Internet Business Strategies and

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Internet Business Strategies and

• Business Models

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Outline

• The Internet Value Proposition
• Four Strategies
• New Competitive Threats
• New Competitive Opportunities
• Business Models

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The Internet Value Proposition

• Internet commerce must start with a strategy, and
  the analysis of the strategy starts with value.
  What are the sources of Internet value?
• It is believed that the ability of the Internet
  to change the landscape of commerce comes from 2
  key ideas
• The Internet can be used to transform customer
  relationships, and
• The Internet can displace or alter traditional
  sources of business value.
• These 2 ideas lead to 4 basic strategies for
  businesses to consider both in exploiting the
  Internet and in defending themselves against
  competitors.

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The Internet Value Proposition (cont.)

• Transforming Customer Relationships
• By exploiting the Internet, traditional commerce
  evolves from being supplier-centered to being
  customer-centered.
• This leads to two business strategies
• A customer-centered business organized around a
  product (called Channel Master strategy), or
• A customer-centered business organized around
  meeting the needs of a group of customers (called
  Customer Magnet strategy).

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The Internet Value Proposition (cont.)

• Displacing/altering traditional sources of
  business value.
• The Internet moves commerce from the physical
  world to the information world.
• A focus on the supply chain leads to the Value
  Chain Pirate strategy.
• A focus on distribution reaching the customer
  leads to the Digital Distributor strategy.

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Four Internet Business Strategies

• Channel Master
• Customer Magnet
• Value Chain Pirate
• Digital Distributor

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Channel Master

• The channel master strategy works by using the
  Internet to build deeper customer relationships
  in order to sell traditional goods or services.
• This strategy is organized around products,
  concentrating on the best possible delivery of
  those products and their related services.
• A company using the channel master strategy must
  re-engineer all its customer-facing activities.
• In other words, the company must integrate the
  commerce value chain with their existing
  operations

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Example of Channel Master Cisco Systems

• Cisco Systems is an 18 billion provider of
  Internet software, hardware and services. It uses
  its Web site as the primary sales channel to its
  customers and partners.
• Attract (get and keep customer interest)
• Full online catalog
• Demonstration of ordering process
• Customers are notified of price changes
• Interact (turn interest into orders)
• The online catalog enables searching, browsing,
  and configuration of purchases.
• Intelligent agents suggest alternatives (such as
  software upgrades) and identify errors.

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Example of Channel Master Cisco Systems (cont.)

• Act (coordinate order fulfillment)
• Orders link to procurement and order management
  databases.
• Customers can monitor or receive notifications
  about order status.
• React (provide after-sales service)
• Customers can access comprehensive documentation
  and self-help intelligent agents.
• A Bug Alert mechanism automatically notifies
  customers of bugs.
• Results
• 70 of all product support is delivered through
  the Internet.
• Large fraction of orders arrive through the
  Internet channel.

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Customer Magnet

• The customer magnet strategy works by using the
  Internet to attract a group of customers by
  meeting their needs with a knowledge sharing
  environment and aggregated supplier access.
• This strategy is organized around a group of
  customers, delivering a broad range of products
  and services to these customers.
• A company using the customer magnet strategy
  seeks to be the destination of choice for a whole
  category of customers.
• A customer magnet must integrate the value chains
  of multiple suppliers into one customer-facing
  whole.

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Example of Customer Magnet Yahoo

• Yahoo tries to be the first place for people to
  visit when they go online.
• In addition to providing information, Yahoo
  offers free services such as e-mail, instant
  messenger, and Web sites (via GeoCities).
• Attract (get and keep customer interest)
• Yahoo offers tremendous amount of free
  information and links to other sites.
• Members can participate in discussion groups,
  real time conferences on many topics, and can set
  up new ones via Yahoo Clubs.
• Interact (turn interest into orders)
• Yahoo operates Yahoo Shopping, which offers
  retail shopping, warehouse shopping, auctions,
  and classified ads.

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Example of Customer Magnet Yahoo (cont.)

• Act (coordinate order fulfillment)
• Yahoo shops offer the usual array of delivery
  options.
• Yahoo also offers the ability to set up and
  operate a new shop within Yahoo Shopping
• React (provide after-sales service)
• Although many Yahoo shops are operated by other
  businesses, Yahoo has offered a uniform level of
  after-sales service through a buyer protection
  program that covers all Yahoo shops.

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Value Chain Pirate

• The value chain pirate strategy works by
  capturing someones margins and displacing them
  from their value chains.
• This strategy is organized around the value
  chain, seeking to connect suppliers with
  customers more directly.
• A business using the value chain pirate strategy
  seeks the positions on the value chain that offer
  the greatest leverage.

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Example of Value Chain Pirate Autoweb

• Autoweb displaces part of the value chain of car
  dealerships by selling cars directly to consumers
  (with the actual delivery handled by a
  traditional dealer).
• Attract (get and keep customer interest)
• Autoweb offers no-haggle service backed by
  extensive online information about cars and
  options.
• Interact (turn interest into orders)
• Autoweb has complete information about cars,
  options, and colors available.
• Customers can accurately request a quote for the
  vehicle of their choice.

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Example of Value Chain Pirate Autoweb (cont.)

• Act (coordinate order fulfillment)
• Autoweb uses traditional dealerships for delivery
  and service.
• It has partnerships with other companies to
  provide insurance and financing.
• React (provide after-sales service)
• Autoweb provides extensive information on
  warranty issues, insurance, recalls, repairs, and
  maintenance.

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Digital Distributor

• The digital distributor strategy works by
  focusing on pieces of value that can be delivered
  better through the Internet.
• A company using this strategy is organized around
  disaggregating traditional bundles of products
  and re-aggregating products and services that can
  be delivered efficiently through the Internet.

