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Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network Economics August, 2008 Minder Chen, Ph.D. Associate Professor of Management Information Systems E-Mail: [email_address] or [email_address] Web site: http://faculty.csuci.edu/minder.chen/
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
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.
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.
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.
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.
"[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.
The Cycle of Electronic Commerce Customers Online Ads Online Orders Standard Orders Access Searches Queries Surfing Distribution Online: soft goods Delivery: hard goods Electronic Customer Support Follow-on Sales
Source: adapted from David Kosiur, Understanding Electronic Commerce, Microsoft Press, 1997. Electronic Commerce
Generic Framework of Electronic Commerce Common Business Services Infrastructure (Security/Authentication, Electronic Payment, Directories/Catalogs) Messaging & Information Distribution Infrastructure (EDI, E-Mail, HyperText Transfer Protocol) Multimedia Content & Network Publishing Infrastructure (Digital Video, Electronic Books, World Wide Web) Information Superhighway Infrastructure (Telecom, Cable TV, Wireless, Internet) 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 Public policy, legal, economical development, and privacy issues Technical standards for electronic documents, multimedia contents, business transactions, and network protocols Adapted from: Kalakota and Whinston, Frontiers of Electronic Commerce , Addison Wesley, 1996, p. 4.
EC and Business Processes Seller Customer Corporate Databases 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-cash P.O.s Demos, reviews Send info Data sheets, catalogs, demos Request info Web surfing Web searches, web ads Deliver soft goods electronically
World Wide Internet Commerce Forester Research, Inc. June 1999
Business Internet Commerce Trends B2C: Business to Consumer B2B: Business to Business Reference: http://cyberatlas.internet.com/
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. 2002—grow to $114 billion—more 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)
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
Price Quantity Demand Supply Network Economy
The Internet Increases Apparent Supply Old apparent supply New apparent supply Actual supply Internet increase apparent supply Apparent quantity rise Price fall Price Quantity 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.
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
Price 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
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 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 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?
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-business relationship.
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.
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.
Consumer Technographics Segments in the US Fast Forward 12% New Age Nurturers 8% Mouse Patatoes 9% Techno-strivers 7% Digital Hopeful 7% Gadget Grabbers 9% Handshakers 7% Traditionalists 8% Media Junkies 5% Sidelined Citizens 28% Primary Motivation Career Family Entertainment Attitude Toward Technology Pessimists Income Level High High Low Low Source: Forrester Research Inc. Early Adopters Laggards Optimists Mainstreams
Quick Test for Technographics More Men More Women More Educated Less Educated High Income Low Income Have Children No Children Younger Age Older Laggards Early Adopter Mainstreams Time Number of new users
Technology-Fit: Customer and Product Customer Need for Product Information High Low Customer Demographics Match Poor High Earlier Adopter Second Wave Second Wave Web Laggards Tide Denny's AA FedExp Microsoft Nike Pepsi Jenny Craig Chrysler Source: Forrester Research
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?
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.
How do we stay on the edge of innovation for life?
E-conomy Map Consumers Business Individual Affinity Groups Enterprise COINs The Delivery Vehicle (The Container) The Message (The Content) Adapted from: Net Ready, 2000 HP Testing & Measurement VerticalNet Testandmeasurement.com HomeCare Products HomeCare InfoCenter COINs: Community of Interests
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.
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 E-Vision Business Drivers Technology Drivers E-Business Strategy Rapid Implementation
Expanded business opportunities
Systems and networks
Web technology strategy
Source: Digital Transformation, 2000
Internet Industry Internet Economy Consulting Content and Activity Electronic Commerce Infrastructure Client/Server Software ISP Network Services Internet Equipment Commerce Instruments Portals Commerce Servers Sports Malls Entertainment Newsfeed Publications System Integration and Design Browsers Web Server Application Servers Security Tools Internet Service Consumer Services Carriers Backbone Router Access Equipment Server Computers
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.
Marketplace E-Commerce Model Virtual Marketplace Seller A Seller C Seller B EDI HTML & Forms HTML & XML OBI Buyer A Buyer C Buyer B EDI HTML & Forms HTML & XML OBI
Infomediacy (Content Aggregator)
Business-to-Business vs. Business-to-Consumer
No vendor loyally
No switching costs
Products differentiated on price, image
Very high switching costs
Partners differentiated on reliability, flexibility
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.
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."
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.
