1. Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network Economics
Minder Chen, Ph.D.
Associate Professor of Management Information Systems
Web site:

2. Electronic Commerce: Introduction
E-Business
E-Commerce
Internet
Commerce

3. Travelocity
Microsoft expedia
Priceline.com

4. The Low-Friction Market
"[The Internet] will carry us into a new world of low friction, low-overhead capitalism, in which market information will be plentiful and transaction costs low."
-- Bill Gates, The Road Ahead
"Where there is a friction, there is opportunity!"
-- Net Ready.

5. EC Business Opportunities
Innovative Ideas, Business models, and Business strategies
Funding
Business and technical talents
Technological enablers
New business models and ideas are driving EC initiatives.
Internet technologies are enablers.

6. The Cycle of Electronic Commerce
Access
Searches
Queries
Surfing
Follow-on Sales
Customers
Online Ads
Online Orders
Standard Orders
Distribution
Online: soft goods
Delivery: hard goods
Electronic Customer Support

7. EC and Business Processes
Seller
Customer
Phone,
fax,
Send info
Request info
Provide
Info
Get
customer
info
Fulfill
order
Support
Identify need
Find source
Evaluate offerings
Purchase
Operate, Maintain, Repair
Data sheets, catalogs, demos
Web surfing
Web searches, web ads
Web site
Newsgroups
Net
communities
Corporate Databases
Demos,
reviews
Web site
Credit cards, e-cash
P.O.s
EDI
Deliver soft goods electronically
Web site, phone,
fax, , ing list

8. Changes in the Net Economy
Business environment
Local / Physical Global /Virtual
Business assets
Tangible Intangible
Business change
Periodic Continuous
Business production
Mass Production Mass Customization Mass Personalization

10. Mass Customization: http://www.zazzle.com/
The unfulfilled need of a user again was the mother of invention: The two brothers, Bobby and Jeff Beaver, wanted to create a cool t-shirt to advertise a party at their fraternity (in order to "draw in plenty of nice girls"). They realized how difficult it was at that time to get high-quality custom t-shirts without having to order larger quantities at a promotions company or to rely on the low quality of heat-transfer at the local copy store.
unique digital custom printing technologies
Zazzle is not a technology company – it is a "market maker".
"Niching the niche“ - a mass customization ecosystem

11. Network and Information Economy
Information is costly to produce but cheap to reproduce.
Price information according to its value not its cost.
Managing intellectual property.
Maximize the value of your intellectual property, not the terms and conditions that maximize the protection.
Information as an “experience good”
Consumers must experience it to value it.
Brand and trust building is critical.
The economics of attention
A wealth of information creates a poverty of attention.
Source: Information Rules

12. Externality, PageRank, Traffic, and Ads
Externalities is a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect.
“Attention economy” and “reputation economy” are too fuzzy to measure. But, because of Google (and other search engines), we can now convert from reputation (PageRank) to attention (traffic) to money (ads).
Adapted from: [PDF]why $o.oois the future of business  (free) Chris Anderson

13. Popularity Adds Value in a Network
Virtuous cycle
Positive Network Externality
Vicious cycle
Value to User
Networks
Real: LAN, Internet, Fax
Virtual: Virtual community, Chat room, Instant messenger, Skype, social network
Number of Compatible User

14. Challenge Consumers: Everything on the Internet should to be free.
Merchant: How can I make a profit if everything is free.
Examples:
Free web browsers: Netscape Communicator and Internet Explorer
Free Juno, mail.yahoo.com and hotmail.com
Free Internet Access: Freeserve in Britain
Free PC: eMachine and CompuServe; Free-PC
Free web hosting: Geocities, Angelfire, Zoom
Free ...
All tangible and intangible items that can be copied adhere to the law of inverted pricing and become cheaper as they improve.
Anticipate this cheapness in your pricing strategy and product/service development strategy
Gilder's Law
$250
Cost of a 3-minute
Long Distance Call
Price $0
1930
Year
1999

15. [PDF]why $o.oois the future of business  (free) Chris Anderson
[PDF]FREE: The Future of Radical Price

16. Moving Your Business Online
Companies are motivated by either fear or greed to move to their businesses to the net.
To .com your company is becoming an imperative.
They have to obsolete their current business models and work very hard to search a new business model.
Your competitor is just
one-click away

