Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network Economics

1. Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network Economics Minder Chen, Ph.D. Associate Professor of Management Information Systems E-Mail: minder.chen@csuci.edu Web site: http://faculty.csuci.edu/minder.chen/

2. Electronic Commerce: Introduction E-Business E-Commerce 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, e-mail Send info Request info Provide Info Get customer Provide 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, e-mail, e-mailing 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 http://mass-customization.blogs.com/mass_customization_open_i/sneaker/

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 email: 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 1999 1930 Year

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 Community Content

20. 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 Providers Users • Advertising Other Websites Advertisers

23. www.parentsoup.com http://parenting.ivillage.com/ -- Community Web Site

24. Groupon Business Model

25. Group Buying Sites Source: http://online.wsj.com/article/SB10001424052748704896104575139692395314862.html

26. 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 Second Wave Web Laggards 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 • http://smallbusiness.yahoo.com/ecommerce/ • Ebay • http://pages.ebay.com/help/sell/sell-getstarted.html • Amazon Marketplace • http://www.amazon.com/gp/help/customer/display.html?nodeId=1161232 • Drupal.org • http://drupal.org/hosting •  Wordpress: Open source solution for a web site. • http://wordpress.org/ • Webs.com: Webs’ point-and-click Site Builder requires no technical skills.

32. Web Site Architecture Design: Website Navigation Diagram

33. Site Elements • 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 Email 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 Cap: 9.771B Share: $57 7/16 Who Can Afford Not to Play in the Internet EC Space? Market Cap (4/16/99) $11.6 Billion $ 4.3 Billion $ 2.5 Billion $ 2.5 Billion As 6/28/2011

39. E-Commerce Matrix / Model http://fox.wikis.com/wc.dll?Wiki~ECommerceMatrix

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 • Email • 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 Clicks Bricks • 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! http://nuvc.innuvation.org/Elevator_Pitch_Workshop_v2.ppt

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