Value Chain of e-commerce.ppt

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: minder.chen@csuci.edu or minderchen@hotmail.com
Web site: http://faculty.csuci.edu/minder.chen/

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© Minder Chen, 1996-2008
Reference
• EC Books
1. Net Ready, by Amir Hartman and John Sifonis, McGRaw-Hill, 2000.
2. Now or Never, by Mary Modahl, Harper Business, 2000
3. Designing Systems for Internet Commerce by G. Winfield Treese, Lawrence C. Stewart
(May 1998) Addison-Wesley Pub Co; ISBN: 0201571676
4. Net Results: Web Marketing that Works by Rick E. Bruner (Editor), Cybernautics, Usweb
Corporation Hayden Books; ISBN: 1568304145
5. E-Business : Roadmap for Success by Ravi Kalakota, Marcia Robinson, Don
Tapscott (June 1999) Addison-Wesley Pub Co (C); ISBN: 0201604809
6. 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
7. 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
8. Creating the Virtual Store: Taking Your Web Site from Browsing to Buying, by Magdalena
Yesil, Published by John Wiley & Sons, November 1, 1996

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Course Description
This course provides an overview of Electronic
Commerce and Electronic Business based on
new E-conomy (network economics) and unique
characteristics of underlying web technologies.
Topics covered include: electronic commerce
overview, network economics, EC models and
strategies, EC case studies, e-business
components such as Enterprise Resource
Planning and Customer Relationship Management
from a reengineering process viewpoint; Internet
and web technologies including web
technologies, electronic payment systems, and
Internet security. Critical success factors for
building a successful EC will be discussed.

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Seminar Leader
Dr. Minder Chen received a B.S. in Electrical Engineering from National Taiwan
University in 1977, an M.B.A. from National Chiao Tung University in 1983, and a Ph.D. in
Management Information Systems from the University of Arizona in 1988.
He is currently Associate Professor of Management Information Systems and
Decision Science and served as the Director of Technology Program (an Executive Master
Program in Information Technology Management) in the School of Management at
George Mason University. He has taught Executive MBA and undergraduate level
courses in electronic commerce, as well as Business Process Reengineering and Change
Management; Technology Assessment, Evaluation, & Investment; Global Information
Technology Management at the Executive Technology Management master program.
He is the President of Advanced Information Technology Consulting (U.S.A), a
consulting firm specialized in business engineering, electronic commerce, and emerging
technologies. He is also one of the founder and Chief Technology Officer of KITE E-
Commerce Training and Consulting Inc. (Taiwan). His primary research interests are
electronic commerce, computer-aided instruction, collaborative and organizational
learning, information engineering and business reengineering, computer-aided software
engineering, client/server computing, collaboration technologies (groupware), and object-
oriented systems development methodology. He has published papers in Journal of
Management Information Systems, Database, Journal of Organizational Computing,
Expert Systems with Applications, IEEE Transactions on Knowledge and Data
Engineering, IEEE Transactions on Systems, Man, and Cybernetics, Journal of Small
Group Research, and IEEE Software.

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Continued ...
He has been involved in studying methods and tools for business process
reengineering and software reuse for DOD's Corporate Information Management Office.
He has also worked with governments and private-sector businesses, such as Fairfax
County Government, US Court, Industrial Technology Research Institute, DOD Center for
Information Management, American Management Systems, and Wizdom Systems Inc. in
their information engineering, client/server migration, and business reengineering efforts
by providing them with training and consulting services. He has given presentations and
one- to three-day business reengineering and electronic commerce and other advanced IT
seminars in U.S., China (for Everbright Group), Taiwan (via National Taiwan University
and Corporate Synergy Development Center), Singapore, and Hong Kong. Dr. Chen is
also a well-known expert in systems development methodology, integrated CASE tools,
and groupware. He has provided training courses such as HTML, DHTML, XML,
JavaScript, Web Site Development and User Interface Design, IIS, ASP, ColdFusion,
electronic commerce, CASE tools, Information Strategy Planning, Information Engineering
methodology, client/server computing using PowerBuilder and Visual Basic for many firms,
such as AT&T, Logicon, PSINet, KForce.com, TRW Inc., BDM, BTG, Lockheed Martin,
International Monetary Funds, Computer Sciences Corporation, and Marriot Hotel.
He is the co-guest-editor of the March 1992 IEEE Software special issue on
Integrated CASE, a CASE minitrack coordinator of Hawaii International Conference on
Systems Sciences for several years, a program committee member of Methods and Tools
for Business Engineering 1995 Conference, an international program committee member
of 1995 Pan Pacific Conference on Information Systems.

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Outline (I)
 EC Introduction
 Introduction
 The cycle of electronic commerce
 EC and Business Process
 EC statistics
 Network Economy and Dynamic Trade
 Information rules
 Network externality and network economics
 New supply and demand curves
 Dynamic trade
 EC Strategies
 4Cs strategy
 Content, Community, Commerce
 Revenue streams
 E-conomy Map and EC Strategies
 EC Business Models
 B2C Virtual stores: physical and digital goods and services
 Infomediaries: Seller-side
 Informediaries: Buyer-side
 Infomediaries: B2B marketspace
 EC Case Studies:
 B2B: verticalnet.com
 Auction: eBay
 Subscription web sites: monster.com
 e-tailing: 1800flowers.com
 Financial investment sites: E*Trade
 Other interesting web sites

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Outline (II)
 E-Business and Extended Enterprise
 Defining e-business and extended enterprise
 Supply Chain Management
 Customer Relationship Management
 Business-to-business analysis
 Case Studies
 Amazon.com
 Dell
 Federal Express
 Cisco
 Web Technology and EC Software Overview
 Internet infrastructure and services
 Web technology overview
 EC software
 Internet Security and Electronic Payment Systems
• EC Implementation
 Evolution of EC implementation
 EC site life cycle
 EC site design issues
 Promotion and marketing
 Net readiness evaluation
• EC Investment and Opportunities
 Internet / EC industry analysis
 EC Firms and Stock market
 EC investment pyramid

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

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Electronic Commerce: Introduction
E-Business
E-Commerce
Internet
Commerce
Commerce

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Electronic Commerce
• Electronic commerce is broadly as the ability to
execute business activities (transactions,
contracts, and partnership) over a computer
network. The execution of these activities lead
to the exchange of goods, services, and
money.
• Online business activities are changing market
dynamics and structures of various industries.
• Electronic commerce adds a new dimension
"information" to business activities involving
information goods, information services, and
electronic money.

