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


Associate Professor of Management ... Net Ready, by Amir Hartman and John Sifonis, McGRaw-Hill, 2000. Now or Never, by Mary Modahl, Harper Business, 2000 ... – PowerPoint PPT presentation

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

Electronic Commerce Business Models,
Strategies, Investment and Implementation in the
Network EconomicsAugust, 2008
  • Minder Chen, Ph.D.
  • Associate Professor of Management Information
  • E-Mail minder.chen_at_csuci.edu or
  • Web site http//faculty.csuci.edu/minder.chen/

  • EC Books 
  • Net Ready, by Amir Hartman and John Sifonis,
    McGRaw-Hill, 2000.
  • Now or Never, by Mary Modahl, Harper Business,
  • 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
  • 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

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.

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.

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.

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

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
  • EC Implementation
  • ? Evolution of EC implementation
  • ? EC site life cycle
  • ? EC site design issues

EC Introduction
  • Introduction
  • The cycle of electronic commerce
  • EC and business process
  • EC statistics

Electronic Commerce Introduction
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.

Market Relationships
Travelocity Microsoft expedia Priceline.com
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
  • -- Net Ready.

The Cycle of Electronic Commerce
Searches Queries Surfing
Follow-on Sales
Online Ads
Online Orders
Standard Orders
Online soft goods Delivery hard goods
Electronic Customer Support
Components of Electronic Commerce
  • Marketing
  • Sales
  • Payment
  • Fulfillment
  • Support
  • Government
  • Merchants
  • Manufacturers
  • Suppliers
  • Consumers

Electronic Commerce
  • Intranet
  • Extranet
  • Internet

Source adapted from David Kosiur, Understanding
Electronic Commerce, Microsoft Press, 1997.
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,
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
Information Superhighway Infrastructure (Telecom,
Cable TV, Wireless, Internet)
Adapted from Kalakota and Whinston, Frontiers of
Electronic Commerce, Addison Wesley, 1996, p. 4.
EC and Business Processes
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,
Data sheets, catalogs, demos
Web surfing
Web searches, web ads
Web site
Net communities
Corporate Databases
Demos, reviews
Web site
Credit cards, e-cash
Deliver soft goods electronically
Web site, phone, fax, e-mail, e-mailing list
World Wide Internet Commerce
Forester Research, Inc. June 1999
Business Internet Commerce Trends
B2C Business to Consumer B2B Business to
Reference http//cyberatlas.internet.com/
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
  • 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)

  • 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
  • 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.

Retailing Trends
1950s 1960s-1970s 1980s 1990s
Main street
  • Home Depot
  • CompUSA
  • Barnes and Nobles
  • Border

AOL Findings
  • Buy brands
  • Seek convenience
  • Are increasingly time-starving
  • Are not solely motivated by price
  • Require simplicity

Network Economy and Dynamic Trade
  • Information rules
  • Network externality and network economics
  • New supply and demand curves
  • Dynamic trade

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

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,

Internet Economy Driving Forces
  • Changing customer demands
  • Globalization
  • Internet ubiquity
  • New technology
  • New marketplace and intermediacies

Network and Information Economy
  • Information is costly to produce but cheap to
  • Price information according to its value not its
  • Managing intellectual property.
  • Maximize the value of your intellectual property,
    not the terms and conditions that maximize the
  • 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

Source Information Rules
Characteristic of Information Economy
Information Commodity Market
  • Competition among sellers of commodity
    information pushes prices to zero.
  • Personalize your product and personalize your
  • 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

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

Number of Compatible User
Supply/Demand Flip
Classic Economics
  • 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

The Internet Increases Apparent Supply
Old apparent supply
New apparent supply
Actual supply
?Internet increase apparent supply ?Apparent
quantity rise ?Price fall
Source Now or Never, Mary Modahl,
HarperBusiness, 2000
  • 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
Cost of a 3-minute Long Distance Call
Dynamic Trade Perfect Market
  • Customer service is more important than product
  • 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.
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

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 _____________

  • Electronic Commerce Strategies and Business

(No Transcript)
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
Electronic Commerce Applications and the Cycle of
Seller's Cycle of Commerce
Enterprise Information Server
Electronic Commerce Applications and the Cycle of
Buyer's Cycle of Commerce
Enterprise Information Server
EC Strategies
  • 4Cs strategy
  • Content, Community, Commerce
  • Revenue streams
  • E-conomy Map

EC Strategies 4 Cs
  • 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

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
  • 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.

5 Steps to Success in EC
  • Set strategy
  • Make it easy for customers to do business with
  • 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

Source Adapted from Customer.com by Patricia
Seybold, 1998
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"

8 Critical Success Factors
  • Target the right customers
  • Own customer's total experience
  • Streamline business processes that impact the
  • Provide a 360-degree view of relationships with
    your customers
  • Let customers help themselves
  • Help customers do their jobs
  • Deliver personalized services
  • Foster community

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

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

Streamline Business Processes That Impacts the
  • 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

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

Virtual Communities
Virtual Community
  • Content
  • Hard goods
  • Games
  • Services
  • Money
  • Content
  • Demographics

  • Advertising

Other Websites
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
  • Parents Place www.parentsplace.com
  • Communities of Fantasy
  • Chat rooms Red Dragon Inn
  • Virtual Team competition at ESPNet
  • 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

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

The Well www.well.com
Talk City www.talkcity.com
  • LiveWorld Production Inc. hopes to create a
    clean, well-lighted place to chat on the Web.

