1. Copyright © 2002 Pearson Education, Inc.

2. Online Service Industries
CHAPTER 11
Online Service Industries
Created by, David Zolzer, Northwestern State University—Louisiana
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3. Learning Objectives
Describe the major features of the online service sector
Discuss the trends taking place in online the financial services industry
Identify the key features of the online banking and brokerage, insurance, and real estate industries
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4. Learning Objectives
Explain why online travel services can be considered the most successful B2C segment
Describe the major trends in the online travel services industry today
Explain career services online may be the ideal Web business
Identify current trends in the online career services industry
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5. The Service Sector
The largest and most rapidly expanding pare of the economies in advanced industrial nations
Employ 37% of the labor and account for $1.8 trillion in GDP
Adding finance, insurance, and real estate services (FIRE), about 44% of labor force works in service delivery and accounts for around $3.5 trillion or 40% of the entire U.S. economy
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6. The Relative Size of the Service Sector: Employees
Page 586, Figure 11.1
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7. The Relative Size of the Service Sector: GDP
Page 586, Figure 11.2
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8. What Are Services?
Service occupations are occupations “concerned with performing tasks” in and around households, business firms, and institutions
Service industries are those “domestic establishments providing services to consumers, businesses, governments, and other organizations”
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9. The Major Service Industry Groups
Page 587, Figure 11.3
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10. Categorizing Service Industries
Major service industry groups are finance, insurance, real estate, business services, and health services
These groups are categorized as:
transaction brokering -- acting as an intermediary to facilitate a transaction
providing a “hands-on” service
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11. Categorizing Service Industries
Most important feature of service industries is that they are knowledge and information intense
To add value, they process a great deal of information and employ a highly skilled, educated work force
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12. Categorizing Service Industries
Suited to e-commerce services and the strength of the Internet
These firms have the ability to:
collect, store, and disseminate high value information;
provide reliable, fast communications; and
personalize and customize service or components of service
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13. Growth of Online Investable Assets
Page 590, Figure 11.4
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14. Online Investing and Banking
Page 591, Figure 11.5
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15. Number of Individuals Banking Online
Page 591, Table 11.1
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16. Online Consumers’ Financial Activities
Page 592, Table 11.2
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17. Financial Service Industry Trends
Provides four generic kinds of services:
storage and access to funds
protections of assets
means to grow assets
movement of funds
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18. Traditional Providers of Financial Services
Page 592, Table 11.3
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19. Financial Service Industry Trends
Two important global trends in financial services that have a direct consequences for online financial services firms are changing the institutional structure of financial services
Industry consolidation
Movement toward integrated financial services
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20. Financial Service Industry Consolidation
Glass-Steagall Act or 1934 prohibited banks, insurance firms, and brokerages from have significant financial interests in one another
Financial Reform Act of 1998 amended Glass-Steagall and permitted banks, brokerages, and insurance firms to merge and to develop nationwide banks
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21. Industry Consolidation and Integrated Financial Services
Page 593, Figure 11.6
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22. Financial Supermarket
Provides a variety of financial products and services at a single physical center or branch bank
Internet has created the technical foundation for an online financial supermarket to operate
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23. The Financial Supermarket Model
Page 594, Figure 11.7
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24. Financial Service Industry Trends
Management of financial assets online is growing rapidly
By 2005, it is projected that more than half of all households in the United States will be investing online
Online banking is also expect to double by 2005
Online stock trading is expected to grow from 15 million households today to 34 million households in 2005
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25. Financial Service Industry Trends
In the insurance and real estate industries, consumers still generally use the Internet for research and use conventional transaction broker to complete the purchase
The move toward industry consolidation and the provision of integrated financial services are two important trends for online financial services firms
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26. Online Banking and Brokerage
Pioneered by NetBank and Wingspan
Traditional banks had developed earlier versions of telephone banking, but did not use online services until 1998
Established name brand national banks and brokerage firms have taken a substantial lead in market share.