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Market Relationships
Transaction Contract Partnership
Basis of
Interaction
Discrete exchange
of goals, service,
and payments
(simple buyer/seller
exchange)
Prior agreement
governs exchange
(e.g., service,
contract, lease,
purchase agreement
Shared goals and
processes for
achieving them (e.g.,
collaborative product
development)
Duration of
Interaction
Immediate Usually short terms;
defined by contract
Usually long term;
Defined by relationship
Business
Integration
Low Low--> Moderate High
Condition and
Control
Supply and demand
(market)
Terms of contract
define procedures,
monitoring and
reporting
Interorganizatio-nal
structures, processes,
and systems; Mutual
adjustment
Information
Flow
Primarily on way;
Limited in scope
and amount; Low
level of
customization
One or two-way;
Scope and amount
are usually defined in
the contract
Two -way
(interactive);Extensive
exchange of rich,
detailed information;
Dynamically changing;
Customizable

Travelocity
Microsoft expedia
Priceline.com

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The Low-Friction Market
"[The Internet] will carry us into a
new world of low friction, low-
overhead capitalism, in which market
information will be plentiful and
transaction costs low."
-- Bill Gates, The Road Ahead
"Where there is a friction,
there is opportunity!"
-- Net Ready.

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The Cycle of Electronic Commerce
Customers Online Ads Online Orders
Standard Orders
Access
Searches
Queries
Surfing
Distribution
Online: soft goods
Delivery: hard goods
Electronic Customer Support
Follow-on Sales

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Components of Electronic Commerce
Institution
• Government
• Merchants
• Manufacturers
• Suppliers
• Consumers
Processes
• Marketing
• Sales
• Payment
• Fulfillment
• Support
Networks
• Intranet
• Extranet
• Internet
Source: adapted from David Kosiur, Understanding Electronic Commerce, Microsoft Press, 1997.
Electronic
Commerce

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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.

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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

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World Wide Internet Commerce
$80
$170
$390
$970
$2,000
$3,200
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
1998 1999 2000 2001 2002 2003
Sales (Billions)
Forester Research, Inc. June 1999

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Business Internet Commerce Trends
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
1999 2000 2001 2002 2003
B2C
B2B(Services)
B2B(Goods)
B2C: Business to Consumer
B2B: Business to Business
Reference: http://cyberatlas.internet.com/

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Business-to-Business E-Commerce
• International Data Corporation forecasts that business-to-
business e-commerce revenue will jump from $80 billion
worldwide in 1998 to $1.1 trillion in 2003. Forrester
Research believes that number will go even higher to $1.3
trillion by 2003.
• Business-to-Business -- Vertical Industries
– Computing and Electronics: For this year, businesses will invest
$50 billion in computers and other electronic equipment online.
Increase to $319 billion by 2002.
– Motor vehicles: Companies will spend $9 billion online to
purchase fleets of cars and trucks this year. 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)

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Statistics
• Holiday Season 1998
– 2.1 million households shopped online for the first time
– Generated $2.3 billion
– Virtually all (98%) of AOL shoppers said they would shop online
again in the next 6 months (Source: Jupiter Communications)
• By 2003 . . .
– Consumers on the Web will spend more than $177 billion
worldwide.
– There will be an eight-fold increase in Web buyers worldwide to
143 million (International Data Corporation, March 1999)
– In Europe, 43 million households will be online. (Source: Nua
Internet Surveys 12/98 re: DataMonitor)
– In Japan, buyers will spend one trillion Yen online. (Source:
Nikkei Multimedia, 12/98)
• 1% of 5 million US merchants are able to collect payments
via the Internet in 1999.
• 10% E-merchants by year 2003.

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

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

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

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Changes in the Net Economy
• Business environment
– Local / Physical Global /Virtual
• Business assets
– Tangible Intangible
• Business change
– Periodic Continuous
• Business production
– Mass Production Mass Customization
Mass Personalization

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Net Economy
• 1940s - 1980s
– Manufacturing to information economy
– Local - regional - national - multinational
– Tangible brick-and-mortar assets: offices, shops,
service centers, and warehouse
• 1990s - 21st Century
– Net economy:
» Information & Knowledge
» Communication and interactions
– Global and virtual
– Business Focus: Information, channel, flow, customer
loyalty, reliable service, relationship
– Intangible assets: Knowledge, experiences,
relationships

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

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Network and Information Economy
• Information is costly to produce but cheap to reproduce.
– Price information according to its value not its cost.
• Managing intellectual property.
– Maximize the value of your intellectual property, not the terms and
conditions that maximize the protection.
• Information as an “experience good”
– Consumers must experience it to value it.
– Brand and trust building is critical.
• The economics of attention
– A wealth of information creates a poverty of attention.
Source: Information Rules

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Characteristic of Information Economy

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Information Commodity Market
• Competition among sellers of commodity information
pushes prices to zero.
• Personalize your product and personalize your pricing
• Know your customer
• Differentiate your prices when possible
• Use promotion to measure demands
• Network effects lead to demand side economies of scale
and positive feedback.
• Information has its greatest value when it is fresh.