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

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

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.

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.
EC Companies Transform the Revenue Mix
The mix Who pays for what and how much.
New Pricing
New Values
New Customers
Highly interrelated!
Source Now or Never, 2000
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
  • 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

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
  • "Investor want to talk to their broker on the
  • 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
  • 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

Consumer Technographics Segments in the US
Early Adopters
Primary Motivation
Fast Forward 12
New Age Nurturers 8
Mouse Patatoes 9
Techno-strivers 7
Digital Hopeful 7
Gadget Grabbers 9
Income Level
Attitude Toward Technology
Handshakers 7
Traditionalists 8
Media Junkies 5
Sidelined Citizens 28
Source Forrester Research Inc.
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
Early Adopter

Technology-Fit Customer and Product
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
Customer Demographics Match
EC Development Process
  • Competitive and capability analysis
  • Knowledge building and market evaluation
  • EC Business model design and feature
  • EC technical architecture design
  • Application development and deployment
  • Continuous performance evaluation and innovation

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
  • Evaluate your performance and moving on

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

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.

Benefits to the Merchants
  • Increased sales of existing products to generate
    additional revenues
  • Use the web to target their offers to a niche
  • "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

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

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?

  • 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.

  • 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
  • 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

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

Rapid innovation
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!

Four Strategies to Start Online Business
  • Integration
  • Subsidiary
  • Partnership
  • Buyout

Time to Market
Brick and Mortar
Soruce Harvard Business Review, Get the Right
Mixes of Bricks and Clicks, May-June 2000
In-House vs. Spin-off
The Four Stages of E-volution
Source Strategy Business, From Clicks to
Bricks, 3q, 2000.
(No Transcript)
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)
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

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

GYB Grow Your Business Approach
  • How the business unit should change their
    existing business model in response to the
  • 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.

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

Business Drivers
Technology Drivers
Rapid Implementation
E-Business Strategy
Source Digital Transformation, 2000
Internet Industry
Sports Malls Entertainment Newsfeed Publications
Commerce Instruments Portals Commerce Servers
Content and Activity
Electronic Commerce Infrastructure
Client/Server Software
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
EC Business Models
  • B2C Virtual stores physical and digital goods
    and services
  • Infomediaries Seller-side
  • Informediaries Buyer-side
  • Infomediaries B2B marketspace

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

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

  • 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
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
  • Business to Business
  • Business to Consumer
  • Type of product or service that is being
  • Physical goods and services
  • Digital goods (contents)
  • Digital services

Sell-Side E-Commerce Model
Buyer A
Selling Merchant
Buyer B
HTML Forms
Online Selling
Buyer C
Sell-Side Storefront
  • Primary model used in current business-to-consumer
  • 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
  • Expensive for buyer does not meet the needs of
    corporate procurement organizations.

Buy-Side E-Commerce Model
Seller A
Seller B
HTML Forms
Online Procurement
Seller C
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
  • 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.

Marketplace E-Commerce Model
Buyer A
Seller A
Buyer B
Seller B
Virtual Marketplace
HTML Forms
HTML Forms
Buyer C
Seller C
Infomediacy (Content Aggregator)
  • eBay.com
  • Pricelines.com
  • Egghead.com
  • Amazom.com Auction
  • www.chemdex.com

Business-to-Business vs. Business-to-Consumer
  • 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,

B2B Marketplace
  • Latest evolution of B2B eCommerce, enabling a
    many-to-many relationship between buyers and
  • 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
  • Web Site http//www.netmarketmakers.com/

Direct-to-Customer (D-to-C)
  • Large, global, e-energized corporations (e.g.,
    Fortune 1000) begin to squeeze intermediary
  • 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.

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

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

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 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.

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
  • Waterford sells a limited selection at
    www.waterford.com like chandeliers and corporate
  • Strategies
  • Manufacturers want to maintain channels while
    stay in direct touch with their customers.
  • Provide online dealer locators.
  • Share customers information back and forth.

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
Any-to-Any Technologies Connect Everything to
HighValue Solutions
PCs Web TV PDA Smartcards Specialty Devices Other
Transactions and Payments
Physical Infrastructure
  • 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.

Vulnerability Grid
Source Net Ready, 2000
Move to Consumer-Centric View
Customer Firewall
Conventional View
Target Consumers
Supply Base
My Company
Distribution Channel
Supply-chain management
Consumer-Centric View
C2B2B Customer-to-Business-to-Business
Supplier network
Consumer Communities
Virtual Enterprise
Adapted from Customer Centricity,
InformationWeek, April 10, 2000
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

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
Managing current demand
Source Now or Never, 2000
Business Models Based on the Value Chain in the
Market Place
Raw material producer
  • Independent market operators
  • Consortia

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

  • Service Providers
  • Logistics
  • Financial

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
  • 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
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)

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
  • Pricing Structure This refers to the price
    choices depending on the traditions of your
  • Value Network It surrounds the firm, and which
    complements and amplifies the firm's own
  • Suppliers
  • Partners
  • Coalitions

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.

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