Web Entrepreneurship Dr. Ken Cosh Lecture 1

The Description A practical study of starting and running a Web based enterprise. Topics will include developing a business model and plan, securing business funding, designing, building and promoting a website, Search Engine Optimisation techniques and strategies for improving conversion rates.

The Definition Web: A system of extensively interlinked hypertext documents: a branch of the Internet. Entrepreneurship: (From Entrepreneur) A person who organises and manages any enterprise, esp. a business, usually with considerable initiative and risk. Dictionary.com

So, what is this about? A practical experience in setting up a web enterprise. Examining web business models. Preparing and presenting a business plan to venture capitalists. Studying (or developing) web skills. Marketing Websites Search Engines S.E.O. Social Media Marketing and Web 2.0 And maybe a chance to earn a bit of money! ;)

Considerable Initiative! While we’re going to be talking about all the skills you’ll need to set up your web enterprise, it’ll take ‘considerable initiative’ for you to be successful! So, what do I mean by Successful? In the course? Or, in the enterprise? The two are inextricably linked!

Grading Project-30% Based on the quality of the site that you produce. Midterm oral exam-30% No written oral exam, but you will have to make 2 presentations to a team of venture capitalists; first to present your business plan, and second to present your progress. Final exam-40% A written exam testing what you’ve learnt during the course. Needless to say, I think you can get a very good grade if you ‘get into this’ (show considerable initiative).

Initiative “The power or ability to begin or to follow through energetically with a plan or task.” American Heritage Dictionary.

So we’re going to start a business? If we’re going to start an online business, we need to cover the basics of business. This isn’t IBM100, it’s simpler than that! Our Business is about;

Making Money Simple Question: How do we make money in business?

Business for Beginners Businesses make money by 1) Adding value to a product or service. OR 2) Gaining economies of scale or scope.

A Business Model The method of doing business, such that an enterprise can generate revenue and sustain itself. Business Models can be simple; I buy something and sell it for more. Or Complex; I broadcast my radio show, and the record producer pays me to play their songs... In each case, the enterprise operates in some position within a Value Chain.

The Value Chain R & D ProcurementProduction Marketing & Sales After Sales Service Support Activities e.g. HRM, I.T.

The Value Chain 2 R & D ProcurementProduction Marketing & Sales After Sales Service HRM, I.T. Core Operating Activities Infrastructure Data Information Knowledge

Evolving Business Models With the introduction of the web (and related technologies), there has been a lot of discussion about the way business models have been changed. Consider the music and film industry? Consider Airline and Hotel bookings? Consider Auctions vs Online Auctions? Lets take some time to investigate generic business models.

Classifying Pre Web Business Models Each business chooses a position within the value chain, which leads to certain recurring business models. 2 Key Business Models; Producer Build Products / Services to meet the market demand Distributor Link Buyers to Sellers

Producers Designers and Makers of Products and Services; Manufacturers Service Providers Educators

Producers : Manufacturers E.g. Ford, Proctor & Gamble Physical product producers (and designers) Effects of Web: Improvements in streamlining, integration and co- ordination of the physical production lines. Both within firm, and extending to suppliers and customers. E.g. SCM / CRM / ERP systems. Facilitating direct access to end users.

Producers : Service Providers E.g. American Express, THAI airways Provide a service Effects of Web: For Physical Service Providers (such as car rental agencies or restaurants), the effect is the same as for Manufacturers. For Information Based Service Providers (such as Banking), the effect is to digitise service delivery. Consider the ‘value’ of digitised information.

Producers : Educators E.g. Chiang Mai University Create and deliver education programs Effect of Web: E-Learning potential Distance Learning potential Consider the value of face-to-face education mediums.

Distributors Link Buyers and Sellers, with different levels of involvement; Retailers Market Places Aggregators Infomediaries Exchanges

Distributors : Retailers E.g. Tesco Lotus, Big C. Assume control of inventory, setting a non- negotiable price with consumer. Effects of web: Provides an alternative distribution channel. Brick ‘n’ Mortar, moves to Bricks ‘n’ Clicks. Consider difference between a University Bookstore and Amazon.