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27. The Leading Financial Services Firms
Page 596, Table 11.4
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28. Multichannel vs. Pure Online Financial Services
Multichannel firms that have both physical branches and solid online offerings are growing faster and assuming market leadership over pure online firms that cannot provide customers with many services that still require hands-on interaction
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29. Customer Acquisition, Conversion, and Retention
Customer acquisition costs are significantly higher for Internet-only banks and brokerages that must invest heavily in marketing versus their established brand name clicks and mortar competitors, which can simply convert existing branch customers to online customer at a much lower cost
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30. Customer Acquisition, Conversion, and Retention
Multichannel institutions draw nearly four times the number of visitors, and significantly more of those visitors open a secure channel, indicating they are interested in transacting .
Visitors to pure online firms use the sites more intensively and for a wider variety of services
Multichannel site users visit less frequently and perform fewer transactions online.
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31. E-commerce in Action: E*Trade.com
In 1996, E*Trade promised to revolutionize the domestic brokerage business by offering low, flat rate discount commissions on stock trades, free online price feeds, free stock quotations, online order entry, more efficient order execution, and better customer service
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32. E*Trade’s Balance Sheet
Page 600, Table 11.5
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33. E*Trade Growth Measures Post 2000
Page 602, Table 11.6
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34. Financial Portals
Projected boom in online investment and banking has also attracted non-financial institutions
Financial portals provide comparison shopping services and steer consumers to online providers for independent financial advice and financial planning
Generate revenue from advertising, referral fees, and subscription fees
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35. Financial Portals
Financial portals add to the online price competition
Thwart the ambitions of the large banking institutions that would like to ensnare consumers in a single branded financial supermarket in which switching costs from a single, all purpose account would be considerable
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36. Account Aggregation
The process of pulling together all of a customer’s financial (and even non-financial) data at a single personalized Web site
Established financial institutions originally opposed as a threat to their customer base
Consumer demand for this convenience has forced them to sign deals with major account aggregation software providers
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37. Account Aggregation Privacy issues are raised by this new technology
Consumer must release all of their login and password information to the account aggregator
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38. Online Mortgage and Lending Services
Envisioned a market in which the mortgage value chain would be simplified and the loan closing process speeded up, with the resulting cost savings passed on to the customer
Resulting high customer acquisition costs and instituting these value chain changes proved too difficult
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39. Online Mortgage and Lending Services
Four basic types of mortgage lenders
established online banks, brokerages, and lending organizations
pure online bankers/brokers
mortgage brokers
mortgage service companies
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40. Online Mortgages 1999-2004 Page 607, Table 11.7
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41. Online Insurance Services
Term life insurance stands out as one product group supporting the E-commerce I vision of lower costs, increased price transparency, and the resulting consumer savings
The Web offers insurance companies new opportunities for product and service differentiation and price discrimination for other insurance product lines
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42. The Insurance Industry: Segments
Page 609, Table 11.8
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43. Online Insurance Services
Several Distinguishing Characteristics make it difficult to completely transfer to the new online channel
policies that defy easy comparison and that can only be explained by an experienced sales agent
traditional reliance on local insurance offices and agents to sell complex products uniquely suite to the circumstances of the insured person and/or property
marketplace that is coordinated by state insurance commissions in each state with differing regulations
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44. Online Insurance Services
Consumers will check the Web for prices and terms, but will not by policies online
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45. Leading Online Insurance Services
Page 611, Table 11.9
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46. Online Real Estate Services
Vision of E-commerce I (that the historically local, complex, and agent-driven real estate industry would be transformed into a disintermediated marketplace where buyers and sellers could transfer directly) has not been realized
What has transpired has been beneficial to buyers, sellers, and real estate agents
About 50% of home buyers now consult real estate sites on the Web, and this percentage is expected to grow to 80% by 2005
Major impact is influencing purchases offline
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47. Online Real Estate Services
Primary service is a listing of available homes with links to
mortgage lenders
credit reports
sales price histories by neighborhood
school district data
crime reports
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48. Online Real Estate Services
Value chain has remained unchanged
Home addresses are not available online
Users are directed back to the local listing agent for further information
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49. Online Real Estate Services
Buyers benefit because they can quickly and easily access a wealth of valuable information
Sellers benefit because they receive free online advertising for their property
Real estate agents have reported that Internet-informed customers ask to see fewer properties