17. Web Metrics
Hit – any Web server request that generates a log file entry. A page has many elements (html, gifs), each generating a hit.
Page – Web server file that is sent to client user agent, usually a browser.
Session – all actions (i.e. requests, resets) made in single visit, from entry until logout or time out (e.g., 20 minutes of no activity).
Visitor – a user or bot/spider/crawler that makes requests at a site. Can be new, returning, registered, anonymous.
Buyer – visitor that purchases something
Customer – a visitor that registers (sometimes defined as buyer)
Conversion – rate at which visitors transition to desired state (buyers, customers, registered, started checkout)
Host – remote machine, identified by IP address, used for visit.
Referrers – Page that provides a link to another page. Can be internal or external
Web logs, Google Analytics, and Alexa

18. Hit/page hit/ Referrers/ Host (location), domain, IP address/

19. EC Strategies: 4 Cs
Customers
Commerce
Content
Community

20. "Word of mouth" factor gets amplified on the Net
Customers
Obsess over your customers
Remember that the Web is an infant
What do you have to offer that the physical world cannot in order to attract customers?
If you make one customer unhappy, he won't tell five friends -- he'll tell 5,000 on newsgroups, list servers, and so on.
"Word of mouth" factor gets amplified on the Net
The shifts of balance of power away from business and toward customer.
- Jeff Bezos

21. Self Assessment: Customer Caring
What do your customers need? What requests do they make of you?
How do you respond to customer’s requests?
What kind of information can they get from you?
What process do they go through? How do you produce and distribute it to them?
What are the steps that your customers have to take
to complete a purchase transactions?
How do they get shipment status?
How are exceptions handled?
What do you need from customer? What do you know about customer preferences?
What information could you use to better target your
product and service offerings?
What can you do to build
relationships? How can you engage customers in an ongoing dialog?
How can you continue to provide information, products,
and services to reinforce your ongoing relationships?

22. Virtual Communities Virtual Community
Content
Hard goods
Games
Services
Money
Content
Demographics
Users
Providers
Advertising
Other
Websites
Advertisers

23.
Parentclick.com from Amanda
Community Web Site

24. Groupon Business Model

25. Group Buying Sites Groupon.com 42
Site Name
Number of Cities
Rewards for Sharing With Friends
Type of Deals
iPhone App
Groupon.com 42
$10 for you if new invitee joins and buys a deal
Hip city locales and activities
Yes
LivingSocial.com 13
Free deal if 3 friends buy it; $5 to invitees who sign up; $5 to you if they buy a deal
Tippr.com 1
Deal gets better as more people buy it No
Woot.com
online
None
Technology gadgets
Gilt.com
$25 for each invitee who buys
High fashion
Ideeli.com
Source:

26. Subscription / Listing Fee Value-added Services
Revenue Streams
Transaction
Subscription / Listing Fee
Value-added Services
Donation and Sponsorship
Advertising
Google AdWords
Google AdSense
Affiliatiion Programs

27. Multifaceted Model for Web-Based EC Design
ATTRACT: Hits
Communities of interest
Changing topics for repeat customers
Features that encourage customers to explore
ENGAGE: Leads
Special areas encourage customer to register (i.e. selection of articles customized for visitors interests)
PARTICIPATE: Sales revenue
Free download (video, audio, & software)
Shopping
Chat and News
Subscription
JUMP: Advertising revenue
Other products of interest to customer
Other sites of interest to customer
Attract
Jump
Engage
Participate
Adapted from Netscape Communications Inc., 1996.

28. Is EC Appropriate for You?
Industries who set up
virtual storefronts

29. Technology-Fit: Customer and Product
High
Second Wave
Earlier Adopter AA
FedExp
Microsoft
Jenny Craig
Chrysler
Customer Need for Product Information
Web Laggards
Second Wave
Nike
Pepsi
Tide
Denny's
Low
Customer Demographics Match
Poor
High
Source: Forrester Research

30. Opening Online Business
Identify a need and a niche
Determine what you have to offer
Set your business goals
Design your EC architecture
Assemble your EC teams
Build your web site
Set up a system to handle sales
Provide customer services
Advertise your online business (online and offline)
Evaluate your performance and moving on

31. EC Hosting Yahoo!Small Business Ebay Amazon Marketplace Drupal.org
Ebay
Amazon Marketplace
Drupal.org
 Wordpress: Open source solution for a web site.
Webs.com: Webs’ point-and-click Site Builder requires no technical skills.

