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Chapter Three Digitizing the Business: e-Business Patterns.

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1 Chapter Three Digitizing the Business: e-Business Patterns

2 © e-Business Strategies, Inc.www.ebstrategy.com e-Channel e-Portal e-Market Maker e-Business Patterns: The Structural Foundation Pure-E Digital Products Click-and-Brick Table of Contents

3 © e-Business Strategies, Inc.www.ebstrategy.com e-Business Patterns: Structural Foundation In dynamic market environment, managers challenge is how to tell forest from trees –Are we investing in the right business opportunity? –Are these opportunities ever going to be useful? –Are we using the right business model to attack these opportunities? The Scoop: New, Web-enabled firms eating into large, old-economy companies businesses So: Managers of old-economy companies need right support tools to make strategic moves, allocate scarce resources, and manage risk

4 © e-Business Strategies, Inc.www.ebstrategy.com e-Business Patterns: Structural Foundation But: Choosing target strategy complex –To move online, large brick-and-mortar corporations either swallow a startup or go at it alone. Which is the right approach? Implication: With focus shifting from physical to digital assets, managers must monitor macroeconomic and customer trends –To trigger new e-business structural designs –Resulting new business models form the basis for next gen corporate strategic planning Sadly: Many companies still not taking the digital world seriously

5 © e-Business Strategies, Inc.www.ebstrategy.com e-Business Patterns: Structural Foundation Bottom line: We are still in early stages of the e- Business revolution –There have been and will be moments of extreme optimism; also moments of extreme pessimism –What is certain is that it is creating opportunities for companies willing to adapt –For others, it represents a destabilizing threat to the status quo of business-as-usual –When all is said and done, well find big corporate winners join ranks of premiere companies in the world Aim of this chapter –Help identify winners –Discuss characteristics leading to their success –Analyze discernible patterns for better understanding

6 © e-Business Strategies, Inc.www.ebstrategy.com Going Digital First step in identifying an e-business leader –Look at companies asking the innovative questions that are transforming the rules of todays business game When innovative companies change the types of strategic questions that they ask themselves, the result is business revolution –In 1970s, the Japanese posed new questions and changed rules of the Auto industry Not gas-guzzlers, how do we create fuel-efficient cars? Not cars that break down, how can we create a high- quality car with few manufacturing defects? Not piles of just-in-case inventory, how can we create a just-in-time inventory process?

7 © e-Business Strategies, Inc.www.ebstrategy.com Going Digital In mid 1980s, it was Wal-Mart –Not what business are we in, what business should we be in? –Wal-Mart turned from retailer into supply chain expert –Offered right product mix at right store In mid 1990s, it was new entrants who rose to challenge almost every leading company –Questions about customer and business model, not processes, thus challenging sentiment of early 1990s among leading companies –AOL vs. CompuServe and Prodigy –Dell vs. Compaq and IBM –EMC vs. IBM and StorageTek –Sun Microsystems vs. HP and Silicon Graphics

8 © e-Business Strategies, Inc.www.ebstrategy.com Going Digital In the 2000s, the questions for todays business leader will be on the speed with which his/her firm implements e-business solutions powered by recent innovations –How fully digital can we make our customers experience? –Our supply chain? –Our internal operations and processes? –Intuit transformed from a stand-alone PC-based business model into an online financial services portal when the Internet emerged to threaten its business

9 © e-Business Strategies, Inc.www.ebstrategy.com Going Digital Startups continue to shape the direction of todays business by taking advantage of recent technological innovations E-Business can change the way companies interact with customers, communicates, sells, purchases, manufactures, and develops products Asking a new question not only produces new answers but also reinvents the game Result: a cost advantage thats not 10 percent better than competitors but rather many fold.

10 © e-Business Strategies, Inc.www.ebstrategy.com What models are better suited to take advantage of new business opportunities? What business processes need to change? How do you move from existing model to an e-model reflecting your firms organizational readiness? What are the challenges management must face when executing the new business model? Analyzing the Environment What is the new opportunity based on certain customer and market trends? What are the macro-economic drivers of the business change? Which digital technologies are going to dominant your industry? e-Business Models The strategic framework allows you to compete in the game e-Business Patterns The structural foundation sets the new rules of the game Who are your target customers? What is your value proposition? How do you make money? How to finance the company? How do you get and retain customers? How to attract and retain talented people? e-Business Designs A specific strategy for what you need to do in the marketplace