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Example of Digital Distributor Monster.com

• Monster.com began by offering online employment
  advertising for high-technology jobs.
• As the Internet has become a cross section of
  global society, Monster.com has added job
  listings spanning all industries and has built a
  global network of national services.
• It has also aggregated other services related to
  career management, such as resume listings,
  moving, real estate, education and finance.
• Attract (get and keep customer interest)
• Offers free services to individuals
• Attracts employers who pay for their listings

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Example of Digital Distributor Monster.com
(cont.)

• Interact (turn interest into transactions)
• Monstere.com offers automatic Job Search Agents,
  which sends e-mail to customers to alert them
  about new job postings that match the profile of
  their desired jobs.
• Act (coordinate fulfillment)
• Offers a variety of tools such as resume
  screening for employers
• Facilitates closing a new job (e.g., cover letter
  management)
• React (provide after-transaction service)
• Offers several services such as apartment finder
  and moving services to assist individuals who
  have found new jobs

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New Competitive Threats

• Each of the four Internet business strategies can
  be used alone or in combination by competitors,
  and each forms a different kind of threat to a
  business.
• Channel Master
• Can competitors create superior channels to your
  customers?
• Your customers could be attracted by better
  prices, better services, etc. from your
  competitors
• Customer Magnet
• Can competitors attract your customers and sell
  them your products?
• Your could lose your customer base to someone
  offering a broader range of services, and be
  forced to survive as a commodity wholesale
  supplier to your competitor.

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New Competitive Threats (cont.)

• Value Chain Pirate
• Can competitors hijack your position in the value
  chain?
• Your supplier could leapfrog your position and
  sell directly to your customers.
• Your distributor could obtain parts directly from
  your suppliers.
• Digital Distributor
• Can competitors disaggregate your value
  proposition?
• If your value proposition is based on an
  aggregation of goods and services, it is possible
  for a competitor to excel at some part of the
  overall offering.

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New Competitive Opportunities

• The four Internet business strategies also
  provide new competitive opportunities.
• Channel Master
• Can you improve your customers buying experience
  by improving your cost, convenience, or ability
  to customize?
• Customer Magnet
• Do your customers share broad needs that lend
  themselves to new bundles of products and
  services?
• Value Chain Pirate
• Can you jump over your direct suppliers or
  customers and capture their margins?
• Digital Distributor
• What parts of other companies propositions could
  you improve by offering them on the Internet?

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Business Segments

• We use the word segment to describe collections
  of businesses with similar requirements for
  Internet commerce, whether or not they are in the
  same business area.
• Three business segments are selected for
  consideration of system requirements and design
  options
• Consumer Retail Businesses selling physical
  goods directly to individual end consumers.
• Business-to-Business Cataloging Businesses with
  online catalogs selling products to other
  businesses. We focus on MRO (Maintenance, Repair,
  and Operations) goods.
• Information Commerce Businesses distributing
  digital goods (e.g., information products and
  services) online with fulfillment right over the
  network.

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Consumer Retail Value Proposition

• Ability to reach a global market
• Reduced marketing and selling expenses
• Increased efficiency of operation
• Ability to target consumers more precisely
• Ability to convey more accurate and timely
  product and availability information

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B-to-B Cataloging Value Proposition

• Reduced cost of selling
• Reduced order processing costs
• Improved service levels for low-volume customers
• Higher-quality information for customers
• Accurate information

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Information Commerce Value Proposition

• Collapse of the traditional distribution chain
• On the Internet, information providers have
  direct access to information consumers without an
  intervening distribution channel.
• Ability to explore new business models
• Because the Internet is ultimately flexible,
  information providers can easily experiment new
  business models such as software rentals,
  pay-per-view documents, etc.

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Information Commerce Business Models

• Advertiser Support
• A content provider can generate revenue through
  advertising.
• Advertisers pay for impressions a set of eyes
  looking at their advertisement.
• Advertisers pay for a site that has interesting
  and compelling content attracting lots of
  visitors.
• Advertisers will pay more if the site can also
  collect information from visitors such as age,
  sex, postal code etc.

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Information Commerce Business Models (cont.)

• Subscription Services
• Subscriptions are traditional models for print,
  but can also work online.
• Consumers pay a fee for access to online
  information.
• Bundling Arrangements
• In order to achieve a sufficient, critical mass
  of information to attract visitors, content
  owners may sell access rights to each other.
• Thus, a service provider who is not directly in
  the content business may license access to
  content for their users.

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Information Commerce Business Models (cont.)

• Document Sales
• This is a broad category including the online
  sale of research reports, articles, or software
  etc.
• Usage-Based Charging
• Users pay according to their usage.
• Usage can include connect time, search queries,
  number of pages viewed etc.
• Information products (e.g., online newspapers,
  etc.) and information services (e.g., search
  engines, online games, etc.) are eligible to
  usage-based charging.

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Information Commerce Business Models (cont.)

• Information Marketplace
• Because the Internet greatly reduces transaction
  costs, it could lead to a world in which the
  ultimate providers of information sell directly
  to the ultimate consumers in a vast information
  marketplace.
• Necessary components
• Rights management for authors and publishers
• Containers (to protect information in transit and
  before sale)
• Super-distribution to distribute information in
  secure containers
• Clearinghouses to collect fees from end users and
  distribute them to information providers

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References

• G. Winfield Treese and Lawrence C. Stewart.
  Designing Systems for Internet Commerce (2nd
  edition) Chapters 3 4. Addison Wesley.
• Dr. Thomas Tran Slides