1 CS 453: Business Strategies and Models Fall 2007 Based on: Chap. 3 of Treese and Stewart text

2 Overview 1. Is use of the Internet a revolution in commerce? 2. Where does the Internet add value? 3. Four Internet business strategies 4. Threats and Opportunities, SWOT analysis

3 1. Revolutionary? Or not? Things have changed for businesses, certainly Enough so that we can call this a revolution? What do you think? Why, why not? Evidence, logic on this please Groups of three or four Reasons why, why not Present, then vote

4 Your comments on this debate

5 An analogy: railroads Differences from 1825 to 1890 Travel time reduced 4x Transportation cost of goods 5-15x less Routes independent of waterways Work-force dispersal, vacation habits Standardization: e.g. time

6 Railroads and the Internet Comparison of Infrastructure Issues New infrastructures needed Original purpose perhaps not commerce Standards required to make it happen Security issues Technical innovation required first Accelerates or enables a larger trend Industrial revolution Information age

7 Similar Factors Economies of scale Source of competitive advantage RRs: e.g. regional advantages The net: many examples (we’ve talked about) Inventory needs: Changes how inventory and production are or are not co-located in time and place Distribution: more variety, choice, availability New opportunities New corporations New businesses in new areas

Discussion again: Revolution or not? 8

9 2. Where does the Internet Add Value? From a company’s perspective, the Internet must add value somehow. Two high-level views of how: Transform customer relationships Displace sources of value (Change how value was added in the past) Term used in business: value proposition The unique added value an organization offers customers through their operations A statement summarizing the customer targets, competitor targets and the core strategy for how one intends to differentiate one's product from the offerings of competitors.

10 Customer Relationships Move from supplier-centered to customer-centered Old view: one-to-many view Supplier chooses hours; location Supplier delivers services Focus on supply chain Now, customer-centered: one-to-one view Supplier always available; no physical store Services come to customer at their site Customer servers herself Focus on customer needs

11 Displacing Sources of Value Now, economies of scope as well as scale More kinds of things as well as lots of them Mass production still important (a given) but customization more important Customization is possible for more people Distribution was an inconvenient afterthought Now software, service downloads central to the value a business provides Global distribution now easier (for bits instead of physical goods)

12 3. Four Internet Business Strategies The preceding ideas let us characterize Interent business strategies like this: Channel Master Customer Magnet Value Chain Pirate Avast! Talk Like a Pirate Day is Sept. 19! Digital Distributor

13 Channel Master Customer oriented but based around a particular type of product Possibly traditional goods and services Build deep, strong relationships Marketing channels and other direct ties to customers made to work with the Internet An example: Cisco Hardware has been sold for decades Cisco uses the net at all four parts of the “Commerce Value Chain”

14 Customer Magnet Customer centered: draw a larger set of customers Meet broadly shared needs, aggregate larger number of services Must integrate multiple suppliers behind one interface Become a destination of choice One example (of many): Yahoo Search, shopping, news, financials, , IM, groups,… Similar: Amazon, AOL

15 Value Chain Pirate Focus on displacing someone in the value chain, grabbing their share of the value Perhaps by connecting suppliers to customers in a new way Leapfrog or displace someone in the “old” way May focus on customer issues (e.g. Attract step in commerce value chain) One example: Autoweb Importance on interacting with customers Traditional suppliers are used Other pirates?

16 Digital Distributor Focus on supply, products/services New or heavily altered traditional channels Build new commerce value chain for customers that supplies products and services in a new way One example: Monster.com Previously: employers handled hiring (mostly) Services for job-seekers (including some shift of activities) Services for employers New tools: agents, resume screening, moving assistance Touches all four steps in commerce value chain Others with this strategy?

17 4. Threats and Opportunities SWOT Analysis Part of a business plan, or an evaluation Sets of questions to be answered See pp in handout

18 Threats and Opportunities Note that a threat to you is someone else’s opportunity (and vice versa) Channel master: In your product area, can they use the Net better? Customer magnet: Can they outdraw you? Better or broader services? Better community? (Discuss in relation to Amazon.) Value Chain Pirate Can you lose your position? Someone sells directly to your customers using our suppliers? Digital Distributor Can part of what you do somehow be merged into another company’s new aggregation?

Disintermediation Removing the middle-man Example: customer goes directly to producer Has this happened in e-commerce? What do you think? Discuss. 19

20 Reintermediation (Today’s word-of-the-day!) Did the internet eliminate the middle-man between consumer and suppliers? Not really for various reasons In fact, new kinds of middle-men Old chains of distribution disrupted and re- assembled Aggregate services Provide broader services and product together Products alone not enough

21 Summary and Wrap-up Note that these model strategies aren’t mutually exclusive Are they even complete? What doesn’t really fit this? Note that you could base a business strategy on these models