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Slide 1: Electronic Commerce Business Models and Strategies Minder Chen, Ph.D. Associate Professor of Management Information Systems and Decision Sciences School of Management, George Mason University mchen@gmu.edu
Slide 2: Reference 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 You 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 9. Understanding Electronic Commerce (Strategic Technology Series), by David R. Kosiur, Published by Microsoft Press, May 1, 1997. © Minder Chen, 1996-2000 EC - 2
Slide 3: Cyber-Seminar Outline • EC Introduction C Introduction nThe cycle of electronic commerce hEC and Business Process C statistics EC • EC Strategies C 4Cs strategy: Customer, Content, Community, Commerce C Revenue streams eEC development process • EC Business Models C B2C Virtual stores: physical and digital goods and services 2Infomediaries: Seller-side nInformediaries: Buyer-side nInfomediaries: B2B marketspace © Minder Chen, 1996-2000 EC - 3
Slide 4: EC Introduction • Introduction • The cycle of electronic commerce • EC and business process • EC statistics © Minder Chen, 1996-2000 EC - 4
Slide 5: Electronic Commerce: Introduction E-Business E-Commerce Commerce Internet Commerce © Minder Chen, 1996-2000 EC - 5
Slide 6: 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. © Minder Chen, 1996-2000 EC - 6
Slide 7: 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, 1996-2000 EC - 7
Slide 8: The Cycle of Electronic Commerce Access Searches Queries Surfing Customers Online Ads Online Orders Follow-on Sales Standard Orders Distribution Online: soft goods Delivery: hard goods Electronic Customer Support Source: Understanding Electronic Commerce (Strategic Technology Series), by David R. Kosiur, Published by Microsoft Press, May 1, 1997. EC - 8 © Minder Chen, 1996-2000
Slide 9: Components of Electronic Commerce Institution • • • • • Government Merchants Manufacturers Suppliers Consumers Processes • • • • • Marketing Sales Payment Fulfillment Support Electronic Commerce Networks • Intranet • Extranet • Internet Source: adapted from David Kosiur, Understanding Electronic Commerce, Microsoft Press, 1997. © Minder Chen, 1996-2000 EC - 9
Slide 10: EC and Business Processes Seller Provide Info Send info Phone, fax, e-mail Customer Request info Identify need Web surfing Web searches, web ads Find source Evaluate offerings Data sheets, catalogs, demos Web site Corporate Databases Get customer Newsgroups Provide info Demos, reviews Fulfill order P.O.s EDI Deliver soft goods electronically Support Web site, phone, fax, e-mail, e-mailing list Source: adapted from David Kosiur, Understanding Electronic Commerce, Microsoft Press, 1997. Maintain, Repair, Operate Net communities Web site Credit cards, e-cash Purchase © Minder Chen, 1996-2000 EC - 10
Slide 11: World Wide Internet Commerce © Minder Chen, 1996-2000 Forester Research, Inc. June 1999 EC - 11
Slide 12: Business Internet Commerce Trends B2C: Business to Consumer B2B: Business to Business Reference: http://cyberatlas.internet.com/ © Minder Chen, 1996-2000 EC - 12
Slide 13: Business-to-Business E-Commerce • International Data Corporation forecasts that business-to-business ecommerce 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. EC - 13 © Minder Chen, 1996-2000 Source: Business 2.0, March, 1999 re: Forrester Research
Slide 14: 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) 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) • By 2003 . . . – – – – • 1% of 5 million US merchants are able to collect payments via the Internet in 1999. • 10% E-merchants by year 2003. © Minder Chen, 1996-2000 EC - 14
Slide 15: Retailing Trends 1950s 1960s-1970s 1980s 1990s t et ee tre str ns iin Ma Ma © Minder Chen, 1996-2000 s lllls Ma Ma • Home Depot • CompUSA • Barnes and Nobles • Border EC - 15 s es ore tor rst rs pe pe Su Su b eb We W
Slide 16: AOL Findings • Buy brands • Seek convenience • Are increasingly time-starving • Are not solely motivated by price • Require simplicity Source: America Online, 1999 © Minder Chen, 1996-2000 EC - 16
Slide 17: 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 © Minder Chen, 1996-2000 EC - 17
Slide 18: Internet Economy Driving Forces • • • • • Changing customer demands Globalization Internet ubiquity New technology New marketplace and intermediacies © Minder Chen, 1996-2000 EC - 18
