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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

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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 Beyon
d
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 Yo
ur 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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EC(I) - 2

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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EC(I) - 3

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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EC(I) - 4

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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EC(I) - 5

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

EC Strategies

4Cs strategy
Content, Community, Commerce
Revenue streams
E-conomy Map and EC Strategies

EC Business Models

B2C Virtual stores: physical and digital goods and services


Infomediaries: Seller-side
Informediaries: Buyer-side
Infomediaries: B2B marketspace

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

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Outline (II)
E-Business and Extended Enterprise
Defining e-business and extended enterprise
Supply Chain Management
Customer Relationship Management
Business-to-business analysis

Case Studies

Amazon.com
Dell
Federal Express
Cisco

Web Technology and EC Software Overview

Internet infrastructure and services


Web technology overview
EC software
Internet Security and Electronic Payment Systems

EC Implementation
Evolution of EC implementation
EC site life cycle
EC site design issues
Promotion and marketing
Net readiness evaluation

EC Investment and Opportunities


Internet / EC industry analysis
EC Firms and Stock market
EC investment pyramid
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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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EC(I) - 10

Market Relationships

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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

Follow-on Sales

Online Orders

Standard Orders

Distribution
Online: soft goods
Delivery: hard goods
Electronic Customer Support

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Components of Electronic Commerce


Processes

Institution

Government
Merchants
Manufacturers
Suppliers
Consumers

Electronic
Commerce

Marketing
Sales
Payment
Fulfillment
Support

Networks
Intranet
Extranet
Internet

Source: adapted from David Kosiur, Understanding Electronic Commerce, Microsoft Press, 1997.
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EC(I) - 15

Generic Framework of Electronic Commerce


Public policy, legal, economical
development, and privacy issues

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

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)

Technical standards for electronic


documents, multimedia contents, business
transactions, and network protocols

Electronic Commerce Applications

Adapted from: Kalakota and Whinston, Frontiers of Electronic Commerce, Addison Wesley, 1996, p. 4.
Minder Chen, 1996-2008

EC(I) - 16

EC and Business Processes


Seller

Corporate Databases

Provide
Info

Send info

Data sheets,
catalogs, demos

Get
customer

Customer

Phone,
fax, e-mail

Request info
Identify
need
Web surfing
Web searches,
web ads

Web site

Find
source

Newsgroups
Provide
info
Demos,
reviews
Fulfill
order

Evaluate
offerings

Net
communities

Web site

P.O.s

Credit cards, e-cash

EDI
Deliver soft goods electronically

Support

Minder Chen, 1996-2008

Purchase

Web site, phone,


fax, e-mail, emailing list

Operate,
Maintain,
Repair

EC(I) - 17

World Wide Internet Commerce

Forester Research, Inc. June 1999


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Business Internet Commerce Trends

B2C: Business to Consumer


B2B: Business to Business

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)

By 2003 . . .

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)

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


eb
W

s
re
to
rs
pe
Su

lls
Ma

t
ee
st r
in
Ma

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

Business change
Periodic

Continuous

Business production
Mass Production

Minder Chen, 1996-2008

Mass Customization
Mass Personalization

EC(I) - 25

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.

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


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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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Vir
tuo

cy
cl
e
s
ou
Vi
ci

Value to User

us
c

yc
le

Popularity Adds Value in a Network

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

Network Economy

Supply
Quantity

Supply
Price

Price

Demand

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:

Price

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
All
tangible
and
intangible
items
that
Gilder's Law
$250
can
be
copied
adhere
to
the
law
of
can be copied adhere to the law of
inverted
invertedpricing
pricingand
andbecome
becomecheaper
cheaper
as
asthey
theyimprove.
improve.
Cost of a 3-minute
Long Distance Call
Anticipate
Anticipatethis
thischeapness
cheapnessin
inyour
your
pricing
strategy
and
product/service
pricing strategy and product/service
$0
development
developmentstrategy
strategy
1999
1930
Year
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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

ol l
/C
ng

ic
rv
Se

li
Bil
io
ect

i st

ns

og
n/L

g
tin

t io
uc
od
Pr

e
rk

les
Sa

Ma

ics

Enterprise Information Server

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Electronic Commerce Applications and the Cycle of Commerce

Buyer's Cycle of Commerce

t
era
Op

ent

ion

ym
Pa

nt
me

ics
ist
og
g/L
ivin
ce
Re

ure
oc
Pr

in
est
g/T
pin
op
Sh

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?

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?