Distributors : Marketplaces E.g. Orbitz, InsWeb. Marketplaces facilitate purchases entirely, but without taking control over the inventory. Effects of web: Purchasing process can be hidden from customer, with the marketplace integrating their systems with their suppliers.

Distributors : Aggregators E.g. Autoweb Aggregators provide information about products or services, but the customer completes the purchase elsewhere, relying on referral fees and advertising. Consider the Affiliate model. Effect of web: Enables model to generate money through advertising or referrals. Extends producers distributions channels to ‘neutral experts’.

Distributors : Infomediaries E.g. Online news, stock reports. Similar to the aggregation model, except here the product is information based, such as news, weather, sports etc. Effects of web: Information when digitised loses value – the information is available elsewhere (perhaps for free!) To generate money, infomediaries often charge subscription fees – if they can persuade customers to pay for it. Normally infomediaries have to provide some unique value added content, or analytical tools to keep customers. Often the model is linked with other business models.

Exchanges E.g. Ebay With exchanges the price is not set – it is negotiable between the buyer and seller at time of purchase. Effects of web: The auction model gets popular! Sellers can reach a global market – physical presence is not necessary. Anyone can be a buyer, anyone can be a seller!

Other models As well as the producer / distributor models, other models have emerged – importantly the ‘Portal’ model. Horizontal Portals Vertical Portals Affinity Portals

Portal : Horizontal Portal E.g. Yahoo! Provides a gateway to the vast array of content on the web. They often provide tools for searching or cataloguing the content. Horizontal Portals will normally generate revenues from advertising, or by building relationships with ISP’s.

Portal : Vertical Portal E.g. Covisint or WebMD. Provide more content focussed towards a specific industry or topic. As well as searching tools these sites may provide the tools required to communicate or do business. Vertical portals often generate revenues by creating a combination of business models. Quicken.com is an example of how companies can create vertical portals to direct traffic to their core business model.

Portal : Affinity Portal E.g. Realtor. Affinity Portals take the vertical portal model a step further, by targeting their site to a more specific market or market segment. Therefore the revenue generation model is similar as for the vertical portal.

Community Models Another key business model existing on the web, is a ‘community model’. Examples include ‘Open Content’ communities, like wikipedia, or ‘Open Source’ communities like Red Hat. Social Networking services, like Flickr, Del.icio.us, Facebook, myspace… are popular community sites But how do they make their money?

Overview of the Effect of Web Traditionally (pre web) the power base was with the producers. With the advent of the web, many thought that the distributors could regain power by utilising the new distribution channel. Gradually the producers have regained their power, by directly accessing their customers through the web.

Evolution There has been a lot of changes as enterprises have discovered how the web can function. New Business Models attempted Some successful, some failed, some attempted too early, and retried later. Existing Business Models evolved Some traditional models struggle to transfer into an electronic environment (consider record producers).

Business Model Evolution It’s likely that your business model will change over time; Enhance Add functionality or features to current product/service offerings or improve performance of existing business. Extend Enter a new line of business and/or add new business models. Expand Add new product/service offerings or enter new geographic markets. Exit Exit a business or market or drop a product/service offering.

Amazon.com Launched an online Bookstore in 1995 Enhance Continuous enhancement, adding features such as 1-Click shopping, sophisticated personalisation, wish lists, greetings cards, wireless shopping. Extension Launched a couple of auction stores, also entered partnerships with a variety of retailers, such as Drugstore.com. More recently has developed an ASP business model. Expansion New product categories including music, DVDs, Videos. Also entering new markets, such as Europe. Exit Living.com declared bankrupcy

Evolution Note Although we should accept that evolution will happen… …we still need a starting point!

Starting Point The Art of the Start

Starting Point What are you interested in? What are you good at? What connections do you have? What is your business model?