Infrastructure providers / Communities of commerce
Source: Net Ready, 2000
Any-to-Any Technologies Connect Everything to Everyone Consumers Businesses Institutions PCs Web TV PDA Smartcards Specialty Devices Other High Value Solutions Transactions and Payments Physical Infrastructure Banks Brokerage Insurance Retail Distributors Transport Other
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 Velocity: How critical is the need for speed in the delivery of the product or service? Attitudinal Readiness: How ready are customers to accept new ways? Fragmentation: How fragmented is the market in which you operate? Commodity: How commodity-like is the product or service? Asymmetries of Information: What is the balance of power in the buyer-seller equation? Customizability: How customizable is the product or service? Digitizability: How digitizable is the product or service? Efficiency: how efficient is the relationship between buyer and seller? Your Risk/Opportunity Low Medium High Risk/Opportunity Exposure
Move to Consumer-Centric View Supply Base My Company Distribution Channel Target Consumers ERP CRM Supply-chain management Customer Firewall SCM Conventional View Consumer-Centric View Virtual Enterprise Supplier network Channel Consumer Communities C2B2B: Customer-to-Business-to-Business Adapted from: Customer Centricity, InformationWeek, April 10, 2000
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
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 Average retail net margin Time Increasing apparent supply Managing current demand New services and loyalty programs Auctions Economies of scale Aggressive pricing for online plays Comparison shopping engines Increasingly price-sensitive online shoppers Source: Now or Never, 2000
Business Models Based on the Value Chain in the Market Place Raw material producer Manufacturer Distributor Retailer Consumer Exchange
"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:
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.
Additionally, VerticalNet provides auctions, catalogs, bookstores, career services and other e-commerce capabilities horizontally across its communities with technologies from acquired and organic sites like Industry Deals.com, IT CareerHub.com, LabX.com, and Professional Store.com.
Individual advertising ($6,000 - $25,000)
Build and design sites
Sponsor forums with expert guests
Negotiate a percentage of transaction at the online marketplace
Jay Walker, 43, founder and Vice Chairman of priceline.com, has created a model for buying and selling that's so original, it's been patented. Walker calls his model "buyer-driven commerce," and he's racing to build a big company around it. "
"It's not a traditional supply-and-demand market anymore. Priceline flips the power relationship on its head where the customer is telling you what he will pay."
Priceline.com has pioneered a unique new type of e-commerce known as a "demand collection system" that enables consumers to use the Internet to save money on a wide range of products and services while enabling sellers to generate incremental revenue.
Using a simple and compelling consumer proposition--"name your price," we collect consumer demand (in the form of individual customer offers guaranteed by a credit card) for a particular product or service at a price set by the customer and communicate that demand directly to participating sellers or to their private databases.
Consumers agree to hold their offers open for a specified period of time to enable priceline.com to fulfill their offers from inventory provided by participating sellers. Once fulfilled, offers generally cannot be canceled.
By requiring consumers to be flexible with respect to brands, sellers and/or product features, we enable sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures.
As if making a profit from online retailing were not enough of a challenge, try making money online under a system where you give your customers essentially no service, no selection and no right to return unwanted items.
May sound crazy, but not too long ago, investors seemed to think it was a brilliant idea.
Critics say the company's troubles raising money reflect some fundamental problems with its reverse auction model, which invites consumers to set their own prices. But it also requires them to commit to the purchase before they know all the details.
"Consumers typically look for four things: choice, service, selection and low price,'' said Tom Courtney, an analyst with Banc of America Securities. "Priceline gives up everything but the price.''
In hindsight, many critics say Priceline is more gimmick than solid business. Now that the novelty of the name-your-own-price model has started to wear thin, they are losing faith in its viability.
``What I've seen is an intriguing model. You try it once and you feel a little uncomfortable with it. You may not get the route or the fare you wanted and at the end of the day you are not so sure about it,'' said Craig Palmer, president of eWanted, another Internet auction site. ``People come to Priceline, but they don't come back again and again and again.''
Kent, CT, & Sunnyvale, CA Nov. 2, 1998 - Cyberian Outpost, Inc. (NASDAQ: COOL), a leading Internet-only retailer of computer hardware, software, and peripherals for consumers worldwide, today announced it has acquired the Internet Shopping Network (ISN) Computer Superstore's customer base. Cyberian Outpost (http://www.outpost.com/) will be the new online shopping destination for the Computer Superstore's more than 160,000 customers. Prior to the acquisition, Cyberian Outpost had over 161,000 customers.
