electronic commerce: business models, strategies, investment and implementation in the network...
TRANSCRIPT
Electronic Commerce: Business Models, Strategies, Investment and
Implementation in the Network Economics
Minder Chen, Ph.D.Associate Professor of Management Information Systems
E-Mail: [email protected] site: http://faculty.csuci.edu/minder.chen/
EC - 2 © Minder Chen, 1996-2011
Electronic Commerce: Introduction
E-Business
E-Commerce
Internet Commerce
Commerce
TravelocityMicrosoft expediaPriceline.com
EC - 4 © Minder Chen, 1996-2011
Priceline.com
• Priceline (PCLN) was recognized in 2010 for being the single best-performing stock in the S&P 500 over the past five years.
• Reverse auction, customer-driven e-commerce
• Perishable goods/services
• Orbitz.com
• Kayak.com
• Hotwire.com
EC - 5 © Minder Chen, 1996-2011
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.
EC - 6 © Minder Chen, 1996-2011
EC Business Opportunities
New business models and ideas are driving EC initiatives.
Internet technologies are enablers.
Innovative Ideas, Business models, and Business strategies
Funding
Business and technical talents
Technological enablers
EC - 7 © Minder Chen, 1996-2011
EC and Business Processes
Seller Customer
Co
rpo
rate
Dat
abas
es
Provide Info
Get customer
Provide info
Fulfill order
Support
Identify need
Find source
Evaluate offerings
Purchase
Operate, Maintain, Repair
Phone, fax, e-mail
Web site
Newsgroups
Net communities
Web site
EDI
Web site, phone, fax, e-mail, e-mailing list
Credit cards, e-cashP.O.s
Demos, reviews
Send info
Data sheets, catalogs, demos
Request info
Web surfing
Web searches, web ads
Deliver soft goods electronically
Selling Process Procurement Process
EC - 8 © Minder Chen, 1996-2011
The Cycle of Electronic Commerce
Customers Online Ads Online Orders
Standard Orders
Access
SearchesQueriesSurfing
Distribution
Online: soft goodsDelivery: hard goods
Electronic Customer Support
Follow-on Sales
EC - 9 © Minder Chen, 1996-2011
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
• Customization is under direct user control: the user explicitly selects between certain options (a "portal" site with headlines from the New York Times or from the Wall St. Journal; enter ticker symbols for the stocks you want to track).
• Personalization is driven by the computer which tries to serve up individualized pages to the user based on some form of model of that user's needs.
-- http://www.useit.com/alertbox/981004.html
EC - 10 © Minder Chen, 1996-2011
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
EC - 11 © Minder Chen, 1996-2011
Popularity Adds Value in a Network
Val
ue
to U
ser
Number of Compatible User
Vicio
us c
ycle
Vir
tuou
s cy
cle
Networks• Real: LAN, Internet, Fax • Virtual: Virtual community, Chat
room, Instant messenger, Skype, FaceBook
Positive Network
Externality
EC - 12 © Minder Chen, 1996-2011
Externality, PageRank, Traffic, and Ads
• Externalities is a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect.
• “Attention economy” and “reputation economy” are too fuzzy to measure. But, because of Google (and other search engines), we can now convert from reputation (PageRank) to attention (traffic) to money (ads).
Adapted from: [PDF]why $o.oois the future of business (free) Chris Anderson
EC - 13 © Minder Chen, 1996-2011
Challenge• Consumers: Everything on the Internet should to be free.
• Merchant: How can I make a profit if everything is free.
• Examples: – Free web browsers: Netscape Communicator and Internet Explorer
– Free email: Juno, mail.yahoo.com and hotmail.com
– Free Internet Access: Freeserve in Britain
– Free PC: eMachine and CompuServe; Free-PC
– Free web hosting: Geocities, Angelfire, Zoom
– Free ...
Pri
ce
Year
$250
$0
1930 1999
Cost of a 3-minute Long Distance Call
Gilder's Law All tangible and intangible items that can be copied adhere to the law of inverted pricing and become cheaper as they improve.
Anticipate this cheapness in your pricing strategy and product/service development strategy
All tangible and intangible items that can be copied adhere to the law of inverted pricing and become cheaper as they improve.
Anticipate this cheapness in your pricing strategy and product/service development strategy
EC - 14 © Minder Chen, 1996-2011
[PDF]why $o.oois the future of business (free) Chris Anderson[PDF]FREE: The Future of Radical Price
EC - 15 © Minder Chen, 1996-2011
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.
