Copyright © 2002 Pearson Education, Inc.

Online Service Industries CHAPTER 11 Online Service Industries Created by, David Zolzer, Northwestern State University—Louisiana Copyright © 2002 Pearson Education, Inc.

Learning Objectives Describe the major features of the online service sector Discuss the trends taking place in online the financial services industry Identify the key features of the online banking and brokerage, insurance, and real estate industries Copyright © 2002 Pearson Education, Inc.

Learning Objectives Explain why online travel services can be considered the most successful B2C segment Describe the major trends in the online travel services industry today Explain career services online may be the ideal Web business Identify current trends in the online career services industry Copyright © 2002 Pearson Education, Inc.

The Service Sector The largest and most rapidly expanding pare of the economies in advanced industrial nations Employ 37% of the labor and account for $1.8 trillion in GDP Adding finance, insurance, and real estate services (FIRE), about 44% of labor force works in service delivery and accounts for around $3.5 trillion or 40% of the entire U.S. economy Copyright © 2002 Pearson Education, Inc.

The Relative Size of the Service Sector: Employees Page 586, Figure 11.1 Copyright © 2002 Pearson Education, Inc.

The Relative Size of the Service Sector: GDP Page 586, Figure 11.2 Copyright © 2002 Pearson Education, Inc.

What Are Services? Service occupations are occupations “concerned with performing tasks” in and around households, business firms, and institutions Service industries are those “domestic establishments providing services to consumers, businesses, governments, and other organizations” Copyright © 2002 Pearson Education, Inc.

The Major Service Industry Groups Page 587, Figure 11.3 Copyright © 2002 Pearson Education, Inc.

Categorizing Service Industries Major service industry groups are finance, insurance, real estate, business services, and health services These groups are categorized as: transaction brokering -- acting as an intermediary to facilitate a transaction providing a “hands-on” service Copyright © 2002 Pearson Education, Inc.

Categorizing Service Industries Most important feature of service industries is that they are knowledge and information intense To add value, they process a great deal of information and employ a highly skilled, educated work force Copyright © 2002 Pearson Education, Inc.

Categorizing Service Industries Suited to e-commerce services and the strength of the Internet These firms have the ability to: collect, store, and disseminate high value information; provide reliable, fast communications; and personalize and customize service or components of service Copyright © 2002 Pearson Education, Inc.

Growth of Online Investable Assets Page 590, Figure 11.4 Copyright © 2002 Pearson Education, Inc.

Online Investing and Banking Page 591, Figure 11.5 Copyright © 2002 Pearson Education, Inc.

Number of Individuals Banking Online Page 591, Table 11.1 Copyright © 2002 Pearson Education, Inc.

Online Consumers’ Financial Activities Page 592, Table 11.2 Copyright © 2002 Pearson Education, Inc.

Financial Service Industry Trends Provides four generic kinds of services: storage and access to funds protections of assets means to grow assets movement of funds Copyright © 2002 Pearson Education, Inc.

Traditional Providers of Financial Services Page 592, Table 11.3 Copyright © 2002 Pearson Education, Inc.

Financial Service Industry Trends Two important global trends in financial services that have a direct consequences for online financial services firms are changing the institutional structure of financial services Industry consolidation Movement toward integrated financial services Copyright © 2002 Pearson Education, Inc.

Financial Service Industry Consolidation Glass-Steagall Act or 1934 prohibited banks, insurance firms, and brokerages from have significant financial interests in one another Financial Reform Act of 1998 amended Glass-Steagall and permitted banks, brokerages, and insurance firms to merge and to develop nationwide banks Copyright © 2002 Pearson Education, Inc.

Industry Consolidation and Integrated Financial Services Page 593, Figure 11.6 Copyright © 2002 Pearson Education, Inc.

Financial Supermarket Provides a variety of financial products and services at a single physical center or branch bank Internet has created the technical foundation for an online financial supermarket to operate Copyright © 2002 Pearson Education, Inc.

