Value Chain of E-Commerce

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

August, 2008 Minder Chen, Ph.D.
Associate Professor of Management Information Systems
E-Mail: minder.chen@csuci.edu or minderchen@hotmail.com Web site: http://faculty.csuci.edu/minder.chen/
Reference
1. 2. 3. EC Books Net Ready, by Amir Hartman and John Sifonis, McGRaw-Hill, 2000. Now or Never, by Mary Modahl, Harper Business, 2000 Designing Systems for Internet Commerce by G. Winfield Treese, Lawrence C. Stewart (May 1998) Addison-Wesley Pub Co; ISBN: 0201571676 Net Results: Web Marketing that Works by Rick E. Bruner (Editor), Cybernautics, Usweb Corporation Hayden Books; ISBN: 1568304145 E-Business : Roadmap for Success by Ravi Kalakota, Marcia Robinson, Don Tapscott (June 1999) Addison-Wesley Pub Co (C); ISBN: 0201604809 Customers.Com: How to Create a Profitable Business Strategy for the Internet and Beyond by Patricia B. Seybold (Contributor), R. T. Marshak, Ronni Marshak 1 Ed edition (November 1998) Times Books; ISBN: 0812930371 Net Success : 24 Leaders in Web Commerce Show You How to Put the Web to Work for Your Business by Christina Ford Haylock, Len Muscarella, Ron Schultz, Steve Case (May 1999) Adams Media Corporation; ISBN: 1580621147 Creating the Virtual Store: Taking Your Web Site from Browsing to Buying, by Magdalena Yesil, Published by John Wiley & Sons, November 1, 1996
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Minder Chen, 1996-2008
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Course Description
This course provides an overview of Electronic Commerce and Electronic Business based on new E-conomy (network economics) and unique characteristics of underlying web technologies. Topics covered include: electronic commerce overview, network economics, EC models and strategies, EC case studies, e-business components such as Enterprise Resource Planning and Customer Relationship Management from a reengineering process viewpoint; Internet and web technologies including web technologies, electronic payment systems, and Internet security. Critical success factors for building a successful EC will be discussed.
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Seminar Leader
Dr. Minder Chen received a B.S. in Electrical Engineering from National Taiwan University in 1977, an M.B.A. from National Chiao Tung University in 1983, and a Ph.D. in Management Information Systems from the University of Arizona in 1988. He is currently Associate Professor of Management Information Systems and Decision Science and served as the Director of Technology Program (an Executive Master Program in Information Technology Management) in the School of Management at George Mason University. He has taught Executive MBA and undergraduate level courses in electronic commerce, as well as Business Process Reengineering and Change Management; Technology Assessment, Evaluation, & Investment; Global Information Technology Management at the Executive Technology Management master program. He is the President of Advanced Information Technology Consulting (U.S.A), a consulting firm specialized in business engineering, electronic commerce, and emerging technologies. He is also one of the founder and Chief Technology Officer of KITE ECommerce Training and Consulting Inc. (Taiwan). His primary research interests are electronic commerce, computer-aided instruction, collaborative and organizational learning, information engineering and business reengineering, computer-aided software engineering, client/server computing, collaboration technologies (groupware), and objectoriented systems development methodology. He has published papers in Journal of Management Information Systems, Database, Journal of Organizational Computing, Expert Systems with Applications, IEEE Transactions on Knowledge and Data Engineering, IEEE Transactions on Systems, Man, and Cybernetics, Journal of Small Group Research, and IEEE Software.
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Continued ...
He has been involved in studying methods and tools for business process reengineering and software reuse for DOD's Corporate Information Management Office. He has also worked with governments and private-sector businesses, such as Fairfax County Government, US Court, Industrial Technology Research Institute, DOD Center for Information Management, American Management Systems, and Wizdom Systems Inc. in their information engineering, client/server migration, and business reengineering efforts by providing them with training and consulting services. He has given presentations and one- to three-day business reengineering and electronic commerce and other advanced IT seminars in U.S., China (for Everbright Group), Taiwan (via National Taiwan University and Corporate Synergy Development Center), Singapore, and Hong Kong. Dr. Chen is also a well-known expert in systems development methodology, integrated CASE tools, and groupware. He has provided training courses such as HTML, DHTML, XML, JavaScript, Web Site Development and User Interface Design, IIS, ASP, ColdFusion, electronic commerce, CASE tools, Information Strategy Planning, Information Engineering methodology, client/server computing using PowerBuilder and Visual Basic for many firms, such as AT&T, Logicon, PSINet, KForce.com, TRW Inc., BDM, BTG, Lockheed Martin, International Monetary Funds, Computer Sciences Corporation, and Marriot Hotel. He is the co-guest-editor of the March 1992 IEEE Software special issue on Integrated CASE, a CASE minitrack coordinator of Hawaii International Conference on Systems Sciences for several years, a program committee member of Methods and Tools for Business Engineering 1995 Conference, an international program committee member of 1995 Pan Pacific Conference on Information Systems.
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Outline (I)
EC Introduction
Introduction The cycle of electronic commerce EC and Business Process EC statistics
Network Economy and Dynamic Trade

Information rules Network externality and network economics New supply and demand curves Dynamic trade 4Cs strategy Content, Community, Commerce Revenue streams E-conomy Map and EC Strategies B2C Virtual stores: physical and digital goods and services Infomediaries: Seller-side Informediaries: Buyer-side Infomediaries: B2B marketspace B2B: verticalnet.com Auction: eBay Subscription web sites: monster.com e-tailing: 1800flowers.com Financial investment sites: E*Trade Other interesting web sites EC(I) - 6
EC Strategies

EC Business Models
EC Case Studies:

Outline (II)
E-Business and Extended Enterprise
Defining e-business and extended enterprise Supply Chain Management Customer Relationship Management Business-to-business analysis Amazon.com Dell Federal Express Cisco
Case Studies
Web Technology and EC Software Overview

Internet infrastructure and services Web technology overview EC software Internet Security and Electronic Payment Systems Evolution of EC implementation EC site life cycle EC site design issues Promotion and marketing Net readiness evaluation Internet / EC industry analysis EC Firms and Stock market EC investment pyramid
EC Implementation

EC Investment and Opportunities
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EC Introduction
Introduction The cycle of electronic commerce EC and business process EC statistics
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Electronic Commerce: Introduction
E-Business E-Commerce
Commerce
Internet Commerce
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Electronic Commerce
Electronic commerce is broadly as the ability to execute business activities (transactions, contracts, and partnership) over a computer network. The execution of these activities lead to the exchange of goods, services, and money. Online business activities are changing market dynamics and structures of various industries. Electronic commerce adds a new dimension "information" to business activities involving information goods, information services, and electronic money.
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Market Relationships
Transaction
Basis of Interaction Discrete exchange of goals, service, and payments (simple buyer/seller exchange) Immediate
Contract
Prior agreement governs exchange (e.g., service, contract, lease, purchase agreement Usually short terms; defined by contract Low--> Moderate
Partnership
Shared goals and processes for achieving them (e.g., collaborative product development) Usually long term; Defined by relationship High
Duration of Interaction Business Integration Condition and Control
Low
Supply and demand (market)
Information Flow
Primarily on way; Limited in scope and amount; Low level of customization
Terms of contract define procedures, monitoring and reporting One or two-way; Scope and amount are usually defined in the contract
Interorganizatio-nal structures, processes, and systems; Mutual adjustment Two -way (interactive);Extensive exchange of rich, detailed information; Dynamically changing; Customizable
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Travelocity Microsoft expedia Priceline.com
The Low-Friction Market
"[The Internet] will carry us into a new world of low friction, lowoverhead 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.
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The Cycle of Electronic Commerce
Access Searches Queries Surfing Customers Online Ads Online Orders Follow-on Sales
Standard Orders
Distribution Online: soft goods Delivery: hard goods Electronic Customer Support
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Components of Electronic Commerce