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Popularity Adds Value in a Network
Value
to
User
Number of Compatible User
Networks
• Real: LAN, Internet, Fax
• Virtual: Virtual community, Chat
room, Instant messenger
Positive
Network
Externality

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Supply/Demand Flip
Quantity
Demand
Supply
Classic Economics
Quantity
Demand
Supply
Network Economy
• In the network economy, the supply curves slope down instead of up
and demand curves slope up instead of down.
• The accelerating expansion of knowledge and technology
simultaneously pushes up the demand curve while pushing down the
supply curve.
• Upward demand curves: Network externality
• Downward Supply Curves: Compounded learning curve, Moore's Law

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The Internet Increases Apparent Supply
Old apparent
supply
New apparent
supply
Actual
supply
Internet increase apparent supply
Apparent quantity rise
Price fall



Price
Quantity
Source: Now or Never, Mary Modahl, HarperBusiness, 2000

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Challenge
• Consumers: Everything on the Internet should to be free.
• Merchant: How can I make a profit if everything is free.
• Examples:
– Free web browsers: Netscape Communicator and Internet Explorer
– Free email: Juno, mail.yahoo.com and hotmail.com
– Free Internet Access: Freeserve in Britain
– Free PC: eMachine and CompuServe; Free-PC
– Free web hosting: Geocities, Angelfire, Zoom
– Free ...
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

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Dynamic Trade: Perfect Market
• Customer service is more important than
product selling
– Federal Express: Certainty
• Real-time demand drives production
– Dell: Build-To-Order
• Pricing matches market conditions
– Name your price (reversed auction): PriceLine.com
– Auction: Ebay
Leveraging technology to satisfy
current customer demand and
with customized response.

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Traditional vs. Dynamic Trade
• Speed from engagement to transaction
– Weeks vs. Minutes
• Product distribution
– Seller-selected vs. Buyer-selected
• Pricing
– Product price list vs. Market-determined price
• Production
– Pre-sale vs. Post-sale (Dell’s BTO)
• Customer relationships
– Standard vs. Targeted and Customized
• Strategic asset
– Location vs. Visibility and Customer Database

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Dynamic Trade Self-Test
Rate each of the following criteria in your market.
(3=high, 2=medium, 1=low)
 Commodity market
 Perishability of inventory
 Capital intensity
 Configurability of products
 Customers' perceived investment level
 Threat from new kinds of competition
 Channel volatility
TOTAL: _____________

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Electronic Commerce:
Strategies and Business Models

EC(I) - 39

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Moving Your Business Online
• Companies are motivated by either fear or
greed to move to their businesses to the net.
• To .com your company is becoming an
imperative.
• They have to obsolete their current business
models and work very hard to search a new
business model.
Your competitor is just
one-click away

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Electronic Commerce Applications and the Cycle of Commerce
Enterprise Information Server
Seller's Cycle of Commerce

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Electronic Commerce Applications and the Cycle of Commerce
Enterprise Information Server
Buyer's Cycle of Commerce
Time

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EC Strategies
• 4Cs strategy
• Content, Community, Commerce
• Revenue streams
• E-conomy Map

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EC Strategies: 4 Cs
Commerce
Content Community
Customers

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Customers
• Obsess over your customers
• Remember that the Web is an infant
– What do you have to offer that the physical world
cannot in order to attract customers?
• If you make one customer unhappy, he won't
tell five friends -- he'll tell 5,000 on newsgroups,
list servers, and so on.
– "Word of mouth" factor gets
amplified on the Net
• The shifts of balance of power away from
business and toward customer.
- Jeff Bezos

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Self Assessment: Customer Caring
What do your customers need? What requests do they make of you?
How do you respond to 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?

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• Consumers are increasingly engaged in an active and
explicit dialogue with companies.
• The role of the consumer is being transformed from
passive buyer to active participant in co-creating value
• The market is no longer a "target," but must be
recognized as an ecosystem. It's a forum for value
creation and extraction, and the company is part of an
enhanced network--one that includes its suppliers and
partners, and its customers. The network's fulfillment
goes beyond business-to-business or business-to-
consumer relationships to a consumer-to-business-to-
business relationship.
• Consumer Centricity at
http://www.informationweek.com/781/prahalad.

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5 Steps to Success in EC
• Set strategy
– Make it easy for customers to do business with you!
• Focus on the end-customer
– Identify end-customers and their needs
– Distinguish from channel partners
– Identify other internal and external stakeholders
• Redesign customer-facing business processes
• Wire your company for profit and success
• Foster customer loyalty
– Determine and prioritize objectives
– Decide what to measure and how to measure
– Measure profitability and other critical success
indicators
Source: Adapted from Customer.com by Patricia Seybold, 1998

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Foster Customer Loyalty
• The key to profitability in EC
• Achieving higher revenues via customer acquisition and
customer retention
– Acquisition costs
– Base profit
– Revenue growth
– Cost savings
– Referrals
– Price premium
• Benefits:
– No-cost acquisition
– Experienced customer
• Strategies
– Increase customer "inventory"
– Increase customer "tenure"

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

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Target the Right Customers
• Know who your customers and prospects are
• Find out which customers are profitable
• Decide which customers you want to attract (or
keep from losing)
• Decide which customers influence key
purchases
• Find out which customers generate referrals
• Don't confuse customers, partners, and
stakeholders

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Own the Customer's Total Experience
• Deliver a consist and branded experience
• Focus on saving customer time and irritation
• Offer a peace of mind
• Work with partner to deliver consistent service
and quality
• Respect the customer individuality
• Give customers control over their experience

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Streamline Business Processes That Impacts the Customers
• Start identify the end customer
• Streamline the process from the end
customer's point of view
• Streamline the process from the end
customer's point of view
• Streamline the process for key stakeholders
• Continuously improve the process based on
customer feedback
• Give everyone involved a clear view of the
process

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Customer Information
• Processes:
– Marketing
– Pre-sales
– Sales
– Post sales support
– Delivery
– Field service
– Quality control
– Billing
– Product development & production
• Media
– Web
– Kiosh
– E-mail
– Phone
– Mail
– Fax
– Hand-held

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Virtual Communities
Virtual
Community
Users
• Money
• Content
• Demographics
Providers
• Content
• Hard goods
• Games
• Services
Other
Websites
Advertisers
• Advertising

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Consumers' Needs for Community
• Communities of transaction: Facilitate the buying and selling of
products and services and deliver information related to those
transactions.
– Bring in a critical mass of sellers and buyers to facilitate certain
types of transactions.
– Virtual Vineyards
• Communities of Interest: Bring together participants who interact
extensively with one another on specific topics.
– Higher degree of interpersonal communication.
– GardenWeb: www.gardenweb.com
– Motley Fool created by David and Tom Gardners on AOL
– Parents Place: www.parentsplace.com
• Communities of Fantasy
– Chat rooms: Red Dragon Inn
– Virtual Team competition at ESPNet: espnet.sportszone.com
• Communities of Relationship: People come together around
certain life experiences that are very intense and can lead to the
formation of deep personal connections.
– Cancer Forum on CompuServe

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www.parentsoup.com

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

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The Well: www.well.com

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

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

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

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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.

