Lec7_ECommerce3 - E-Commerce(III E-Business Models...

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Unformatted text preview: E-Commerce (III): E-Business Models, Intermediaries, and Value Chain Analysis ISOM 101, Spring 2011 Lecture 7 HKUST Business School Overview What are the common ebiz models? What is “Value Chain Analysis” and why is it important? What is an “intermediary”? Why do we still/not need intermediaries in electronic markets? Raymond G. Sin © 2 HKUST Business School E-business models Learning goals: In the future, when you manage your EB, you are able to Identify products/services that are appropriate for EB Understand your position in value chain Design the appropriate models (b2b or b2c) Manage specific issues (technologies, issues) What are the key determinants of success in Ecommerce? Raymond G. Sin © 3 More ? Smart HKUST Business School E-Business Model is a… Well, Business Model ? Less More Lucky Raymond G. Sin © 4 “It’s funny, the harder I work the luckier I get - SAM GOLDWYN ” HKUST Business School E-Business Models Business-to-Consumer – B2C Business sells product directly to the consumer. Business-to-Business – B2B Businesses sell to other businesses. Consumer-to-Consumer – C2C Consumers sell directly to other consumers. Raymond G. Sin © 6 HKUST Business School B2C Models Subscription Online Storefront Brick-and-clicks Advertising Internet Presence Intermediary Raymond G. Sin © 7 HKUST Business School B2C: Types of Stores Fall into three broad categories e.g. Restaurants Brick-and-mortar e.g. Amazon, eBay… Click-only e.g. Books (bn.com, Commercial Press), Clothes Brick-and-click (gap.com), Electronics (bestbuy.com), Grocery (Parknshop, Wellcome) Raymond G. Sin © 8 HKUST Business School B2C Models: Subscription Consumers pay to have regular access to site. Raymond G. Sin © 9 HKUST Business School B2C Models: Online storefront Web site acts as intermediary between manufacturer and consumer. Raymond G. Sin © 10 HKUST Business School B2C: Online Storefront Raymond G. Sin © 11 HKUST Business School B2C Models: Bricks-and-clicks traditional retail outlet + online storefront CircuitCity.com Raymond G. Sin © 12 HKUST Business School B2C: Bricks-and-clicks a traditional retail outlet + an online storefront Raymond G. Sin © 13 HKUST Business School B2C—Bricks-and-clicks Do not sell in local stores??? Raymond G. Sin © 14 HKUST Business School Samsung Experience, NYC Raymond G. Sin © 15 HKUST Business School Sony Style Raymond G. Sin © 16 HKUST Business School EA Experience The Peak Raymond G. Sin © 17 HKUST Business School New Opportunities for “Brick-n-Click” Retailers A new channel to reach their (existing/new) customers, and take advantage of their existing strengths Branding and customer relationship Supplier relationships Always true for incumbent firms vs. start-ups, whether online/offline Scale economies can be generated from offline operation Fulfillment and customer service operation E.g. Gap (size, familiarity with the brand, trust, reputation of good quality) Benefit from existing, more matured logistics and inventory management Cross-channel delivery and return E.g. buy on “Juscocity” and return to the local store; order online and pick up at the local Barnes & Noble Raymond G. Sin © 18 HKUST Business School Challenges for “Brick-n-Click” Retailers Cannibalization Need to be careful in customer segmentation If cannibalization is inevitable, better to “cannibalize yourself” than letting yourself be cannibalized by competitors Tension between risking cannibalizing your own channel vs. cross-selling Evidence that customers who shop in multiple channels spend much more heavily Coordination between online and offline activities (e.g. customer service) Consumers have higher expectations … Need a well-structured and centralized DB Raymond G. Sin © 19 HKUST Business School B2C Models: Internet presence Use web presence to provide information about products and services Raymond G. Sin © 20 HKUST Business School B2B: Business to Business B2B is much larger than B2C Account for above 80% of EB markets US$3 trillion, increases 50% per year 95% Fortune 1000 companies use EDI Raymond G. Sin © 21 HKUST Business School B2B: Direct Sellers Direct sales model, direct to other businesses Raymond G. Sin © 22 HKUST Business School B2B: Direct Sellers Direct sales model, direct to other businesses Raymond G. Sin © 23 HKUST Business School B2B: New Intermediaries Raymond G. Sin © 24 HKUST Business School C2C: Online Garage Sale Raymond G. Sin © 25 HKUST Business School C2C: Online auctions eBay Yahoo Auctions uBid.com Raymond G. Sin © 26 HKUST Business School C2C: Services Raymond G. Sin © 27 Raymond G. Sin © 28 HKUST Business School Raymond G. Sin © 29 HKUST Business School HKUST Business School Rentacoder Process Firm creates bid request Sellers bid to complete work… for a competitive price Firm selects a seller funds placed in escrow Seller (bidder) creates original work Firm rate seller Firm obtains original work Raymond G. Sin © 30 HKUST Business School C2C: Online communities Raymond G. Sin © 31 HKUST Business School E-Commerce Value Chain Value chain – the steps required to get a good or service to a consumer Also called a “supply chain” e.g. Car manufacturers add values to a collection of parts by assembling them into a car Why is it important? Understanding how values are created in various business