• Be aware of internet tax law and interstate/international commerce laws.
– http://en.wikipedia.org/wiki/Internet_taxes
Your competitor is just one-click away
EC - 16 © Minder Chen, 1996-2011
Business Models Based on the Value Chain in the Market Place
Raw material producer
Manufacturer
Distributor
Retailer
Consumer
ExchangeExchange
Examples: • B2B: alibaba.com• B2C: Amazon.com
• C2B: Priceline.com• C2C: eBay.com,
craiglist.com
C2B
B2C
B2C C2CNew Middleman
• Independent market operators
• Consortia
Service Providers: • Logistics• Financial
Channel Conflict
Online Procurement
Buyer-side EC Model
EC - 17 © Minder Chen, 1996-2011
Market Capitalization
Market Cap (4/16/99)
$11.6 Billion
$ 4.3 Billion
$ 2.5 Billion
$ 2.5 Billion
Who Can Afford Not to Play in the Internet EC Space?
Cap: 9.771B Share: $57 7/16
As 6/28/2011
Symbol Price Chg Chg % Market Cap
PCLN 495.40 8.30 1.70% 23.94B
EC - 18 © Minder Chen, 1996-2011
• No vendor loyally• No switching costs• Time-insensitive• Short-term• Casual• Many vendors• Products differentiated
on price, image
• Relationship-based• Very high switching costs• Extremely time-sensitive• Long-term• Mission-critical• Few partners• Partners differentiated on
reliability, flexibility
Business-to-ConsumerBusiness-to-Consumer Business-to-BusinessBusiness-to-Business
Business-to-Business vs. Business-to-Consumer
<
EC - 19 © Minder Chen, 1996-2011
Business Channel: Multi-Channel Presence
Buyer Seller
• Brick-and-mortar – Face-to-Face
• Mail order– Mail – Printed catalog
• Phone order – Telex– Phone– Fax
• Electronic commerce • EDI• Email• Web
Multi-channel plays will have extraordinary power if companies elegantly blend and synchronize those channels.
Pure Play
Cli
ck a
nd
Mo
rtar
EC - 20 © Minder Chen, 1996-2011
The B2C Business Models – Bricks, Clicks, Revolution and Evolution
Bricks Clicks
Bricks & Clicks
• Sat on the sidelines for the explosion • Evolved to online commerce• Online services are incremental• Not huge differentiators for clients• Source of convenience• Took advantage of lessons learned• Assets CHEAP from Click failures
• Mergers or sales of assets to Bricks• Folding bricks ventures into portfolio• Narrow focus of offerings
eBay, Amazon, Webvan, Wingspan Bank, Yahoo
Gap, Safeway, Wallmart
• Bricks organizations set up separate click organizations to give the required freedom to operate in the fast moving Click environment
or• Clicks organizations were created through VC capital
Wells Fargo, Safeway, Barnes and Noble
EC - 21 © Minder Chen, 1996-2011
Showrooming at Retail Stores
Source: http://online.wsj.com/article/SB10001424052702304587704577334370670243032.html http://www.cnn.com/2012/06/17/opinion/greene-showrooming/index.html
EC - 22 © Minder Chen, 1996-2011
Web Metrics• Hit – any Web server request that generates a log file entry. A
page has many elements (html, gifs), each generating a hit.
• Page – Web server file that is sent to client user agent, usually a browser.
• Session – all actions (i.e. requests, resets) made in single visit, from entry until logout or time out (e.g., 20 minutes of no activity).
• Visitor – a user or bot/spider/crawler that makes requests at a site. Can be new, returning, registered, anonymous.
• Buyer – visitor that purchases something
• Customer – a visitor that registers (sometimes defined as buyer)
• Conversion – rate at which visitors transition to desired state (buyers, customers, registered, started checkout)
• Host – remote machine, identified by IP address, used for visit.