Institution
Government Merchants Manufacturers Suppliers Consumers
Processes
Marketing Sales Payment Fulfillment Support
Electronic Commerce
Networks
Intranet Extranet Internet
Source: adapted from David Kosiur, Understanding Electronic Commerce, Microsoft Press, 1997. Minder Chen, 1996-2008 EC(I) - 15
Generic Framework of Electronic Commerce

Electronic Commerce Applications
Technical standards for electronic documents, multimedia contents, business transactions, and network protocols
Supply Chain Management Procurement & Purchasing Audio and Video on Demand Entertainment and Gaming Online Marketing and Advertising Online Shopping Online Financial Transaction Education and Research
Adapted from: Kalakota and Whinston, Frontiers of Electronic Commerce, Addison Wesley, 1996, p. 4. Minder Chen, 1996-2008 EC(I) - 16
Public policy, legal, economical development, and privacy issues
Common Business Services Infrastructure

(Security/Authentication, Electronic Payment, Directories/Catalogs)
Multimedia Content & Network Publishing Infrastructure

(Digital Video, Electronic Books, World Wide Web)
Messaging & Information Distribution Infrastructure

(EDI, E-Mail, HyperText Transfer Protocol)
Information Superhighway Infrastructure

(Telecom, Cable TV, Wireless, Internet)
EC and Business Processes

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

$3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 $80 1998 $170 1999 $390 $970 Sales (Billions) $3,200
$2,000
Forester Research, Inc. June 1999

2000
2001
2002
2003
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Business Internet Commerce Trends

$1,400 $1,200 $1,000 $800 $600 $400 $200 $0 1999 2000 2001 2002 2003
B2C: Business to Consumer B2B: Business to Business
B2C B2B(Services) B2B(Goods)
Reference: http://cyberatlas.internet.com/
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Business-to-Business E-Commerce
International Data Corporation forecasts that business-tobusiness e-commerce revenue will jump from $80 billion worldwide in 1998 to $1.1 trillion in 2003. Forrester Research believes that number will go even higher to $1.3 trillion by 2003. Business-to-Business -- Vertical Industries
Computing and Electronics: For this year, businesses will invest $50 billion in computers and other electronic equipment online. Increase to $319 billion by 2002. Motor vehicles: Companies will spend $9 billion online to purchase fleets of cars and trucks this year. 2002grow to $114 billionmore than a 1000% increase. Online utilities: Online trades of $15 billion in 1999 will grow to $110 billion by 2002. Food and agriculture: Expected to be about $3 billion in 1999--$20 billion by 2002. Pharmaceutical and medical: Forecasted $1 billion this year. Increase 20-fold by 2002. (Source: Business 2.0, March, 1999 re: Forrester Research)
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Statistics
Holiday Season 1998
2.1 million households shopped online for the first time Generated $2.3 billion Virtually all (98%) of AOL shoppers said they would shop online again in the next 6 months (Source: Jupiter Communications) Consumers on the Web will spend more than $177 billion worldwide. There will be an eight-fold increase in Web buyers worldwide to 143 million (International Data Corporation, March 1999) In Europe, 43 million households will be online. (Source: Nua Internet Surveys 12/98 re: DataMonitor) In Japan, buyers will spend one trillion Yen online. (Source: Nikkei Multimedia, 12/98)
By 2003 . . .
1% of 5 million US merchants are able to collect payments via the Internet in 1999. 10% E-merchants by year 2003.
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Retailing Trends
1950s 1960s-1970s 1980s 1990s
Home Depot CompUSA Barnes and Nobles Border

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AOL Findings
Buy brands Seek convenience Are increasingly time-starving Are not solely motivated by price Require simplicity
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Network Economy and Dynamic Trade
Information rules Network externality and network economics New supply and demand curves Dynamic trade
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Changes in the Net Economy

Business environment
Local / Physical Global /Virtual
Business assets
Tangible Intangible
Continuous Mass Customization Mass Personalization
Business change
Periodic
Business production
Mass Production
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Net Economy
1940s - 1980s
Manufacturing to information economy Local - regional - national - multinational Tangible brick-and-mortar assets: offices, shops, service centers, and warehouse
1990s - 21st Century

Net economy:
Information & Knowledge Communication and interactions
Global and virtual Business Focus: Information, channel, flow, customer loyalty, reliable service, relationship Intangible assets: Knowledge, experiences, relationships
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Internet Economy Driving Forces

Changing customer demands Globalization Internet ubiquity New technology New marketplace and intermediacies
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Network and Information Economy

Information is costly to produce but cheap to reproduce.
Price information according to its value not its cost. Maximize the value of your intellectual property, not the terms and conditions that maximize the protection.
Managing intellectual property.

Information as an experience good

Consumers must experience it to value it. Brand and trust building is critical.
A wealth of information creates a poverty of attention.
The economics of attention
Source: Information Rules

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Characteristic of Information Economy
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Information Commodity Market

Competition among sellers of commodity information pushes prices to zero. Personalize your product and personalize your pricing Know your customer Differentiate your prices when possible Use promotion to measure demands Network effects lead to demand side economies of scale and positive feedback. Information has its greatest value when it is fresh.
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Popularity Adds Value in a Network
Value to User
Positive Network Externality
Networks Real: LAN, Internet, Fax Virtual: Virtual community, Chat room, Instant messenger
Number of Compatible User

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Supply/Demand Flip
Classic Economics Demand Network Economy Supply
Supply Quantity
Demand
Quantity
In the network economy, the supply curves slope down instead of up and demand curves slope up instead of down. The accelerating expansion of knowledge and technology simultaneously pushes up the demand curve while pushing down the supply curve. Upward demand curves: Network externality Downward Supply Curves: Compounded learning curve, Moore's Law
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The Internet Increases Apparent Supply

Old apparent supply New apparent supply
Price
Actual supply
Quantity Internet increase apparent supply Apparent quantity rise Price fall
Source: Now or Never, Mary Modahl, HarperBusiness, 2000
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Challenge
Consumers: Everything on the Internet should to be free. Merchant: How can I make a profit if everything is free. Examples:
$250 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 Gilder's Law can be copied adhere to the law of inverted pricing and become cheaper as they improve. Cost of a 3-minute Long Distance Call Anticipate this cheapness in your pricing strategy and product/service development strategy Year 1999
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$0
1930
Dynamic Trade: Perfect Market

Customer service is more important than product selling
Federal Express: Certainty
Real-time demand drives production

Dell: Build-To-Order
Pricing matches market conditions

Name your price (reversed auction): PriceLine.com Auction: Ebay
Leveraging technology to satisfy current customer demand and with customized response.
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Traditional vs. Dynamic Trade

Speed from engagement to transaction
Weeks vs. Minutes
Product distribution
Seller-selected vs. Buyer-selected
Pricing
Product price list vs. Market-determined price
Production
Pre-sale vs. Post-sale (Dells BTO)
Customer relationships
Standard vs. Targeted and Customized
Strategic asset
Location vs. Visibility and Customer Database
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Dynamic Trade Self-Test

Rate each of the following criteria in your market. (3=high, 2=medium, 1=low)
Commodity market Perishability of inventory Capital intensity Configurability of products Customers' perceived investment level Threat from new kinds of competition Channel volatility
TOTAL: _____________
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Electronic Commerce:
Strategies and Business Models
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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

