© 2002 by Prentice Hall 6-1 The Growth in Computer Use Region est. Asia-Pacific European Union United States Latin America * All data in millions

© 2002 by Prentice Hall 6-2 Present and Future Computer Growth Country Growth Rate ( ) Projected Growth ( ) China1052%212% India604%258% Russia580%Not in top 5 Brazil565%Not in top 5 Indonesia552%Not in top 5 PolandNot in top 5205% UkraineNot in top 5185% TurkeyNot in top 5171%

© 2002 by Prentice Hall 6-3 Cell Phone Users (1990 and 1999) Country1990 (thousands)1999 (thousands) China1843,240 Egypt4465 Finland2263,445 France28321,434 Germany27323,470 India01,195 (1998) Ireland251,400 Israel152,800 Japan86856,849 Sweden4615,125 United Kingdom1,14423,944 United States5,28386,047

© 2002 by Prentice Hall 6-4 The Potential of the Internet  Lower communication costs between people and companies, and within networks  Lower transaction costs between people and companies, and within networks  Lower information search costs  Lower costs of monitoring transactions and search processes

© 2002 by Prentice Hall 6-5 The Internet and Various Industries Information-intensive industries:  Financial Services  Entertainment  Health Care  Education  Government Physical-intensive industries:  Retailing  Manufacturing  Travel  Power

© 2002 by Prentice Hall 6-6 Startup Plans for B-School Grads University of Michigan University of California at Berkley Northwestern University

© 2002 by Prentice Hall 6-7 Innovation and Value Value Creation:  The creation of value comes about when the company has the resources and capabilities to produce a product or service that is desired by market participants Value Capture:  Capturing value means that the price charged covers the full cost of production and a return on investment.

© 2002 by Prentice Hall 6-8 Online Shopper Characteristics  45% demand timely responses to questions and inquiries  22% require informative content on the site  17% highly value communication with a real person  14% want the products displayed clearly and prominently  14% desire 24-hour availability

© 2002 by Prentice Hall 6-9 Versioning Versioning – Producing different options for an information-based product  Delay  User interface  Convenience  Image resolution  Speed of operation  Capabilities  Features and functions  Annoyance  Support

© 2002 by Prentice Hall 6-10 Lock-in and Switching Costs Types of lock-inSwitching costs for customers Contracts and subscriptionsDamages for breaking the contract or ending the subscription before it expires. Durable purchasesReplacement of equipment. Switching costs decline as equipment ages. Brand-specific trainingCustomers must learn new system and process. Productivity loss during training. Information and databasesData conversion costs, potential data loss. Costs increase with database size. Specialized suppliersTime and cost of finding new supplier. Potential disparities in capability and quality. Search costsAggregate of buyer and seller costs. Loyalty programsLost benefits from program. Need to start over with another company’s program.

© 2002 by Prentice Hall 6-11 Rules for Information-Based Businesses  Value pricing  Versioning  Intellectual property  Lock-in  Networks and positive feedback  Cooperation and capability

© 2002 by Prentice Hall 6-12 E-Business Alliance Issues Lessons for the Startup  The big company’s clout can help you in dealing with customers  Don’t be arrogant  Serve the customer’s needs, not your own egos  Pleasing the big customer is the make-or-break event in the life of the smaller firm  Find industry veterans to help guide the younger workers in the politics of big companies

© 2002 by Prentice Hall 6-13 E-Business Alliance Issues Lessons for the Big Company  The small company needs a very specific set of requirements  Supply the details  Invest in the startup and make sure that it has the resources needed to do your job  Socialize the employees of the smaller firm so that they know and respect you  Learn from the smaller company people how to do things differently and develop cutting edge skills

© 2002 by Prentice Hall 6-14 Business Models for the E-Entrepreneur  B2C model  B2B model  B2B2C model  Clicks and Bricks model  Roll-up model  Advertising model  Pay for content model

© 2002 by Prentice Hall 6-15 Online vs. Offline Sales Ratios Product categoryOffline purchases for every $1 spent online Clothing / apparel$2.92 Electronics$2.89 Fitness / sports equipment$2.50 Toys$1.75 Computer hardware / peripherals$1.50 Travel services$1.01 Computer software$.99 Health / beauty and cosmetics$.93 Music / video$.83 Books$.68

© 2002 by Prentice Hall 6-16 E-Sales Options Alternatives to banner advertising:  marketing (est. $1.3 billion in 2001)  Skyscrapers (ads along sides of web pages)  Streaming audio and video  Effectiveness tracking  Mini-sites, pop-ups, and interstitials