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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

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

EC(I) - 66
The Revenue Mix: Examples
• Finding new customers
– Onsale.com sales at costs
– Buy.com creates advertising as a revenue stream
• Offering new value
– eBay buyers see auction as a new form of entertainment
– At eBay there are some specialized sellers for them selling on
eBay has become an official part-time job
• Building new pricing structures
– eBay
» If you want to bid or browse at eBay, it's free. You don't pay a penny
in fees.
» If you're a seller, you'll be charged:
• An insertion fee. This fee is usually between 25 cents and $2.00, depending on your
opening bid.
• A Final Value (final sale price) fee at the end of your auction. This fee generally
ranges from 1.25% to 5% of your final sale price.
– Compare eBay with classified ad

EC(I) - 67
The Revenue Mix
Why is it difficult for the traditional companies to change?
• Finding new customers
– "The rearview mirror trap". Existing customers reflect an industry's past
more than its future. A traditional company in the market leader position
makes it hard to see new customers coming.
– "Investor want to talk to their broker on the phone!"
– It delayed a deployment of online trading of a major brokerage house by
more than two years.
• Offering new value
– Traditional companies have difficulty understanding new value.
– One baby bell executive think Yahoo is just another damn yellow pages.
"People want to find local businesses!"
• Building new pricing structures
– Equity investors hold traditional players to a higher profit standard than
they do to the dotcoms.
– In the US, venture funds and individual investors can bankroll tears of big
losses of dotcoms in a bid to win market share from traditional
companies.

EC(I) - 68
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

EC(I) - 69
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

EC(I) - 70
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

EC(I) - 71
EC Development Process
• Competitive and capability analysis
• Knowledge building and market evaluation
• EC Business model design and feature
identification
• EC technical architecture design
• Application development and deployment
• Continuous performance evaluation and
innovation

EC(I) - 72
Opening Online Business
• Identify a need and a niche
• Determine what you have to offer
• Set your business goals
• Design your EC architecture
• Assemble your EC teams
• Build your web site
• Set up a system to handle sales
• Provide customer services
• Advertise your online business (online and
offline)
• Evaluate your performance and moving on

EC(I) - 73
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

EC(I) - 74
Selling Points of Virtual Stores
• "The Internet is going to become a channel of
distribution." -- The president of a major U.S.
advertising agency
• Another firm advertise its virtual store as "The
parking is easy, there are no checkout lines, we
are open 24 hours a day, and we deliver right to
your door."
• The trend toward point-of-sale moving into the
home is accelerating.

EC(I) - 75
Benefits to the Merchants
• Increased sales of existing products to
generate additional revenues
• Use the web to target their offers to a niche
market
• "The store is always open!"
• Establish better relationships with customers.
• Low cost information distribution
• Increased speed to market
• Expanded delivery channels
• Global exposure and reach

EC(I) - 76
Benefits to the Consumers
• Convenience
• Informative
• Value presented upfront: Demo and free
download
• No long wait times
• Easy flow and navigation
• Search capabilities
• Engaging presentation
• Constant updates
• Easy to buy

EC(I) - 77
Five Strategies for .com-ming Your Business
1. Check Your DNA
– Is the Net part of who you are as an enterprise? Or is
it something foreign to you?
– Are you ready to embrace the Net economy?
– Do you have people on your team who have
experience in this area? People who get it? More
important, do you have people on your team who are
passionate about the Net? Or are they expecting
business as usual? Do you have the right people on
the right projects?
– Think about connections outside your enterprise-are
you working with customers, partners and suppliers
to help you retool your business. Are you learning
from them and are they learning from you? Are you
identifying key areas where you can make your
interactions more productive and successful?

EC(I) - 78
2. Think Portal
– Think in terms of "portal". It's not about the site per se, it's
about the community you create.
– It's about building and maintaining services that build
customer and partner loyalty and make your employees more
efficient in providing service to your customers and partners.
– Examples: automobiles/enthusiasts, airlines/travel agents,
insurance/health care, agricultural/food and nutrition.
– Find and create that home on the Web, and leverage it for
competitive advantage.
3. Think Services
– It's not enough anymore just to put information on a Web site.
– Today you need to be offering services. What those services
are will be up to you, but that's where users are finding value in
the Net Economy.
– Examples: Insurance, auto buying, auctioning, customer
support, supply chain management, etc.
– Services equal customer loyalty and retention.

EC(I) - 79
4. Think Anywhere, Anytime
– Once you've developed those services --which ideally will grow out
of your enterprise's core competencies -- you need to deliver them
ubiquitously.
– If they're only available on PCs, you're going to severely limit their
utility -- and your enterprise's growth and profits.
5. E-commerce is Not the Future. It is now!
– The marketplace is moving now. Your competition is moving now.
– E-commerce is not about the future; it's about today. Start doing e-
commerce.
– If you haven't prepared for holiday season 2000 for consumers,
partners, and suppliers, you're already behind.
– Convert your communication, supply chain and customer
relationship channels to the Web. Many companies have had
difficulty with this due to existing relationship conflict, but the
reality is that you have to do it.
– Identify one area of high leverage and start there, time is your
enemy so get moving today.
– The Web is proving to be more reliable, lower cost, and user-
friendly. Use it to its full potential.