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Electronic Commerce Applications and the Cycle of Commerce
Seller's Cycle of Commerce
Enterprise Information Server
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Electronic Commerce Applications and the Cycle of Commerce
Buyer's Cycle of Commerce
Enterprise Information Server
Time
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EC Strategies
4Cs strategy Content, Community, Commerce Revenue streams E-conomy Map
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EC Strategies: 4 Cs
Customers
Commerce
Content Community
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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
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Self Assessment: Customer Caring
What do your customers need?
What requests do they make of you? How do you respond to customers requests? What kind of information can they get from you? 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 know about customer preferences? What information could you use to better target your product and service offerings? How can you engage customers in an ongoing dialog? How can you continue to provide information, products, and services to reinforce your ongoing relationships?
What process do they go through?
What do you need from customer?
What can you do to build relationships?
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Consumers are increasingly engaged in an active and explicit dialogue with companies. The role of the consumer is being transformed from passive buyer to active participant in co-creating value The market is no longer a "target," but must be recognized as an ecosystem. It's a forum for value creation and extraction, and the company is part of an enhanced network--one that includes its suppliers and partners, and its customers. The network's fulfillment goes beyond business-to-business or business-toconsumer relationships to a consumer-to-business-tobusiness relationship.
Consumer Centricity at http://www.informationweek.com/781/prahalad.
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5 Steps to Success in EC
Set strategy
Make it easy for customers to do business with you!
Focus on the end-customer

Identify end-customers and their needs Distinguish from channel partners Identify other internal and external stakeholders
Redesign customer-facing business processes Wire your company for profit and success Foster customer loyalty
Determine and prioritize objectives Decide what to measure and how to measure Measure profitability and other critical success indicators
Source: Adapted from Customer.com by Patricia Seybold, 1998
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Foster Customer Loyalty

The key to profitability in EC Achieving higher revenues via customer acquisition and customer retention
Acquisition costs Base profit Revenue growth Cost savings Referrals Price premium
Benefits:
No-cost acquisition Experienced customer
Strategies
Increase customer "inventory" Increase customer "tenure"
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8 Critical Success Factors

Target the right customers Own customer's total experience Streamline business processes that impact the customer Provide a 360-degree view of relationships with your customers Let customers help themselves Help customers do their jobs Deliver personalized services Foster community
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Target the Right Customers

Know who your customers and prospects are Find out which customers are profitable Decide which customers you want to attract (or keep from losing) Decide which customers influence key purchases Find out which customers generate referrals Don't confuse customers, partners, and stakeholders
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Own the Customer's Total Experience

Deliver a consist and branded experience Focus on saving customer time and irritation Offer a peace of mind Work with partner to deliver consistent service and quality Respect the customer individuality Give customers control over their experience
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Streamline Business Processes That Impacts the Customers
Start identify the end customer Streamline the process from the end customer's point of view Streamline the process from the end customer's point of view Streamline the process for key stakeholders Continuously improve the process based on customer feedback Give everyone involved a clear view of the process
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Customer Information
Processes:
Marketing Pre-sales Sales Post sales support Delivery Field service Quality control Billing Product development & production Web Kiosh E-mail Phone Mail Fax Hand-held
Media
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Virtual Communities
Money
Content
Demographics
Virtual Community
Content Hard goods Games Services
Users
Advertising Advertisers
Providers
Other Websites
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Consumers' Needs for Community

Communities of transaction: Facilitate the buying and selling of products and services and deliver information related to those transactions.
Bring in a critical mass of sellers and buyers to facilitate certain types of transactions. Virtual Vineyards
Communities of Interest: Bring together participants who interact extensively with one another on specific topics.
Higher degree of interpersonal communication. GardenWeb: www.gardenweb.com Motley Fool created by David and Tom Gardners on AOL Parents Place: www.parentsplace.com Chat rooms: Red Dragon Inn Virtual Team competition at ESPNet: espnet.sportszone.com
Communities of Fantasy
Communities of Relationship: People come together around certain life experiences that are very intense and can lead to the formation of deep personal connections.
Cancer Forum on CompuServe
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www.parentsoup.com
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Geocities: www.geocities.com
This collection of themes cyberhoods is populated by a half-million "homesteaders" who get free home pages.
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The Well: www.well.com
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Talk City: www.talkcity.com

LiveWorld Production Inc. hopes to create a clean, welllighted place to chat on the Web.
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Major Portals
AOL/Netscape Yahoo Excite MSN Lycos InfoSeek/GO: Disney's go.com Snap AltaVista
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Revenue Streams
Advertising / Sponsorship Transaction Subscription / Listing Fee Value-added services
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Sources of Revenue on the Web

Transaction: Net merchants this year will hawk some $518 million worth of goods, from CDs to Computers. Total cybersales could swell to $6.6 billion by 2000, figures Forester Research. Subscription: For now, most content on Web is free. Still sales of subscription services on the Web will hit $ 120 million this year, says Jupiter Communications. By 2000, the number is expected to be $966 million. Advertising: The Net is emerging as a medium uniquely suitable for advertisers looking to reach target customers directly. Spending on Web ads will hit $312 million this year, growing to $5 billion by 2000, Jupiter figures.
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Multifaceted Model for Web-Based EC Design

ATTRACT: Hits
Communities of interest Changing topics for repeat customers Features that encourage customers to explore Special areas encourage customer to register (i.e. selection of articles customized for visitors interests) Free download (video, audio, & software) Jump Engage Chat and News Subscription
ENGAGE: Leads PARTICIPATE: Sales revenue

Shopping
Attract
Participate JUMP: Advertising revenue Other products of interest to customer Other sites of interest to customer
Adapted from Netscape Communications Inc., 1996.
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EC Companies Transform the Revenue Mix

Pricing Value Customers
The mix: Who pays for what and how much.
New Values
New Pricing
New Customers
Highly interrelated!
Source: Now or Never, 2000 Minder Chen, 1996-2008 EC(I) - 65
The Revenue Mix: Examples

Finding new customers
Onsale.com sales at costs Buy.com creates advertising as a revenue stream eBay buyers see auction as a new form of entertainment At eBay there are some specialized sellers for them selling on eBay has become an official part-time job eBay
If you want to bid or browse at eBay, it's free. You don't pay a penny in fees. If you're a seller, you'll be charged:
An insertion fee. This fee is usually between 25 cents and $2.00, depending on your opening bid. A Final Value (final sale price) fee at the end of your auction. This fee generally ranges from 1.25% to 5% of your final sale price.
Offering new value
Building new pricing structures
Compare eBay with classified ad
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The Revenue Mix

Why is it difficult for the traditional companies to change?
Finding new customers
"The rearview mirror trap". Existing customers reflect an industry's past more than its future. A traditional company in the market leader position makes it hard to see new customers coming. "Investor want to talk to their broker on the phone!" It delayed a deployment of online trading of a major brokerage house by more than two years.
Traditional companies have difficulty understanding new value. One baby bell executive think Yahoo is just another damn yellow pages. "People want to find local businesses!" Equity investors hold traditional players to a higher profit standard than they do to the dotcoms. In the US, venture funds and individual investors can bankroll tears of big losses of dotcoms in a bid to win market share from traditional companies.
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Offering new value

Building new pricing structures

Consumer Technographics Segments in the US

Early Adopters
Mainstreams
Primary Motivation
Career Family
New Age Nurturers
Entertainment
Mouse Patatoes
Attitude Toward Technology
Fast Forward 12% Optimists

Techno-strivers
8%
9%
Gadget Grabbers
High
Income Level
Digital Hopeful
7% Handshakers 7% Pessimists
7% Traditionalists 8%
9%
Media Junkies
Low
5%
High
Sidelined Citizens 28% Laggards
Low
Source: Forrester Research Inc.

