1. 1 CS 453: Business Strategies and Models Fall 2007 Readings: Chap. 3 and 4 in textbook

2. 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 5. Business models/segments Consumer retail, B2B cataloging, Information commerce

3. 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. 4 Your comments on this debate

5. 5 Book’s analogy: railroads See pages 32-35 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. 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. 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 anre not co-located in time and place Distribution: more variety, choice, availability New opportunities New corporations New businesses in new areas

8. 8 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 the book: 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.

9. 9 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

10. 10 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 incovenient afterthought Now software, service downloads central to the value a business provides Global distribution now easier (for bits instead of physical goods)

11. 11 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

12. 12 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 Textbook’s example: Cisco Hardware has been sold for decades Note book’s comments on how Cisco uses the net at all four parts of the Commerce Value Chain

13. 13 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 Textbook’s example: Yahoo Search, shopping, news, financials, email, IM, groups,… See textbook’s analysis Similar: Amazon, AOL

14. 14 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) Book’s example: Autoweb Note discussion about interacting with customers Note how traditional suppliers are used Other pirates?

15. 15 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 Textbook’s 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 See book for more on this Note all four steps in commerce value chain Others with this strategy?

16. 16 4. 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?

17. 17 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

18. 18 Chapter 3 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 See book’s three-step approach on p. 41 1. Select a strategy Consider opportunities and threats 2. Design the commerce value chain 3. Implement this in an evolving fashion

19. 19 5. Business Models and Segments Many ways to characterize businesses using the Internet Our book chooses three “segments” By “segment” the authors mean companies that use the Internet in similar ways Usually segment means companies in the same business area Book chooses to do this so it can focus on system requirements and functions Consumer Retail Business-to-business cataloging Information Commerce

20. 20 For us… First, observe how the authors think about these segments and companies in them What are the opportunities for value? What are the needs from a system or technical point of view due to the segment’s nature? Is this affected by size of company? How the commerce value chain helps us understand each one’s e-commerce needs Remember? Attract, Interact, Act, React Read through examples and discussion looking for things that surprise you or you hadn’t thought of

21. 21 Consumer Retail Selling physical goods to individual consumers What’s the overall value proposition for this segment? Reach more customers, global market Reduced costs for marketing, sales Increased efficiency of total sales operations Can target customers more precisely Provide more accurate, timely info On products, prices, availability, etc.

22. 22 Note issues relate to scale Consider three levels of business scale Small, medium, large Small shops May not have real-time inventory May use a third-party to handle order processing A commerce server provider May rely on phone and email more Medium-sized company Inventory probably in DBMS, with content pages generated on the fly Order processing more complex Shopping carts, customer registration, etc. More marketing: coupons, sales, discounts, etc.

23. 23 Issues Related to Scale (2) Large retailer Website content more complex, dynamic Real-time inventory, pricing, etc. May need to interface with existing software systems (e.g. ERP, enterprise resource planning system) Even more complex merchandising, marketing Multiple languages? Cross selling Integration with existing physical stores

24. 24 Consumer Retail: Attract, Interact Attract (first step in commerce value chain) Note its relative importance here since success depends on large number of customers See discussion of various techniques Advertising, coupons, sales, promotions, frequent buyer programs, etc. Interact (2nd step -- providing content) Issues of business scale apply here Increasingly complex content generation system to let consumers seen product information

25. 25 Consumer Retail: Order Processing Some things more complex for some businesses Single-session vs. persistent shopping carts Application of coupons to items vs. orders Order validation E.g. a set of computer system options Cross selling opportunities Tax calculations Shipping delivery options and costs Final order presented to user for update, approval

26. 26 Consumer Retail: Payment, Fulfillment Payment Perhaps no surprises here. But… Note seller’s concern about transaction fees Fulfillment A lot happens here! Much is similar to non electronic business. But… If warehouse(s) can accept electronic info about orders, system sends info to those facilities Note splitting of order according to warehouse Integration with non-electronic sales Perhaps at physical stores

27. 27 Consumer Retail: React Clearly, opportunity for much more value here Human customer service reps often just lookup info and read Let your customers do this! Costs related to people (including space etc.) reduced See list of benefits in text

28. 28 Next: Business-to-Business Models Book’s example is suppliers of parts for MRO goods or components MRO is maintenance, repair, and operations Not the only B2B segment of course But different enough it’s worth looking at here Examples: Cleaning supplies, office supplies Small or large physical parts for companies building things High-volume, low-value purchases Repeat business matters Order processing can be expensive

29. 29 This B2B segment: Value, Attract What’s the value proposition? Reduce costs of sales operations Reduce order processing costs Better service for low-volume customers Better information for customers Attract activities Not so different than consumer retail. But… Critical to retain customers, and become a preferred vendor for that company

30. 30 This B2B segment: content Large number of things to sell, many variations Search is critical Must be flexible Needs more information on each item Custom catalogs Special part numbers, special prices Note: we see some of these things illustrated when shopping for computers (Dell, Apple) at the university

31. 31 This B2B seg.: orders, payment Order processing Note that approval process may be required Requisitioner, approver, purchaser Payment Not (just) credit cards now Purchase orders, credit, procurement cards EFT (Electronic Funds Transfer)

32. 32 This B2B seg.: after the sale Fulfillment Aggregate multiple orders (say, ship once a week) Predefine shipping addresses One order, multiple addresses Customer Service May be a customer interface for companies Training, maintenance Technical support may be richer than for consumer retail

33. 33 Information Commerce Look this one over yourself! Pages 61-69 Surprises? Anything new? We’ll chat in the next class

34. 34 Summary on Chap. 4 Main point: different types of businesses have different needs But these may be shared with what the book calls a segment Analyze needs or performance in terms of commerce value chain Think about the value proposition for a company Can you use any of this (including terminology in HW1)?