Whats different about E- Business? E-Business require two forms
of convergence: Technical level: convergence of multiple
technologies into an integrated electronic infrastructure to
conduct business. The internet The global telephone system The
communication standard TCP/IP The addressing system of URLs PC
Database of product and customer information Multimedia sound and
graphics Universal use of browsers
Slide 3
Business capabilities within and among firms: The integration
of business processes Workflows IT infrastructures Knowledge Data
assets E-business will drive organization to provide single point
of contact to customers via electronic integration.
Slide 4
E-business model A description of the roles and relationships
among a firms customers, allies, and suppliers that identifies the
major flows of product, information, and money, and the major
benefits to participants.
Slide 5
Atomic E-Business Model Direct to Customer Full Service Provide
Portals, Agents, Auctions, Aggregators, and Other
Intermediaries
Slide 6
Direct to Customer Types of Direct to Customer E-Businesses
Direct to Customer E-Business model schematic Case Study CDNOW
Logistic Challenge & Channel Management INFRASTRUCTURE
Strategic Objective and Value Proposition Sources of Revenue
Critical Success Factors Core Competencies
Slide 7
Dell.com In 1994, Dell pioneered the use of the internet as a
channel. Internet accounts for more than 50% of its revenues.
Business and individual customers By removing dealer and
distributors, Dell sells equivalent computers at higher margins
than the competitors. Removing intermediaries also reduces time to
market for new products. (1995 99)Average annual sales growth was
52% for Dell and 25% for Compaq. Dells margin was 5% higher than
the industry average overall.
Slide 8
Dells customers are 90% businesses and 10% individuals. Dell
uses the internet effectively to deliver different value
propositions to different segments within both B2C and B2B
marketspaces. For transactional customers (approx. 30%) who need to
be acquired
Slide 9
Types of Direct to Customer E- Businesses Space - based firms
(dot coms) selling their own branded products such as RealNetworks.
Place-based firms also operating over the Internet, selling their
own branded products. Gap, Lands End, Gillette and Nike Place-based
firm selling third-party products both in physical outlets and on
internet, such as Barnes & Noble dot-coms selling third-party
products, such as CDNOW and Amazon.com
Slide 10
Internet increases price competition for commodity items and
reduces profitability for retailers selling undifferentiated items.
Only 25% of direct-to-customer Internet only businesses return a
profit The higher rate of direct-to-customer firms overall that
make a profit (40%) reflects the result of place- based firms
launching Internet businesses
Slide 11
Dot comsCatalogers that have moved online Brick and mortar
Acquisition cost$82$11$31 Cost of marketing as a percentage of
revenue 119636 Abandoned shopping carts (in percent) 526676 The dot
coms must invest heavily to create a new brand, while catalogers
and brick and mortar operators can simply migrate their brand to
space 9953421471
Slide 12
Direct-to-customer e-business model schematic
Slide 13
Legend for e-business Model Schematic The organization whose
business model is illustrated by the schematic The organization or
individual from which the firm of interest obtain Goods, services
or information. There is generally a flow of money from firm of
interest to its suppliers. Who consumes the firm of interests
goods, services, or information. There is generally a flow of money
from customer to firm of interest.
Slide 14
An organization whose products help to enhance the demand for
the firm of interests product A digital connection through which
messages flow in both directions. This connection is the internet.
The firm with the greatest potential to own the customer
relationship. Owning the customer relationship provides the firm
with the opportunity to know the largest amount of useful knowledge
about The customer. Legend for e-business Model Schematic
Slide 15
This one direction flow indicates payment from one party to
another, In exchange for goods, services or information. This one
direction flow indicates transfer of goods or digital products from
one party to another Messages flow through all electronic
relationships, therefore only those flows of information that are
not digital products are represented by this icon. This information
is often the result of research about a product or service and
usually free. Legend for e-business Model Schematic
Slide 16
Slide 17
Direct-to-customer The firm of interest owns the customer
relationship. The customer relationship enables the firm to collect
data to profile the customer, who can be encouraged to become
repeat customer. Owns customer data has the potential to develop
powerful insight into customers needs and desires. Owns
transactions receives a fee or profit margin for the item
sold.