Slide 19: 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. © Minder Chen, 1996-2000 EC - 19
Slide 20: 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 © Minder Chen, 1996-2000 EC - 20
Slide 21: 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 © Minder Chen, 1996-2000 EC - 21
Slide 22: All 3 Steps in One Medium • Web and EC allows you to integrate three major steps of markting and sales in one medium. Get Attention Give More Information/ Answer Questions Transact/ Service Selling • Store • Telephone • Catalogue Branding Informing • Brochures • Sales People • Print/editorial • TV Ads • Magazines © Minder Chen, 1996-2000 EC - 22
Slide 23: Internet Industry Sports Malls Entertainment Newsfeed Publications Content and Activity Electronic Commerce Infrastructure Commerce Instruments Portals Commerce Servers Consulting Internet Economy Client/Server Software System Integration and Design Backbone Router Access Equipment Server Computers Internet Equipment ISP Network Services Browsers Web Server Application Servers Security Tools Internet Service Consumer Services Carriers EC - 23 © Minder Chen, 1996-2000
Slide 24: EC Strategies • 4Cs Strategy: – – – – Customer Content Community Commerce • Revenue Streams • EC Development Process © Minder Chen, 1996-2000 EC - 24
Slide 25: New Competition From Surprising Places • 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 © Minder Chen, 1996-2000 Not in Top 25: • Towerrecords.com • Borders.com • Toysrus.com • Target.com • Gap.com • Macys.com • Sears.com • WalMart.com • “BigCompany.com” • • • YourCompany.com?? EC - 25
Slide 26: 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 © Minder Chen, 1996-2000 EC - 26
Slide 27: Electronic Commerce Applications and the Cycle of Commerce Seller's Cycle of Commerce Bi l ti uc od Pr © Minder Chen, 1996-2000 rk Ma eti ng oll g/C l in rv Se les Sa ic e g /Lo on ist ic s i ect s on Time EC - 27
Slide 28: Electronic Commerce Applications and the Cycle of Commerce Buyer's Cycle of Commerce ce Re ing est g/T pin op Sh © Minder Chen, 1996-2000 Pr m ure oc t en t era Op Time EC - 28 ics ist og g/L ivin ym Pa ent ion
Slide 29: EC Strategies: 4 Cs Customers Commerce Content Community © Minder Chen, 1996-2000 EC - 29
Slide 30: 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 © Minder Chen, 1996-2000 EC - 30
Slide 31: 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? 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 know about customer preferences? What information could you use to better target your product and service offerings? How can you engage customers in an ongoing dialog? How can you continue to provide information, products, and services to reinforce your ongoing relationships? What process do they go through? What do you need from customer? What can you do to build relationships? © Minder Chen, 1996-2000 EC - 31
Slide 32: 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 © Minder Chen, 1996-2000 EC - 32
Slide 33: 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" © Minder Chen, 1996-2000 EC - 33
Slide 34: 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 © Minder Chen, 1996-2000 EC - 34
Slide 35: 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 © Minder Chen, 1996-2000 EC - 35
Slide 36: 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 © Minder Chen, 1996-2000 EC - 36
Slide 37: 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 © Minder Chen, 1996-2000 EC - 37
Slide 38: Virtual Communities • Money • Content • Demographics Virtual Community • • • • Content Hard goods Games Services Users • Advertising Advertisers © Minder Chen, 1996-2000 Providers Other Websites EC - 38
Slide 39: 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 (wine.com) • 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 (fool.com) Parents Place: www.parentsplace.com Chat rooms: Red Dragon Inn Virtual Team competition at ESPNet: espnet.sportszone.com • Communities of Fantasy • 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 © Minder Chen, 1996-2000 EC - 39
Slide 40: www.parentsoup.com © Minder Chen, 1996-2000 EC - 40
Slide 41: www.iVillage.com © Minder Chen, 1996-2000 EC - 41
Slide 42: Geocities: www.geocities.com • This collection of themes cyberhoods is populated by a half-million "homesteaders" who get free home pages. http://geocities.yahoo.com/home/ © Minder Chen, 1996-2000 EC - 42