The Financial Supermarket Model Page 594, Figure 11.7 Copyright © 2002 Pearson Education, Inc.

Financial Service Industry Trends Management of financial assets online is growing rapidly By 2005, it is projected that more than half of all households in the United States will be investing online Online banking is also expect to double by 2005 Online stock trading is expected to grow from 15 million households today to 34 million households in 2005 Copyright © 2002 Pearson Education, Inc.

Financial Service Industry Trends In the insurance and real estate industries, consumers still generally use the Internet for research and use conventional transaction broker to complete the purchase The move toward industry consolidation and the provision of integrated financial services are two important trends for online financial services firms Copyright © 2002 Pearson Education, Inc.

Online Banking and Brokerage Pioneered by NetBank and Wingspan Traditional banks had developed earlier versions of telephone banking, but did not use online services until 1998 Established name brand national banks and brokerage firms have taken a substantial lead in market share. Copyright © 2002 Pearson Education, Inc.

The Leading Financial Services Firms Page 596, Table 11.4 Copyright © 2002 Pearson Education, Inc.

Multichannel vs. Pure Online Financial Services Multichannel firms that have both physical branches and solid online offerings are growing faster and assuming market leadership over pure online firms that cannot provide customers with many services that still require hands-on interaction Copyright © 2002 Pearson Education, Inc.

Customer Acquisition, Conversion, and Retention Customer acquisition costs are significantly higher for Internet-only banks and brokerages that must invest heavily in marketing versus their established brand name clicks and mortar competitors, which can simply convert existing branch customers to online customer at a much lower cost Copyright © 2002 Pearson Education, Inc.

Customer Acquisition, Conversion, and Retention Multichannel institutions draw nearly four times the number of visitors, and significantly more of those visitors open a secure channel, indicating they are interested in transacting . Visitors to pure online firms use the sites more intensively and for a wider variety of services Multichannel site users visit less frequently and perform fewer transactions online. Copyright © 2002 Pearson Education, Inc.

E-commerce in Action: E*Trade.com In 1996, E*Trade promised to revolutionize the domestic brokerage business by offering low, flat rate discount commissions on stock trades, free online price feeds, free stock quotations, online order entry, more efficient order execution, and better customer service Copyright © 2002 Pearson Education, Inc.

E*Trade’s Balance Sheet Page 600, Table 11.5 Copyright © 2002 Pearson Education, Inc.

E*Trade Growth Measures Post 2000 Page 602, Table 11.6 Copyright © 2002 Pearson Education, Inc.

Financial Portals Projected boom in online investment and banking has also attracted non-financial institutions Financial portals provide comparison shopping services and steer consumers to online providers for independent financial advice and financial planning Generate revenue from advertising, referral fees, and subscription fees Copyright © 2002 Pearson Education, Inc.

Financial Portals Financial portals add to the online price competition Thwart the ambitions of the large banking institutions that would like to ensnare consumers in a single branded financial supermarket in which switching costs from a single, all purpose account would be considerable Copyright © 2002 Pearson Education, Inc.

Account Aggregation The process of pulling together all of a customer’s financial (and even non-financial) data at a single personalized Web site Established financial institutions originally opposed as a threat to their customer base Consumer demand for this convenience has forced them to sign deals with major account aggregation software providers Copyright © 2002 Pearson Education, Inc.

Account Aggregation Privacy issues are raised by this new technology Consumer must release all of their login and password information to the account aggregator Copyright © 2002 Pearson Education, Inc.

Online Mortgage and Lending Services Envisioned a market in which the mortgage value chain would be simplified and the loan closing process speeded up, with the resulting cost savings passed on to the customer Resulting high customer acquisition costs and instituting these value chain changes proved too difficult Copyright © 2002 Pearson Education, Inc.

