Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network Economics August, 2008

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Electronic Commerce Business Models,
Strategies, Investment and Implementation in the
Network EconomicsAugust, 2008

• Minder Chen, Ph.D.
• Associate Professor of Management Information
  Systems
• E-Mail minder.chen_at_csuci.edu or
  minderchen_at_hotmail.com
• Web site http//faculty.csuci.edu/minder.chen/

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Reference

• EC Books 
• Net Ready, by Amir Hartman and John Sifonis,
  McGRaw-Hill, 2000.
• Now or Never, by Mary Modahl, Harper Business,
  2000
• Designing Systems for Internet Commerce by G.
  Winfield Treese, Lawrence C. Stewart (May 1998)
  Addison-Wesley Pub Co ISBN 0201571676
• Net Results Web Marketing that Works by Rick E.
  Bruner (Editor), Cybernautics, Usweb
  Corporation Hayden Books ISBN 1568304145 
• E-Business Roadmap for Success by Ravi
  Kalakota, Marcia Robinson, Don Tapscott  (June
  1999)  Addison-Wesley Pub Co (C) ISBN
  0201604809 
• Customers.Com How to Create a Profitable
  Business Strategy for the Internet and Beyond by
  Patricia B. Seybold (Contributor), R. T. Marshak,
  Ronni Marshak 1 Ed edition (November 1998) Times
  Books ISBN 0812930371
• 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 
• 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 ATT, 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
• ? Introduction
• ? The cycle of electronic commerce
• ? EC and Business Process
• ? EC statistics
• ? Network Economy and Dynamic Trade
• ? Information rules
• ? Network externality and network economics
• ? New supply and demand curves
• ? Dynamic trade
• ? EC Strategies
• ? 4Cs strategy
• ? Content, Community, Commerce
• ? Revenue streams
• ? E-conomy Map and EC Strategies
• ? EC Business Models
• ? B2C Virtual stores physical and digital goods
  and services
• ? Infomediaries Seller-side
• ? Informediaries Buyer-side

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Outline (II)

• ? E-Business and Extended Enterprise
• ? Defining e-business and extended enterprise
• ? Supply Chain Management
• ? Customer Relationship Management
• ? Business-to-business analysis
• ? Case Studies
• ? Amazon.com
• ? Dell
• ? Federal Express
• ? Cisco
• ? Web Technology and EC Software Overview
• ? Internet infrastructure and services
• ? Web technology overview
• ? EC software
• ? Internet Security and Electronic Payment
  Systems
• EC Implementation
• ? Evolution of EC implementation
• ? EC site life cycle
• ? EC site design issues

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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
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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
12
Travelocity Microsoft expedia Priceline.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
Access
Searches Queries Surfing
Follow-on Sales
Customers
Online Ads
Online Orders
Standard Orders
Distribution
Online soft goods Delivery hard goods
Electronic Customer Support
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Components of Electronic Commerce
Processes
Institution

• Marketing
• Sales
• Payment
• Fulfillment
• Support

• Government
• Merchants
• Manufacturers
• Suppliers
• Consumers

Electronic Commerce
Networks

• Intranet
• Extranet
• Internet

Source adapted from David Kosiur, Understanding
Electronic Commerce, Microsoft Press, 1997.
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Generic Framework of Electronic Commerce
Electronic Commerce Applications
Supply Chain Management Online Marketing and
Advertising Procurement Purchasing Online
Shopping Audio and Video on Demand Online
Financial Transaction Entertainment and Gaming
Education and Research

Common Business Services Infrastructure (Security/
Authentication, Electronic Payment,
Directories/Catalogs)
Technical standards for electronic documents,
multimedia contents, business transactions, and
network protocols
Public policy, legal, economical development,
and privacy issues
Multimedia Content Network Publishing
Infrastructure (Digital Video, Electronic Books,
World Wide Web)
Messaging Information Distribution
Infrastructure (EDI, E-Mail, HyperText Transfer
Protocol)
Information Superhighway Infrastructure (Telecom,
Cable TV, Wireless, Internet)
Adapted from Kalakota and Whinston, Frontiers of
Electronic Commerce, Addison Wesley, 1996, p. 4.
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EC and Business Processes
Seller
Customer
Phone, fax, e-mail
Send info
Request info
Provide Info Get customer Provide
info Fulfill order Support
Identify need Find source Evaluate
offerings Purchase Operate, Maintain,
Repair
Data sheets, catalogs, demos
Web surfing
Web searches, web ads
Web site
Newsgroups
Net communities
Corporate Databases
Demos, reviews
Web site
Credit cards, e-cash
P.O.s
EDI
Deliver soft goods electronically
Web site, phone, fax, e-mail, e-mailing list
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World Wide Internet Commerce
Forester Research, Inc. June 1999
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Business Internet Commerce Trends
B2C Business to Consumer B2B 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. 2002grow to 114 billionmore 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
Malls
Web
Main street
Superstores

