The Internet business : success stories, business models etc.

A talk to PGP1 & ABM1 students at IIMA

Rohit Varma December 17, 2015

Why you are doing this course !

Grades

Interest in technology

Work in Financial services

Work for Internet company

Start-up

Agenda

• Success stories

• Business models

• Execution challenges

I. SUCCESS STORIES

The pioneers

Yahoo.com

1994 Web Directory

Aol.com

1985 Online portal

Amazon.com

July 1995 Bookstore

Ebay

September 1995 Online auctions

Rediff.com

December 1995 News

The later entrants

Google

August 1998 Search engine

Alibaba

December 1998 Wholesaler marketplace

LinkedIn

May 2003 Professional network

Facebook

February 2004 College network

You Tube

May 2005 Video-sharing

Recent entrants

Android Market (Google Play Store)

2007

Uber

2009

Succeeding at an Internet business: Some learnings

1. A clear need is a prerequisite

2. An original idea matters

3. The business may pivot

4. Timing matters

5. Geography has mattered

What do we mean by a successful Internet business

Usually it means being successful at 2 things: 1. Users 2. Usage

Given the above, revenue usually follows..

And here are just a few of the many things you need to know about Internet users and usage..

What do users do on the Internet

• Communication

• Information

• Transactions

• Entertainment

Worldwide number of Internet users

Internet usage (hours/user/day)

Indian Internet users

Growth in users Year Users (million)

2000 10 million 2010 100 million 2013 200 million 2014 304 million 2015 402 million 2018 550 million est.

Other key factoids 1. Connectivity speed has been an issue 2. Of 51 million SMEs, only 2 million are online

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II. BUSINESS MODELS

A business model: What’s that?

Internet business models: By revenue line

The Internet media business model

Internet media business model: Revenue lines

1. Advertising

2. Subscriptions

3. Syndication

Media business model: key metrics

• Number of users

• % active users

• Time spent per user per day

• ARPU (average revenue per user)

• Market Penetration (market share)

Facebook: Key metrics

• Monthly active users: 1,545 million

• Daily active users: 1,007 million

• Revenue: $ 4299 million (Q3, ‘15)

• ARPU (average revenue per user): $2.83 Market penetration = ?

Internet media: Revenue trends (U.S.)

The Internet transactions business model

Internet Transactions business model

1. Ecommerce - stock & ship e.g. Amazon U.S. - marketplace e.g. Snapdeal

2. Product subscriptions e.g. Alibaba, Justdial, Naukri, Shaadi.com,..

Ecommerce business model: key metrics

• Registered users

• Traffic to site/app

• % conversion

• ARPT (Average Revenue Per Transaction)

• GMV (Gross Merchandising Value)

• Gross margin

• Costs (Product + Logistics + Marketing + Overhead)

Flipkart: key metrics

• Registered users: 46 million

• GMV $3 billion (2014-2015)

• Upto 8 million shipments/month

• 14 warehouses

• 4000 sellers (March 2015)

• Own shipments ~ 70%, third party sellers 30%

Media vs Transactions business model: Facebook vs. LinkedIn

Facebook revenue : 96% ads, 4% subs

LinkedIn revenue: 18% ads, 82% subs

Internet business models: Other modes

Other Internet industry business models: By type of entities

• B2B & B2C

• C2C & C2B

• B2G & G2B etc.

Other Internet business models: Products vs services

• Products is the business which gets the most attention..

• Internet services are also a big segment e.g. - ISPs - tech platforms - digital marketing…

Online marketplaces

• Products – Amazon, Ebay, Alibaba

• Services – Uber, AirBnb, Instacart, Uber

Trend: Products => services

Internet business models: By value drivers

1. Disintermediation

2. Network effect

3. On-demand

Network effects & pipes vs. platforms

PIPE

• TV

• Encyclopaedia Brittanica

• Classroom-based learning

• Big Bazaar

PLATFORM

• You Tube

• Wikipedia

• Coursera

• Flipkart

Note: Network effects happen with platforms

Network effects are being fuelled by certain type of content

• Content – user generated, curated

• Reviews, stories, audio, video, pins, photos, ..

• 12-24 year olds are trendsetters..

On-demand services

• Uber

• Air BNB

• TaskRabbit, Instacart

• TaskBob, Holachef…

• A sharing-cum-ondemand economy is underway

• Key drivers: cloud, social and mobile

Internet business models: Summing up

1. Media and transactions are the key Internet business models

2. Driving users and usage is the key

3. Can vary by entities involved (B2B, B2C, B2G …)

4. May be products or services

5. Important value drivers: Disintermediation Network-effects On-demand

III. EXECUTION CHALLENGES

Executing a successful Internet business: Key questions/challenges

1. How do you choose your product?

2. How do you size the market ?

3. How do you ensure your product gets users?

4. How do you build a team?

5. Should you take funding?

6. What do you need to get funding?

How do you choose an idea

• Consumer Internet: Personal Passion

• Enterprise Internet: Company pain points

How do you build a team

• Founders

• Associates

Do you take funding?

• Funded Internet business

• Boutique business

What do you need to get funding

Demonstrate Unfair advantage in a scalable business

“Unfair advantage is a unique, consistent difference in product attributes and services arising from a company capability gap based on delivering superior value over long periods of time to the customer”.

One last word..

The Internet..where is it all going

Thanks !

Rohit Varma Interskale Digital Marketing and Consulting

linkedin.com/in/rohitvarma

slideshare.net/rohit28