Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network Economics
Download ReportTranscript Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network Economics
Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network Economics Fall 2011 for MIS 310 Minder Chen, Ph.D. Associate Professor of Management Information Systems E-Mail: [email protected] Web site: http://faculty.csuci.edu/minder.chen/ Electronic Commerce: Introduction E-Business E-Commerce Commerce Internet Commerce © Minder Chen, 1996-2011 EC - 2 Travelocity Microsoft expedia Priceline.com • Priceline (PCLN) was recognized in 2010 for being the single best-performing stock in the S&P 500 over the past five years. • Reverse auction, customer-driven e-commerce • Perishable goods/services • Orbitz.com • Kayak.com • Hotwire.com © Minder Chen, 1996-2011 EC - 4 The Low-Friction Market "[The Internet] will carry us into a new world of low friction, lowoverhead 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. © Minder Chen, 1996-2011 EC - 5 EC Business Opportunities Innovative Ideas, Business models, and Business strategies Funding Business and technical talents Technological enablers New business models and ideas are driving EC initiatives. Internet technologies are enablers. © Minder Chen, 1996-2011 EC - 6 EC and Business Processes Customer Seller Selling Process Send info Phone, fax, e-mail Request info Procurement Process Provide Info Identify need Corporate Databases Data sheets, catalogs, demos Get customer Web surfing Web searches, web ads Web site Find source Newsgroups Provide info Demos, reviews Fulfill order Evaluate offerings Net communities Web site P.O.s Credit cards, e-cash EDI Deliver soft goods electronically Support © Minder Chen, 1996-2011 Purchase Web site, phone, fax, e-mail, emailing list Operate, Maintain, Repair EC - 7 The Cycle of Electronic Commerce Access Searches Queries Surfing Customers Online Ads Follow-on Sales Online Orders Standard Orders Distribution Online: soft goods Delivery: hard goods Electronic Customer Support © Minder Chen, 1996-2011 EC - 8 Changes in the Net Economy • Business environment – Local / Physical Global /Virtual Intangible Continuous • Business assets – Tangible • Business change – Periodic • Business production – Mass Production Mass Customization Mass Personalization • Customization is under direct user control: the user explicitly selects between certain options (a "portal" site with headlines from the New York Times or from the Wall St. Journal; enter ticker symbols for the stocks you want to track). • Personalization is driven by the computer which tries to serve up individualized pages to the user based on some form of model of that user's needs. -- http://www.useit.com/alertbox/981004.html © Minder Chen, 1996-2011 EC - 9 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 © Minder Chen, 1996-2011 EC - 10 Value to User Popularity Adds Value in a Network Positive Network Externality Networks • Real: LAN, Internet, Fax • Virtual: Virtual community, Chat room, Instant messenger, Skype, FaceBook Number of Compatible User © Minder Chen, 1996-2011 EC - 11 Externality, PageRank, Traffic, and Ads • Externalities is a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect. • “Attention economy” and “reputation economy” are too fuzzy to measure. But, because of Google (and other search engines), we can now convert from reputation (PageRank) to attention (traffic) to money (ads). Adapted from: [PDF]why $o.oois the future of business (free) Chris Anderson © Minder Chen, 1996-2011 EC - 12 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 ... Gilder's Law $250 Cost of a 3-minute Long Distance Call $0 1930 Year © Minder Chen, 1996-2011 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 1999 EC - 13 [PDF]why $o.oois the future of business (free) Chris Anderson [PDF]FREE: The Future of Radical Price © Minder Chen, 1996-2011 EC - 14 Moving Your Business Online • Companies are motivated by either fear or greed to move to their businesses to the net. • To .com your company is becoming an imperative. • They have to obsolete their current business models and work very hard to search a new business model. • Be aware of internet tax law and interstate/international commerce laws. – http://en.wikipedia.org/wiki/Internet_taxes Your competitor is just one-click away © Minder Chen, 1996-2011 EC - 15 Business Models Based on the Value Chain in the Market Place Raw material producer Exchange • Independent market operators • Consortia Manufacturer Distributor C2B New Middleman Retailer B2C Examples: • B2B: alibaba.com • B2C: Amazon.com • C2B: Priceline.com • C2C: eBay.com, craiglist.com © Minder Chen, 1996-2011 Service Providers: • Logistics • Financial Consumer B2C EC - 16 C2C Business-to-Business vs. Business-to-Consumer Business-to-Consumer • • • • • • • No vendor loyally No switching costs Time-insensitive Short-term Casual Many vendors Products differentiated on price, image © Minder Chen, 1996-2011 < Business-to-Business • • • • • • • Relationship-based Very high switching costs Extremely time-sensitive Long-term Mission-critical Few partners Partners differentiated on reliability, flexibility EC - 17 Buyer • Brick-and-mortar – Face-to-Face • Mail order – Mail – Printed catalog • Phone order – Telex – Phone – Fax Click and Mortar Business Channel: Multi-Channel Presence Seller • Electronic commerce • EDI • Email Pure Play • Web Multi-channel plays will have extraordinary power if companies elegantly blend and synchronize those channels. © Minder Chen, 1996-2011 EC - 18 Web Metrics • Hit – any Web server request that generates a log file entry. A page has many elements (html, gifs), each generating a hit. • Page – Web server file that is sent to client user agent, usually a browser. • Session – all actions (i.e. requests, resets) made in single visit, from entry until logout or time out (e.g., 20 minutes of no activity). • Visitor – a user or bot/spider/crawler that makes requests at a site. Can be new, returning, registered, anonymous. • Buyer – visitor that purchases something • Customer – a visitor that registers (sometimes defined as buyer) • Conversion – rate at which visitors transition to desired state (buyers, customers, registered, started checkout) • Host – remote machine, identified by IP address, used for visit. • Referrers – Page that provides a link to another page. Can be internal or external • Web logs, Google Analytics, and Alexa © Minder Chen, 1996-2011 EC - 19 • Hit/page hit/ Referrers/ Host (location), domain, IP address/ © Minder Chen, 1996-2011 EC - 20 Product Variety Comparison for Internet and Brick-and-Mortar Channels The unlimited “shelf space” of the Internet. Free:The Future of a Radical Price, Chris Anderson Product Category Large Online Retailer Typical Large Brick-and-Mortar Store Books CDs DVDs 3,000,000 250,000 18,000 40,000 – 100,000 5,000 – 15,000 500 – 1,500 Digital Cameras 213 36 Portable MP3 players Flatbed Scanners 128 16 171 13 http://www.heinz.cmu.edu/~mds/smr.pdf © Minder Chen, 1996-2011 EC - 21 Pure Players vs. Physical Retailers http://www.wired.com/wired/images.html?issue=12.10&topic=tail&img=1 http://www.wired.com/wired/archive/12.10/tail_pr.html © Minder Chen, 1996-2011 EC - 22 © Minder Chen, 1996-2011 EC - 23 Mass Customization: http://www.zazzle.com/ – The unfulfilled need of a user again was the mother of invention: The two brothers, Bobby and Jeff Beaver, wanted to create a cool t-shirt to advertise a party at their fraternity (in order to "draw in plenty of nice girls"). They realized how difficult it was at that time to get high-quality custom t-shirts without having to order larger quantities at a promotions company or to rely on the low quality of heat-transfer at the local copy store. – unique digital custom printing technologies – Zazzle is not a technology company – it is a "market maker". – "Niching the niche“ - a mass customization ecosystem http://mass-customization.blogs.com/mass_customization_open_i/sneaker/ © Minder Chen, 1996-2011 EC - 24 EC Strategies: 4 Cs Customers Commerce Content Community © Minder Chen, 1996-2011 EC - 25 Customers • Obsess over your customers • Remember that the Web is an infant – What do you have to offer that the physical world cannot in order to attract customers? • If you make one customer unhappy, he won't tell five friends -- he'll tell 5,000 on newsgroups, list servers, and so on. – "Word of mouth" (WOM) factor gets amplified on the Net • The shifts of balance of power away from business and toward customer. - Jeff Bezos © Minder Chen, 1996-2011 EC - 26 Self Assessment: Customer Caring What do your customers need? What requests do they make of you? How do you respond to customer’s requests? What kind of information can they get from you? What process do they go through? How do you produce and distribute it to them? What are the steps that your customers have to take to complete a purchase transactions? How do they get shipment status? How are exceptions handled? What do you need from customer? What do you know about customer preferences? What information could you use to better target your product and service offerings? What to build relationships? How can you engage customers in an ongoing dialog? How can you continue to provide information, products, and services to reinforce your ongoing relationships? © Minder Chen, 1996-2011 EC - 27 Is EC Appropriate for You? Industries who set up virtual storefronts © Minder Chen, 1996-2011 EC - 28 Low Customer Need for Product Information High Compassion about the product (SMM) Technology-Fit: Customer and Product Second Wave Earlier Adopter Jenny Craig Chrysler AA FedExp Microsoft Web Laggards Second Wave Tide Denny's Nike Pepsi Customer Demographics Match Poor High Source: Forrester Research © Minder Chen, 1996-2011 EC - 29 Virtual Communities • Money • Content • Demographics • • • • Virtual Community Content Hard goods Games Services Providers Users • Advertising Advertisers © Minder Chen, 1996-2011 Other Websites