11 © e-Business Strategies, Inc.www.ebstrategy.com Focusing on the Whole Picture Basic efficiency, effectiveness enhancements as the selling becomes E-enabled Selling goods/services Payment/settlement enhancements Traditional business transferred to the Net Rise of new intermediaries New forms of supply chain integration Consolidation/ transformation of intermediary industry Customer Expects E everywhere Fundamental re- design of business New structures to allow market making, trading and virtual warehousing Begins as a Channel, But Extends to Total Transformation of Business Pure E E-Portal (B2C) E-Market-Makers (B2B) e-Channel Click and Brick

12 © e-Business Strategies, Inc.www.ebstrategy.com e-Channel e-Portal e-Market Maker e-Business Patterns: The Structural Foundation Pure-E Digital Products Click-and-Brick Table of Contents

13 © e-Business Strategies, Inc.www.ebstrategy.com TransactionEnhancement e-ChannelCompression e-ChannelExpansion e-ChannelInnovation e-Channel Table of Contents

14 © e-Business Strategies, Inc.www.ebstrategy.com Transaction Enhancement Augments or replaces the old transaction method –Home Depot In most cases, does not alter other aspects of the process Sometimes, more technically savvy companies may gain business from other firms, thereby altering the identify of players in the channel –Dell –Gap Consumer Electronic Transaction Manufacturer

15 © e-Business Strategies, Inc.www.ebstrategy.com E-Channel Compression Eliminates redundant steps in the channel –When value added by channel is less than cost of the channel –Cisco partner/reseller always on e-channels –Southwest eliminated the ticketing agent link by moving information sharing and transaction processing online –Online stock trading –Amazon.com Consumer Electronic Transaction with Disintermediation Manufacturer X

16 © e-Business Strategies, Inc.www.ebstrategy.com E-Channel Expansion Lengthens the legacy channel Counterintuitive? Inefficiencies in the marketplace can make this approach a necessity Infomediaries –Carpoint in automotive market –Intuit in financial services Vstore.com ConsumerManufacturer Electronic Transaction, Metamediation

17 © e-Business Strategies, Inc.www.ebstrategy.com E-Channel Innovation Pioneering new channels to satisfy and to anticipate unmet and potential customer desires –E-Stamp Given the high stakes, companies everywhere want to make it easier and more enjoyable for customers to do business with them –In every industry, customer base is fragmented into multiple segments, each with its own behavior and needs –Diversity of customer tastes and needs has led to a revolution in where, when and how customers buy the products and services they seek –Winner will take all!

18 © e-Business Strategies, Inc.www.ebstrategy.com e-Channel e-Portal e-Market Maker e-Business Patterns: The Structural Foundation Pure-E Digital Products Click-and-Brick Table of Contents

19 © e-Business Strategies, Inc.www.ebstrategy.com The Click-and-Brick Pattern Brick and mortar + Click and order = Click and Brick The C&B pattern allows an existing offline business to profit from partnering with an emerging online presence. –Charles Schwab Established retailers are creating new C&B patterns. –Lands End A new variation in C&B strategy –Amazon.com and Toys R Us Brick & Mortar Localized inventory In-store shopping experience Immediacy (try, buy, take home) Service (returns, repairs, exchanges) Click Infomediation Speed Direct, one-to- one experience Personalized content Automation (assistants, alerts) Click & Brick

20 © e-Business Strategies, Inc.www.ebstrategy.com Why the Click-and-Brick Pattern Physical stores offer convenience and personal service –Order online but return at store for an exchange Established retailers clout should procure higher-quality merchandise for its Web sites than a start up –Exceptions: commodity items, ex. books Efficient branding of Web sites through store fronts –Established retailers storefronts are living, 3-D billboards Traditional retailers have serious cost advantages –Spend half as much to acquire each new customer as do Web-only retailers

21 © e-Business Strategies, Inc.www.ebstrategy.com Webvan Discuss with Ravi the purpose and nature of this case, now that Webvan is out of this business

22 © e-Business Strategies, Inc.www.ebstrategy.com Management Challenges Lack of merchandise selection on site Lack of communication and mgmt collaboration between the Web site and store staffs and separate channels for fulfilling orders and resolving customer and process problems Hiring second-tier talent to staff the Web sites Continuing to invest millions of dollars on Web commerce initiatives w/o generating a positive ROI (return on investment)

23 © e-Business Strategies, Inc.www.ebstrategy.com e-Channel e-Portal e-Market Maker e-Business Patterns: The Structural Foundation Pure-E Digital Products Click-and-Brick Table of Contents

24 © e-Business Strategies, Inc.www.ebstrategy.com The e-Portal Pattern Portals are Killer apps of e-business An intermediary or middleman offering an aggregated set of services for a specific well-defined group of users –Yahoo! Organizes collections of news, search and communication services for consumers –E-Bay, E-Loan, and E*Trade for business activities related to auctioning, loan financing, and stock trading, respectively Portals occur when new players succeed in positioning themselves between customers and suppliers –Customer focused, enter chain to address specific customer dissatisfaction with current way of doing business –Either add value-added services to market channel or decrease transaction costs of customer/supplier relationship