EC(I) - 80
What To Do Now
1. Define your eBusiness strategy FAST
2. Assess readiness:
– customers
– products/services
– organization
– technology
– infrastructure
Rapid
innovation

EC(I) - 81
What To Do Now
3. Identify the target:
– Business objectives
– Customer segment
– Application area
4. Build it in less than 6 months
-- Flexibility
-- Scalability
-- extendibility
5. Keep extending the function -- new products and
services, new customer interfaces, enhance
performance, security and capability
6. START NOW !
You are never done!

EC(I) - 82
Four Strategies to Start Online Business
• Integration
• Subsidiary
• Partnership
• Buyout
Cost
Low
High
Time
to
Market
Slow
Fast
Risk
Low
High

EC(I) - 83
Brick and Mortar

EC(I) - 84
Soruce: Harvard Business Review, Get the Right Mixes of Bricks and Clicks, May-June 2000

EC(I) - 85
In-House vs. Spin-off

EC(I) - 86
The Four Stages of E-volution
Source: Strategy + Business, From Clicks to Bricks, 3q, 2000.

EC(I) - 87

EC(I) - 88
Becoming Virtual
• Egghead to Egghead.com
• Computer Literacy to Fatbrain.com
• Romac International to KForce.com
Kinder Toys is Moving to
www.toydomain.com
(Find us on the web after June 1st)

EC(I) - 89
Your 3 Biggest Problems/Opportunities
• What should our strategy
be?
• How do we build it in 3 to 6
months?
• How do we stay on the edge
of innovation for life?

EC(I) - 90
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

EC(I) - 91
GE's Destroy Your Business Approach
• Each business unit
– Use cross-functional team
– Benchmark competitors'
» Business operations
» Products / Services
» The economics of ordering online, sales force,
and call centers
– DYB - Destruction Your Business: Present a
hypothetical internet-based business plan
that a competitor could use to erode your
customer base.

EC(I) - 92
GYB: Grow Your Business Approach
• How the business unit should change their
existing business model in response to the
threats.
• Find fresh ways to reach new customers and
better serve existing ones.
• Best practices:
– Focus: Your e-business application should focus
on how your customers can grow their business,
streamline processes or reduce costs.
– Speed matters: Mare sure what you are offering
customers via the web, whether they are B2C or
B2B, is faster, cheaper and better than any other
delivery mechanism.
– Value: New internet services should enhance value
for existing customers rather than simply reaching
new ones.

EC(I) - 93
E-Business Creation Process
E-Vision
Business
Drivers
Technology
Drivers
E-Business
Strategy
Rapid
Implementation
• 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
Source: Digital Transformation, 2000

EC(I) - 94
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

EC(I) - 95
EC Business Models
• B2C Virtual stores: physical and digital goods
and services
• Infomediaries: Seller-side
• Informediaries: Buyer-side
• Infomediaries: B2B marketspace

EC(I) - 96
Types of Virtual Stores
• Hard goods:
– Food
– Clothes
– Computer hardware and Electronics
– Packaged software
• Soft goods (Bits delivered on-line)
– Information
» Database
» Publishing
» Research
– Software
» Computer games
» Java applets
» Application software
• Services
– Selling time:
» Computer game play
» Consulting
» Legal and medical services
– Selling information (subscriptions)
» Dating services
» Legal and medical advice
– Reservations and tickets
» Airline tickets
» Event tickets
» Hotel and restaurant

EC(I) - 97
Is EC Appropriate for You?
Industries who set up
virtual storefronts

EC(I) - 98
What Consumers Are Buying Online
• Computer-related products 49%
• Books 35%
• Consumer electronics 34%
• Travel Reservations 28%
• Cars, boats 19%
• Clothing and apparel 18%
• Recorded music, CDs 18%
• Larger household goods (furniture, major appliances) 15%
• Filmed entertainment, videos 13%
• Gifts delivered by mail (flowers, candy) 12%
• Publication subscriptions 8%
• Investment or financial services 8%
• Food and drink 8%
• Artwork, poster, etc 4%
• Other 13%
» Source: Ernst & Young Internet Shopping Study 1998

EC(I) - 99
Why?
• The most affected industries:
– Books
– Stock trading
– PCs
– Automobiles
– Travel
• The least affected industries
– Food
– Consumer durable goods
– Clothing
– Local services
– Banking and insurance
Enterprise.com, 1998

EC(I) - 100
Three Business Models
• Payment direction:
– Buy-side
– Sell-side
– Marketplace: Business is being transacted with both suppliers
and customers.
• Trading parties: Most analysts predict the B2B model
will have a more rapid adoption rate, but that the
volume of transactions in the B2C model will, in the
long run, greatly surpass that of B2B.
– Business to Business
– Business to Consumer
• Type of product or service that is being provided.
– Physical goods and services
– Digital goods (contents)
– Digital services

EC(I) - 101
Sell-Side E-Commerce Model
Selling
Merchant
Buyer A
Buyer C
Buyer B
EDI
HTML & Forms
HTML & XML
OBI
Online
Selling

EC(I) - 102
Sell-Side Storefront
• Primary model used in current business-to-
consumer scenarios
• Single seller, typically a distributor, constructs
a Web storefront to sell to many consumers (i.e.
Amazon.com)
• Unless a single distributor can aggregate all the
suppliers in a given industry, the buyer remains
responsible for comparison shopping between
stores
• Expensive for buyer; does not meet the needs
of corporate procurement organizations.

EC(I) - 103
Buy-Side E-Commerce Model
Buyer
Seller A
Seller C
Seller B
EDI
HTML & Forms
HTML & XML
OBI
Online
Procurement

EC(I) - 104
Buy-Side eProcurement
• Buy-side applications generally consisting of a
browser-based self-service front end to ERP and legacy
purchasing systems
• Corporate procurement aggregates many supplier
catalogs into a single “universal” catalog and allows
end-user requisitioning from the desktop, facilitating
standard procurement for the organization and cutting
down on “maverick” purchasing
• Purchases made through this system are linked to the
back-office ERP or accounting system, cutting time and
expense from the transaction and avoiding potential
bookkeeping errors
• Model yields reduced transaction costs but not lower
purchase costs; no impact on size of supplier base, no
enablement of dynamic trade; buying organizations
must set-up and maintain catalogs for each of their
suppliers; too costly and technically demanding for
most medium and small-sized businesses.