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Quick Test for Technographics

More Men More Women
More Educated
High Income Have Children Number of new users Younger Age
Less Educated
Low Income No Children Older
Early Adopter
Mainstreams Laggards
Time
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Technology-Fit: Customer and Product

Customer Need for Product Information
High
Second Wave
Jenny Craig Chrysler
Earlier Adopter
AA FedExp Microsoft
Web Laggards Second Wave

Tide Denny's Nike Pepsi
Source: Forrester Research
Low
Customer Demographics Match Poor High
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EC Development Process
Competitive and capability analysis Knowledge building and market evaluation EC Business model design and feature identification EC technical architecture design Application development and deployment Continuous performance evaluation and innovation
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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
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Keys to Long Term Success

Fast deployment Evolutionary implementation First mover advantages Promotion, promotion, promotion Customer focus and services Interaction with customers Integrating emerging technologies Redefining and redesigning business models Comprehensive database and data warehouse design Integrating back office operations with the virtual store fronts
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Selling Points of Virtual Stores

"The Internet is going to become a channel of distribution." -- The president of a major U.S. advertising agency Another firm advertise its virtual store as "The parking is easy, there are no checkout lines, we are open 24 hours a day, and we deliver right to your door." The trend toward point-of-sale moving into the home is accelerating.
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Benefits to the Merchants

Increased sales of existing products to generate additional revenues Use the web to target their offers to a niche market "The store is always open!" Establish better relationships with customers. Low cost information distribution Increased speed to market Expanded delivery channels Global exposure and reach
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Benefits to the Consumers

Convenience Informative Value presented upfront: Demo and free download No long wait times Easy flow and navigation Search capabilities Engaging presentation Constant updates Easy to buy
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Five Strategies for .com-ming Your Business
1. Check Your DNA

Is the Net part of who you are as an enterprise? Or is it something foreign to you? Are you ready to embrace the Net economy? Do you have people on your team who have experience in this area? People who get it? More important, do you have people on your team who are passionate about the Net? Or are they expecting business as usual? Do you have the right people on the right projects? Think about connections outside your enterprise-are you working with customers, partners and suppliers to help you retool your business. Are you learning from them and are they learning from you? Are you identifying key areas where you can make your interactions more productive and successful?
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2. Think Portal
Think in terms of "portal". It's not about the site per se, it's about the community you create. It's about building and maintaining services that build customer and partner loyalty and make your employees more efficient in providing service to your customers and partners. Examples: automobiles/enthusiasts, airlines/travel agents, insurance/health care, agricultural/food and nutrition. Find and create that home on the Web, and leverage it for competitive advantage.
3. Think Services
It's not enough anymore just to put information on a Web site. Today you need to be offering services. What those services are will be up to you, but that's where users are finding value in the Net Economy. Examples: Insurance, auto buying, auctioning, customer support, supply chain management, etc. Services equal customer loyalty and retention.
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4. Think Anywhere, Anytime

Once you've developed those services --which ideally will grow out of your enterprise's core competencies -- you need to deliver them ubiquitously. If they're only available on PCs, you're going to severely limit their utility -- and your enterprise's growth and profits.
5. E-commerce is Not the Future. It is now!

The marketplace is moving now. Your competition is moving now. E-commerce is not about the future; it's about today. Start doing ecommerce. If you haven't prepared for holiday season 2000 for consumers, partners, and suppliers, you're already behind. Convert your communication, supply chain and customer relationship channels to the Web. Many companies have had difficulty with this due to existing relationship conflict, but the reality is that you have to do it. Identify one area of high leverage and start there, time is your enemy so get moving today. The Web is proving to be more reliable, lower cost, and userfriendly. Use it to its full potential.
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What To Do Now
1. Define your eBusiness strategy FAST 2. Assess readiness:

Rapid innovation
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customers products/services organization technology infrastructure
What To Do Now
3. Identify the target:
Business objectives Customer segment Application area
4. Build it in less than 6 months

-- Flexibility -- Scalability -- extendibility
5. Keep extending the function -- new products and services, new customer interfaces, enhance performance, security and capability 6. START NOW !
You are never done!

Minder Chen, 1996-2008 EC(I) - 81
Four Strategies to Start Online Business

Low Slow Time to Market Low
Integration Subsidiary Partnership Buyout
Cost
High
Fast
High
EC(I) - 82
Risk
Brick and Mortar
EC(I) - 83
Soruce: Harvard Business Review, Get the Right Mixes of Bricks and Clicks, May-June 2000 Minder Chen, 1996-2008 EC(I) - 84
In-House vs. Spin-off
EC(I) - 85
The Four Stages of E-volution
Source: Strategy + Business, From Clicks to Bricks, 3q, 2000. Minder Chen, 1996-2008 EC(I) - 86
EC(I) - 87
Becoming Virtual
Egghead to Egghead.com Computer Literacy to Fatbrain.com Romac International to KForce.com
Kinder Toys is Moving to www.toydomain.com (Find us on the web after June 1st)
EC(I) - 88
Your 3 Biggest Problems/Opportunities
What should our strategy be? How do we build it in 3 to 6 months? How do we stay on the edge of innovation for life?
EC(I) - 89
E-conomy Map
COINs
Business
HP
Testing & Measurement
VerticalNet
Testandmeasurement.com
Enterprise
Affinity Groups
Consumers
HomeCare Products
HomeCare InfoCenter
Individual
The Delivery Vehicle (The Container) Adapted from: Net Ready, 2000
The Message (The Content)

COINs: Community of Interests EC(I) - 90
GE's Destroy Your Business Approach

Each business unit
Use cross-functional team
Benchmark competitors'
Business operations Products / Services The economics of ordering online, sales force, and call centers
DYB - Destruction Your Business: Present a hypothetical internet-based business plan that a competitor could use to erode your customer base.
EC(I) - 91
GYB: Grow Your Business Approach

How the business unit should change their existing business model in response to the threats. Find fresh ways to reach new customers and better serve existing ones. Best practices:
Focus: Your e-business application should focus on how your customers can grow their business, streamline processes or reduce costs. Speed matters: Mare sure what you are offering customers via the web, whether they are B2C or B2B, is faster, cheaper and better than any other delivery mechanism. Value: New internet services should enhance value for existing customers rather than simply reaching new ones.
Minder Chen, 1996-2008 EC(I) - 92
E-Business Creation Process

Personalization ROI Profiling Segmentation Experience modeling Expanded business opportunities Customer feedback Benchmark data Competitive analysis Market forces Usage statistics Customer needs Current capabilities Systems and networks Web architecture Business infrastructure Technology components Web technology strategy
E-Vision
Business Drivers
Technology Drivers
E-Business Strategy
Source: Digital Transformation, 2000 Minder Chen, 1996-2008
Rapid Implementation
EC(I) - 93
Internet Industry
Sports Malls Entertainment Newsfeed Publications Content and Activity Electronic Commerce Infrastructure Commerce Instruments Portals Commerce Servers
Consulting
Internet Economy
Client/Server Software
System Integration and Design
Backbone Router Access Equipment Server Computers
Internet Equipment
ISP Network Services
Browsers Web Server Application Servers Security Tools Internet Service Consumer Services Carriers
EC(I) - 94
EC Business Models B2C Virtual stores: physical and digital goods and services Infomediaries: Seller-side Informediaries: Buyer-side Infomediaries: B2B marketspace
EC(I) - 95
Types of Virtual Stores

Hard goods:
Food Clothes Computer hardware and Electronics Packaged software Information
Database Publishing Research
Soft goods (Bits delivered on-line)
Software
Computer games Java applets Application software
Services
Selling time:
Computer game play Consulting Legal and medical services
Selling information (subscriptions)

Dating services Legal and medical advice
Reservations and tickets

Airline tickets Event tickets Hotel and restaurant
EC(I) - 96
Is EC Appropriate for You?
Industries who set up virtual storefronts