processes Defining core competency and competitive advantage of a firm Raymond G. Sin © 32 HKUST Business School Stephen King Raymond G. Sin © 33 HKUST Business School Value Chain Analysis (1) What is “value chain analysis”? Tool for analyzing the activities (within an organization) that bring products and services to market An important component: Profit Margin The difference between the cost of conducting these activities and the $$ customers will pay for the final goods/services What is the role of IT in this? IT reduces the cost of these business processes and increases profit margins Raymond G. Sin © 34 HKUST Business School Value Chain Analysis (2) There are mainly two types of activities within an organization Primary activities Activities that create values by converting the raw materials or resources into intermediate or final products and services e.g. operations, marketing Supporting activities Functions that the firm needs to perform to remain in business, but do not directly add value to a product or service e.g. accounting, human resource management Raymond G. Sin © 35 HKUST Business School A Value Chain Looks Something Like This… Raymond G. Sin © 36 HKUST Business School Value Chain Analysis (3) Companies can gain strategic advantages over competitors by focusing on a particular portion of the value chain An example: Dell Founded by Michael Dell in 1984 from his dorm room in UT Austin The idea: bypass retail stores and sell computers directly to customers Today, Dell is one of the top computer makers in the world, with 35,000 employees Raymond G. Sin © 37 HKUST Business School Dell: From dorm room to the world Core competencies (where are values created?): Made-to-order: assembles computer components (CPUs, HDs, RAM) upon request Direct sales model: Customization and convenience Low prices (by cutting the intermediaries from the value chain, and reducing inventory holding cost – JIT) System-specific tech support Raymond G. Sin © 38 HKUST Business School IT and the Value Chain (1) One key factor for Dell’s success: JIT Stocks only a small amount of raw materials, very low inventory holding costs (6 days vs. 30 days) What is the role of IT? The materials are automatically restocked when they drop below a certain level DSS (analyze sales, seasonal trends, costs, inventory levels) Direct connections to the suppliers Raymond G. Sin © 39 HKUST Business School IT and the Value Chain (2) Cost reduction Reduce the costs associated with primary and supporting activities e.g. JIT, SCM SCM enhances inbound and outbound logistics through streamlining and improving communications with suppliers (recall the Walmart example) and customers Value generation Enhances values of products/services e.g. CRM Improves sales, marketing and services through centralizing all customers and sales data Raymond G. Sin © 40 HKUST Business School Where is IT in Dell’s Value Chain? Raymond G. Sin © 41 HKUST Business School Intermediary (1) What is an intermediary? A business, an agent, or even software A middle person that brings buyers and sellers together that provides an infrastructure for transaction and enhances e-business Adds value to the supply chain Internet can radically change the value chain Buyers (sellers) can identify sellers (buyers) more easily on the electronic channel and can directly trade with each other An example: setting up your own online store Disintermediation – elimination of intermediaries Raymond G. Sin © 42 HKUST Business School Disintermediation? Dell can offer low prices to consumers because they eliminate intermediaries (which?) and sell directly to consumers (how? Why?) Benefits of disintermediation: Eliminate charges by “middle men” Launch new products quickly Obtain richer and valuable information about consumers But Dell itself is a new intermediary (between which parties?) enabled by information technology Raymond G. Sin © 43 HKUST Business School Dis- vs. Re-Intermediation • Disintermediation: The elimination of organizations or business process layers responsible for certain intermediary steps in a value chain, reducing costs to the consumer • Reintermediation: The shifting of the intermediary role in a value chain to a new source, adding additional value to the consumer Raymond G. Sin © 44 HKUST Business School Intermediary (2) Reintermediation Using the Internet to reassemble buyers, sellers, and other partners in a supply chain in new ways Creation of “mediated” Web-based marketplace Examples? Questions: 1. How do intermediaries add values to businesses and/or consumers in the context of E-Commerce? 