32. Web Site Architecture Design: Website Navigation Diagram

33. Site Elements Source: Web Style Guide Search features Home page
Menu-driven, News-oriented
Path-based, Splash screens or image maps
Graphics and texts
Submenus pages and subsites (alternative home pages for special audiences)
Tables of contents, site indexes, site maps
Product/service/information pages
"What's new" pages
Search features
Contact information
Street address, phone number, fax numbers, maps, travel directions, parking information
User feedback and victual community pages
Bibliographies and appendixes
FAQ (Frequently Asked Questions) pages
Customized server error pages
Source: Web Style Guide

34. Cross-Selling and Up-Selling
Amazon’s Collaborative Filtering/Recommendation system

35. Personalization

36. The Evolution of EC Implementation
Extension
eCRM
eProcurement / SCM
eMarketplace / Auction
Process Integration
Fulfillment
Settlement
Workflow
Real-time organizations
Communities of Interests
Marketplace creator
Web-based Transaction
Product database queries / Search
Electronic Payments
Fund transfer
1:1 Relationship
Functionality
Customer Interactivity
Registration / Forms
Games / Chat room / eForum
Publishing (Brochure-ware)
Advertising
Marketing
Information
Maturity

37. Business Models Based on the Value Chain in the Market Place
Raw material producer
Exchange
Independent market operators
Consortia
Manufacturer
Online
Procurement
Buyer-side EC Model
Distributor
C2B
New
Middleman
Retailer
B2C
C2C
Examples:
B2B: alibaba.com
B2C: Amazon.com
C2B: Priceline.com
C2C: eBay.com
Consumer
Channel Conflict
Service Providers:
Logistics
Financial
B2C

38. Market Capitalization
Who Can Afford Not to Play in the Internet EC Space?
Market Cap (4/16/99)
$ Billion
$ Billion
$ Billion
$ Billion
Cap: 9.771B Share: $57 7/16
As 6/28/2011
Symbol
Price
Chg
Chg %
Market Cap
PCLN
495.40
8.30
1.70%
23.94B

39. E-Commerce Matrix / Model
Business
Consumer
Government
B2B GM / Ford EDI Networks
B2C Amazon Dell Hothothot.com
B2G Online tax filing Customs paperwork pre-clearing
C2B Priceline Accompany
C2C EBay Paypal QXL
C2G Online tax filing
G2B Online permit applications Online tender documents
G2C Online permit applications Online license renewals
G2G Interpol - FBI

40. Business-to-Business vs. Business-to-Consumer
<
Business-to-Consumer
Business-to-Business
No vendor loyally
No switching costs
Time-insensitive
Short-term
Casual
Many vendors
Products differentiated on price, image
Relationship-based
Very high switching costs
Extremely time-sensitive
Long-term
Mission-critical
Few partners
Partners differentiated on reliability, flexibility

41. Business Channel: Multi-Channel Presence
Brick-and-mortar
Face-to-Face
Mail order
Mail
Printed catalog
Phone order
Telex
Phone
Fax
Electronic commerce
EDI
Web
Click and Mortar
Seller
Buyer
Pure Play
Multi-channel plays will have extraordinary power if companies elegantly blend and synchronize those channels.

42. The B2C Business Models – Bricks, Clicks, Revolution and Evolution
Bricks organizations set up separate click organizations to give the required freedom to operate in the fast moving Click environment or
Clicks organizations were created through VC capital
Gap, Safeway, Wallmart
eBay, Amazon, Webvan,
Wingspan Bank, Yahoo
Bricks & Clicks
Mergers or sales of assets to Bricks
Folding bricks ventures into portfolio
Narrow focus of offerings
Sat on the sidelines for the explosion
Evolved to online commerce
Online services are incremental
Not huge differentiators for clients
Source of convenience
Took advantage of lessons learned
Assets CHEAP from Click failures
Wells Fargo, Safeway,
Barnes and Noble

43. Soruce: Harvard Business Review, Get the Right Mixes of Bricks and Clicks, May-June 2000

44. Future EC Trends
Broadband internet connection: I.e., ADSL, Cable modem
Streaming media and web-based learning
More interactive virtual community
Customization and personalization
Mini-portal and corporate portal
Affiliate partner
Multiple-channel integration
E-commerce is driving E-business
Affordable EC software and hosting service for small- medium-size companies
Emerging standards such as XML to enable Business-to- Business electronic commerce
Mobile commerce