• 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
Virtuous cycle
Positive Network Externality
Vicious cycle
Value to User

• Networks
• Real LAN, Internet, Fax
• Virtual Virtual community, Chat room, Instant
  messenger

Number of Compatible User
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Supply/Demand Flip
Classic Economics
Demand
Price
Supply
Quantity

• 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
?
Price
?
Actual supply
?
Quantity
?Internet increase apparent supply ?Apparent
quantity rise ?Price fall
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 ...

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
Gilder's Law
250
Cost of a 3-minute Long Distance Call
Price
0
1999
Year
1930
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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 (Dells 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.(3high, 2medium, 1low)
• 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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(No Transcript)
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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
Seller's Cycle of Commerce
Service
Sales
Billing/Collections
Marketing
Production/Logistics
Enterprise Information Server
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Electronic Commerce Applications and the Cycle of
Commerce
Buyer's Cycle of Commerce
Procurement
Operation
Receiving/Logistics
Shopping/Testing
Payment
Enterprise Information Server
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
Customers
Commerce
Community
Content
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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 customers 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-busines
  s 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

• Content
• Hard goods
• Games
• Services

• Money
• Content
• Demographics

Providers
Users

• Advertising

Other Websites
Advertisers
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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

57
www.parentsoup.com
58
Geocities www.geocities.com

• This collection of themes cyberhoods is populated
  by a half-million "homesteaders" who get free
  home pages.

59
The Well www.well.com
60
Talk City www.talkcity.com

• LiveWorld Production Inc. hopes to create a
  clean, well-lighted place to chat on the Web.

61
Major Portals

• AOL/Netscape
• Yahoo
• Excite
• MSN
• Lycos
• InfoSeek/GO Disney's go.com
• Snap
• AltaVista

62
Revenue Streams

• Advertising / Sponsorship
• Transaction
• Subscription / Listing Fee
• Value-added services

63
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.

64
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

Attract
Jump
Engage
Participate
Adapted from Netscape Communications Inc., 1996.
65
EC Companies Transform the Revenue Mix
Pricing
The mix Who pays for what and how much.
Value
Customers
New Pricing
New Values
New Customers
Highly interrelated!
Source Now or Never, 2000
66
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

67
The Revenue Mix

• 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.

68
Consumer Technographics Segments in the US
Early Adopters
Primary Motivation
Mainstreams
Career
Family
Entertainment
Fast Forward 12
New Age Nurturers 8
Mouse Patatoes 9
High
Optimists
Techno-strivers 7
Digital Hopeful 7
Gadget Grabbers 9
Low
Income Level
Attitude Toward Technology
Handshakers 7
Traditionalists 8
Media Junkies 5
High
Pessimists
Sidelined Citizens 28
Low
Laggards
Source Forrester Research Inc.
69
Quick Test for Technographics
More Men More Women
More Educated Less Educated
High Income
Low Income
Have Children No Children
Younger Age Older
Number of new users
Mainstreams
Early Adopter
Laggards

Time
70
Technology-Fit Customer and Product
High
Earlier Adopter
Second Wave
AA FedExp Microsoft
Jenny Craig Chrysler
Customer Need for Product Information
Second Wave
Web Laggards
Nike Pepsi
Tide Denny's
Source Forrester Research
Low
Customer Demographics Match
Poor
High
71
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

72
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

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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

74
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.

75
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

76
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

77
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?

78

• 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.

79

• 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.

80
What To Do Now

• 1. Define your eBusiness strategy FAST
• 2. Assess readiness
• customers
• products/services
• organization
• technology
• infrastructure

Rapid innovation
81
What To Do Now

• 3. 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!