EC - 30 www.parentsoup.com http://parenting.ivillage.com/ -- Community Web Site © Minder Chen, 1996-2011 EC - 31 Groupon Business Model © Minder Chen, 1996-2011 EC - 32 Group Buying Sites Site Name Number Rewards for Sharing of Cities With Friends Groupon.com 42 LivingSocial.c 13 om Tippr.com 1 Woot.com online Gilt.com online Ideeli.com online $10 for you if new invitee joins and buys a deal Free deal if 3 friends buy it; $5 to invitees who sign up; $5 to you if they buy a deal Deal gets better as more people buy it None $25 for each invitee who buys $25 for each invitee who buys Type of Deals iPhone App Hip city locales Yes and activities Hip city locales Yes and activities Hip city locales No and activities Technology Yes gadgets High fashion Yes High fashion No Source: http://online.wsj.com/article/SB10001424052748704896104575139692395314862.html EC - 33 © Minder Chen, 1996-2011 Revenue Streams • Transaction • Subscription / Listing Fee • Value-added services • Donation and Sponsorship • Advertising – Google AdWords – Google AdSense © Minder Chen, 1996-2011 EC - 34 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 – – Attract Jump Chat and News Subscription Engage Participate • JUMP: Advertising revenue – Other products of interest to customer – Other sites of interest to customer © Minder Chen, 1996-2011 Adapted from Netscape Communications Inc., 1996. EC - 35 Objectives Of An eCommerce Site Advertising Customer service Lead generation Fulfillment Merchandising Payment © Minder Chen, 1996-2011 Order processing EC - 36 EC Site Life Cycle © Minder Chen, 1996-2011 EC - 37 Opening Online Business • Identify a need and a niche • Determine what you have to offer (products/services) • Set your business goals • Design your EC architecture • Assemble your EC teams • Build your web site • Set up a system to handle sales • Provide customer services • Advertise/promote your online business (online and offline) • Evaluate site performance & improve continuously © Minder Chen, 1996-2011 EC - 38 EC Hosting • Yahoo!Small Business – http://smallbusiness.yahoo.com/ecommerce/ • Ebay – http://pages.ebay.com/help/sell/sell-getstarted.html • Amazon Marketplace – http://www.amazon.com/gp/help/customer/display.htm l?nodeId=1161232 • Drupal.org – http://drupal.org/hosting • Wordpress: Open source solution for a web site. – http://wordpress.org/ • Webs.com: Webs’ point-and-click Site Builder requires no technical skills. © Minder Chen, 1996-2011 EC - 39 Web Site Architecture Design: Website Navigation Diagram © Minder Chen, 1996-2011 EC - 40 Site Elements • Home page – – Menu-driven, News-oriented Source: Path-based, Splash screens or image maps Web Style Guide • Graphics and texts • Submenus pages and subsites (alternative home pages for special audiences) • Tables of contents, site indexes, site maps • Product/service/information pages • "What's new" pages • Search features • Contact information – • • • • Street address, phone number, fax numbers, maps, travel directions, parking information User feedback and victual community pages Bibliographies and appendixes FAQ (Frequently Asked Questions) pages Customized server error pages © Minder Chen, 1996-2011 EC - 41 Cross-Selling and Up-Selling Amazon’s Collaborative Filtering/Recommendation system © Minder Chen, 1996-2011 EC - 42 Personalization © Minder Chen, 1996-2011 EC - 43 The Evolution of EC Implementation Extension eCRM eProcurement / SCM eMarketplace / Auction Functionality Process Integration Fulfillment Settlement Workflow Web-based Transaction Product database queries / Search Electronic Payments Fund transfer Real-time organizations Communities of Interests Marketplace creator 1:1 Relationship Customer Interactivity Registration / Forms Email Games / Chat room / eForum Publishing (Brochure-ware) Advertising Marketing Information Maturity © Minder Chen, 1996-2011 EC - 44 Future EC Trends • Broadband internet connection: I.e., ADSL, Cable modem • Streaming media and web-based learning • More interactive virtual community • Customization and personalization • Mini-portal and corporate portal • Affiliate partner • Multiple-channel integration • E-commerce is driving E-business • Affordable EC software and hosting service for smallmedium-size companies • Emerging standards such as XML to enable Business-toBusiness electronic commerce © Minder Chen, 1996-2011 EC - 45 Elevator Pitch Our business [list name] will deliver [list key deliverables] to [list key beneficiaries] to enable them to [list key benefits]. The business is headed by [list founder and key executives, investors, and advisors] that have [list key background and qualifications]. The business [will launch/was launched] on [date] and we [will begin/began] delivering [first product or service] on [date]. We expect to prove our business model and achieve profitable growth on [date] and anticipate that the terminal value of the business will be [list anticipated value], which represents a [list return] to investors. The total cost to achieve