Five Forces Determine Industry Profitability New Entrants Threat of New Entrants Industry Competitors Rivalry Among Existing Firms Bargaining Power of Suppliers Suppliers Buyers Bargaining Power of Buyers Threat of Substitute Products or Services Substitutes

The Value Chain Firm Infrastructure M Human Resources Management A R Technology Development Procurement M A R G I N N I G R A M Marketing and Sales Inbound Logistics Outbound Logistics Operations Service

How Value is Created Customer Customer Marketplace Marketspace EXCHANGE EXCHANGE Content Context Infrastructure Content Context Infrastructure Brand Brand Marketplace Marketspace

The Virtual Value Chain s t o m e r Content Place Space Context Infrastructure Value Chain Interface Demand

Low Low Strategic impact of existing systems Factory Strategic Support Turnaround High Strategic impact of existing systems Low Low High Strategic impact of applications development portfolio

Competitive Positioning ECONOMIC POSITIONING What business are we in? Product/Service Market What is our position? Competition Value Are we creating value for all stakeholders ECONOMIC POSITIONING How will we make money? Revenue model Cost of designing, developing Cost model delivering, and maintaining Asset Model each product/service? Are we building and safeguarding assets? Business Performance Operating margins Operating Performance Budget performance Process performance Goals accomplishment Corporate Performance Financial performance Market share Attract qualified employees, Stakeholder loyalty partners, and investors Image, and reputation Enterprise Design Structure Is the extended enterprise Processes designed for: People & Culture - efficiency in decision making/action Technology - successful execution of strategy Resources - quick response to change

Economic Positioning Revenue Model How does (or will) the company achieve revenues from its products and services? Product sales Advertising Subscription fee Membership fee Commission Transaction fee Service/consulting fee Cost Model How much does it cost to operate the company and execute its strategy? People Advertising/Marketing/Sales Fees IT infrastructure Materials and supplies Physical infrastructure Asset Model Are we building and safeguarding assets? Financial assets Physical assets Intangible assets: Relationships Knowledge and expertise Agility Strength of brand

Evolution of Basic Portal Concept Where users would link to all manner of Internet services and activities (search, content, personal authoring, transaction, and social-interactive sites) Advertising income: more than cover the cost of maintaining the portal To keep them in the Portal, and coming back. So advertisement and sales increase. “Attract, engage, entice, and entrap.”

The “Harvest” Decision Advantages Disadvantages - Access to short- & long-term capital - Lose of operating confidentiality - Future offerings to fund growth - Cost of public auditing, reporting - Establish market value and shareholder fiduciary responsibility - Controls to protect shareholders and and from shareholders - Image management more serious - Info controlled to prevent inside trading - SEC limits timing and amount of stock insiders may sell - Founders get money immediately - Key managers/employees needed to keep - Acquiring company assumes all risks. core employees - Non-compete clauses limit expenditure . - If sale through stock exchange, founders receive a fraction of the purchase price - Access to resources required to grow - Synergies do not materialize - Increase scale, scope and market share - Clash of cultures, operations, or system - Management continues to be involved - Lack of freedom to operate the company Public offering Outright sale Merger, acquisition or partnership

Stages of Entrepreneurial Evolution Phase 1 Phase 2 Phase 3 Phase 4 Bureaucracy Complex Complexity Simple Coordination Achieving liquidity Control Growing the business Expertise Launching the product/service Building the business concept Young Organizational Age Mature

MARKETING: TRADITIONAL MODEL C C P Content Channel C C C

ELECTRONIC COMMUNITIES: NEW MODEL P P Con- tent C Content Channel Content C P P Con- tent C C Fuente: Hoffman, Novack & Chatterjee 1995

RealNetworks Revenue Model Revenue Description Example Product sales Sell or license physical or Sell and license streaming information-based product media products Advertising Market other company’s Advertising on website, products or services carrying special promotions, Programming content Subscription fee Charge for regular receipt Selling annual upgrade of products or information subscription Commission or Agent, broker, or intermediate Programming customers Transaction fee charge. Can be a set fee or pay transaction fee based a % of cost on viewers Consulting and Charge for services provided. Services to design/develop service fee Set or variable streaming media content Membership fee Charge to belong to a group None

Consumers’ Needs for Community Communities of Transactions: facilitate the buying/selling products/services and provide information related to transaction (example: virtual vineyards) Communities of Interest: participants interact extensively with one another on specific topics (example: GardenWeb) Communities of Fantasy: where participants create new environments, personalities, or stories (Example: ESPNet) Communities of Relationship: participants come together around certain life experiences that often are intense and can lead to deep personal connections (Example: the Cancer Forum/CompuServe)

Traditional Sources of Economic Value in Electronic Communities - Charge Usage Fees - Charge Content Fees - Revenue from Transactions and Advertising - Synergies with other part of their business

New Roles in Managing Electronic Communities Executive moderators: Moderate discussion, keep discussions focused, inject new topics/provocative views,seed discussion with facts/content. Community merchandisers: Identify attractive goods/services, negotiate with providers, and market them creatively and unobtrusively. Executive editor: Develops a programming strategy for community and manage external providers of content, information, and services. Archivist: maintains and organizes the content generated over time. Usage analyst: Studies data on participants’ behavior. New-product developer: Keep the community fresh/distinct from rivals.

The Learning Organization