Minder Chen, 1996-2008 EC(I) - 97
What Consumers Are Buying Online

Computer-related products 49% Books 35% Consumer electronics 34% Travel Reservations 28% Cars, boats 19% Clothing and apparel 18% Recorded music, CDs 18% Larger household goods (furniture, major appliances) 15% Filmed entertainment, videos 13% Gifts delivered by mail (flowers, candy) 12% Publication subscriptions 8% Investment or financial services 8% Food and drink 8% Artwork, poster, etc 4% Other 13%
Source: Ernst & Young Internet Shopping Study 1998
Minder Chen, 1996-2008 EC(I) - 98
Why?
The most affected industries:
Books Stock trading PCs Automobiles Travel Food Consumer durable goods Clothing Local services Banking and insurance
The least affected industries
Enterprise.com, 1998
EC(I) - 99
Three Business Models

Payment direction:
Buy-side Sell-side Marketplace: Business is being transacted with both suppliers and customers.
Trading parties: Most analysts predict the B2B model will have a more rapid adoption rate, but that the volume of transactions in the B2C model will, in the long run, greatly surpass that of B2B.
Business to Business Business to Consumer Physical goods and services Digital goods (contents) Digital services
Type of product or service that is being provided.
EC(I) - 100
Sell-Side E-Commerce Model
Buyer A EDI Selling Merchant Online Selling HTML & Forms HTML & XML OBI Buyer C Buyer B
EC(I) - 101
Sell-Side Storefront
Primary model used in current business-toconsumer scenarios Single seller, typically a distributor, constructs a Web storefront to sell to many consumers (i.e. Amazon.com) Unless a single distributor can aggregate all the suppliers in a given industry, the buyer remains responsible for comparison shopping between stores Expensive for buyer; does not meet the needs of corporate procurement organizations.
EC(I) - 102
Buy-Side E-Commerce Model
Seller A EDI Buyer Online Procurement HTML & Forms HTML & XML OBI Seller C Seller B
EC(I) - 103
Buy-Side eProcurement
Buy-side applications generally consisting of a browser-based self-service front end to ERP and legacy purchasing systems Corporate procurement aggregates many supplier catalogs into a single universal catalog and allows end-user requisitioning from the desktop, facilitating standard procurement for the organization and cutting down on maverick purchasing Purchases made through this system are linked to the back-office ERP or accounting system, cutting time and expense from the transaction and avoiding potential bookkeeping errors Model yields reduced transaction costs but not lower purchase costs; no impact on size of supplier base, no enablement of dynamic trade; buying organizations must set-up and maintain catalogs for each of their suppliers; too costly and technically demanding for most medium and small-sized businesses.
Minder Chen, 1996-2008 EC(I) - 104
Marketplace E-Commerce Model

Buyer A EDI EDI
Seller A
Buyer B
HTML & Forms HTML & XML
Virtual Marketplace
HTML & Forms HTML & XML
Seller B
OBI Buyer C OBI

Infomediacy (Content Aggregator)
Seller C

eBay.com Pricelines.com Egghead.com Amazom.com Auction www.chemdex.com
EC(I) - 105
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
EC(I) - 106
B2B Marketplace
Latest evolution of B2B eCommerce, enabling a many-to-many relationship between buyers and suppliers Buyers and suppliers leverage economies of scale in their trading relationships and access a more liquid marketplace Sellers find buyers for their goods, buyers find suppliers with goods to sell Many-to-many liquidity allows the use of dynamic pricing models such as auctions and exchanges, further improving the economic efficiency of the market. Web Site: http://www.netmarketmakers.com/
Minder Chen, 1996-2008 EC(I) - 107
Direct-to-Customer (D-to-C)
Large, global, e-energized corporations (e.g., Fortune 1000) begin to squeeze intermediary companies. Stop & Shop [a large supermarket chain] is launch its own delivery service and is expected to end its partnership with Peapod [a dotcom delivery service]. -- The Boston Globe, April 2000
June 20, 2000. Peapod announced online shopping and delivery services in Connecticut through grocery chain Stop & Shop. Stop & Shop is owned by Royal Ahold, which recently took a 51 percent interest in struggling Peapod.
B-to-C
B-to-B
D-to-C
EC(I) - 108
Channel Conflicts
Channel conflicts arise when a new venue for selling products - such as the Web for selling goods or services - threatens to cannibalize one or more existing conduits for selling goods within the same organization, such as a retailer or a manufacturer.
The company's internal e-commerce team had already recommended direct Web sales as a way to better manage its supply chain and interact more directly with customers But when the team presented its proposals to the company's CEO, his response was terse: "We've done business with our distributors for 30 years, and I certainly don't want to sell around them. I don't even want to discuss it."
- ComputerWorld.com Quick Study
EC(I) - 109
Case in Point
For example, about a year ago (1999), General Motors Corp. in Detroit attempted to buy back some car-dealer franchises as a possible step toward selling directly over the Web. Dealers protested so adamantly that both GM and Ford Motor Co. in Dearborn, Mich., spent a lot of time at a recent industry convention reassuring dealers that the automakers wouldn't sell directly to consumers. And in a recent survey by Cambridge, Mass.-based Forrester Research Inc. of 50 consumer-goods manufacturers, 66% cited channel conflict as the No. 1 obstacle to selling online.
EC(I) - 110
Channel Conflict: How About the Distributors

The concept of complete disintermediation - the elimination of the middleman - remains a theory. New intermediaries are emerging. Cisco System has 2 billion dollars annual sales on the Web. 70% of Cisco online business comes from VARs and distributors. Distributors have to do lot of value-add and customer support to survive. Fruit of Loom Inc. has 31 of its 55 distributors up on its extranet called Activewear Online.
EC(I) - 111
Retailers and Manufacturers Co-exist on the Web

US retail sales revenues 1998:
Brick-and-mortar stores 93% Catalog sales: 6% E-commerce 1% Levi Strauss sells jeans at www.levis.com but won't allow retailers to sell them online. Estee Lauder sells Clinique cosmetics at www.clinque.com but doesn't offer retail promotion. Waterford sells a limited selection at www.waterford.com like chandeliers and corporate gifts.
Cases:
Strategies:
Manufacturers want to maintain channels while stay in direct touch with their customers. Provide online dealer locators. Share customers information back and forth.
EC(I) - 112
Extended E-conomy Business Models

E-buisness storefront Informediary
Seller broker Buyer broker Transaction broker / Exchange COINs Portals
Trust intermediary E-business enabler Infrastructure providers / Communities of commerce

Source: Net Ready, 2000
Minder Chen, 1996-2008 EC(I) - 113
Any-to-Any Technologies Connect Everything to Everyone
Banks
Consumers
PCs Web TV PDA Smartcards Specialty Devices Other
High Value Solutions
Brokerage Insurance Retail Distributors Transport Other

EC(I) - 114
Businesses
Transactions and Payments

Physical Infrastructure
Institutions
Clicks-and-Mortar
Clicks-and-mortar has become the new buzzword in retailing circles. It means having an integrated, multi-touchpoint strategy that takes advantage of your physical retail outlets and integrates them seamlessly into your Web strategy. A good clicks-and-mortar strategy uses the Web to drive traffic to your stores and uses your stores to drive traffic to the Web.
Brick-and-Click
YourSherpa.com
EC(I) - 115
Vulnerability Grid
Risk/Opportunity Exposure
Efficiency:
how efficient is the relationship between buyer and seller?
Your Risk/Opportunity
Low Medium High
Digitizability:
service?
How digitizable is the product or service? How customizable is the product or
Customizability:

EC(I) - 116
Asymmetries of Information:
of power in the buyer-seller equation?
What is the balance
Commodity:
service?
How commodity-like is the product or
Fragmentation:
which you operate?
How fragmented is the market in
Attitudinal Readiness:
accept new ways?
How ready are customers to
Velocity:
How critical is the need for speed in the delivery of the product or service? Minder Chen, 1996-2008 Source: Net Ready, 2000
Move to Consumer-Centric View