82
Four Strategies to Start Online Business

• Integration
• Subsidiary
• Partnership
• Buyout

Slow
Low
Low
Cost
Risk
Time to Market
Fast
High
High
83
Brick and Mortar
84
Soruce Harvard Business Review, Get the Right
Mixes of Bricks and Clicks, May-June 2000
85
In-House vs. Spin-off
86
The Four Stages of E-volution
Source Strategy Business, From Clicks to
Bricks, 3q, 2000.
87
(No Transcript)
88
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)
89
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?

90
E-conomy Map
COINs
VerticalNet Testandmeasurement.com
HP Testing Measurement
Business
Enterprise
Affinity Groups
HomeCare Products
HomeCare InfoCenter
Consumers
Individual
The Delivery Vehicle (The Container)
The Message (The Content)
Adapted from Net Ready, 2000
COINs Community of Interests
91
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.

92
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.

93
E-Business Creation Process

• 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

E-Vision
Business Drivers
Technology Drivers
Rapid Implementation
E-Business Strategy
Source Digital Transformation, 2000
94
Internet Industry
Sports Malls Entertainment Newsfeed Publications
Commerce Instruments Portals Commerce Servers
Content and Activity
Electronic Commerce Infrastructure
Client/Server Software
Consulting
Internet Economy
System Integration and Design
Browsers Web Server Application
Servers Security Tools
Backbone Router Access Equipment Server Computers
ISP Network Services
Internet Equipment
Internet Service Consumer Services Carriers
95
EC Business Models

• B2C Virtual stores physical and digital goods
  and services
• Infomediaries Seller-side
• Informediaries Buyer-side
• Infomediaries B2B marketspace

96
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

97
Is EC Appropriate for You?
Industries who set up virtual storefronts
98
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

99
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
100
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

101
Sell-Side E-Commerce Model
Buyer A
EDI
Selling Merchant
Buyer B
HTML Forms
HTML XML
Online Selling
OBI
Buyer C
102
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.

103
Buy-Side E-Commerce Model
Seller A
EDI
Buyer
Seller B
HTML Forms
HTML XML
Online Procurement
OBI
Seller C
104
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.

105
Marketplace E-Commerce Model
Buyer A
Seller A
EDI
EDI
Buyer B
Seller B
Virtual Marketplace
HTML Forms
HTML Forms
HTML XML
HTML XML
OBI
Buyer C
Seller C
OBI
Infomediacy (Content Aggregator)

• eBay.com
• Pricelines.com
• Egghead.com
• Amazom.com Auction
• www.chemdex.com

106
Business-to-Business vs. Business-to-Consumer
Business-to-Consumer
Business-to-Business

• 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

107
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/

108
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.

D-to-C
B-to-C
B-to-B
109
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

110
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.

111
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.

112
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.

113
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
114
Any-to-Any Technologies Connect Everything to
Everyone
Banks
Consumers
HighValue Solutions
Brokerage
PCs Web TV PDA Smartcards Specialty Devices Other
Insurance
Businesses
Retail
Transactions and Payments
Distributors
Institutions
Transport
Physical Infrastructure
Other
115
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.

Brick-and-Click
YourSherpa.com
116
Vulnerability Grid
Source Net Ready, 2000
117
Move to Consumer-Centric View
Customer Firewall
Conventional View
Target Consumers
Supply Base
My Company
Distribution Channel
Supply-chain management
CRM
ERP
SCM
Consumer-Centric View
C2B2B Customer-to-Business-to-Business
Supplier network
Channel
Consumer Communities
Virtual Enterprise
Adapted from Customer Centricity,
InformationWeek, April 10, 2000
118
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

119
Price Pressure Shrink Retail Margins
Increasing apparent supply
Increasingly price-sensitive online shoppers
Aggressive pricing for online plays
Comparison shopping engines
Average retail net margin
Economies of scale
New services and loyalty programs
Auctions
Managing current demand
Time
Source Now or Never, 2000
120
Business Models Based on the Value Chain in the
Market Place
Raw material producer
Exchange

• Independent market operators
• Consortia

Manufacturer
Distributor
C2B
New Middleman
Retailer
B2C
C2C

• Examples
• B2B Vericalnet.com
• B2C Amazon.com
• C2B Priceline.com
• C2C eBay.com

Consumer

• Service Providers
• Logistics
• Financial

B2C
121
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
122
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)

123
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

124
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.

Slide 125