EC(I) - 105
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
• eBay.com
• Pricelines.com
• Egghead.com
• Amazom.com Auction
• www.chemdex.com
Infomediacy (Content Aggregator)

EC(I) - 106
• 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-Consumer Business-to-Business
Business-to-Business vs. Business-to-Consumer

EC(I) - 107
B2B Marketplace
• Latest evolution of B2B eCommerce, enabling a
many-to-many relationship between buyers and
suppliers
• Buyers and suppliers leverage economies of
scale in their trading relationships and access a
more “liquid” marketplace
• Sellers find buyers for their goods, buyers find
suppliers with goods to sell
• Many-to-many liquidity allows the use of
dynamic pricing models such as auctions and
exchanges, further improving the economic
efficiency of the market.
• Web Site: http://www.netmarketmakers.com/

EC(I) - 108
Direct-to-Customer (D-to-C)
• Large, global, e-energized corporations (e.g.,
Fortune 1000) begin to squeeze intermediary
companies.
• Stop & Shop [a large supermarket chain] is
launch its own delivery service and is expected
to end its partnership with Peapod [a dotcom
delivery service]. -- The Boston Globe, April 2000
• June 20, 2000. Peapod announced online shopping and
delivery services in Connecticut through grocery chain
Stop & Shop. Stop & Shop is owned by Royal Ahold,
which recently took a 51 percent interest in struggling
Peapod.
B-to-C B-to-B D-to-C

EC(I) - 109
Channel Conflicts
• Channel conflicts arise when a new venue for selling products - such as
the Web for selling goods or services - threatens to cannibalize one or
more existing conduits for selling goods within the same organization,
such as a retailer or a manufacturer.
• The company's internal e-commerce team had already
recommended direct Web sales as a way to better
manage its supply chain and interact more directly with
customers… But when the team presented its proposals
to the company's CEO, his response was terse: "We've
done business with our distributors for 30 years, and I
certainly don't want to sell around them. I don't even
want to discuss it."
- ComputerWorld.com Quick Study

EC(I) - 110
Case in Point
• For example, about a year ago (1999), General
Motors Corp. in Detroit attempted to buy back
some car-dealer franchises as a possible step
toward selling directly over the Web. Dealers
protested so adamantly that both GM and Ford
Motor Co. in Dearborn, Mich., spent a lot of time
at a recent industry convention reassuring
dealers that the automakers wouldn't sell
directly to consumers. And in a recent survey
by Cambridge, Mass.-based Forrester Research
Inc. of 50 consumer-goods manufacturers, 66%
cited channel conflict as the No. 1 obstacle to
selling online.

EC(I) - 111
Channel Conflict: How About the Distributors
• The concept of complete disintermediation - the
elimination of the middleman - remains a
theory. New intermediaries are emerging.
• Cisco System has 2 billion dollars annual sales
on the Web.
• 70% of Cisco online business comes from
VARs and distributors.
• Distributors have to do lot of value-add and
customer support to survive.
• Fruit of Loom Inc. has 31 of its 55 distributors
up on its extranet called Activewear Online.

EC(I) - 112
Retailers and Manufacturers Co-exist on the Web
• US retail sales revenues 1998:
– Brick-and-mortar stores 93%
– Catalog sales: 6%
– E-commerce 1%
• Cases:
– Levi Strauss sells jeans at www.levis.com but won't allow retailers
to sell them online.
– Estee Lauder sells Clinique cosmetics at www.clinque.com but
doesn't offer retail promotion.
– Waterford sells a limited selection at www.waterford.com like
chandeliers and corporate gifts.
• Strategies:
– Manufacturers want to maintain channels while stay in direct touch
with their customers.
– Provide online dealer locators.
– Share customers information back and forth.

EC(I) - 113
Extended E-conomy Business Models
• E-buisness storefront
• Informediary
– Seller broker
– Buyer broker
– Transaction broker / Exchange
– COINs
– Portals
• Trust intermediary
• E-business enabler
• Infrastructure providers / Communities of
commerce
Source: Net Ready, 2000

EC(I) - 114
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

EC(I) - 115
Clicks-and-Mortar
• Clicks-and-mortar has become the new buzzword in
retailing circles.
• It means having an integrated, multi-touchpoint strategy
that takes advantage of your physical retail outlets and
integrates them seamlessly into your Web strategy.
• A good clicks-and-mortar strategy uses the Web to
drive traffic to your stores and uses your stores to drive
traffic to the Web.
YourSherpa.com
Brick-and-Click

EC(I) - 116
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

EC(I) - 117
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

EC(I) - 118
Creating Sustainable Value in EC
• Develop a brand based on consumer experiences
– The brand emerges as the two-way communication on
the net and off the net.
• Develop superior physical distribution
– Physical distribution is a choke point in EC
• Leverage customer information
– Use personal information to more convenience
shopping and customized services
» Privacy issue
» Ask customer explicitly for such data
» Require a more subtle approach
– Use collective data
» Use it to adjust pricing, product offering, and target market

EC(I) - 119
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

EC(I) - 120
Business Models Based on the Value Chain in the Market Place
Raw
material
producer
Manufacturer
Distributor
Retailer
Consumer
Exchange
Examples:
• B2B: Vericalnet.com
• B2C: Amazon.com
• C2B: Priceline.com
• C2C: eBay.com
C2B
B2C
B2C C2C
New
Middleman
• Independent
market
operators
• Consortia
Service Providers:
• Logistics
• Financial

EC(I) - 121
Business Models from a Strategic Viewpoint
• "In the new economy, the unit of analysis for
innovation is not a product or a technology-it's
a business concept. ….To be an industry
revolutionary, you must develop an instinctive
capacity to think about business models in
their entirety."
• Hamel's business concept that comprises four
major components and several
subcomponents:
– Core strategies
– Strategic resources
– Customer interfaces
– Value networks
Source: Leading the Revolution by Gary Hamel

