Internet Services and Profitability

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Internet Services and Profitability
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Comparison of electronic and traditional
services
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Purpose of Web-sites

• Retail channel (Amazon.com)
• Supplemental channel (Barnes Noble)
• Technical support (Dell Computer)
• Embellish existing service (HBS Press)
• Process orders (Delta Airline)
• Convey information (Kelly Blue Book)
• Communicate with membership (POMS.org)
• Play games (Treeloot.com)

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Internet Service Components

• Customers Perspective
• I) Navigation or Ease of Access
• II) Information /or Service Exchanged /or
  Received
• III) Physical Service Received
• - Customer support (via e-mail, on-line chat,
  telephone, professionals customizing a
  service, etc.)
• - Logistics (packaging and shipping, payment
  and other tangible elements)

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Profitability

• To be highly profitable, internet service
  companies must ideally have the following
• Highly scalable service high sales volume
• Superior network effect
• Customer must be willing to pay for service
  (i.e., positive /or high contribution margin)
• Perception of acceptability (e.g., jewelry sales,
  internet dating)
• Trust and superior human resources
• Require little touch and feel factor

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Scalability

• Ability of a firm to sell an additional unit with
  minimal (or approximately zero) variable cost
• Determine the degree of scalability of each
  internet service component.
• I) Navigation and Ease of Access
• II) Information Service Exchange
• III) Physical Service
• Customer Support
• Logistics

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Factors Affecting Scalability

• Increasing Self-Service Content
• (e.g., Google- information, E-bay customers
  post/market their own items and ship their own
  products)
• Customer Support
• Simplify and automate whenever possible
• (e.g., over 80 of customers questions posed in
  Cisco Systems website are responded
  automatically service judged to be excellent)
• Logistics
• Minimal touch-and-feel requirement
• Detailed information of the item is important
  minimized returns
• Non-perishable inventory and easy to package

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Economics of Scalability
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Network Effect

• Network effect is where the value of the service
  is significantly increased by the number of
  participants and/or customers in system (e.g.,
  E-Bay, Monster.Com).
• To capture the network effect
• Early mover advantage
• Collaboration with other service providers
• Pricing
• Advertisement
• Sufficient financial resources

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Willingness of Customer to Pay

• Value to the customer
• Availability and actions of competitors
• Differentiated service (e.g., network effects
  and/or customers cannot get similar service
  elsewhere for free)
• Superior service quality
• Reasonable pricing (E-Bay and I-Tunes)
• Ease of purchase and payment
• Note Someone must pay for service (customer or
  advertiser)

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Factors Affecting Value

• Lower cost over brick-and-mortar companies
• Information/Education
• Can be provided in layers minimal to extensive
• (e.g., BlueNile.com on diamond selection.
• Also reduce cost less customer support
  needed.)
• Wider selection of services
• Customer support availability and conflict
  resolution
• Buying Experience
• (e.g., BlueNile.com non-intimidating buying
  experience. Also, women buying cars over the
  internet.
• Ease of navigation and purchase. Convenient and
  timely delivery)

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Perception of Acceptability

• Culture
• Education to manage perception
• Word-of mouth
• Advertisement

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Trust and Human Resource

• Trust
• Provide service guarantee
• Reputation
• Organizational longevity
• Information provided by customer is secure and
  confidential
• Human Resource
• Recruitment and retention
• (e.g. Google cafeteria food, work environment,
  time and place flexibility, infra-structural
  support, and financial incentives)

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Success Factors in Internet Services

• Customer Awareness
• Easy to use and good customer support
• Scalable
• Network effect
• Superior value to alternatives
• Perception of acceptability
• Trust
• Reasonable pricing and easy to pay