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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

Media

Web
Kiosh
E-mail
Phone
Mail
Fax
Hand-held

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Virtual Communities

Money

Content
Demographics

Virtual
Community

Content
Hard goods
Games
Services

Providers

Users
Advertising
Advertisers
Minder Chen, 1996-2008

Other
Websites
EC(I) - 55

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

Communities of Fantasy

Chat rooms: Red Dragon Inn


Virtual Team competition at ESPNet: espnet.sportszone.com

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

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

Attract
Jump

Other sites of interest to customer

Engage
Participate

Minder Chen, 1996-2008

Adapted from Netscape Communications Inc., 1996.

EC(I) - 64

EC Companies Transform the Revenue Mix


The mix:
Who pays for
what and
how much.

Pricing
Value
Customers

New
Values

Highly interrelated!

New
Pricing

New
Customers

Source: Now or Never, 2000


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EC(I) - 65

The Revenue Mix: Examples


Finding new customers

Onsale.com sales at costs


Buy.com creates advertising as a revenue stream

Offering new value

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

Building new pricing structures

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.

Compare eBay with classified ad

Minder Chen, 1996-2008

EC(I) - 66

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.

Offering new value

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!"

Building new pricing structures

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.

Minder Chen, 1996-2008

EC(I) - 67

Consumer Technographics Segments in the US


Early
Adopters

Optimists
Optimists

Career

Family

Fast Forward
12%

New Age Nurturers

Techno-strivers

Digital Hopeful

7%
Handshakers
7%
Pessimists
Pessimists

8%

7%
Traditionalists
8%

Entertainment
Mouse Patatoes

9%
Gadget Grabbers

9%
Media Junkies

5%

Sidelined Citizens
28%
Laggards

Minder Chen, 1996-2008

High

Low

High

Low

Source: Forrester Research Inc.


EC(I) - 68

Income Level

Attitude Toward Technology

Mainstreams

Primary Motivation

Quick Test for Technographics

Number of new users

More Men

More Women

More Educated

Less Educated

High Income

Low Income

Have Children

No Children

Younger

Early Adopter

Age

Older

Mainstreams
Laggards

Time
Minder Chen, 1996-2008

EC(I) - 69

High

Low

Customer Need for Product Information

Technology-Fit: Customer and Product

Minder Chen, 1996-2008

Second Wave

Earlier Adopter

Jenny Craig
Chrysler

AA
FedExp
Microsoft

Web Laggards Second Wave


Tide
Denny's

Nike
Pepsi

Customer Demographics Match


Poor
High

Source:
Forrester
Research

EC(I) - 70

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

Minder Chen, 1996-2008

EC(I) - 71

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
Minder Chen, 1996-2008

EC(I) - 72

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

Minder Chen, 1996-2008

EC(I) - 73

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.

Minder Chen, 1996-2008

EC(I) - 74

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

Minder Chen, 1996-2008

EC(I) - 75

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

Minder Chen, 1996-2008

EC(I) - 76

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?
Minder Chen, 1996-2008

EC(I) - 77

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.
Minder Chen, 1996-2008

EC(I) - 78

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 user-friendly.
Use it to its full potential.

Minder Chen, 1996-2008

EC(I) - 79

What To Do Now

Rapid innovation

1. Define your eBusiness strategy FAST


2. Assess readiness:
customers
products/services
organization
technology
infrastructure

Minder Chen, 1996-2008

EC(I) - 80

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

High

Minder Chen, 1996-2008

Fast

Low

Risk

Slow
Time to Market

Integration
Subsidiary
Partnership
Buyout

Cost

Low

High

EC(I) - 82

Brick and Mortar

Minder Chen, 1996-2008

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

Minder Chen, 1996-2008

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

Minder Chen, 1996-2008

EC(I) - 87

Becoming Virtual
Egghead to Egghead.com
Computer Literacy to Fatbrain.com
Romac International to KForce.com

Kinder
Kinder Toys
Toys is
is Moving
Moving to
to
www.toydomain.com
www.toydomain.com
(Find
(Find us
us on
on the
the web
web after
after June
June 1st)
1st)

Minder Chen, 1996-2008

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?

Minder Chen, 1996-2008

EC(I) - 89

E-conomy Map
Business

COINs

HP
Testing &
Measurement

VerticalNet
Testandmeasurement.com

Enterprise

Consumers

Affinity
Groups

HomeCare
Products

HomeCare
InfoCenter

Individual

The Delivery Vehicle


(The Container)
Adapted from: Net Ready, 2000
Minder Chen, 1996-2008

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.