In addition to selling the Computer Superstore's customer list, ISN has agreed to maintain, a direct link from the ISN Computer Superstore's homepage that will lead shoppers to the Cyberian Outpost homepage (http://www.outpost.com/) for the next four months. Further, all existing URL's relating to the ISN Computer Superstore will re-direct users to Cyberian Outpost's homepage, extending Cyberian Outpost's market reach, these re-directed links will remain in place for one-year to cover residual bookmarks or links pointing to the ISN Computer Superstore.
On Monday (Dec. 19, 2000), eToys watched its market value, which once topped $1.9 billion, fall to $37.2 million. It watched its customer traffic, once growing at a healthy clip, go flat compared to last year. And it watched its shares plunge 72 percent to close at 28 cents a share, miles from its 52-week high of $40.25, as a number of analysts reaffirmed their positions on the stock.
Online catalog Landsend.com plans to outshine the competition this holiday season with a more accurate virtual model derived from a body scan, the company announced Tuesday. In the months leading up to Christmas, a Lands' End mobile unit equipped with an automated Image Twin scanning booth will offer consumers in 14 U.S. and Canadian cities a chance to obtain precise body measurements, generating a virtual twin who will try clothing online.
Inside the mobile scanning unit, white light flashing on and off for more than 12 seconds digitally captures 200,000 data points of a consumer's figure, creating a 3-D mirror image. A consumer can start using the model online within two hours, after the information is transmitted wirelessly to an IBM server farm located in North Carolina, said C. Cammack Morton, chairman and founder of the North Carolina-based Image Twin.
The dressing-room tool, My Virtual Model , is an updated version of a virtual model generated solely from a questionnaire about height, dress size, body shape, and the like. The updated tool takes additional measurements for a more realistic result and as of next week, will offer a male virtual model.
E*TRADE has created a web-based trading system that is streamlined, efficient, and economical. As an account holder, you get free real-time market information, news and analysis and pay among the lowest commission rates and lowest margin rates in the industry.
One-Click Access to the Tools You Need: E*TRADE customers, get comprehensive online trading capabilities and a full set of investment and research tools such as free news, charts, in-depth company fundamentals, and online portfolio management.
Personal Market Page
E*TRADE offers a low and simple commission schedule. You pay only $14.95 for listed market orders and $19.95 for Nasdaq orders. For listed orders over 5,000 shares, add 1 cent per share to the entire order. For options, you pay just $20 plus $1.75 per contract, with a $29 minimum.
E*Trade Commission: A Comparison Online competitor
Calling it the first pure-play Internet company to integrate banking and brokerage services, E*TRADE Group Inc. announced Tuesday it is acquiring Internet bank Telebanc Financial Corp. for approximately $1.8 billion.
Terms of the agreement call for Telebanc shareholders to receive 2.1 shares of E*TRADE common stock for each share of Telebanc common stock. The merger is valued at roughly $1.8 billion based on E*TRADE's closing price on Friday, May 28. Once the merger is finalized, Telebanc shareholders will own approximately 13 percent of E*TRADE's fully diluted common stock. The transaction will be accounted for as a pooling of interests and is slated to close sometime this fall upon regulatory and shareholder approval.
The merger creates an Internet-based, FDIC-insured cash management account which the companies predict will change the future of personal financial services. Aimed at millions of Internet consumers, the online financial management resources of E*TRADE combined with online banking capabilities is expected to eliminate the need for multiple financial relationships.
The merger also will offer online consumers for the first time, access to full-featured, FDIC-insured Internet cash management accounts, including ATM access through the national Cirrus network, online bill payment and investing services, enabling them to consolidate brokerage and banking accounts.
By offering a central account, customers will be able to conduct a full range of transactions online, including buying mutual funds, CDs and fixed income securities, trading equities and paying bills. E*TRADE said through the integration of the companies services, a cost-effective, scalable business model will be achieved, while boosting E*TRADE's customer acquisitions and aggressively expanding its existing one million-plus customer account base.
Some 30 percent of chief executives and senior managers say the Internet is forcing them to revamp their strategies, according to a recent study by Booz, Allen & Hamilton and the Economist Intelligence Unit.
Take Merrill Lynch & Co., the biggest U.S. broker, which after long resisting trading over the Internet, said on Tuesday it planned to roll out full-scale online trading.
"The undeniable fact that there is a segment of the marketplace that wants to access the market through technology and through online investing was indisputable," Merrill Chairman David Komansky said.
By 2003, Forrester estimates that 9.7 million US households will manage more than $3 trillion in 20.4 million on-line accounts. Deep discount firms will see their growth rates plateau. Midtier firms will prosper, capturing more households and assets than their competitors will. Full-service companies will start slow but will enjoy the greatest asset growth.