25 © e-Business Strategies, Inc.www.ebstrategy.com Eyeball Aggregators Or Superportals Auction Portals MegatransactionPortals e-Portal Table of Contents

26 © e-Business Strategies, Inc.www.ebstrategy.com Eyeball Aggregators or Superportals Attract and direct consumer traffic with free content and service offerings –Deliver customers to retailers for a fee (advertisement based or % of transaction) Retailers leery of superportals –Disintermediation, especially of repeat buyers Yet the mass buying power of superportals considerable –Forcing online retailers to bid for a superportals business Search Engine Sticky Content (GeoCities Acquisition) Commerce Portal Communications Portal Media Network Content Portal

27 © e-Business Strategies, Inc.www.ebstrategy.com Auction Portals Enable buyers and sellers to engage in transactions across geographic and demographic boundaries More than just marketplaces –Unique community of collectors and hobbyists Similarity with traditional auctions –Highest bidder wins What is different –Online auction does not have the physical merchandise eBay

28 © e-Business Strategies, Inc.www.ebstrategy.com Megatransaction Portals Category killers –Lock up portal real estate and create a critical mass of customers –Travelocity in online travel and Hoovers for financial news Online travel services portals –Killing traditional agencies Reduced agent commissions; Consumers acceptance of paperless transactions; Ease of use of completing online transactions –Expect to see consolidation and integration in online travel Expedia offers airline tickets, hotel rooms, air/hotel packages –Travel services portals to consolidate along two segments Full-service and off-price discount –Keys to success Automation of the look-to-book process Channel synchronization

29 © e-Business Strategies, Inc.www.ebstrategy.com e-Channel e-Portal e-Market Maker e-Business Patterns: The Structural Foundation Pure-E Digital Products Click-and-Brick Table of Contents

30 © e-Business Strategies, Inc.www.ebstrategy.com The e-Market Maker Pattern Online intermediary, connects disparate buyers and sellers within a common vertical industry –Eliminates channel inefficiencies; aggregates offerings from many sellers or matches buyers and sellers –Buyers: lower purchasing costs; reach new suppliers –Suppliers: lower sales cost; reach new customers Revenue models: –% of transaction, subscription, mark-up

31 © e-Business Strategies, Inc.www.ebstrategy.com The e-Market Maker Pattern Major role for e-Market makers in industries with these characteristics: –Large market size –Fragmented supply chain –Unrecognized vendor or product differentiation –High information-search costs –High product-comparison costs –High workflow costs

32 © e-Business Strategies, Inc.www.ebstrategy.com The Pure E-Digital Products Pattern New innovations in s/w, h/w and communications placing digital content at center of business –software, music, video, news –digital goods produced, delivered, consumed and licensed electronically –delivery of digital goods already changing; delivery as a service Growth of digital products due to –proliferation of Internet devices –cheap and abundant availability of bandwidth –inexpensive PCs, more free PC programs –industry standardization of APIs –XML permitting interface between data and speech and other systems

33 © e-Business Strategies, Inc.www.ebstrategy.com The Pure E-Digital Products Pattern 3 types of entrepreneurial activity characterize digital-goods market –high-quality end user technologies, services and products –s/w and h/w platforms –distribution infrastructure

34 © e-Business Strategies, Inc.www.ebstrategy.com High-Quality, High Speed Content to Consumers: Digital Music Internet altered how music will be distributed –Collapse of the middle pattern –Artists bypassing major labels to reach audience directly –Business as usual will soon mean no business at all for many of the industrys middlemen –New companies and peer- to-peer technologies emerging to meet needs of the digital music download business: MP3.com, Napster, Gnutella, Pointera

35 © e-Business Strategies, Inc.www.ebstrategy.com New Platforms for Digital-Media Delivery Market for delivery of Internet services through handheld devices new and evolving rapidly –PDAs and mobile phones WAP standard emerging for delivery of Internet- based services to mass-market wireless phones WML for Internet apps and content for wireless phones Next gen mobile delivery systems include voice browsers and speech-recognition systems –TellMe and HearMe

36 © e-Business Strategies, Inc.www.ebstrategy.com New Infrastructure Services for Digital Content Delivery New infrastructure services required to support faster content distribution –Content delivery or congestion mgmt services Digital Island and Akamai Techologies –Caching services Inktomi and CacheFlow –Outsourcing services Exodus or Level 3 Supported by different business models –Content delivery vendors paid by Web site owners but

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