Minder Chen, 1996-2008

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

E-Vision

Business
Drivers

Technology
Drivers

E-Business
Strategy
Source:
Digital
2000
Minder
Chen,Transformation,
1996-2008

Systems and
networks
Web architecture
Business
infrastructure
Technology
components
Web technology
strategy

Rapid
Implementation
EC(I) - 93

Internet Industry
Sports
Malls
Entertainment
Newsfeed
Publications

Content
and
Activity

Consulting

Electronic
Commerce
Infrastructure

Internet
Economy

System Integration
and Design

Backbone Router
Access Equipment
Server Computers

Minder Chen, 1996-2008

Internet
Equipment

ISP
Network
Services

Commerce Instruments
Portals
Commerce Servers

Client/Server
Software

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

Minder Chen, 1996-2008

EC(I) - 95

Types of Virtual Stores


Hard goods:

Food
Clothes
Computer hardware and Electronics
Packaged software

Soft goods (Bits delivered on-line)

Information
Database
Publishing
Research

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

Minder Chen, 1996-2008

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

The least affected industries

Food
Consumer durable goods
Clothing
Local services
Banking and insurance

Minder Chen, 1996-2008

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

Type of product or service that is being provided.

Physical goods and services


Digital goods (contents)
Digital services

Minder Chen, 1996-2008

EC(I) - 100

Sell-Side E-Commerce Model

Buyer A
EDI
Selling
Merchant
Online
Selling

Minder Chen, 1996-2008

HTML & Forms


HTML & XML
OBI

Buyer B

Buyer C

EC(I) - 101

Sell-Side Storefront
Primary model used in current businessto-consumer 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.
Minder Chen, 1996-2008

EC(I) - 102

Buy-Side E-Commerce Model

Seller A
EDI
Buyer
Online
Procurement

Minder Chen, 1996-2008

HTML & Forms


HTML & XML
OBI

Seller B

Seller C

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

Seller A

EDI

Buyer B

EDI

HTML & Forms


HTML & XML

Virtual
Marketplace

HTML & Forms

Seller B

HTML & XML

OBI
Buyer C

OBI

Infomediacy (Content Aggregator)

Minder Chen, 1996-2008

eBay.com
Pricelines.com
Egghead.com
Amazom.com Auction
www.chemdex.com

Seller C

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

Minder Chen, 1996-2008

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
Minder Chen, 1996-2008

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

Minder Chen, 1996-2008

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.

Minder Chen, 1996-2008

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.

Minder Chen, 1996-2008

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%

Cases:

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.

Strategies:

Manufacturers want to maintain channels while stay in direct touch


with their customers.
Provide online dealer locators.
Share customers information back and forth.

Minder Chen, 1996-2008

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

Businesses

PCs
Web TV
PDA
Smartcards
Specialty Devices
Other

High
Value
Solutions

Brokerage

Transactions
and
Payments

Retail

Insurance

Distributors

Institutions
Physical
Infrastructure

Transport
Other

Minder Chen, 1996-2008

EC(I) - 114

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

Minder Chen, 1996-2008

EC(I) - 115

Vulnerability Grid
Risk/Opportunity Exposure

Your Risk/Opportunity
Low

Medium

High

how efficient is the relationship between


buyer and seller?

Digitizability:

How ready are customers to

How critical is the need for speed in the delivery


of the product or service?

Efficiency:

How digitizable is the product or service?

Customizability:

How customizable is the product or

service?

Asymmetries of Information:

What is the balance

of power in the buyer-seller equation?

Commodity:

How commodity-like is the product or

service?

Fragmentation:

How fragmented is the market in

which you operate?

Attitudinal Readiness:
accept new ways?

Velocity:

Minder Chen, 1996-2008

Source: Net Ready, 2000

EC(I) - 116

Move to Consumer-Centric View


Customer
Firewall

Conventional View
Supply
Base

Supply-chain
management

My
Company

SCM

Consumer-Centric View
Supplier network

Distribution
Channel

Target
Consumers

CRM

ERP

C2B2B: Customer-to-Business-to-Business
Channel

Virtual
Enterprise

Adapted from: Customer Centricity, InformationWeek, April 10, 2000


Minder Chen, 1996-2008

Consumer
Communities

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
Minder Chen, 1996-2008

EC(I) - 118

Price Pressure Shrink Retail Margins


Increasing apparent supply

Average retail net margin

Aggressive
pricing for
online plays

Increasingly
price-sensitive
online shoppers
Comparison
shopping
engines

Economies
of scale

New services
and loyalty
programs

Source: Now or Never, 2000


Minder Chen, 1996-2008

Auctions

Managing current demand


Time
EC(I) - 119

Business Models Based on the Value Chain in the Market Place


Raw
material
producer

Exchange

Independent
market
operators
Consortia

Manufacturer

C2B

Examples:
B2B: Vericalnet.com
B2C: Amazon.com
C2B: Priceline.com
C2C: eBay.com

Minder Chen, 1996-2008

Distributor

New
Middleman

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

Source: Leading the Revolution by Gary Hamel


Minder Chen, 1996-2008

EC(I) - 121

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.

Strategic Resources: These are unique firm-specific resources.