Slide 43: Quick Test for Technographics More Men More Educated High Income Have Children Number of new users Younger Age More Women Less Educated Low Income No Children Older Early Adopter Mainstreams Laggards Time © Minder Chen, 1996-2000 Source: Now or Never, 2000 EC - 43
Slide 44: Technology-Fit: Customer and Product Customer Need for Product Information High Second Wave Jenny Craig Chrysler Earlier Adopter AA FedExp Microsoft Web Laggards Second Wave Tide Denny's Nike Pepsi Source: Forrester Research EC - 44 Low Customer Demographics Match Poor High © Minder Chen, 1996-2000
Slide 45: 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 Cost of a 3-minute Long Distance Call All tangible and intangible items that can be copied adhere to the law of inverted pricing and become cheaper as they improve. Anticipate this cheapness in your pricing strategy and product/service development strategy EC - 45 $250 Price $0 1930 Year 1999 © Minder Chen, 1996-2000
Slide 46: Revenue Streams • Advertising / Sponsorship • Transaction • Subscription / Listing Fee • Value-added services © Minder Chen, 1996-2000 EC - 46
Slide 47: Multifaceted Model for Web-Based EC Design • ATTRACT: Hits – – – – Communities of interest Changing topics for repeat customers Features that encourage customers to explore Special areas encourage customer to register (i.e. selection of articles customized for visitors interests) Free download (video, audio, & software) Jump Engage Chat and News Subscription • ENGAGE: Leads • PARTICIPATE: Sales revenue – – – – Shopping Attract Participate • JUMP: Advertising revenue – Other products of interest to customer – Other sites of interest to customer Adapted from Netscape Communications Inc., 1996. EC - 47 © Minder Chen, 1996-2000
Slide 48: EC Companies Transform the Revenue Mix Pricing Value Customers The mix: Who pays for what and how much. New Values New Pricing Highly interrelated! Source: Now or Never, 2000 © Minder Chen, 1996-2000 New Customers EC - 48
Slide 49: What To Do Now 1. Define your eBusiness strategy FAST 2. Assess readiness: Rapid innovation EC - 49 – – – – – customers products/services organization technology infrastructure © Minder Chen, 1996-2000
Slide 50: 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! © Minder Chen, 1996-2000 EC - 50
Slide 51: Four Strategies to Start Online Business Low Slow Time to Market Low • Integration • Subsidiary • Partnership • Buyout Cost High Fast © Minder Chen, 1996-2000 EC - 51 Risk High
Slide 52: 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 - 52 © Minder Chen, 1996-2000
Slide 53: 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) © Minder Chen, 1996-2000 EC - 53
Slide 54: 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? © Minder Chen, 1996-2000 EC - 54
Slide 55: 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. © Minder Chen, 1996-2000 EC - 55
Slide 56: E-Business Creation Process • Personalization • ROI • Profiling • Segmentation • Experience modeling • Expanded business opportunities • • • • • • • Customer feedback Benchmark data Competitive analysis Market forces Usage statistics Customer needs Current capabilities • Systems and networks • Web architecture • Business infrastructure • Technology components • Web technology strategy E-Vision Business Drivers Technology Drivers Source: Adapted from Digital Transformation, 2000 © Minder Chen, 1996-2000 E-Business Strategy Rapid Implementation EC - 56
Slide 57: EC Development Process • Knowledge building and market evaluation to identify a need and a niche • Competitive and capability analysis • EC Business model design and feature identification • Determine what you have to offer (merchandizing) • Set your e-business goals and priorities • 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 © Minder Chen, 1996-2000 EC - 57
Slide 58: Popularity Adds Value in a Network us c yc le Value to User cy cl e Vi r tuo Vi ci o Positive Network Externality us Networks • Real: LAN, Internet, Fax • Virtual: Virtual community, Chat room, Instant messenger Number of Compatible User © Minder Chen, 1996-2000 EC - 58
Slide 59: 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 © Minder Chen, 1996-2000 EC - 59
Slide 60: EC Business Models • Virtual stores: physical and digital goods and services • Infomediaries: Seller-side • Informediaries: Buyer-side • Infomediaries: B2B marketspace © Minder Chen, 1996-2000 EC - 60