EC(I) - 122
Business Concepts (I)
• Core Strategy: It is the essence of how the firm chooses to compete.
– Business Mission: This captures the overall 'objective' of the strategy-
what the business model is designed to accomplish or deliver.
– Product / Market Scope: This captures the essence of 'where' the firm
competes-which customers, which geographies, and what product
segments-and where, by implication, it doesn't compete.
– Basis for Differentiation: This captures the essence of 'how' the firm
competes and, in particular, how it competes 'differently' than its
competitors.
• Strategic Resources: These are unique firm-specific resources.
– Core Competencies: This is what the firm 'knows.' (skills and unique
capabilities)
– Strategic Assets: They are what the firm owns such as brands, patents,
infrastructure, proprietary standards, customer data, and anything else
that is both rare and valuable.
– Core Processes: This is what people in the firm actually 'do.' (activities)

EC(I) - 123
Business Concepts (II)
• Customer Interface
– Fulfillment and Support: This refers to the way the firm 'goes to
market,' how it actually 'reaches' customers-which channels it uses,
what kind of customer support it offers, and what level of service it
provides.
– Information and Insight: This refers to all the knowledge that is
collected from and utilized on behalf of customers.
– Relationship Dynamics: This refers to the nature of the 'interaction'
between the producer and the customer.
– Pricing Structure: This refers to the price choices depending on the
traditions of your industry.
• Value Network: It surrounds the firm, and which complements and
amplifies the firm's own resources.
– Suppliers
– Partners
– Coalitions

EC(I) - 124
Bridge Components
• These four major components are linked
together by three 'bridge' components:
– Configuration: Intermediating between a company's
core strategy and its strategic resources is first
bridge component.
– Customer Benefits: Intermediating between the core
strategy and the customer interface is second
bridge component.
– Company Boundaries: Intermediating between a
company's strategic resources and its value
network is third bridge component.

EC(I) - 125
Market Structure on the Internet
Number
of
companies
Size of company
Many smaller
players with high
rate of entry
Few large and
dominate companies
Transition

EC(I) - 126
Three Top Three Concerns
• Retailers
– Conflict with investment in physical stores;
– Technology issues; and
– Lack of distribution and fulfillment network.
• Manufacturers
– Products not appropriate for online sales;
– Potential risk to channel relationships; and
– Consumers won’t buy online
– Many manufacturers simply weren't capable
of shipping a single box of Tide or a bottle
of Advil. They had no experience in dealing
directly with consumers.

EC(I) - 127
Dynamic Trade: Perfect Market
• Customer service is more important than
product selling
– Federal Express: Certainty
• Real-time demand drives production
– Dell: Build-To-Order
• Pricing matches market conditions
– Name your price (reversed auction): PriceLine.com
– Auction: Ebay
Leveraging technology to satisfy
current customer demand and
with customized response.

EC(I) - 128
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
• Customer relationships
– Standard vs. Targeted and Customized
• Strategic asset
– Location vs. Visibility and Customer Database

EC(I) - 129
Dynamic Trade Self-Test
Rate each of the following criteria in your market.
(3=high, 2=medium, 1=low)
 Commodity market
 Perishability of inventory
 Capital intensity
 Configurability of products
 Customers' perceived investment level
 Threat from new kinds of competition
 Channel volatility
TOTAL: _____________

EC(I) - 130
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.
Click
and
Mortar
Pure Play

EC(I) - 131
Internet Companies?
"Within five years, ALL
companies will be
Internet companies."
-- Andy Grove,
Intel Chairman

EC(I) - 132
Web Experiences for Consumers
• A many-to-many rather a one-to-many
experience
• Fresh content
• Access to detail information
• Communities unbounded by space and time
• The multimedia appeal of TV
• A redefinition of privacy and identity
• Hyper-impulsivity: The web permits a closer
conjunction of desire, transaction, and payment
than any other environment.

EC(I) - 133
All 3 Steps in One Medium
Get Attention Give More Information/
Answer Questions
Information The Sale
• TV Ads
•Magazines
• Brochures
• Sales People
• Print/editorial
• Store
• Telephone
• Catalogue
Transact/
Service
Branding

EC(I) - 134
• Most Visited Retailers:
1. Bluemountainarts.com
2. Amazon.com
3. AOL.com
4. Ebay.com
5. Etoys.com
6. Barnesandnoble.com
7. CNet.com (software)
8. Egghead.com
9. CDNow.com
10. Musicblvd.com
11. ColumbiaHouse.com
12. Classifieds2000.com
13. Beyond.com
14. Coolsavings.com
15. Valupage.com
Not in Top 25:
• Towerrecords.com
• Borders.com
• Toysrus.com
• Target.com
• Gap.com
• Macys.com
• Sears.com
• Walmart.com
• “BigCompany.com”
•
•
• YourCompany.com??
New Competition From Surprising Places

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What is your new industry structure?
• Powerful new intermediaries
– travelocity.com; travel.yahoo.com; expedia.msn.com;
golfclubexchange.com, eBay.com, priceline.com
• Increasing commoditization
– Your competitors are just a mouse click away
– Camparison shopping: singleshop.com,
mySimon.com
• New competition from surprising places
– realguide.real.com; headline.yahoo.com; www.nytimes.com
• Be aware of new industry forces
– amazon.com; yahoo.com; msn.com; etrade.com;
priceline.com; etoy.com; aol.com

EC(I) - 136
What are the new economics?
• Different revenue models
–wsj.com; match.com; yahoo.com;
monster.com
• Different cost models
–buy.com; dell.com
• Different use of assets
–Amazon.com

EC(I) - 137
What's the best E-business model for your company?
• An online subsidiary
– Barnesandnorbles.com by Barnes and Nobles to
compete with amazon.com
– Toysrus.com by Toys "R" Us Inc. to compete with eToys
Inc.
– MagazineOutlet.com by NewSub Services Inc.
• Partnering with an online company
– PetSmart Inc., invested $16 million in PetJungle.com to
create PetSmart.com
– a virtual company and a big-box retailer teaming up to
attack a category
• Converting to an online-only company
– Egghead.com, Homebid.com
• Integrating E-business throughout the company
– Prudential California Realty

