The Internet and E-commerce

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The Internet and E-commerce

• An overview

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A definition

• Technology mediated exchanges between parties
  (individuals, organizations or both) as well as
  the electronically based intra or inter
  organizational activities that facilitate such
  exchanges

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Definition

• Value Creation that favors services, information
  and intelligence
• Favors intangible things-ideas, information,
  relationships
• Linked with ubiquitous electronic networks

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Attributes of E Commerce

• Exchange of digitized information
• Communication between parties
• Coordination of flows of goods and services
• Transmission of orders
• Between organizations, individuals or both
• Technology Enabled
• Interfaces between organizations and individuals
  take place through electronic interfaces
• Internet
• ATM
• Electronic banking

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Attributes of E Commerce

• Technology mediated
• Interface between customer and vendor are managed
  by technology
• The marketplace is virtual rather than real
• Personalized marketing replacing mass marketing
• Includes activities within and outside
  organization.
• How business relates to customers, suppliers,
  competitors.
• How business operates internally processes and
  systems

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Categories of E Commerce

• B2B
• Auto parts suppliers, real estate developers,
  computer parts
• B2C
• Yahoo, Amazon, Schwab
• C2C
• Monster.com, ebay

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E Commerce is different than traditional commerce

• Core strategic decisions are technology based
• Decisions about marketing, operations,
  communications require integration of technology
  to a greater degree.
• A real time competitiveness
• Everything occurs much faster
• Focused differentiation to maintain a SCA is more
  important

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E Commerce is different than traditional commerce

• The store is always open
• Concepts like service and convenience take on a
  new meaning
• Support for the customer must be there 24x7
• Technology based customer interface
• User friendly
• Work consistently
• No chance to fix it if it goes awry
• Customer controlled interaction
• Seller designs the environment to maximize his
  control over the customer
• Buyer still has more control over his time in the
  virtual store than he would in a Brick on

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What makes e-commerce venture successful

• The business model

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The business model

• A companys business model addresses How do we
  make money in this business?
• Is the strategy that management is pursuing
  capable of delivering good bottom-line results?
• Do the revenue-cost-profit economics of the
  companys strategy make good business sense?
• A revenue-cost profit model that results in a
  profit

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The business model (continued)

• Consists of four choices by senior management
• Value proposition or value cluster
• Choice of target segment
• Choice of customer benefits
• Rational for why firm can deliver better than
  competitors
• Articulate an online product or service
• What are we selling
• How will the customer make the decision to buy
• How will we position the offering so it fits
• Resource System
• What is the value chain to deliver the offering
  to the customer
• Financial Model
• Revenue model (flow of cash into the
  organization)
• Sell advertising to generate revenues
• Sell products or services at a profit
• Charge a fee for each transaction
• Sell subscriptions

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Relationship to traditional strategy

• Porters five forces
• Strategies
• Opportunities

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Relationship to traditional strategy

• Porters five forces
• New Entrants
• Increase as technology reduces barriers of entry
• Makes the force stronger
• Suppliers
• Decrease strength as distance becomes less
  critical and communication becomes easier
• Increases strength as a simplified supply chain
  has less, more powerful, suppliers.

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Relationship to traditional strategy

• Porters five forces (contd)
• Buyers
• Switching costs for buyers becomes less making it
  easier to shop around
• Stronger force
• Substitutes
• Internet technologies are providing new ways to
  do old activities
• Stronger force
• Competitors
• Rivalry is more intese
• The points of differentiation are harder to hide
  and easier to copy making price more important

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Relationship to traditional strategy

• Strategy
• Focused differentiation is easier to follow with
  the aid of technology (Amazon.com)
• Low cost is becoming more important as
  differentiation becomes harder to achieve on a
  large scale.
• Global strategy becomes more practical
• Opportunities and threats
• More prevalent making opportunity recognition a
  more crucial skill.

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Business Models Developers of Specialized
E-Commerce Software (B2C)

• Business model involves
• Investments in designing and developing
  specialized software
• Marketing and selling software to other firms
• Profitability hinges on volume
• Strategic approaches
• Sell software at a set price per copy
• Collect a fee for every transaction provided by
  the software
• Rent or lease the software

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Business Models Suppliers ofComputer
Components and Hardware (B2B)

• Traditional business model is used - Make money
  by selling products at prices above costs
• Strategic approaches
• Stay on cutting edge of technology
• Invest in RD
• Move quickly to imitate technological advances
  and product innovations of rivals
• Key to success - Stay with or ahead of rivals in
  introducing next-generation products
• Competitive advantage will most likely be based
  on strategies keyed to low-cost

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Business Models E-Commerce Retailers

• B2B selling advertising
• Sell products at or below cost and make money by
  selling advertising to other merchandisers
• Use traditional model of
• Purchasing goods from manufacturers and
  distributors
• Marketing items at a Web store
• Filling orders from inventory at a warehouse
• Operate Web site to market and sell
  product/service and outsource manufacturing,
  distribution and delivery activities to
  specialists

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Strategic ApproachesE-Commerce Retailers

• Spend heavily on advertising to build widespread
  brand awareness, draw traffic, and start process
  of developing customer loyalty
• Add new product offerings to help
  attract traffic to firms Web site
• Be a first-mover or at worst an early mover
• Pay consideration attention to Web site
  attractiveness to generate buzz about the site
  among surfers
• Keep Web site innovative, fresh, and entertaining