Online Mortgage and Lending Services Four basic types of mortgage lenders established online banks, brokerages, and lending organizations pure online bankers/brokers mortgage brokers mortgage service companies Copyright © 2002 Pearson Education, Inc.

Online Mortgages 1999-2004 Page 607, Table 11.7 Copyright © 2002 Pearson Education, Inc.

Online Insurance Services Term life insurance stands out as one product group supporting the E-commerce I vision of lower costs, increased price transparency, and the resulting consumer savings The Web offers insurance companies new opportunities for product and service differentiation and price discrimination for other insurance product lines Copyright © 2002 Pearson Education, Inc.

The Insurance Industry: Segments Page 609, Table 11.8 Copyright © 2002 Pearson Education, Inc.

Online Insurance Services Several Distinguishing Characteristics make it difficult to completely transfer to the new online channel policies that defy easy comparison and that can only be explained by an experienced sales agent traditional reliance on local insurance offices and agents to sell complex products uniquely suite to the circumstances of the insured person and/or property marketplace that is coordinated by state insurance commissions in each state with differing regulations Copyright © 2002 Pearson Education, Inc.

Online Insurance Services Consumers will check the Web for prices and terms, but will not by policies online Copyright © 2002 Pearson Education, Inc.

Leading Online Insurance Services Page 611, Table 11.9 Copyright © 2002 Pearson Education, Inc.

Online Real Estate Services Vision of E-commerce I (that the historically local, complex, and agent-driven real estate industry would be transformed into a disintermediated marketplace where buyers and sellers could transfer directly) has not been realized What has transpired has been beneficial to buyers, sellers, and real estate agents About 50% of home buyers now consult real estate sites on the Web, and this percentage is expected to grow to 80% by 2005 Major impact is influencing purchases offline Copyright © 2002 Pearson Education, Inc.

Online Real Estate Services Primary service is a listing of available homes with links to mortgage lenders credit reports sales price histories by neighborhood school district data crime reports Copyright © 2002 Pearson Education, Inc.

Online Real Estate Services Value chain has remained unchanged Home addresses are not available online Users are directed back to the local listing agent for further information Copyright © 2002 Pearson Education, Inc.

Online Real Estate Services Buyers benefit because they can quickly and easily access a wealth of valuable information Sellers benefit because they receive free online advertising for their property Real estate agents have reported that Internet-informed customers ask to see fewer properties Copyright © 2002 Pearson Education, Inc.

Major Online Real Estate Sites Page 612, Table 11.10 Copyright © 2002 Pearson Education, Inc.

Online Travel Services Attract the largest single e-commerce audience Largest slice of B2C revenues Most common channel used by consumers to research travel options Most common way for people to search for the best possible prices and book reservation for airline tickets, rental cars, hotel rooms, cruises and tours Copyright © 2002 Pearson Education, Inc.

Total U.S. Online Travel Booking Revenue Page 616, Figure 11.8 Copyright © 2002 Pearson Education, Inc.

Online Travel Services: Successes Online travel sites offer consumers a one-stop, convenient, leisure and business travel experience Travelers can find content, community, commerce, and customer service Bring consumers and suppliers together in a low transaction cost environment Copyright © 2002 Pearson Education, Inc.

Online Travel Services: Successes Offer more information and travel options than traditional travel agents description of vacations and facilities chat groups and bulletin boards convenience of purchasing all travel elements at one stop Copyright © 2002 Pearson Education, Inc.

Online Travel Services: Successes Travel is an information-intensive product an electronic product in the sense that travel requirements can be accomplished for the most part online Travel does not require inventory suppliers are always looking for customers to fill excess capacity Copyright © 2002 Pearson Education, Inc.

Online Travel Services: Successes Travel services do not require an expensive multichannel physical presence Airline reservations and car rentals are best suited for the online market place Cruises, tours, and hotels to some extent will not grow as quickly in the online environment Copyright © 2002 Pearson Education, Inc.