2. What role does information technology play in value creation by intermediaries? Raymond G. Sin © 45 HKUST Business School Intermediary (3) An example: Amazon 2nd longest river in the world?! Started as an online bookstore in 1995 Now sells new and used items, ranging from baby products to high-tech gadgets and kitchen appliances CEO Jeffrey Bezos – Time’s Man of the Year in 1999 Raymond G. Sin © 46 HKUST Business School IT and Business Integration: The Case of Amazon (1) Not a traditional retailer… Does not run any physical storefronts Shifts inventory burden to suppliers (“all-virtual-no-inventory”) Only a few centralized warehouses Avoids expensive real estate of retail stores How does Amazon add values to customers? Personalized shopping experience Human-edited list of product suggestions-> computer-generated recommendation engine Online discussion and community Customer ratings and advice Virtual market place Customers can sell pre-owned items Raymond G. Sin © 47 HKUST Business School IT and Business Integration: The Case of Amazon (2) What are Amazon’s major customer retention strategies? Creating “switching costs” Trust building 1-click ordering One-stop shopping Secure payment system Reliable and speedy delivery The role of IT – adds values to both customers and businesses Invested >$900 million in technology Mainly for CRM and SCM Offers a FREE Web service that enables its business partners to interact with its Website (the “Associates”) Raymond G. Sin © 48 HKUST Business School IT and Business Integration: The Case of Amazon (3) How the “Associate” program works: 1. Associates drive internet traffic to Amazon.com through specially formatted links 2. Associates can earn up to 10% in referral fees 3. Amazon sends quarterly payment to Associates Automated business analysis system These links allow Amazon to track sales and other activity Where Amazon’s Associates can build links, view traffic and earnings reports, etc. Allows its partners access to catalog data, the ability to create and populate an Amazon.com shopping cart, and even initiate the checkout process Raymond G. Sin © 49 HKUST Business School Affiliated Member Example Raymond G. Sin © 50 HKUST Business School rd-party 3 sellers Raymond G. Sin © 51 HKUST Business School B2C: Intermediary Intermediary New types of intermediaries connect buyers and sellers What are the benefits to each of them? 3rd-Party Sellers 600,000 Affiliated Members Reach consumers Consumers revenues lower risk Raymond G. Sin © 52 •Affiliated members –Host their own website – help Amazon to sell Amazon products. •3rd-Party Sellers –Use Amazon website –Amazon help these sellers to sell their products. HKUST Business School Moral of the Story New business opportunities always come with new challenges and risks Ecommerce is not just about “setting up a website”!! When you start doing business online, there are lots of issues to take care of Raymond G. Sin © 54 HKUST Business School The Obvious: E-Biz Tech Information technology (IT) puts the e in e-business Web site functionality – Why is this important to ebiz? Speed of loading Web pages Most users are impatient Good search feature so users can find what they are looking for quickly Properly used graphics Text or graphic first? Simple checkout functions to close the sale Complex and confusing checkout can lead to “abandoned shopping carts” Raymond G. Sin © 55 HKUST Business School The Implicit: E-Biz Issues (1) E-Business raises a number of difficult legal, social, and ethical issues 1. Protection of intellectual property (digital vs. physical…again??) 2. Taxation of e-business transactions A Boston-based firm selling goods to consumers in CA – which tax applies? A firm is registered in Sweden and sells products to customers in Japan – which country should collect the tax? Raymond G. Sin © 56 HKUST Business School The Implicit: E-Biz Issues (2) Why is taxation a major issue in E-Commerce? Traditional principles: 1. physical location of goods what about digital products? 2. nature of the transaction (goods vs. services) 3. location of contract conclusion you can conclude a deal anywhere in the world (or in multiple locations) sometimes even without "black and white" evidence Can/should we tax someone who is not a local resident (and selling from his own country)? Remember the fading distinction between goods and services? (software such as Adobe) Raymond G. Sin © 57 HKUST Business School The Implicit: E-Biz Issues (3) 3. Jurisdiction – whose laws apply when a transaction crosses many international boundaries (e.g. Yahoo! case in 2000 – users selling Nazi-related products on Yahoo’s auction sites) 4. The digital divide (recall our senior citizen example) 5. Trust – how is this different from “security”? TRUSTe Reputation 6. Channel Conflict Partners in the supply chain can become competitors (rating) system (e.g. eBay, BizRate, Cnet) Home Depot case – buyers’ bargaining power Cannibalization Raymond G. Sin © 58 HKUST Business School Concluding Notes (1) E-Commerce: NOT simply about building website, but also about branding, the entire supply chain, and re-engineering of business strategy Other important issues: Cross-selling Cannibalization Managing customer’s expectations (and databases) Managing supply/demand shocks menu cost plays an important role! Defining strategic advantage (NOT technologically) over your competitors Avoid price-based competition through differentiation Raymond G. Sin © 59 HKUST Business School Concluding Notes (2) Dell: $14 million per day in 1999 (online channel alone)! Reached $50 million per day by 2000 #1 in global market share by 2001 Shipped more than 10 million systems in a single quarter (Q4, 2006) Why is Dell so successful? Core competence enabled by E-Commerce: allow customers to access info at their own leisure -- empowering consumers Menu cost = $0; real time inventory update (for both consumers and suppliers) -> tightly integrated supply chain Customer expectations met (no more “out of stocks”) It is CRITICAL for businesses to understand how E-Commerce may help create values (throughout their entire business process) Raymond G. Sin © 60 ...
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