Transcript Lecture 1: History and Business Models Assignment 2: Turn in profiles

Lecture 1: History and Business Models
Assignment 1: Auction Registration and bidding
Assignment 2: Turn in profiles
Assignment 2: Internet Profile
On an Excel Spreadsheet, provide on separate rows:
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1. DO NOT(!!!!) PROVIDE YOUR NAME ON THE SPREADSHEET
2. Gender: Male/Female
3. Married: Yes / No
4. Children: Yes/ No
5. Currently Full-time employed: Yes/No
A list of 20 Internet sites you visited last month. They must each be on a
separate row. Also, they must be distinct.:
http://www.cnn.com/2002/WORLD/europe/08/19/chechnya.helicopter/index.
html and http://www.cnn.com/2002/US/08/19/mckinsey.report/index.html
would not be counted as separate sites.
Email the spreadsheet to me at [email protected]
WHAT DO WE USE THE INTERNET FOR?
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Email
Chat
Personal web pages
Banking
Look for a job. Post resume.
News, weather and stock quotes
Brokerage services and retirement portfolio
Movie shows and times
Airline tickets, hotel reservations, car rental
Finding information about products. Feature and price comparison.
Buying books and CDs and misc.
Finding information for the class
Finding information to settle disputes
Dictionary and thesaurus
Was the Internet Revolution over-hyped?
WHAT WENT WRONG?
The Gold Rush of E-Commerce. Capital foolishly invested. E.g., Dot-coms are able to raise capital
without having to demonstrate profitability or viability
Lots of new economy startup millionaires and billionaires with no understanding of business models
Common assumption that old business rules are obsolete
Companies jump in, undermining own competitive advantage and industry profitability (airilines,
cars, books, toys, computers)
Companies forfeiting proprietary advantages in misguided relationships and partnerships
Distorted signals:
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subsidized revenues (Amazon, eToys)– When price is artificially low, demand is artificially high
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Some revenues were in terms of stock rather than cash. Much of the $450 million of revenues
Amazon reported one year were from partners in stock (stock shows in revenue but not in cost).
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subsidized inputs in terms of free content from content providers (Yahoo!). Some content
providers paid portals to distribute their contents
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Some suppliers agreed to accept stock in lieu of cash (stock does not appear as cost)
Fuzzy new performance metrics
Price competition becomes more intense as search costs decline
Barriers to entry reduced or eliminated in many instances
What have Internet intensive companies done wrong?
1. Stretch resources.
– R&D
– Acquisitions
– Executive compensation
2. Accounting
– Swaps of products
– Sales for stocks
– Loans for buyers
– Focus on stock price
2. Demand Assessment
3. Products and target segments
4. Defensible position
5. Identification of competitors and substitutes
A Brief History of Internet
1969 - first link UCLA to Stanford Research Institute
1971 - email and use of @ symbol
1972 - remote access of computers -telnet
1973 - multiple person chat sessions
1973 - file transfer protocol
Was meant to be an emergency military communication and sharing of ideas
among academic community - funded by NSF
1994 - NSF withdrew funding - private web browsers and servers - WWW –
hypertext
Possible to mix pictures, sound, and video with simpler text.
Clickable links
Jupiter Communications (2000),
336 billion of B2B in 2000. 6.3
trillion by 2005
Goldman Sachs (2000) projected
4.5 trillion by 2005.
Types of E-Commerce
B2C – Business-to-Consumer
B2B – Business-to-Business
C2C – eBay – Market maker involved
P2P – (Legal) Music sharing
M-Commerce (mobile)--- PDAs, cellphones
Other buzz words:
Brick and Mortar
Click and Mortar
Internet Advertising
Consumer Advertising By Dot-Com Brands
(Percent change over previous year)
TNS Media Intelligence/CMR
reported that advertisers spent $4.7
billion in the first nine months of
this year on Internet ads,
representing a 13.8 percent gain
over the same period in 2002.
Universal McCann, “Insider’s Report,” December 2003
Year
Ad expenditures (in
millions)
%
change
1998
654
77.00
%
1999
3,086
372%
2000
5,597
81%
2001
2,662
-52%
2002
2,150
-19%
2003
2,200
2.30%
Ad Revenues, 2000-present (in millions)
Source: Internet Ad Revenue Report, IAB and PwC
Year
Revenue
2000
7,087
2001
7,134
2002
6,010
2003
5,037* (3rd Q)
OTHER DIMENSIONS
growth in …
Web content
Internet communication.
Internet auctions
Rethinking of basic business principles and models
Ability to collect individual level data
Ability to customize products, services, and information
Strategy Basics
Porter’s 5 forces framework
Bargaining Power
of suppliers
Threat of new
Entrants
Entry barriers
Industry competitors
Rivalry
Bargaining power
of Buyers
Threat from
Substitutes
Porter’s Five forces framework
Supplier bargaining power –
– Increased or decreased?
Internal rivalry - increased
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Inability to monopolize network due to common standards
Differentiation – difficult to maintain proprietary offerings
Buyer power – increased or decreased?
-INCREASED:
 Shop bots: Price sensitivity increases
 Differentiation decreased
 Switching costs decrease
 Information and comparability increase
-DECREASED:
 Competition between buyers
Threat of entry – increased
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Entry and exit barriers
Economies of scale– sales force, access to channels, physical locations
Substitutes – new approaches to meeting needs and performing functions
First Mover Advantage?
Browser -Search Directory -Free Email -E-tailing -Books -Music -C2C Auctions -B2B eProcurement -B2B Auctions --
Pioneer
Mosaic
Yahoo
Hotmail
ISN
Amazon
CDNow!
Ebay
Ariba
FreeMarkets
Leader
Explorer
Google / Yahoo
Hotmail
Amazon
Amazon
CDNow, Amazon
Ebay
Ariba
FreeMarkets
Is there pioneering advantage on internet? (Porter thinks not)
Unique assets accumulate
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Number of members, member content
Barriers to new allegiances get higher
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Relationship and trust grows
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Adapt to technology
Factor costs increase
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shortage of skilled hosts of bulletin boards and chat rooms
Acquisition becomes expensive
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High stock prices and deep pockets