Title: Internet Commerce Success
1- Internet Commerce Success what does it take?
- GP Dhillon, PhD
- Associate Professor of IS
- School of Business, VCU
2Understanding where we are .Developing systems
to support the market - (a) service considerations
Type of service contract
Simple or limited domain
Complex or domain contingent
Patronizing the customer
Relationship based
Customized services
High production costs
Type of customer contact
Standardized services
High transaction costs and risks of errors
Transaction based
Mass transactions
Abandoning the customer
3Understanding where we are .Developing systems
to support the market (b) channel considerations
Channel systems
Too heavy organization
Agency support systems
Out of pocket costs
Type of channel
Corporate mediator system
Opportunity costs
Market network
Substandard network
4Understanding where we are .Developing systems
to support the market (c) service-channel matrix
Service Package
Exploiting the Customer
Focus
Consulting and Agencies
Costs vary according to volume of transactions
Differentiation
Delivery Channel
Universal Service
Differentiation
High fixed costs and risks, but low fees
Electronic Markets
Overwhelming the Customer
Low Cost
5Sustaining technologies
- A sustaining technology is the one that nurtures
improved product performance. This is usually
achieved by improving performance along
dimensions that have traditionally been valued by
the customers.
6Disruptive technologies
- A disruptive technology brings in a rather
different value proposition. Disruptive
technologies under perform established products
in mainstream markets and has features that only
a few customers value. The product or service
emerging from a disruptive technology is usually
cheaper, simpler, smaller and frequently easy to
use.
7Disruptive Technology Examples
The emergence of online investment and trading
may prove to be the technology that disrupts a
major portion of (if not the entire) U.S.
financial services industry. Full-service
brokerage firms have realized enormous benefits
from the increasing equity investments by
American households and the long-running bull
market. Discount brokerages, however, have made
significant attacks on the market share of the
full-service firms.
8Disruptive Technology Examples
Although this is rare, but recent trends towards
customer relationship management tend to move us
in this direction. Good examples come from the
airlines, especially the way they deal with high
end customers.
9Disruptive Technology Examples
Priceline.com especially with respect to
domestic airline travel
10Disruptive technologies cont/-
- A disruptive technologies is one that results in
a bad product or service performance (e.g.
advent of transistors relative to vacuum tubes
emergence of health maintenance organizations as
opposed to conventional health insurers) - Such technologies are disruptive since they fall
short of improving the performance of products
and services along the lines that have
historically been valued by most customers in
majority of the markets.
11Conventional Technology S-Curve
- Examples
- First Technology incremental improvements to the
original ferrite-head/oxide disk technology
enabled manufacturers to grind the heads to
smaller, more precise dimensions. - Second Technology thin-film photolithography
displaced ferrite-heads in most disk drives
between 1979 and 1990. - Third Technology magneto-resistive heads.
12Emerging Technologies and Markets
13Technological discontinuities Jumping the S-
Curve
14Impact of sustaining and disruptive technologies
15Disruptive technology S-Curve
16Internet Commerce is a disruptive technology
- Certain Internet based solutions are disruptive
technologies within a given market (e.g.
e-commerce solutions relating to selling books
are disruptive technologies within the market of
selling books).
17Managing disruptive technology principles
- Companies that utilize disruptive technologies or
have a product or a service that is disruptive,
should remember that their success depends on
both the customers and investors for resources. - Since small markets don't solve the growth needs
of large companies, the launch and sustainability
of a disruptive product or service needs to be
positioned accordingly. - Since disruptive technology products and services
are novel, it is hard to analyze their respective
markets, which do not exist. - Ability to create a business model, product or a
service does not necessarily mean that there is a
demand for such a product or service, i.e.
technology supply may not equal market demand.
18Companies depend on customers and investors for
resources
- If a company has invested more than necessary
into a disruptive technology and the customers
seem to like it, but it has a negative cash flow
and has a bad debt load, there is a strong
likelihood that the investors (or venture
capitalists) would not be as enthusiastic as they
would have been. - In the B2B arena nearly 800 million was invested
into 77 e-exchanges in early 2000 and another
500 million in mid 2000 but the customers have
not been too responsive. - E.g. Industrialvortex.com attempted to aggregate
products from numerous suppliers, they faced
stiff resistance since the suppliers felt that
such an e-marketplace would give buyers an easy
access to cheap suppliers
19 Small markets don't solve the growth needs of
large companies.
- Companies that successfully leverage the
disruptive technologies to their advantage, gain
significant first mover advantages. However once
these companies get entrenched in their specific
market, then find it difficult to enter newer
small markets, which could potentially be very
profitable. - Amazon vs Barnesandnoble.com and Barnes Noble
20Markets that don't exist can't be analyzed
- Since research about future success can only be
carried out for technological impacts that have
already taken place, it is difficult, if not
impossible, to analyze a market for disruptive
technology. Such analysis can only be carried out
for sustaining technologies. - It has been rather difficult for Amazon to
adequately forecast demand for newer products.
And on 676 million in sales for the fourth
quarter (1999), Amazon had to write down 38
million on inventories, particularly for
electronics and toys.
21Technology supply may not equal market demand
- Since the pace of technological improvement
usually far exceeds the performance improvement
rate than mainstream customers can absorb, the
companies whose technological features match
customer demands today may overshoot mainstream
market needs tomorrow. - Consider developing conventional photographic
films. The first mover advantage clearly went to
AOL and Kodak. The service was carefully
positioned to address the needs of those who
wanted to have the ability to share digital
photographs with friends and family. Hence the
emphasis was on functionality. - Then came Ememories (sluggish) and Ofoto (low
reliability) who started offering free processing
along with the ability to share digital
photographs. Such advancement was clearly
surpassing what the current market could absorb.
The customer expectation hovered around
functionality and reliability aspects.
22Conclusion
- In the end success will be defined by the ability
of the respective firms to differentiate between
sustaining and disruptive technologies and their
ability to manage the resource allocation
problem, competence in matching the market to the
technology and systematically identify and
position their capabilities.