• Referrers – Page that provides a link to another page. Can be internal or external
• Web logs, Google Analytics, and Alexa
EC - 23 © Minder Chen, 1996-2011
• Hit/page hit/ Referrers/ Host (location), domain, IP address/
EC - 24 © Minder Chen, 1996-2011
Product Variety Comparison for Internet and Brick-and-Mortar Channels
Product Category Large Online Retailer
Typical LargeBrick-and-Mortar Store
Books 3,000,000 40,000 – 100,000
CDs 250,000 5,000 – 15,000
DVDs 18,000 500 – 1,500
Digital Cameras 213 36
Portable MP3 players
128 16
Flatbed Scanners 171 13
http://www.heinz.cmu.edu/~mds/smr.pdf
The unlimited “shelf space” of the Internet. Free:The Future of a Radical Price, Chris Anderson
EC - 25 © Minder Chen, 1996-2011
Pure Players vs. Physical Retailers
http://www.wired.com/wired/images.html?issue=12.10&topic=tail&img=1http://www.wired.com/wired/archive/12.10/tail_pr.html
EC - 26 © Minder Chen, 1996-2011
EC - 27 © Minder Chen, 1996-2011
Mass Customization: http://www.zazzle.com/
– The unfulfilled need of a user again was the mother The unfulfilled need of a user again was the mother of inventionof invention: The two brothers, Bobby and Jeff Beaver, wanted to create a cool t-shirt to advertise a party at their fraternity (in order to "draw in plenty of nice girls"). They realized how difficult it was at that time to get high-quality custom t-shirts without having to order larger quantities at a promotions company or to rely on the low quality of heat-transfer at the local copy store.
– unique digital custom printing technologies
– Zazzle is not a technology company – it is a "market maker".
– "Niching the niche“ - a mass customization ecosystem
http://mass-customization.blogs.com/mass_customization_open_i/sneaker/
EC - 28 © Minder Chen, 1996-2011
EC Strategies: 4 Cs
CommerceCommerce
ContentContentCommunityCommunity
CustomersCustomers
EC - 29 © Minder Chen, 1996-2011
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" (WOM) factor gets amplified on the Net
• The shifts of balance of power away from business and toward customer.
- Jeff Bezos
EC - 30 © Minder Chen, 1996-2011
Self Assessment: Customer Caring
What do your customers need? What requests do they make of you?
How do you respond to customer’s requests?
What kind of information can they get from you?
What process do they go through? How do you produce and distribute it to them?
What are the steps that your customers have to take
to complete a purchase transactions?
How do they get shipment status?
How are exceptions handled?
What do you need from customer? What do you know about customer preferences?
What information could you use to better target your
product and service offerings?
What 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?
EC - 31 © Minder Chen, 1996-2011
Is EC Appropriate for You?
Industries who set up virtual storefronts
EC - 32 © Minder Chen, 1996-2011
Technology-Fit: Customer and Product
Cu
sto
me
r N
ee
d fo
r P
rod
uct
Info
rma
tion
High
Low
Customer Demographics MatchPoor High
Earlier AdopterSecond Wave
Second WaveWeb Laggards
TideDenny's
AAFedExpMicrosoft
NikePepsi
Jenny CraigChrysler
Source: Forrester Research
Co
mp
as
sio
n a
bo
ut
the
pro
du
ct
(SM
M)
EC - 33 © Minder Chen, 1996-2011
Virtual Communities
Virtual Community
Users
• Money
• Content• Demographics
Providers
• Content• Hard goods• Games• Services
Other Websites
Advertisers
• Advertising
EC - 34 © Minder Chen, 1996-2011
www.parentsoup.com
http://parenting.ivillage.com/ -- Community Web Site
EC - 35 © Minder Chen, 1996-2011
Groupon Business Model
EC - 36 © Minder Chen, 1996-2011
Group Buying Sites
Site Name Number of Cities
Rewards for Sharing With Friends
Type of Deals iPhone App
Groupon.com 42 $10 for you if new invitee joins and buys a deal
Hip city locales and activities
Yes
LivingSocial.com
13 Free deal if 3 friends buy it; $5 to invitees who sign up; $5 to you if they buy a deal
Hip city locales and activities
Yes
Tippr.com 1 Deal gets better as more people buy it
Hip city locales and activities
No
Woot.com online None Technology gadgets
Yes
Gilt.com online $25 for each invitee who buys
High fashion Yes
Ideeli.com online $25 for each invitee who buys
High fashion No
Source: http://online.wsj.com/article/SB10001424052748704896104575139692395314862.html
EC - 37 © Minder Chen, 1996-2011
Revenue Streams
• Transaction
• Subscription / Listing Fee
• Value-added services
• Donation and Sponsorship
• Advertising – Google AdWords
– Google AdSense
EC - 38 © Minder Chen, 1996-2011
Multifaceted Model for Web-Based EC Design• ATTRACT: Hits
– Communities of interest
– Changing topics for repeat customers
– Features that encourage customers to explore
• ENGAGE: Leads– Special areas encourage customer to register (i.e. selection of articles customized for
visitors interests)
• PARTICIPATE: Sales revenue– Free download (video, audio, & software)
– Shopping– Chat and News
– Subscription
• JUMP: Advertising revenue
– Other products of interest to customer– Other sites of interest to customer
Adapted from Netscape Communications Inc., 1996.