Conventional View Supply Base My Company Distribution Channel
Customer Firewall
Supply-chain management
Target Consumers
SCM
Consumer-Centric View
ERP
CRM
C2B2B: Customer-to-Business-to-Business Supplier network Channel
Virtual Enterprise
Consumer Communities
Adapted from: Customer Centricity, InformationWeek, April 10, 2000 Minder Chen, 1996-2008
EC(I) - 117
Creating Sustainable Value in EC

Develop a brand based on consumer experiences
The brand emerges as the two-way communication on the net and off the net.
Develop superior physical distribution

Physical distribution is a choke point in EC
Leverage customer information

Use personal information to more convenience shopping and customized services
Privacy issue Ask customer explicitly for such data Require a more subtle approach
Use collective data

Use it to adjust pricing, product offering, and target market
EC(I) - 118
Price Pressure Shrink Retail Margins

Increasing apparent supply
Aggressive pricing for online plays Average retail net margin Increasingly price-sensitive online shoppers Comparison shopping engines
New services and loyalty programs
Economies of scale
Auctions
Managing current demand

Source: Now or Never, 2000
Time
EC(I) - 119
Business Models Based on the Value Chain in the Market Place

Raw material producer
Independent market operators Consortia
Exchange
Manufacturer
Distributor
C2B
New Middleman
Examples: B2B: Vericalnet.com B2C: Amazon.com C2B: Priceline.com C2C: eBay.com
Retailer
B2C
C2C
Consumer
Service Providers: Logistics Financial
B2C
EC(I) - 120
Business Models from a Strategic Viewpoint

"In the new economy, the unit of analysis for innovation is not a product or a technology-it's a business concept. .To be an industry revolutionary, you must develop an instinctive capacity to think about business models in their entirety." Hamel's business concept that comprises four major components and several subcomponents:
Core strategies Strategic resources Customer interfaces Value networks
EC(I) - 121
Source: Leading the Revolution by Gary Hamel Minder Chen, 1996-2008
Business Concepts (I)

Core Strategy: It is the essence of how the firm chooses to compete.
Business Mission: This captures the overall 'objective' of the strategywhat the business model is designed to accomplish or deliver. Product / Market Scope: This captures the essence of 'where' the firm competes-which customers, which geographies, and what product segments-and where, by implication, it doesn't compete. Basis for Differentiation: This captures the essence of 'how' the firm competes and, in particular, how it competes 'differently' than its competitors. Core Competencies: This is what the firm 'knows.' (skills and unique capabilities) Strategic Assets: They are what the firm owns such as brands, patents, infrastructure, proprietary standards, customer data, and anything else that is both rare and valuable. Core Processes: This is what people in the firm actually 'do.' (activities)
Strategic Resources: These are unique firm-specific resources.

EC(I) - 122
Business Concepts (II)

Customer Interface
Fulfillment and Support: This refers to the way the firm 'goes to market,' how it actually 'reaches' customers-which channels it uses, what kind of customer support it offers, and what level of service it provides. Information and Insight: This refers to all the knowledge that is collected from and utilized on behalf of customers. Relationship Dynamics: This refers to the nature of the 'interaction' between the producer and the customer.
Pricing Structure: This refers to the price choices depending on the traditions of your industry.
Value Network: It surrounds the firm, and which complements and amplifies the firm's own resources.
Suppliers
Partners Coalitions
EC(I) - 123
Bridge Components
These four major components are linked together by three 'bridge' components:
Configuration: Intermediating between a company's core strategy and its strategic resources is first bridge component. Customer Benefits: Intermediating between the core strategy and the customer interface is second bridge component. Company Boundaries: Intermediating between a company's strategic resources and its value network is third bridge component.
EC(I) - 124
Market Structure on the Internet
Many smaller players with high rate of entry
Number of companies
Few large and dominate companies
Transition
Size of company
Source: Now or Never, 2000 Minder Chen, 1996-2008 EC(I) - 125
Three Top Three Concerns Retailers

Conflict with investment in physical stores; Technology issues; and Lack of distribution and fulfillment network.
Manufacturers
Products not appropriate for online sales; Potential risk to channel relationships; and Consumers wont buy online Many manufacturers simply weren't capable of shipping a single box of Tide or a bottle of Advil. They had no experience in dealing directly with consumers.
EC(I) - 126
Dynamic Trade: Perfect Market

Customer service is more important than product selling
Federal Express: Certainty
Real-time demand drives production

Dell: Build-To-Order
Pricing matches market conditions

Name your price (reversed auction): PriceLine.com Auction: Ebay
Leveraging technology to satisfy current customer demand and with customized response.
Minder Chen, 1996-2008 EC(I) - 127
Traditional vs. Dynamic Trade

Speed from engagement to transaction
Weeks vs. Minutes
Product distribution
Seller-selected vs. Buyer-selected
Pricing
Product price list vs. Market-determined price
Production
Pre-sale vs. Post-sale
Customer relationships
Standard vs. Targeted and Customized
Strategic asset
Location vs. Visibility and Customer Database
EC(I) - 128
Dynamic Trade Self-Test

Rate each of the following criteria in your market. (3=high, 2=medium, 1=low)
Commodity market Perishability of inventory Capital intensity Configurability of products Customers' perceived investment level Threat from new kinds of competition Channel volatility
TOTAL: _____________
Minder Chen, 1996-2008 EC(I) - 129
Business Channel: Multi-Channel Presence

Click and Mortar
Brick-and-mortar Face-to-Face Mail order Mail Printed catalog Phone order Telex Phone Fax
Buyer
Seller
Electronic commerce EDI Email Pure Play Web
Multi-channel plays will have extraordinary power if companies elegantly blend and synchronize those channels.
Minder Chen, 1996-2008 EC(I) - 130
Internet Companies?
"Within five years, ALL companies will be Internet companies." -- Andy Grove, Intel Chairman
EC(I) - 131
Web Experiences for Consumers

A many-to-many rather a one-to-many experience Fresh content Access to detail information Communities unbounded by space and time The multimedia appeal of TV A redefinition of privacy and identity Hyper-impulsivity: The web permits a closer conjunction of desire, transaction, and payment than any other environment.
EC(I) - 132
All 3 Steps in One Medium
Get Attention
Give More Information/ Answer Questions
Transact/ Service
Branding
Information Brochures Sales People Print/editorial
The Sale
TV Ads
Magazines
Store Telephone Catalogue

EC(I) - 133
New Competition From Surprising Places

Most Visited Retailers:
1. Bluemountainarts.com 2. Amazon.com 3. AOL.com 4. Ebay.com 5. Etoys.com 6. Barnesandnoble.com 7. CNet.com (software) 8. Egghead.com 9. CDNow.com 10. Musicblvd.com 11. ColumbiaHouse.com 12. Classifieds2000.com 13. Beyond.com 14. Coolsavings.com 15. Valupage.com
Not in Top 25: Towerrecords.com Borders.com Toysrus.com Target.com Gap.com Macys.com Sears.com Walmart.com BigCompany.com YourCompany.com??
EC(I) - 134
What is your new industry structure?

Powerful new intermediaries
travelocity.com; travel.yahoo.com; expedia.msn.com; golfclubexchange.com, eBay.com, priceline.com
Increasing commoditization Your competitors are just a mouse click away Camparison shopping: singleshop.com, mySimon.com New competition from surprising places
realguide.real.com; headline.yahoo.com; www.nytimes.com amazon.com; yahoo.com; msn.com; etrade.com; priceline.com; etoy.com; aol.com
Be aware of new industry forces
EC(I) - 135
What are the new economics?