this goal will be [total cost], which includes the following key cost categories [list]. We have currently received [list dollars of funding secured to date] from the following sources [list]. We anticipate receiving the remainder of the funding by [date] from [list sources]. The key risks for the project are [list risks]. These risks will be managed by [list key approached to managing each risk]. • Source: Applegate and Saltrick, “Developing an Elevator Pitch for a New Venture.” EC - 46 •© Minder Chen, 1996-2011 Elevator Pitch • Elevator Pitch – What is it? – – In the time it takes to ride an elevator from the 1st to the 10th floor – explain the gist of your business idea to a stranger! An elevator pitch conveys the businesses’ key features and rationale in a clear, concise way so that it can be communicated easily to others • Who is the primary audience? – – Potential investors, customers, suppliers, partners, employees Anyone who has or could have a stake in your business • Why does it matter? – – – – – Communicate – What, why, how, where and when Teaser to generate interest – the upfront hook! Share a coherent vision of the firm’s goals and high level strategy for achieving these goals And, last but not least - Raise $$$! Plus, it might be your only shot! © Minder Chen, 1996-2011 http://nuvc.innuvation.org/Elevator_Pitch_Workshop_v2.ppt EC - 47 Key Issues • Overview of the problem your business will solve and opportunity it will address – – – – – – Why does this problem matter? How severe is it? How big is the opportunity? How fast is it growing? Why has it not been solved yet? Why can you solve it when others could not? • What value is being created? • Who are the primary beneficiaries? – Think about who is capturing the value – Consider that some groups may capture more than others – these represent the ideal first customers © Minder Chen, 1996-2011 EC - 48 Products/Services and Competitors • What are the products and services that you will deliver to solve the problem • How do these products and services meet the unsolved market problem? – Do they immediately solve the entire problem? – Or what is the product and service “path” for getting there? • Who are the competitors and why are your products and services superior? – Focus on direct competitors – Consider segmenting direct competitors by type – Why, where and how does each competitor or type fall short? © Minder Chen, 1996-2011 EC - 49 Revenues and Resources • How do you plan to generate revenues – Short term – Longer term if there is a twist or kicker • Hit the high points of your business model – Profitability – Leverage – As revenues and size increases, do gross and/or operating margins improve? – Scale efficiencies - how do the mechanics and economics of your business model scale • What are the resources required? – Money – Capital intensity? – Time – core development, unique product versions for different customer types, distribution channel build, etc – Team background and expertise – what are the critical competencies of the team? © Minder Chen, 1996-2011 EC - 50 Teaser and Vision • Teaser to pique interest – Punchy, crisp and clearly articulated – Incentivizes stakeholders to care by logically presented the case for how the business benefits them – Delivered with confidence but not cockiness – Should leave them wanting to hear more about the details at a later date • Communicate a common vision and goals – Everyone on the same page, working toward the same goal – Minimize non-productive activities, speeds up time to market © Minder Chen, 1996-2011 EC - 51 Raising Money • Raise $$$ – Distilling the essence of your business idea into a few critical points reflects well on you – Strong elevator pitch results in more favorable assessment of your talents by potential backers » VCs would rather back a Grade A management team with a Grade B product than vice versa – Decisions to proceed forward with due diligence are often made on the basis of the elevator pitch and the accompanying follow up conversation by seasoned VCs © Minder Chen, 1996-2011 EC - 52 How What Who Cash Flow © Minder Chen, 1996-2011 EC - 53 Describe a Business Model: 9 Building Blocks How What Partner CLIENT CLIENT Network SEGMENTS SEGMENTS Key CLIENT Issues To CLIENT Solve SEGMENTS SEGMENTS Who Customer CLIENT CLIENT Relationships SEGMENTS SEGMENTS Customer CLIENT CLIENTS CLIENT Segments SEGMENTS CLIENT Offer CLIENT SEGMENTS SEGMENTS Competencies, CLIENT Activities, CLIENT SEGMENTS SEGMENTS Resources SEGMENTS Distribution CLIENT CLIENT Channels SEGMENTS SEGMENTS Cost CLIENT CLIENT Structure SEGMENTS SEGMENTS Revenue CLIENT CLIENT Streams SEGMENTS SEGMENTS How Much? Source: Describe and Improve your Business Model © Minder Chen, 1996-2011 EC - 54 Reverse Engineering Facebook’s Business Model with Ballpark Figures http://www.businessmodelalchemist.com/ © Minder Chen, 1996-2011 EC - 55 Five Essential Elements Of Business Source: Ram Charan, What the CEO Wants You to Know © Minder Chen, 1996-2011 EC - 56