45. Elevator Pitch  
Our business [list name] will deliver [list key deliverables] to [list key beneficiaries] to enable them to [list key benefits]. The business is headed by [list founder and key executives, investors, and advisors] that have [list key background and qualifications]. The business [will launch/was launched] on [date] and we [will begin/began] delivering [first product or service] on [date]. We expect to prove our business model and achieve profitable growth on [date] and anticipate that the terminal value of the business will be [list anticipated value], which represents a [list return] to investors. The total cost to achieve this goal will be [total cost], which includes the following key cost categories [list]. We have currently received [list dollars of funding secured to date] from the following sources [list]. We anticipate receiving the remainder of the funding by [date] from [list sources]. The key risks for the project are [list risks]. These risks will be managed by [list key approached to managing each risk].
Source: Applegate and Saltrick, “Developing an Elevator Pitch for a New Venture.”

46. Elevator Pitch Elevator Pitch – What is it?
In the time it takes to ride an elevator from the 1st to the 10th floor – explain the gist of your business idea to a stranger!
An elevator pitch conveys the businesses’ key features and rationale in a clear, concise way so that it can be communicated easily to others
Who is the primary audience?
Potential investors, customers, suppliers, partners, employees
Anyone who has or could have a stake in your business
Why does it matter?
Communicate – What, why, how, where and when
Teaser to generate interest – the upfront hook!
Share a coherent vision of the firm’s goals and high level strategy for achieving these goals
And, last but not least - Raise $$$!
Plus, it might be your only shot!

47. Key Issues
Overview of the problem your business will solve and opportunity it will address
Why does this problem matter?
How severe is it?
How big is the opportunity?
How fast is it growing?
Why has it not been solved yet?
Why can you solve it when others could not?
What value is being created?
Who are the primary beneficiaries?
Think about who is capturing the value
Consider that some groups may capture more than others – these represent the ideal first customers

48. Products/Services and Competitors
What are the products and services that you will deliver to solve the problem
How do these products and services meet the unsolved market problem?
Do they immediately solve the entire problem?
Or what is the product and service “path” for getting there?
Who are the competitors and why are your products and services superior?
Focus on direct competitors
Consider segmenting direct competitors by type
Why, where and how does each competitor or type fall short?

49. Revenues and Resources
How do you plan to generate revenues
Short term
Longer term if there is a twist or kicker
Hit the high points of your business model
Profitability
Leverage – As revenues and size increases, do gross and/or operating margins improve?
Scale efficiencies - how do the mechanics and economics of your business model scale
What are the resources required?
Money – Capital intensity?
Time – core development, unique product versions for different customer types, distribution channel build, etc
Team background and expertise – what are the critical competencies of the team?

50. Teaser and Vision Teaser to pique interest
Punchy, crisp and clearly articulated
Incentivizes stakeholders to care by logically presented the case for how the business benefits them
Delivered with confidence but not cockiness
Should leave them wanting to hear more about the details at a later date
Communicate a common vision and goals
Everyone on the same page, working toward the same goal
Minimize non-productive activities, speeds up time to market

51. Raising Money Raise $$$
Distilling the essence of your business idea into a few critical points reflects well on you
Strong elevator pitch results in more favorable assessment of your talents by potential backers
VCs would rather back a Grade A management team with a Grade B product than vice versa
Decisions to proceed forward with due diligence are often made on the basis of the elevator pitch and the accompanying follow up conversation by seasoned VCs

52. What
How
Who
Cash Flow

53. Describe a Business Model: 9 Building Blocks
How
What
Who
Partner Network
Customer
Relationships
CLIENT
SEGMENTS
CLIENT
SEGMENTS
CLIENT
SEGMENTS
CLIENT
SEGMENTS
Key Issues To Solve
Offer
Customer
Segments
CLIENT
SEGMENTS
CLIENT
SEGMENTS
CLIENT
SEGMENTS
CLIENTS
CLIENT
SEGMENTS
CLIENT
SEGMENTS
CLIENT
SEGMENTS
Competencies, Activities, Resources
Distribution Channels
CLIENT
SEGMENTS
CLIENT
SEGMENTS
CLIENT
SEGMENTS
CLIENT
SEGMENTS
Cost
Structure
CLIENT
SEGMENTS
Revenue
Streams
CLIENT
SEGMENTS
CLIENT
SEGMENTS
CLIENT
SEGMENTS
How Much?
Source: Describe and Improve your Business Model

54. Reverse Engineering Facebook’s Business Model with Ballpark Figures

55. Five Essential Elements Of Business
Source: Ram Charan, What the CEO Wants You to Know