Online Travel Services: Successes In the past five years corporate travel expenses have mushroomed leading corporations to seek greater control over employee travel plans Corporations are outsourcing their travel offices entirely to vendors who can provide Web-base solutions, high-quality service, and lower costs Copyright © 2002 Pearson Education, Inc.

Online Travel Services: Trends The online travel services industry is going through a period of consolidation as stronger offline, establish agencies purchase weaker and relatively inexpensive online travel agencies in order to build stronger multichannel travel sites that combine physical presence, television sales outlets, and online sites Copyright © 2002 Pearson Education, Inc.

Online Travel Services: Trends Suppliers -- such as airlines, hotels, and auto rental firms -- are attempting to eliminate intermediaries such as GDS and travel agencies, and develop a direct relationship with consumers Orbitz was formed by seven major airlines to deal directly with corporations and leisure travelers Major auto rental firms opened direct-to-customer Web sites Copyright © 2002 Pearson Education, Inc.

Online Travel Services: Trends Successful online travel agencies are attempting to turn themselves into merchants by purchasing large blocks of travel inventory and then reselling it to the public, eliminating the global distributors and earning much higher returns Copyright © 2002 Pearson Education, Inc.

Projected Growth of Online Travel Market Page 618, Figure 11.9 Copyright © 2002 Pearson Education, Inc.

Projected Growth of Managed and Leisure/Business Travel Page 619, Figure 11.10 Copyright © 2002 Pearson Education, Inc.

Large Online Travel Sites Page 650, Table 11.11 Copyright © 2002 Pearson Education, Inc.

The Travel Services Value Chain Page 621, Figure 11.11 Copyright © 2002 Pearson Education, Inc.

E-commerce in Action: Expedia.com Online travel services company that provides access to information on scheduling, pricing and availability of flights, hotel accommodations, and rental cars Expedia is one of the top players in online travel services, generating revenues of $222 million for 2001 Copyright © 2002 Pearson Education, Inc.

Expedia.com Balance Sheet Page 625, Table 11.12 Copyright © 2002 Pearson Education, Inc.

Online Career Services Next to travel services, job hunting services have been one of the Internet’s most successful online services Save money for both job hunters and employers Copyright © 2002 Pearson Education, Inc.

Online Career Services Traditional recruitment tools have sever limitations Online recruiting provides a more efficient and cost-effective means of linking employers and job hunters reduces total time-to-hire Copyright © 2002 Pearson Education, Inc.

Online Career Services Job hunters can easily build, update, and distribute their resumes conduct job searches gather information on employers It is an information-intense business process which the Internet can automate, and thus reduce search time and costs for all parties Copyright © 2002 Pearson Education, Inc.

The Growth of Online Recruitment Page 628, Figure 11.12 Copyright © 2002 Pearson Education, Inc.

Popular Online Recruitment Sites Page 629, Table 11.13 Copyright © 2002 Pearson Education, Inc.

Many Ways to Find a Job Page 631, Figure 11.13 Copyright © 2002 Pearson Education, Inc.

Survey Results Page 631, Figure 11.14 Copyright © 2002 Pearson Education, Inc.

Online Career Services: Trends Online recruitment has focused primarily on general job recruitment Many general sites have begun listing lower-level and middle-level management jobs Offer larger revenue potential Copyright © 2002 Pearson Education, Inc.

Online Career Services: Trends Going through a period of rapid consolidation led by TMP Worldwide, Inc -- world leader in online executive recruiting executive moving and relocation e-resourcing temporary contracting recruitment advertising Copyright © 2002 Pearson Education, Inc.

E-commerce in Action: HotJobs.com A New York based online recruiter, linking employers, staffing firms, and job seekers through its Web sit HotJobs.com More than 9,100 employers pay an average of $870 per month to list job openings Has a database of close to 3 million job seekers Copyright © 2002 Pearson Education, Inc.

HotJobs.com’s Balance Sheet Page 635, Table 11.14 Copyright © 2002 Pearson Education, Inc.