sources of
– Information (Content): from newswire and editorial services
– Interaction (Communities): email, chat rooms, bulletin board
– e-commerce: RFPs, RFQs
• Additionally, VerticalNet provides auctions, catalogs, bookstores, career services and other e-commerce capabilities horizontally across its communities with technologies from acquired and organic sites like Industry Deals.com, IT CareerHub.com, LabX.com, and Professional Store.com.
• Create values: – Individual advertising ($6,000 - $25,000)
– Hosting sites
– Build and design sites
– Sponsor forums with expert guests
– Negotiate a percentage of transaction at the online marketplace
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Auction: eBay.com
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Auction: eBay.com
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Priceline.com
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• Jay Walker, 43, founder and Vice Chairman of priceline.com, has created a model for buying and selling that's so original, it's been patented. Walker calls his model "buyer-driven commerce," and he's racing to build a big company around it. "
– Fast Company
• "It's not a traditional supply-and-demand market anymore. Priceline flips the power relationship on its head where the customer is telling you what he will pay."
– Interactive Week
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Business Models • Priceline.com has pioneered a unique new type of e-commerce
known as a "demand collection system" that enables consumers to use the Internet to save money on a wide range of products and services while enabling sellers to generate incremental revenue.
• Using a simple and compelling consumer proposition--"name your price," we collect consumer demand (in the form of individual customer offers guaranteed by a credit card) for a particular product or service at a price set by the customer and communicate that demand directly to participating sellers or to their private databases.
• Consumers agree to hold their offers open for a specified period of time to enable priceline.com to fulfill their offers from inventory provided by participating sellers. Once fulfilled, offers generally cannot be canceled.
• By requiring consumers to be flexible with respect to brands, sellers and/or product features, we enable sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures.
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Problems?!• As if making a profit from online retailing were not enough of a
challenge, try making money online under a system where you give your customers essentially no service, no selection and no right to return unwanted items.
• May sound crazy, but not too long ago, investors seemed to think it was a brilliant idea.
• Critics say the company's troubles raising money reflect some fundamental problems with its reverse auction model, which invites consumers to set their own prices. But it also requires them to commit to the purchase before they know all the details.
• "Consumers typically look for four things: choice, service, selection and low price,'' said Tom Courtney, an analyst with Banc of America Securities. "Priceline gives up everything but the price.''
• In hindsight, many critics say Priceline is more gimmick than solid business. Now that the novelty of the name-your-own-price model has started to wear thin, they are losing faith in its viability.
• ``What I've seen is an intriguing model. You try it once and you feel a little uncomfortable with it. You may not get the route or the fare you wanted and at the end of the day you are not so sure about it,'' said Craig Palmer, president of eWanted, another Internet auction site. ``People come to Priceline, but they don't come back again and again and again.''
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E-Loan at eloan.com
• IPO: 2 Billion Dollars Market Capitalization
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Insweb.com
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Singleshop.com
Compare this with: mySimon.com
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Matching Games: The Marketplace
• $9,000 subscription fee per year for recruiting firms• Free for job seekers
Online Dating Service
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Internet Shopping Network: http://www.internet.net
• Operating online since April 1994.
• Focus on computer products which fit the demographics pretty well.
• Customer look for a narrow focus in an online store and expect expertise in that area.
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Acquired by Cyberian Outpost• Kent, CT, & Sunnyvale, CA Nov. 2, 1998 - Cyberian Outpost, Inc.
(NASDAQ: COOL), a leading Internet-only retailer of computer hardware, software, and peripherals for consumers worldwide, today announced it has acquired the Internet Shopping Network (ISN) Computer Superstore's customer base. Cyberian Outpost (http://www.outpost.com/) will be the new online shopping destination for the Computer Superstore's more than 160,000 customers. Prior to the acquisition, Cyberian Outpost had over 161,000 customers.
