1. HOW THE INTERNET AND THE WEB CHANGE BUSINESS: STRATEGY, STRUCTURE, AND
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2. The internet tends to intensify competition
HOW THE INTERNET AND THE WEB CHANGE BUSINESS: STRATEGY, STRUCTURE, AND PROCESS
In general , the internet (public network) is an open standards system available to all players (Seller/buyer etc.)
this fact inherently makes it easy for new competitors to enter the marketspace and offer substitute products or channels of product/service delivery .
The internet tends to intensify competition
information becomes available to everyone
It shift maximum power to buyers
who can quickly discover the lowest-cost provider on the web
economic value
Definition The value of an asset deriving from its ability to generate income.
Economic Value Added EVA. The monetary value of an entity at the end of an time period minus the monetary value of that same entity at the beginning of that time period.
Procurement is the acquisition of goods and/or services at the best possible total cost of ownership, in the right quality and quantity, at the right time . in the right place and from the right source for the direct benefit or use of corporations, individuals, or even governments, generally via a contract, or it can be the same way selection for human resource.
Direct procurement and indirect procurement
Direct procurement: Raw material and production goods
Indirect procurement: Maintenance, repair, and operating (MRO) supplies
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3. Internet Change the Following
On the other hand the internet presents many new opportunities for
creating value | Raw to finished goods every step add a value
branding products and charging premium prices
enlarging an already powerful offline physical business such as wal-mart or Sears
Internet Change the Following
Industry structure
Industry value chains
Firm value chains
Firm value webs
Business strategy
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4. 1. INDUSTRY STRUCTURE
E-Commerce can affect the structure of industries in very different ways
Recorded Music Industry (using p2p distribution of contents )
Books publishing related industry (amazon.com)
Travel Industry
(new middleman - travel-culture.com)
(Elimination of middleman – etihad.com/en-pk)
Internet has increased price competition
It has been relatively easy for existing firms to adopt e-commerce to achieve competitive advantage.
I/E change Scope of competition from local / regional to national /global.
Competitor have access to global price information.
The internet force firms to compete by lowering prices (mean lowering profits)
On other hand, E-commerce make possible for some firms to differentiate their product/services.
Amazon.com one click purchasing, Dell personalization / customization
shop.nordstrom.com easy to use interface and so much.
charge premium prices (As yahoo Financial services).
As in travel industry Airlines companies does not strengthen their Travel Agents regardless they start their own online business.
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5. Industry structure refers to - the nature of the players in an industry and their relative bargaining power.
E-commerce changes industry structure by changing (Porter’s Five Forces):
When you consider a business model and its potential long-term profitability,
you should always perform an industry structural analysis. An industry structural analysis is an effort to understand and describe
the nature of competition in an industry,
the nature of substitute products,
the barriers to entry,
bargaining power of supplier
Bargaining Power of buyers
Only for concept purpose!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Bargaining Power of Buyer
Bargaining power is the ability to influence the setting of prices.
buyers will use their power to extract better terms (higher profit margins or ) at the expense of the market.
In a truly competitive market, no one buyer can set the prices. Instead they are set by supply and demand.
Prices are set by supply and demand and the market reaches the Pareto-optimal point where the highest possible number of buyers are satisfied at a price that still allow for the supplier to be profitable.
Supply and Demand
The supply curve is the relationship between price and supplied quantity. Normally, the higher the price, the higher the supplied quantity as more supplier will be interested to produce and sell at a higher price.
The demand curve is the relationship between price and demanded quantity. Normally, the lower the price, the higher the demanded quantity as buyers will be willing to buy more at a lower price.
In a truly competitive market, supply and demand meet at the price where the supplied quantity equals the demanded quantity.
If supplied quantity is higher, price will fall.
If demanded quantity is higher, price will raise.
Examples
Industries facing powerful buyers:
Defense contractors have a limited set of politically motivated buyers (governments).
Sub contractors to car makers have a limited set of potential clients, each commanding a large share of their market.
Industries facing weak buyers:
Retailers face individual consumers with little or no power at all.
Bargaining Power of Supplier
The more concentrated and controlled the supply, the more power it wields against the market.
suppliers will use their power to extract better terms (higher profit margins or ) at the expense of the market.
In a truly competitive market, no one supplier can set the prices.
Aggregation of Supply
Suppliers can group to wield more bargaining power.
This aggregation can take different shapes.
Cartels try to influence prices to their own advantage. In most developed countries cartels are illegal.
Sometimes suppliers have secret collusion agreements that are difficult to prosecute.
In most developed countries, a watchdog is responsible to protect well functioning markets from excessive supply aggregation.
Cartels, like monopolists, will prefer higher prices (i.e. higher profit margins) at lower quantity, thus choosing a point on the supply curve that will not supply for all the buyers that would buy at the lower free market price.
 Examples
Industries facing powerful suppliers:
The PC making industry faces the almost monopolistic power of operating system supplier. Microsoft has abused its power a number of times and had to be reined in by competition watchdogs all over the world.
Industries using diamonds, such as jewelry and electronics, face the huge power of DeBeers, that takes advantage of the supply concentration to achive dominant market share
Industries facing weak suppliers:
Food processors can buy agricultural produce from many, weak small and medium farmers.
Retail stores can fill their shelves with many competing products from different producers.
Airlines face a duopoly of two equally powerful competitors (like Airbus and Boeing in the aviation industry). Although they are both big and powerful, the threat of substitution is enough to keep their power at b
Threat of Substitution
On a free market, buyers have the choice if there is a viable alternative.
Substitute source. The exactly same product is sourced by two or more distributors.