Attract
Engage
Participate
Jump
EC - 39 © Minder Chen, 1996-2011
TransactTransact
Man
age
Man
age
PaymentPayment
AdvertisingAdvertising
Order processingOrder processing
FulfillmentFulfillment
MerchandisingMerchandising
Lead generationLead generation
CustomerCustomerserviceservice
Objectives Of An eCommerce SiteObjectives Of An eCommerce Site
Engage
Engage
EC - 40 © Minder Chen, 1996-2011
EC Site Life Cycle
EC - 41 © Minder Chen, 1996-2011
Opening Online Business• Identify a need and a niche
• Determine what you have to offer (products/services)
• 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/promote your online business (online and offline)
• Evaluate site performance & improve continuously
EC - 42 © Minder Chen, 1996-2011
EC Hosting• Yahoo!Small Business
– http://smallbusiness.yahoo.com/ecommerce/
• Ebay– http://pages.ebay.com/help/sell/sell-getstarted.html
• Amazon Marketplace– http://www.amazon.com/gp/help/customer/display.html?
nodeId=1161232
• Drupal.org– http://drupal.org/hosting
• Wordpress: Open source solution for a web site. – http://wordpress.org/
• Webs.com: Webs’ point-and-click Site Builder requires no technical skills.
EC - 43 © Minder Chen, 1996-2011
Web Site Architecture Design: Website Navigation Diagram
EC - 44 © Minder Chen, 1996-2011
Site Elements• Home page
– Menu-driven, News-oriented
– Path-based, Splash screens or image maps
• Graphics and texts
• Submenus pages and subsites (alternative home pages for special audiences)
• Tables of contents, site indexes, site maps
• Product/service/information pages
• "What's new" pages
• Search features• Contact information
– Street address, phone number, fax numbers, maps, travel directions, parking information
• User feedback and victual community pages
• Bibliographies and appendixes
• FAQ (Frequently Asked Questions) pages
• Customized server error pages
Source: Web Style Guide
EC - 45 © Minder Chen, 1996-2011
Cross-Selling and Up-Selling
Amazon’s Collaborative Filtering/Recommendation system
EC - 46 © Minder Chen, 1996-2011
Personalization
EC - 47 © Minder Chen, 1996-2011
The Evolution of EC Implementation
Maturity
Fu
nct
ion
alit
y
Publishing (Brochure-ware)AdvertisingMarketingInformation
Customer Interactivity Registration / FormsEmailGames / Chat room / eForum
Web-based TransactionProduct database queries / SearchElectronic PaymentsFund transfer
Process IntegrationFulfillmentSettlementWorkflow
ExtensioneCRMeProcurement / SCM eMarketplace / Auction
1:1 Relationship
Real-time organizations
Communities of Interests
Marketplace creator
EC - 48 © Minder Chen, 1996-2011
Future EC Trends• Broadband internet connection: I.e., ADSL, Cable modem
• Streaming media and web-based learning
• More interactive virtual community
• Customization and personalization
• Mini-portal and corporate portal
• Affiliate partner
• Multiple-channel integration
• E-commerce is driving E-business
• Affordable EC software and hosting service for small-medium-size companies
• Emerging standards such as XML to enable Business-to-Business electronic commerce
EC - 49 © Minder Chen, 1996-2011
Elevator Pitch Our business [list name] will deliver [list key deliverables] to [list key beneficiaries] to enable them to [list key benefits]. The business is headed by [list founder and key executives, investors, and advisors] that have [list key background and qualifications]. The business [will launch/was launched] on [date] and we [will begin/began] delivering [first product or service] on [date]. We expect to prove our business model and achieve profitable growth on [date] and anticipate that the terminal value of the business will be [list anticipated value], which represents a [list return] to investors. The total cost to achieve this goal will be [total cost], which includes the following key cost categories [list]. We have currently received [list dollars of funding secured to date] from the following sources [list]. We anticipate receiving the remainder of the funding by [date] from [list sources]. The key risks for the project are [list risks]. These risks will be managed by [list key approached to managing each risk].