Different revenue models
wsj.com; match.com; yahoo.com; monster.com
Different cost models

buy.com; dell.com
Different use of assets

Amazon.com
EC(I) - 136
What's the best E-business model for your company? An online subsidiary
Barnesandnorbles.com by Barnes and Nobles to compete with amazon.com Toysrus.com by Toys "R" Us Inc. to compete with eToys Inc. MagazineOutlet.com by NewSub Services Inc. PetSmart Inc., invested $16 million in PetJungle.com to create PetSmart.com a virtual company and a big-box retailer teaming up to attack a category Egghead.com, Homebid.com
Partnering with an online company
Converting to an online-only company
Integrating E-business throughout the company

Prudential California Realty
EC(I) - 137
EC: Case Studies

B2B: verticalnet.com Auction: eBay Subscription web sites: monster.com e-tailing: 1800flowers.com Financial investment sites: E*Trade Other interesting web sites
EC(I) - 138
www.verticalnet.com
EC(I) - 139
Company Background and Capabilities

Own and operate 55 industry-specific Web sites designed as online B2B communities, known as vertical trade communities. These vertical trade communities provide users with comprehensive sources of
Information (Content): from newswire and editorial services Interaction (Communities): email, chat rooms, bulletin board e-commerce: RFPs, RFQs
Additionally, VerticalNet provides auctions, catalogs, bookstores, career services and other e-commerce capabilities horizontally across its communities with technologies from acquired and organic sites like Industry Deals.com, IT CareerHub.com, LabX.com, and Professional Store.com. Create values:
Individual advertising ($6,000 - $25,000) Hosting sites Build and design sites Sponsor forums with expert guests Negotiate a percentage of transaction at the online marketplace
EC(I) - 140
EC(I) - 141
Auction: eBay.com
EC(I) - 142
Auction: eBay.com
EC(I) - 143
Priceline.com
EC(I) - 144
Jay Walker, 43, founder and Vice Chairman of priceline.com, has created a model for buying and selling that's so original, it's been patented. Walker calls his model "buyer-driven commerce," and he's racing to build a big company around it. "
Fast Company
"It's not a traditional supply-and-demand market anymore. Priceline flips the power relationship on its head where the customer is telling you what he will pay."
Interactive Week
EC(I) - 145
Business Models
Priceline.com has pioneered a unique new type of e-commerce known as a "demand collection system" that enables consumers to use the Internet to save money on a wide range of products and services while enabling sellers to generate incremental revenue. Using a simple and compelling consumer proposition--"name your price," we collect consumer demand (in the form of individual customer offers guaranteed by a credit card) for a particular product or service at a price set by the customer and communicate that demand directly to participating sellers or to their private databases. Consumers agree to hold their offers open for a specified period of time to enable priceline.com to fulfill their offers from inventory provided by participating sellers. Once fulfilled, offers generally cannot be canceled. By requiring consumers to be flexible with respect to brands, sellers and/or product features, we enable sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures.
EC(I) - 146
Problems?!
As if making a profit from online retailing were not enough of a challenge, try making money online under a system where you give your customers essentially no service, no selection and no right to return unwanted items. May sound crazy, but not too long ago, investors seemed to think it was a brilliant idea. Critics say the company's troubles raising money reflect some fundamental problems with its reverse auction model, which invites consumers to set their own prices. But it also requires them to commit to the purchase before they know all the details. "Consumers typically look for four things: choice, service, selection and low price,'' said Tom Courtney, an analyst with Banc of America Securities. "Priceline gives up everything but the price.'' In hindsight, many critics say Priceline is more gimmick than solid business. Now that the novelty of the name-your-own-price model has started to wear thin, they are losing faith in its viability. ``What I've seen is an intriguing model. You try it once and you feel a little uncomfortable with it. You may not get the route or the fare you wanted and at the end of the day you are not so sure about it,'' said Craig Palmer, president of eWanted, another Internet auction site. ``People come to Priceline, but they don't come back again and again and again.''
Minder Chen, 1996-2008 EC(I) - 147
E-Loan at eloan.com
IPO: 2 Billion Dollars Market Capitalization
EC(I) - 148
Insweb.com
EC(I) - 149
Singleshop.com
Compare this with: mySimon.com
EC(I) - 150
Matching Games: The Marketplace

Online Dating Service
$9,000 subscription fee per year for recruiting firms Free for job seekers
EC(I) - 151
Internet Shopping Network: http://www.internet.net

Operating online since April 1994. Focus on computer products which fit the demographics pretty well. Customer look for a narrow focus in an online store and expect expertise in that area.
EC(I) - 152
Acquired by Cyberian Outpost

Kent, CT, & Sunnyvale, CA Nov. 2, 1998 - Cyberian Outpost, Inc. (NASDAQ: COOL), a leading Internet-only retailer of computer hardware, software, and peripherals for consumers worldwide, today announced it has acquired the Internet Shopping Network (ISN) Computer Superstore's customer base. Cyberian Outpost (http://www.outpost.com/) will be the new online shopping destination for the Computer Superstore's more than 160,000 customers. Prior to the acquisition, Cyberian Outpost had over 161,000 customers. In addition to selling the Computer Superstore's customer list, ISN has agreed to maintain, a direct link from the ISN Computer Superstore's homepage that will lead shoppers to the Cyberian Outpost homepage (http://www.outpost.com/) for the next four months. Further, all existing URL's relating to the ISN Computer Superstore will re-direct users to Cyberian Outpost's homepage, extending Cyberian Outpost's market reach, these re-directed links will remain in place for one-year to cover residual bookmarks or links pointing to the ISN Computer Superstore.
EC(I) - 153
Outpost.com
EC(I) - 154
eToys.com
EC(I) - 155
On Monday (Dec. 19, 2000), eToys watched its market value, which once topped $1.9 billion, fall to $37.2 million. It watched its customer traffic, once growing at a healthy clip, go flat compared to last year. And it watched its shares plunge 72 percent to close at 28 cents a share, miles from its 52-week high of $40.25, as a number of analysts reaffirmed their positions on the stock.
EC(I) - 156
CDNow
EC(I) - 157
CDNow Merged with Music Boulevard
EC(I) - 158
E-tailing CSF
eStrategy eMerchandising eArchitecture eSupplyChain eConnections eBackOffice eProperty eCapital
EC(I) - 159
Time Warner's PathFinder: http:://pathfinder.com
Online Magazines: It was shut down in May 1999
EC(I) - 160
C|NET at cnet.com
EC(I) - 161
espn.go.com
ESPN Sportszone
EC(I) - 162
www.slate.com
Check out
http://interactive.wsj.com/ http://www.salon.com
EC(I) - 163
Hot Sauce: http://www.hothothot.com

Specialty virtual store
EC(I) - 164
1-800-FLOWERS: Http://www.1800flowers.com/ A real world florist with more than 20 years of experience. Went on live in April 1995. Also maintain sites in American Online and CompuServe. Online retailing $25 million (10% of company sales) in 1996. Take advantage of proven retail marketing strategies: discounts, contests, and sweepstakes, grand opening promotions, etc.
EC(I) - 165
Www.1800flowers.com
EC(I) - 166
Help Customers to Select
See also: Gifts.com
Help customer to remember: Reminder services Lifeminder.com Personalized shopping lists at Staples.com
Minder Chen, 1996-2008 EC(I) - 167
Grocery Shopping: http://www.peapod.com/
Homegrocer.com NetGrocer.com Streamline WebVan Priceline.com

Minder Chen, 1996-2008 EC(I) - 168
Virtual Vineyard: virtualvin.com & wine.com
EC(I) - 169
Landsend.com
Set up shop at AOL in 1992 Launch a web site in 1995 1% of sales in 1997 4.5% of sales in 1998 Printing and mailing it 250 million catalogs each year counts for 43% of its operating cost. 10% of all Internet apparel sales in 1998
EC(I) - 170
Interactive Application on the Net