• In addition to selling the Computer Superstore's customer list, ISN has agreed to maintain, a direct link from the ISN Computer Superstore's homepage that will lead shoppers to the Cyberian Outpost homepage (http://www.outpost.com/) for the next four months. Further, all existing URL's relating to the ISN Computer Superstore will re-direct users to Cyberian Outpost's homepage, extending Cyberian Outpost's market reach, these re-directed links will remain in place for one-year to cover residual bookmarks or links pointing to the ISN Computer Superstore.
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Outpost.com
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eToys.com
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• On Monday (Dec. 19, 2000), eToys watched its market value, which once topped $1.9 billion, fall to $37.2 million. It watched its customer traffic, once growing at a healthy clip, go flat compared to last year. And it watched its shares plunge 72 percent to close at 28 cents a share, miles from its 52-week high of $40.25, as a number of analysts reaffirmed their positions on the stock.
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CDNow
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CDNow Merged with Music Boulevard
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E-tailing CSF
• eStrategy
• eMerchandising
• eArchitecture
• eSupplyChain
• eConnections
• eBackOffice
• eProperty
• eCapital
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Time Warner's PathFinder: http:://pathfinder.com
• Online Magazines: It was shut down in May 1999
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C|NET at cnet.com
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espn.go.com
• ESPN Sportszone
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www.slate.com
• Check out – http://interactive.wsj.com/
– http://www.salon.com
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Hot Sauce: http://www.hothothot.com
• Specialty virtual store
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1-800-FLOWERS: Http://www.1800flowers.com/
• A real world florist with more than 20 years of experience.
• Went on live in April 1995.
• Also maintain sites in American Online and CompuServe.
• Online retailing $25 million (10% of company sales) in 1996.
• Take advantage of proven retail marketing strategies: discounts, contests, and sweepstakes, grand opening promotions, etc.
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Www.1800flowers.com
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Help Customers to Select
Help customer to remember:
• Reminder services
• Lifeminder.com
• Personalized shopping lists at Staples.com
See also: Gifts.com
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Grocery Shopping: http://www.peapod.com/
Homegrocer.comNetGrocer.comStreamlineWebVanPriceline.com
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Virtual Vineyard: virtualvin.com & wine.com
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Landsend.com• Set up shop at AOL in 1992
• Launch a web site in 1995
• 1% of sales in 1997
• 4.5% of sales in 1998
• Printing and mailing it 250 million catalogs each year counts for 43% of its operating cost.
• 10% of all Internet apparel sales in 1998
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Interactive Application on the Net
• Go to www.lendsend.com
• Choose Oxford Express Link
Check out http://www.idreamsoftware.com/products/jio/appareldemo.htm
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My Virtual Model• Online catalog Landsend.com plans to outshine the competition
this holiday season with a more accurate virtual model derived from a body scan, the company announced Tuesday. In the months leading up to Christmas, a Lands' End mobile unit equipped with an automated Image Twin scanning booth will offer consumers in 14 U.S. and Canadian cities a chance to obtain precise body measurements, generating a virtual twin who will try clothing online.
• Inside the mobile scanning unit, white light flashing on and off for more than 12 seconds digitally captures 200,000 data points of a consumer's figure, creating a 3-D mirror image. A consumer can start using the model online within two hours, after the information is transmitted wirelessly to an IBM server farm located in North Carolina, said C. Cammack Morton, chairman and founder of the North Carolina-based Image Twin.
• The dressing-room tool, My Virtual Model, is an updated version of a virtual model generated solely from a questionnaire about height, dress size, body shape, and the like. The updated tool takes additional measurements for a more realistic result and as of next week, will offer a male virtual model.
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Online Stock Brokerage Firm: E*Trade• Www.etrade.com
• Received a $400 million investment from Softbank.
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Portfolio
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Trading
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Analysis
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E*Trade Investment Tools
• E*TRADE has created a web-based trading system that is streamlined, efficient, and economical. As an account holder, you get free real-time market information, news and analysis and pay among the lowest commission rates and lowest margin rates in the industry.