Slide 61: Types of Virtual Stores • Hard goods: – – – – – Food Clothes Computer hardware and Electronics Packaged software Information » Database » Publishing » Research • Soft goods (Bits delivered on-line) – 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 © Minder Chen, 1996-2000 EC - 61
Slide 62: Is EC Appropriate for You? Industries who set up virtual storefronts © Minder Chen, 1996-2000 EC - 62
Slide 63: 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 © Minder Chen, 1996-2000 EC - 63
Slide 64: EC Business Models • Payment direction: – Buy-side – Sell-side – Marketspace: 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 © Minder Chen, 1996-2000 EC - 64
Slide 65: Sell-Side E-Commerce Model Buyer A EDI Selling Merchant Online Selling HTML & Forms HTML & XML OBI Buyer B Consumer or Business Buyer C © Minder Chen, 1996-2000 EC - 65
Slide 66: Sell-Side Storefront • Primary model used in current business-toconsumer 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. © Minder Chen, 1996-2000 EC - 66
Slide 67: Buy-Side E-Commerce Model Seller A EDI Business Buyer Online Procurement HTML & Forms HTML & XML OBI Seller B Seller C © Minder Chen, 1996-2000 EC - 67
Slide 68: 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. © Minder Chen, 1996-2000 EC - 68
Slide 69: Marketplace E-Commerce Model Buyer A EDI EDI Virtual Marketspace HTML & Forms HTML & XML Seller A Buyer B HTML & Forms HTML & XML Seller B OBI Buyer C OBI Infomediacy (Content Aggregator) Seller C • • • • • © Minder Chen, 1996-2000 eBay.com Pricelines.com Egghead.com Amazom.com Auction www.chemdex.com EC - 69
Slide 70: Business-to-Business vs. Business-to-Consumer Business-to-Consumer Business-to-Business • • • • • • • 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 EC - 70 © Minder Chen, 1996-2000
Slide 71: B2B Marketspace • 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. • Examples: – E-Steel.com – verticalnet.com © Minder Chen, 1996-2000 EC - 71
Slide 72: Channel Conflict: How About the Distributors • The concept of complete dis-intermediation 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. • Fruit of Loom Inc. has 31 of its 55 distributors up on its extranet called Activewear Online. Distributors have to do lot of value-add and customer support to survive. © Minder Chen, 1996-2000 EC - 72
Slide 73: Retailers and Manufacturers Co-exist on the Web • US retail sales revenues 1998: – – – – – – Brick-and-mortar stores 93% Catalog sales: 6% E-commerce 1% 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. Manufacturers want to maintain channels while stay in direct touch with their customers. Provide online dealer locators. Share customers information back and forth. EC - 73 • Cases: • Strategies: – – – © Minder Chen, 1996-2000
Slide 74: 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. Brick-and-Click YourSherpa.com © Minder Chen, 1996-2000 EC - 74
Slide 75: Business Channel: Multi-Channel Presence Click and Mortar • Brick-and-mortar – Face-to-Face • Mail order – Mail – Printed catalog • Phone order – Telex – Phone – Fax Buyer 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, 1996-2000 EC - 75
Slide 76: Business Models Based on the Value Chain in the Marketplace Raw material producer Exchange Manufacturer C2B Distributor New Middleman Retailer B2C C2C • B2B: Vericalnet.com • B2C: Amazon.com • C2B: Priceline.com • C2C: eBay.com © Minder Chen, 1996-2000 Consumer B2C EC - 76
Slide 77: Business Models: Multiple Dimensions • Buy-sell direction: Buyer-side, seller side, and marketplace • Industry covered: single vs. multiple (Vertical vs. Horizontal) • Ownership: Buyer, seller, independent, software vendor, consortia • Service: Core vs. extended services • Products: Core vs. MRO; Direct vs. Indirect; • Pricing: Fixed price, Auction, Reversed auction, negotiated • Timing of purchase: Contact vs. spot vs. ad hoc EC - 77 © Minder Chen, 1996-2000
Slide 78: Portfolio of Buying & Selling Strategies Size of Buyers and Seller Direct Sales Big Buyer e-Procurement Big Supplier Small Suppliers Small Suppliers Small Suppliers Net Market Small Buyers Small Buyers © Minder Chen, 1996-2000 EC - 78
Slide 79: Number of Sellers and Buyers © Minder Chen, 1996-2000 EC - 79
Slide 80: The Goldman Sachs B2B Windmill in the Age of Consortia © Minder Chen, 1996-2000 EC - 80