EC(I) - 138
EC: Case Studies
• B2B: verticalnet.com
• Auction: eBay
• Subscription web sites: monster.com
• e-tailing: 1800flowers.com
• Financial investment sites: E*Trade
• Other interesting web sites

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www.verticalnet.com

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Company Background and Capabilities
• Own and operate 55 industry-specific Web sites designed as online
B2B communities, known as vertical trade communities.
• These vertical trade communities provide users with comprehensive
sources of
– Information (Content): from newswire and editorial services
– Interaction (Communities): email, chat rooms, bulletin board
– e-commerce: RFPs, RFQs
• 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.
• Create values:
– Individual advertising ($6,000 - $25,000)
– Hosting sites
– Build and design sites
– Sponsor forums with expert guests
– Negotiate a percentage of transaction at the online marketplace

EC(I) - 141

EC(I) - 142
Auction: eBay.com

EC(I) - 143
Auction: eBay.com

EC(I) - 144
Priceline.com

EC(I) - 145
• 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. "
– Fast Company
• "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."
– Interactive Week

EC(I) - 146
Business Models
• 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.

EC(I) - 147
Problems?!
• 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.''

EC(I) - 148
E-Loan at eloan.com
• IPO: 2 Billion Dollars Market Capitalization

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Insweb.com

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Singleshop.com
Compare this with:
mySimon.com

EC(I) - 151
Matching Games: The Marketplace
• $9,000 subscription fee per year for recruiting firms
• Free for job seekers
Online Dating Service

EC(I) - 152
Internet Shopping Network: http://www.internet.net
• Operating online since April 1994.
• Focus on computer products which fit the demographics pretty well.
• Customer look for a narrow focus in an online store and expect expertise
in that area.

EC(I) - 153
Acquired by Cyberian Outpost
• 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.

EC(I) - 154
Outpost.com

EC(I) - 155
eToys.com

EC(I) - 156
• 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.

EC(I) - 157
CDNow

EC(I) - 158
CDNow Merged with Music Boulevard

EC(I) - 159
E-tailing CSF
• eStrategy
• eMerchandising
• eArchitecture
• eSupplyChain
• eConnections
• eBackOffice
• eProperty
• eCapital

EC(I) - 160
Time Warner's PathFinder: http:://pathfinder.com
• Online Magazines: It was shut down in May 1999

EC(I) - 161
C|NET at cnet.com

EC(I) - 162
espn.go.com
• ESPN Sportszone

EC(I) - 163
www.slate.com
• Check out
– http://interactive.wsj.com/
– http://www.salon.com

EC(I) - 164
Hot Sauce: http://www.hothothot.com
• Specialty virtual store

EC(I) - 165
1-800-FLOWERS: Http://www.1800flowers.com/
• A real world florist with more than 20 years of
experience.
• Went on live in April 1995.
• Also maintain sites in American Online and
CompuServe.
• Online retailing $25 million (10% of company
sales) in 1996.
• Take advantage of proven retail marketing
strategies: discounts, contests, and
sweepstakes, grand opening promotions, etc.

EC(I) - 166
Www.1800flowers.com

EC(I) - 167
Help Customers to Select
Help customer to
remember:
• Reminder services
• Lifeminder.com
• Personalized shopping
lists at Staples.com
See also:
Gifts.com

EC(I) - 168
Grocery Shopping: http://www.peapod.com/
Homegrocer.com
NetGrocer.com
Streamline
WebVan
Priceline.com

EC(I) - 169
Virtual Vineyard: virtualvin.com & wine.com

EC(I) - 170
Landsend.com
• Set up shop at AOL in 1992
• Launch a web site in 1995
• 1% of sales in 1997
• 4.5% of sales in 1998
• Printing and mailing it 250 million catalogs each year counts for
43% of its operating cost.
• 10% of all Internet apparel sales in 1998

EC(I) - 171
Interactive Application on the Net
• Go to www.lendsend.com
• Choose Oxford Express Link
Check out http://www.idreamsoftware.com/products/jio/appareldemo.htm

EC(I) - 172
My Virtual Model
• 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.

EC(I) - 173
Online Stock Brokerage Firm: E*Trade
• Www.etrade.com
• Received a $400 million investment from Softbank.

EC(I) - 174
Portfolio

EC(I) - 175
Trading

EC(I) - 176
Analysis

EC(I) - 177
E*Trade Investment Tools
• 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.

EC(I) - 178
E*Trade Commission: A Comparison
Online competitor

EC(I) - 179
Updates
• E*TRADE added 233,000 new active accounts
during first quarter 1999, an increase of 77%
over the previous quarter.
• In its second fiscal quarter, customer trades
rose 63 percent in three months to
approximately 70,000 per day.
• They ended the quarter with 909,000 accounts
and customer assets of $21.1 billion
– (Source: San Jose Mercury News, 4/21/99).
• A day trader killed 9 people at Atlanta.
– July 28, 1999.

EC(I) - 180
E*TRADE Acquires Telebanc for $1.8 Billion
• 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.
June 01, 1999

EC(I) - 181

EC(I) - 182
Internet Stock Is Also Driving The Change
0
5
10
15
20
25
30
35
40
45
50
Mar-96
Jun-96
Sep-96
Dec-96
Mar-97
Jun-97
Sep-97
Dec-97
Mar-98
Jun-98
Sep-98
Dec-98
Mar-99
Charles Schwab
Merrill Lynch
Market Capitalization ($ Billions)
As of 4/16/99
Schwab: $46.6 B
Merrill: $31.0 B

EC(I) - 183
Merrill Lynch & CO.
• 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.

EC(I) - 184
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.

EC(I) - 185
Motley Fool: www.fool.com
• Competitor: Quote.yahoo.com, Street.com, Cbs.Marketwatch.com,
Stock247.com

EC(I) - 186
http://www.ananova.com/
• The world's first virtual anchor woman.
• http://www.sonicnet.com/
– Create your own radio station

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