• One-Click Access to the Tools You Need: E*TRADE customers, get comprehensive online trading capabilities and a full set of investment and research tools such as free news, charts, in-depth company fundamentals, and online portfolio management.
• Personal Market Page
• E*TRADE offers a low and simple commission schedule. You pay only $14.95 for listed market orders and $19.95 for Nasdaq orders. For listed orders over 5,000 shares, add 1 cent per share to the entire order. For options, you pay just $20 plus $1.75 per contract, with a $29 minimum.
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E*Trade Commission: A Comparison
Online competitor
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Updates
• E*TRADE added 233,000 new active accounts during first quarter 1999, an increase of 77% over the previous quarter.
• In its second fiscal quarter, customer trades rose 63 percent in three months to approximately 70,000 per day.
• They ended the quarter with 909,000 accounts and customer assets of $21.1 billion
– (Source: San Jose Mercury News, 4/21/99).
• A day trader killed 9 people at Atlanta. – July 28, 1999.
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E*TRADE Acquires Telebanc for $1.8 Billion • Calling it the first pure-play Internet company to integrate banking and brokerage
services, E*TRADE Group Inc. announced Tuesday it is acquiring Internet bank Telebanc Financial Corp. for approximately $1.8 billion.
• Terms of the agreement call for Telebanc shareholders to receive 2.1 shares of E*TRADE common stock for each share of Telebanc common stock. The merger is valued at roughly $1.8 billion based on E*TRADE's closing price on Friday, May 28. Once the merger is finalized, Telebanc shareholders will own approximately 13 percent of E*TRADE's fully diluted common stock. The transaction will be accounted for as a pooling of interests and is slated to close sometime this fall upon regulatory and shareholder approval.
• The merger creates an Internet-based, FDIC-insured cash management account which the companies predict will change the future of personal financial services. Aimed at millions of Internet consumers, the online financial management resources of E*TRADE combined with online banking capabilities is expected to eliminate the need for multiple financial relationships.
• The merger also will offer online consumers for the first time, access to full-featured, FDIC-insured Internet cash management accounts, including ATM access through the national Cirrus network, online bill payment and investing services, enabling them to consolidate brokerage and banking accounts.
• By offering a central account, customers will be able to conduct a full range of transactions online, including buying mutual funds, CDs and fixed income securities, trading equities and paying bills. E*TRADE said through the integration of the companies services, a cost-effective, scalable business model will be achieved, while boosting E*TRADE's customer acquisitions and aggressively expanding its existing one million-plus customer account base.
June 01, 1999
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Internet Stock Is Also Driving The Change
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Charles SchwabMerrill Lynch
Market Capitalization ($ Billions)
As of 4/16/99 Schwab: $46.6 BMerrill: $31.0 B
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Merrill Lynch & CO.
• Some 30 percent of chief executives and senior managers say the Internet is forcing them to revamp their strategies, according to a recent study by Booz, Allen & Hamilton and the Economist Intelligence Unit.
• Take Merrill Lynch & Co., the biggest U.S. broker, which after long resisting trading over the Internet, said on Tuesday it planned to roll out full-scale online trading.
• "The undeniable fact that there is a segment of the marketplace that wants to access the market through technology and through online investing was indisputable," Merrill Chairman David Komansky said.
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• By 2003, Forrester estimates that
9.7 million US households will
manage more than $3 trillion in
20.4 million on-line accounts.
Deep discount firms will see their
growth rates plateau. Midtier
firms will prosper, capturing more
households and assets than their
competitors will. Full-service
companies will start slow but will
enjoy the greatest asset growth.
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Motley Fool: www.fool.com• Competitor: Quote.yahoo.com, Street.com, Cbs.Marketwatch.com,
Stock247.com
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http://www.ananova.com/
• The world's first virtual anchor woman.
• http://www.sonicnet.com/– Create your own radio station