Slide 18
Direct-to-customer Channel conflict Compaq Australia Harvey
Norman Chain stopped stocking the brand. Had other resellers
Margins gained from direct sales Direct-to-customer model contains
risk as well as opportunity
Slide 19
Direct-to-customer disasters Boo.com an online only retailer of
fashion and sports wear. Was undone by its own technical ambitions
and the unrealistic expectations created among its prospective
customers. Other retailers have been undone by a misunderstanding
or misapplication of the Direct-to- customer business model Failure
to adapt the model as time changes
Slide 20
CDNOW Case Study One of the poster children of direct selling
on the Internet Article - CDNOW is one of the pioneers who never
crashed or burned. They did it right. They offer the music, the
diversity of interests, and best of all they keep it simple.
Drawing on their humble beginnings in the early days of August
1994, they have built online market force. They have become a brand
name From its initial public offering price of $16 in early 1998
despite having lost nearly $11 million on sales of $17 millions the
year before CDNOWs shares reached a high of $39.25 before falling
back to $20. Higher customer acquisition ($45) to attract each
customer was given as one of the reason.
Slide 21
CDNOW Case Study The site offers more than 500,000 CDs and
other music related products and 650,000 sound samples, as well as
daily news, features, guides to music genres, and exclusive
interviews and reviews by CDNOWs editorial staff. Revenue direct
sales, selling advertisings Paid Yahoo for placements on their
site. CDNOW merged with competitor N2K in 1999 and in the same year
it announced a merger with Columbia House, the music club jointly
owned by Sony and Time Warner. The merger fell through in 2000 but
agreed to commit $51 million to prop up CDNOW. Only one month later
companys situation appeared dire
Slide 22
CDNOW Case Study According to company auditors Company has
suffered recurring losses from operations, and has a working
capital deficiency and significant payment due in 2000 related to
marketing agreements that raises substantial doubt about its
ability to continue as growing concern What went wrong? Competition
Technical challenge And, an unclear, undifferentiated category 4
direct-to-customer e- business model Amazon entered into CDs and
became the largest online sellers of CDs Technologically CDNOW was
challenged by the rise of MP3
Slide 23
CDNOW Case Study The direct-to-customer e-business model used
by CDNOW may have been right for 1994 but it was outdated by 2000.
CDNOW had nothing other than CD to sell Plenty of traffic but not
enough profit from sales, and inadequate revenue from other
sources. CDNOW illustrates the dilemma faced by category 4
direct-to- customer e-business model selling commodity products.
Without a large market share or the ability to cross sell a wide
variety of products, the value proposition is relatively weak.
Consequently, profitability is elusive with customer acquisition
rate high relative to the small average sale per customer.
Slide 24
Logistic Challenge Major challenge getting the right product to
the right address reliably and economically. Non-delivery and wrong
delivery : biggest single source of complaints in e-business. Two
shipping approaches are available to direct-to- customer firms:
Invest outsource
Slide 25
Invest Firms are building extensive networks of distribution
centers and delivery mechanisms. Significant investment and
management attention Amazon 200 customer service representatives
put things right
Slide 26
Outsource Many service providers offer full service logistics
support Federal express fedEx marketplace : one click access to
several top online merchants Fast and efficient transaction
processing, fulfillment, and payment Critical success factors or
core competency ?