• Source: Applegate and Saltrick, “Developing an Elevator Pitch for a New Venture.”
•
EC - 50 © Minder Chen, 1996-2011
Elevator Pitch • Elevator Pitch – What is it?
– In the time it takes to ride an elevator from the 1st to the 10th floor – explain the gist of your business idea to a stranger!
– An elevator pitch conveys the businesses’ key features and rationale in a clear, concise way so that it can be communicated easily to others
• Who is the primary audience?– Potential investors, customers, suppliers, partners, employees– Anyone who has or could have a stake in your business
• Why does it matter?– Communicate – What, why, how, where and when– Teaser to generate interest – the upfront hook!– Share a coherent vision of the firm’s goals and high level strategy
for achieving these goals– And, last but not least - Raise $$$!– Plus, it might be your only shot!
http://nuvc.innuvation.org/Elevator_Pitch_Workshop_v2.ppt
EC - 51 © Minder Chen, 1996-2011
Key Issues
• Overview of the problem your business will solve and opportunity it will address
– Why does this problem matter?
– How severe is it?
– How big is the opportunity?
– How fast is it growing?
– Why has it not been solved yet?
– Why can you solve it when others could not?
• What value is being created?
• Who are the primary beneficiaries? – Think about who is capturing the value
– Consider that some groups may capture more than others – these represent the ideal first customers
EC - 52 © Minder Chen, 1996-2011
Products/Services and Competitors
• What are the products and services that you will deliver to solve the problem
• How do these products and services meet the unsolved market problem?
– Do they immediately solve the entire problem?
– Or what is the product and service “path” for getting there?
• Who are the competitors and why are your products and services superior?
– Focus on direct competitors
– Consider segmenting direct competitors by type
– Why, where and how does each competitor or type fall short?
EC - 53 © Minder Chen, 1996-2011
Revenues and Resources
• How do you plan to generate revenues– Short term– Longer term if there is a twist or kicker
• Hit the high points of your business model– Profitability – Leverage – As revenues and size increases, do gross
and/or operating margins improve?– Scale efficiencies - how do the mechanics and economics
of your business model scale
• What are the resources required?– Money – Capital intensity?– Time – core development, unique product versions for
different customer types, distribution channel build, etc– Team background and expertise – what are the critical
competencies of the team?
EC - 54 © Minder Chen, 1996-2011
Teaser and Vision
• Teaser to pique interest– Punchy, crisp and clearly articulated
– Incentivizes stakeholders to care by logically presented the case for how the business benefits them
– Delivered with confidence but not cockiness
– Should leave them wanting to hear more about the details at a later date
• Communicate a common vision and goals– Everyone on the same page, working toward the
same goal
– Minimize non-productive activities, speeds up time to market
EC - 55 © Minder Chen, 1996-2011
Raising Money
• Raise $$$– Distilling the essence of your business idea into a
few critical points reflects well on you
– Strong elevator pitch results in more favorable assessment of your talents by potential backers» VCs would rather back a Grade A management team with a
Grade B product than vice versa
– Decisions to proceed forward with due diligence are often made on the basis of the elevator pitch and the accompanying follow up conversation by seasoned VCs
EC - 56 © Minder Chen, 1996-2011
Cash Flow
How
What
Who
EC - 57 © Minder Chen, 1996-2011
CLIENTSCLIENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
CLIENTSEGMENTS
Describe a Business Model: 9 Building Blocks
OfferOffer
Cost Structure
Cost Structure
CustomerRelationships
CustomerRelationships
CustomerSegmentsCustomerSegments
Competencies, Activities, Resources
Competencies, Activities, Resources
Partner NetworkPartner Network
RevenueStreamsRevenueStreams
Distribution Channels
Distribution Channels
Key Issues To Solve
Key Issues To Solve
Source: Describe and Improve your Business Model
WhoWhatHow
How Much?
EC - 58 © Minder Chen, 1996-2011
Reverse Engineering Facebook’s Business Model with Ballpark Figures
http://www.businessmodelalchemist.com/
EC - 59 © Minder Chen, 1996-2011
Five Essential Elements Of Business
Source: Ram Charan, What the CEO Wants You to Know