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50. Major Online Real Estate Sites
Page 612, Table 11.10
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51. Online Travel Services
Attract the largest single e-commerce audience
Largest slice of B2C revenues
Most common channel used by consumers to research travel options
Most common way for people to search for the best possible prices and book reservation for airline tickets, rental cars, hotel rooms, cruises and tours
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52. Total U.S. Online Travel Booking Revenue
Page 616, Figure 11.8
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53. Online Travel Services: Successes
Online travel sites offer consumers a one-stop, convenient, leisure and business travel experience
Travelers can find content, community, commerce, and customer service
Bring consumers and suppliers together in a low transaction cost environment
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54. Online Travel Services: Successes
Offer more information and travel options than traditional travel agents
description of vacations and facilities
chat groups and bulletin boards
convenience of purchasing all travel elements at one stop
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55. Online Travel Services: Successes
Travel is an
information-intensive product
an electronic product in the sense that travel requirements can be accomplished for the most part online
Travel does not require
inventory
suppliers are always looking for customers to fill excess capacity
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56. Online Travel Services: Successes
Travel services do not require an expensive multichannel physical presence
Airline reservations and car rentals are best suited for the online market place
Cruises, tours, and hotels to some extent will not grow as quickly in the online environment
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57. Online Travel Services: Successes
In the past five years corporate travel expenses have mushroomed leading corporations to seek greater control over employee travel plans
Corporations are outsourcing their travel offices entirely to vendors who can provide Web-base solutions, high-quality service, and lower costs
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58. Online Travel Services: Trends
The online travel services industry is going through a period of consolidation as stronger offline, establish agencies purchase weaker and relatively inexpensive online travel agencies in order to build stronger multichannel travel sites that combine physical presence, television sales outlets, and online sites
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59. Online Travel Services: Trends
Suppliers -- such as airlines, hotels, and auto rental firms -- are attempting to eliminate intermediaries such as GDS and travel agencies, and develop a direct relationship with consumers
Orbitz was formed by seven major airlines to deal directly with corporations and leisure travelers
Major auto rental firms opened direct-to-customer Web sites
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60. Online Travel Services: Trends
Successful online travel agencies are attempting to turn themselves into merchants by purchasing large blocks of travel inventory and then reselling it to the public, eliminating the global distributors and earning much higher returns
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61. Projected Growth of Online Travel Market
Page 618, Figure 11.9
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62. Projected Growth of Managed and Leisure/Business Travel
Page 619, Figure 11.10
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63. Large Online Travel Sites
Page 650, Table 11.11
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64. The Travel Services Value Chain
Page 621, Figure 11.11
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65. E-commerce in Action: Expedia.com
Online travel services company that provides access to information on scheduling, pricing and availability of flights, hotel accommodations, and rental cars
Expedia is one of the top players in online travel services, generating revenues of $222 million for 2001
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66. Expedia.com Balance Sheet
Page 625, Table 11.12
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67. Online Career Services
Next to travel services, job hunting services have been one of the Internet’s most successful online services
Save money for both job hunters and employers
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68. Online Career Services
Traditional recruitment tools have sever limitations
Online recruiting
provides a more efficient and cost-effective means of linking employers and job hunters
reduces total time-to-hire
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69. Online Career Services
Job hunters can
easily build, update, and distribute their resumes
conduct job searches
gather information on employers
It is an information-intense business process which the Internet can automate, and thus reduce search time and costs for all parties
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70. The Growth of Online Recruitment
Page 628, Figure 11.12
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71. Popular Online Recruitment Sites
Page 629, Table 11.13
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72. Many Ways to Find a Job Page 631, Figure 11.13
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73. Survey Results Page 631, Figure 11.14
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74. Online Career Services: Trends
Online recruitment has focused primarily on general job recruitment
Many general sites have begun listing lower-level and middle-level management jobs
Offer larger revenue potential
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75. Online Career Services: Trends
Going through a period of rapid consolidation led by TMP Worldwide, Inc -- world leader in
online executive recruiting
executive moving and relocation
e-resourcing
temporary contracting
recruitment advertising
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76. E-commerce in Action: HotJobs.com
A New York based online recruiter, linking employers, staffing firms, and job seekers through its Web sit HotJobs.com
More than 9,100 employers pay an average of $870 per month to list job openings
Has a database of close to 3 million job seekers
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77. HotJobs.com’s Balance Sheet
Page 635, Table 11.14
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