Slide 27
Channel Management Does the firm directly serve customers in
both place and space (2 & 3) or in space only (1 & 4)? 2
& 3 internet as another channel Reduced cost or with greater
customer intimacy Channel conflict could be severe enough to make a
manufacturer rethink its online strategy Levi Strauss & Co.
abandoned its e-commerce site Channel conflict can be managed Estee
Lauder : skincare and cosmetics company
Slide 28
INFRASTRUCTURE Application infrastructure Communications IT
Management
Slide 29
INFRASTRUCTURE Payment transaction processing to process online
customer payments ERP to process customer transactions Workflow
infrastructure to optimize business process performance
Communication network services linking all points in the enterprise
to each other and the outside world, often using the TCP/IP
protocol
Slide 30
INFRASTRUCTURE The installation and maintenance of workstations
and local area networks supporting the large number of people
required to operate a direct-to-customer model; Service-level
agreements between business and the IT group or outsourcer to
ensure, monitor, and improve the system necessary for the
model
Slide 31
Strategic Objective and Value proposition Traditional retail
buy, move and sell E-business direct-to-customer model sell, buy
and move Firm of interest : Higher margins Expanded markets Greater
information about customers Customer Greater choice Increased
convenience Lower costs
Slide 32
Strategic Objective and Value proposition One of the most
profitable of the models, as the firm own all of the three customer
assets: Relationship Data Transaction The model is potentially
profitable particularly for companies holding large market shares
and offering a clearly differentiated value proposition Dell,
Realnetworks Other categories of 1 & 2 firms
Slide 33
Strategic Objective and Value proposition For the firms
following a less differentiated models (firms 3 & 4) profits
will be hard to achieve as internet facilitates Easy comparison on
objective measures such as price Therefore, only a small number of
category 3 & 4 firms will thrive and capture large market
share
Slide 34
Sources of Revenue Direct sales to customer Supplemental
revenues Advertising Sale of customer information Product placement
fees Higher margins may also be attained Reducing the cost to serve
the customer directly Cutting steps out of the distribution
chain
Slide 35
Sources of Revenue RealNetworkss approximate breakdown of
revenue sources : Consumer media players (40%) Streaming software
for business customers (30%) Content delivery (20%) Advertising
(10%)
Slide 36
Critical Success Factors Create and maintain customer
awareness, in order to build a critical mass of users to cover the
fixed cost of building an electronic presence Reduce customer
acquisition costs Strive to own the customer relationship and
understand individual customer needs Increase repeat purchases and
average transaction size
Slide 37
Critical Success Factors Provide fast and efficient transaction
processing, fulfillment, and payment Ensure adequate security for
the organization and its customers Provide interfaces that combine
ease of use with richness of experience, integrating multiple
channels
Slide 38
Core Competencies Forming and managing strategic partnerships
with suppliers, payment processors, fulfillment houses, and others
in the supply chain. Using the ownership of the customer
information assets to understand customer needs, thereby increasing
revenues and margins Marketing, prospecting, and selling
electronically using banner advertisements, emails, affiliate
programs, and click throughs from allies. Creating unique content
to reduce price competition on commodities
Slide 39
Full Service Provider Full Service Provider E-Business model
schematic B2C & B2B Full Service Providers INFRASTRUCTURE
Channel and Segments Case Study GE Supply Company Strategic
Objective and Value Proposition Sources of Revenue Critical Success
Factors Core Competencies
Slide 40
Full Service Provider Model combines the strength of both the
direct-to- customer and the intermediary models. A firm using the
Full Service Provider model provides total coverage of customer
needs in a particular domain consolidated via a single point of
contact. Sourced internally or externally Domain : financial
services, health care, or industrial chemicals
Slide 41
Full Service Provider Prudential Advisor, established by
Prudential Securities, a subsidiary of the Prudential Insurance
Company of America. Prudential Advisor is redefining the full
service relationship and bringing together a wealth of resources to
support educated investment decisions. Allows customer to interact
in person or by telephone with a live financial adviser. A flat fee
for trade, and an annual fee
Slide 42
Prudential Advisor allows Prudential Securities to own the
customer relationship, the data about what the customers are doing
with regards to investment Some of the transactions Helps
Prudential to cross sell Third party does not own the customer
relationship