Go to www.lendsend.com Choose Oxford Express Link
Check out http://www.idreamsoftware.com/products/jio/appareldemo.htm

Minder Chen, 1996-2008 EC(I) - 171
My Virtual Model
Online catalog Landsend.com plans to outshine the competition this holiday season with a more accurate virtual model derived from a body scan, the company announced Tuesday. In the months leading up to Christmas, a Lands' End mobile unit equipped with an automated Image Twin scanning booth will offer consumers in 14 U.S. and Canadian cities a chance to obtain precise body measurements, generating a virtual twin who will try clothing online. Inside the mobile scanning unit, white light flashing on and off for more than 12 seconds digitally captures 200,000 data points of a consumer's figure, creating a 3-D mirror image. A consumer can start using the model online within two hours, after the information is transmitted wirelessly to an IBM server farm located in North Carolina, said C. Cammack Morton, chairman and founder of the North Carolina-based Image Twin. The dressing-room tool, My Virtual Model, is an updated version of a virtual model generated solely from a questionnaire about height, dress size, body shape, and the like. The updated tool takes additional measurements for a more realistic result and as of next week, will offer a male virtual model.
EC(I) - 172
Online Stock Brokerage Firm: E*Trade

Www.etrade.com Received a $400 million investment from Softbank.
EC(I) - 173
Portfolio
EC(I) - 174
Trading
EC(I) - 175
Analysis
EC(I) - 176
E*Trade Investment Tools

E*TRADE has created a web-based trading system that is streamlined, efficient, and economical. As an account holder, you get free real-time market information, news and analysis and pay among the lowest commission rates and lowest margin rates in the industry. One-Click Access to the Tools You Need: E*TRADE customers, get comprehensive online trading capabilities and a full set of investment and research tools such as free news, charts, in-depth company fundamentals, and online portfolio management. Personal Market Page E*TRADE offers a low and simple commission schedule. You pay only $14.95 for listed market orders and $19.95 for Nasdaq orders. For listed orders over 5,000 shares, add 1 cent per share to the entire order. For options, you pay just $20 plus $1.75 per contract, with a $29 minimum.
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E*Trade Commission: A Comparison
Online competitor
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Updates
E*TRADE added 233,000 new active accounts during first quarter 1999, an increase of 77% over the previous quarter. In its second fiscal quarter, customer trades rose 63 percent in three months to approximately 70,000 per day. They ended the quarter with 909,000 accounts and customer assets of $21.1 billion
(Source: San Jose Mercury News, 4/21/99).
A day trader killed 9 people at Atlanta.

July 28, 1999.
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E*TRADE Acquires Telebanc for $1.8 Billion

Calling it the first pure-play Internet company to integrate banking and brokerage services, E*TRADE Group Inc. announced Tuesday it is acquiring Internet bank Telebanc Financial Corp. for approximately $1.8 billion. Terms of the agreement call for Telebanc shareholders to receive 2.1 shares of E*TRADE common stock for each share of Telebanc common stock. The merger is valued at roughly $1.8 billion based on E*TRADE's closing price on Friday, May 28. Once the merger is finalized, Telebanc shareholders will own approximately 13 percent of E*TRADE's fully diluted common stock. The transaction will be accounted for as a pooling of interests and is slated to close sometime this fall upon regulatory and shareholder approval. The merger creates an Internet-based, FDIC-insured cash management account which the companies predict will change the future of personal financial services. Aimed at millions of Internet consumers, the online financial management resources of E*TRADE combined with online banking capabilities is expected to eliminate the need for multiple financial relationships. The merger also will offer online consumers for the first time, access to full-featured, FDIC-insured Internet cash management accounts, including ATM access through the national Cirrus network, online bill payment and investing services, enabling them to consolidate brokerage and banking accounts. By offering a central account, customers will be able to conduct a full range of transactions online, including buying mutual funds, CDs and fixed income securities, trading equities and paying bills. E*TRADE said through the integration of the companies services, a cost-effective, scalable business model will be achieved, while boosting E*TRADE's customer acquisitions and aggressively expanding its existing one millionplus customer account base.
June 01, 1999
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Internet Stock Is Also Driving The Change
Market Capitalization ($ Billions)

50 45 40 35 30 25 20 15 10 5 0
As of 4/16/99 Schwab: $46.6 B Merrill: $31.0 B
Charles Schwab Merrill Lynch
Jun-96
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Merrill Lynch & CO.

Some 30 percent of chief executives and senior managers say the Internet is forcing them to revamp their strategies, according to a recent study by Booz, Allen & Hamilton and the Economist Intelligence Unit. Take Merrill Lynch & Co., the biggest U.S. broker, which after long resisting trading over the Internet, said on Tuesday it planned to roll out full-scale online trading. "The undeniable fact that there is a segment of the marketplace that wants to access the market through technology and through online investing was indisputable," Merrill Chairman David Komansky said.
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By 2003, Forrester estimates that 9.7 million US households will manage more than $3 trillion
in 20.4 million on-line accounts.

Deep discount firms will see their growth rates plateau. Midtier firms will prosper, capturing more households and assets than their competitors will. Full-service companies will start slow but will enjoy the greatest asset growth.
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Motley Fool: www.fool.com

Competitor: Quote.yahoo.com, Street.com, Cbs.Marketwatch.com, Stock247.com
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http://www.ananova.com/
The world's first virtual anchor woman.
http://www.sonicnet.com/
Create your own radio station
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Value Chain of E-Commerce

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Value Chain of E-Commerce

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Electronic Commerce:

Business Models, Strategies, Investment and Implementation in the Network Economics

E-Mail: minder.chen@csuci.edu or minderchen@hotmail.com Web site: http://faculty.csuci.edu/minder.chen/

Minder Chen, 1996-2008

Minder Chen, 1996-2008

Minder Chen, 1996-2008

Network Economy and Dynamic Trade

Minder Chen, 1996-2008

Web Technology and EC Software Overview

EC Investment and Opportunities

Minder Chen, 1996-2008

Introduction The cycle of electronic commerce EC and business process EC statistics

Minder Chen, 1996-2008

Electronic Commerce: Introduction

Minder Chen, 1996-2008

Duration of Interaction Business Integration Condition and Control

Supply and demand (market)

Primarily on way; Limited in scope and amount; Low level of customization

Minder Chen, 1996-2008

Travelocity Microsoft expedia Priceline.com

The Low-Friction Market

"Where there is a friction, there is opportunity!"

The Cycle of Electronic Commerce

Minder Chen, 1996-2008

Components of Electronic Commerce

Generic Framework of Electronic Commerce

Public policy, legal, economical development, and privacy issues

Common Business Services Infrastructure

Multimedia Content & Network Publishing Infrastructure

Messaging & Information Distribution Infrastructure

Information Superhighway Infrastructure

EC and Business Processes

Credit cards, e-cash

Web site, phone, fax, e-mail, emailing list

Minder Chen, 1996-2008

World Wide Internet Commerce

Forester Research, Inc. June 1999

Business Internet Commerce Trends

Minder Chen, 1996-2008

1950s 1960s-1970s 1980s 1990s

Home Depot CompUSA Barnes and Nobles Border

Minder Chen, 1996-2008

Network Economy and Dynamic Trade

Minder Chen, 1996-2008

Changes in the Net Economy

Minder Chen, 1996-2008

1990s - 21st Century

Internet Economy Driving Forces

Minder Chen, 1996-2008

Network and Information Economy

Managing intellectual property.

The economics of attention

Source: Information Rules

Characteristic of Information Economy

Minder Chen, 1996-2008

Information Commodity Market

Minder Chen, 1996-2008

Popularity Adds Value in a Network

Positive Network Externality

Number of Compatible User

Minder Chen, 1996-2008

The Internet Increases Apparent Supply

Minder Chen, 1996-2008