Full substitute products are products from different manufacturers that fulfill the exact same purpose. For example Kellog's corn flakes and generic brand corn flakes.
Partial substitues are products that only partially substitute each other. A holiday in Venice is not exactly the same as a holiday in Amsterdam, even though they are both cities and they both feature channels.
Protecting against substitution
Distributors may try to protect themselves against substitution with exclusive distribution agreements. Buyers circumvent them with so called grey market imports.
Producers may try to protect their products with strong branding, trade marks, patents and other psychological and legal barriers against substitutes.
Another way to protect from substitution is to make the products incompatible with competing products. An example are the different lens systems for SLR cameras.
In general, protectionism against substitutes is bad for the consumer/buyer and good for the seller.
Products/services facing a strong threat of substitution:
Washing powder. A dozen of brands sitting on the shelves and waiting for consumers to pick them up. Consumer will often pick up the one that is on special on shopping day.
Retail Outlets. Don't like Wal*Mart? Shop at Carrefour.
Products/services facing a weak threat of substitution:
Oil. Although alternative forms of energy are being studied and introduced, most engines today run on gasoline. Gasoline can not be replaced that quickly on a large scale.
Pharmaceuticals in the short term, because they are protected by patents. In the long term, generics can
Barriers to exit (Competition among existing competitors )
Barriers to exit are obstacles to market players who realize that they will not turn a profit and would like to quit the market.
The difficulties of exiting a market can force a player to keep competing as the least bad alternative.
The increased competition affects negatively the other incumbents.
Incumbents' profits are potentially lower than in a truly competitive market, to the advantage of buyers.
The most important barrier to exit is the lack of alternative, more profitable use of the assets in which the business has already invested.The costs of producing a product or service can be roughly split into fixed and variable costs.
Fixed costs represent the up front investment in machinery and other assets needed to produce the product or service.
Variable costs represent the additional per unit costs, labor and material.
variable costs is a contribution to reduce the loss on the assets.Examples
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Slide 2-5

6. Porter Five Force Analysis
EXAMPLE eBay.com:
Porter Five Force Analysis
PORTER FIVE FORCE
INTENSITY
Competitive Rivalry Within The Industry
Medium to High
Bargaining Power Of Customers
High
Threat Of New Entrants (B2E)
Medium
Bargaining Power Of Suppliers
Low To Medium
Threat Of Substitute Products
Low
1- eBay faces competition in its marketplaces segment from both offline and online players. Customers can buy products from a wide range of retailers, distributors, auctioneers, directories, search engines, etc and hence the competition is intense.
The huge competition in the e-commerce market allows the customers to win as companies have to keep their prices in check to attract buyers.
2- customers demand not only low prices, but also a large range of services and products, their bargaining power is huge.
3- The e-commerce market is characterized by low barriers to entry. It is relatively easy for newer players to enter the market and start selling products. Having said that, it’s difficult for newer players to gain brand recognition and attain high ranking on search engines as existing players.
4- Tens of millions of sellers list their products on eBay marketplaces; hence their individual bargaining power is limited.
However, sellers can also list their products on multiple platforms and sites, including Amazon, Etsy.com and various international e-commerce sites. Hence, if eBay introduces policy and pricing changes that are unsatisfactory to sellers, then it could result in lower number of product listings on its marketplace.
5- Large product range keeps this barrier low
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7. Industry Value Chains
Set of activities performed by suppliers, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and services
Internet reduces cost of information and other transactional costs
Leads to greater operational efficiencies, lowering cost, prices, adding value for customers
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8. E-commerce and Industry Value Chains
Figure 2.5, Page 103
Final Products
Raw inputs s
Value chain ->interconnected set of value adding activates.
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9. s
Lowering cost/rising price by b2b exchange manufacturer with their supplier
By Direct Relationship with customers via web
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10. Dell.inc developed a highly efficient supply SCM to reduce its cost,
Example: Dell.inc
Bypass traditional retail distribution channels by selling directly to consumers over the web.
Dell.inc developed a highly efficient supply SCM to reduce its cost,
And Equally efficient customer relationship management.
Dell compete efficiently with alternative industries
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11. Firm Value Chains
Activities that a Single firm engages in to create final products from raw inputs
For instance, firms can use the Internet’s communications efficiency to outsource some primary and secondary activities
Effect of Internet & Web:
Using internet communication efficiently
Increases operational (Internal activities->production) efficiency
Enables product differentiation (Amazon one click purchasing)
Enables precise coordination of steps in chain
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12. E-commerce and Firm Value Chains
Amazon uses the internet/web to provide consumers with a much larger inventory of books to choose from, at lower cost than traditional stores. It also provide many services – professionals /consumers review – (Customization-Change the look of web pages as desired) / (personalization - Customer buying history)(onClick purchasing ->differentiation),
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13. Firm Value Webs Networked business ecosystem
Uses Internet technology to coordinate the value chains of business partners
Within an industry (a firm)
Within a group of firms
Coordinates a firm’s suppliers with its own production needs using an Internet-based supply chain management system
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14. Internet-Enabled Value Webs
Figure 2.7, Page 105
Amazon – UPS- ONLINE TRACKING
Amazon – us- postal service system -
May be / not other firms have
LEGACY SYSTEM
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15. LEGACY SYSTEM (concept)
an existing computer
system
that provides a
strategic function
for a specific
part of a business.
Inventory
management systems,
for
example, are legacy systems.

16. Business Strategy
Plan for achieving superior long-term returns on the capital invested in a business firm
Four generic strategies
Differentiation
Cost
Scope
Focus
TurboTax software
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