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)

Minder Chen, 1996-2008

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

Minder Chen, 1996-2008

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.

Minder Chen, 1996-2008

EC(I) - 124

Market Structure on the Internet

Number of companies

Many smaller
players with high
rate of entry

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.

Minder Chen, 1996-2008

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
Minder Chen, 1996-2008

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: _____________
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Buyer

Brick-and-mortar
Face-to-Face
Mail order
Mail
Printed catalog
Phone order
Telex
Phone
Fax

Click and Mortar

Business Channel: Multi-Channel Presence

Seller

Electronic commerce
EDI
Email
Pure Play
Web

Multi-channel plays will have extraordinary power if companies


elegantly blend and synchronize those channels.
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Internet Companies?

"Within five years, ALL


companies will be
Internet companies."
-- Andy Grove,

Intel Chairman
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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.

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All 3 Steps in One Medium

Get Attention

Branding

TV Ads
Magazines

Minder Chen, 1996-2008

Give More Information/


Answer Questions

Information

Brochures
Sales People
Print/editorial

Transact/
Service
The Sale

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

Minder Chen, 1996-2008

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

Be aware of new industry forces

amazon.com; yahoo.com; msn.com; etrade.com;


priceline.com; etoy.com; aol.com

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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

Minder Chen, 1996-2008

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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.

Partnering with an online company

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

Converting to an online-only company

Egghead.com, Homebid.com

Integrating E-business throughout the company

Prudential California Realty

Minder Chen, 1996-2008

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

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www.verticalnet.com

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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

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Auction: eBay.com

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Auction: eBay.com

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Priceline.com

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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

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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.

Minder Chen, 1996-2008

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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

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E-Loan at eloan.com
IPO: 2 Billion Dollars Market Capitalization

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Insweb.com

Minder Chen, 1996-2008

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Singleshop.com
Compare this with:
mySimon.com

Minder Chen, 1996-2008

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Matching Games: The Marketplace


Online Dating Service

$9,000 subscription fee per year for recruiting firms


Free for job seekers

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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.

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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.

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Outpost.com

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eToys.com

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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.

Minder Chen, 1996-2008

EC(I) - 156

CDNow

Minder Chen, 1996-2008

EC(I) - 157

CDNow Merged with Music Boulevard

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EC(I) - 158

E-tailing CSF

eStrategy
eMerchandising
eArchitecture
eSupplyChain
eConnections
eBackOffice
eProperty
eCapital

Minder Chen, 1996-2008

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Time Warner's PathFinder: http:://pathfinder.com


Online Magazines: It was shut down in May 1999

Minder Chen, 1996-2008

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C|NET at cnet.com

Minder Chen, 1996-2008

EC(I) - 161

espn.go.com
ESPN Sportszone

Minder Chen, 1996-2008

EC(I) - 162

www.slate.com
Check out
http://interactive.wsj.com/
http://www.salon.com

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EC(I) - 163

Hot Sauce: http://www.hothothot.com


Specialty virtual store

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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.

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EC(I) - 165

Www.1800flowers.com

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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
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EC(I) - 168

Virtual Vineyard: virtualvin.com & wine.com

Minder Chen, 1996-2008

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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

Minder Chen, 1996-2008

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.

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EC(I) - 172

Online Stock Brokerage Firm: E*Trade


Www.etrade.com
Received a $400 million investment from Softbank.

Minder Chen, 1996-2008

EC(I) - 173

Portfolio

Minder Chen, 1996-2008

EC(I) - 174

Trading

Minder Chen, 1996-2008

EC(I) - 175

Analysis

Minder Chen, 1996-2008

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.
Minder Chen, 1996-2008

EC(I) - 177

E*Trade Commission: A Comparison

Online competitor

Minder Chen, 1996-2008

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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.
Minder Chen, 1996-2008

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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, FDICinsured 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 costeffective, scalable business model will be achieved, while boosting E*TRADE's customer
acquisitions and aggressively expanding its existing one million-plus 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

Minder Chen, 1996-2008

M ar-99

D ec-98

Sep-98

Jun-98

M ar-98

D ec-97

Sep-97

Jun-97

M ar-97

D ec-96

Sep-96

Jun-96

M ar-96

Charles Schwab
Merrill Lynch

EC(I) - 182

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.
Minder Chen, 1996-2008

EC(I) - 183

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.

Minder Chen, 1996-2008

EC(I) - 184

Motley Fool: www.fool.com


Competitor: Quote.yahoo.com, Street.com, Cbs.Marketwatch.com,
Stock247.com

Minder Chen, 1996-2008

EC(I) - 185

http://www.ananova.com/
The world's first virtual anchor woman.

http://www.sonicnet.com/
Create your own radio station

Minder Chen, 1996-2008

EC(I) - 186