1. MP3 Electronic Commerce II Dealing w/Competitive Threats Fall 2000

2. Dealing with Competitive Threats Strengthen brands –inspire trust, communicate quality, lower search costs Create economies of scale Differentiate products / constant innovation Create switching costs –pref. databases, communities, loyalty programs Dominate or create distribution channels Leverage alliances and partnerships

7. Customer Acquisition Costs Avg. Costs: $11 - catalog; $31 - physical; $82 - online (Shop.org, 2000)

8. Strong Brand Can Be Extended

9. If you build it... … will they come? Maybe, but they might not return. Visitors Time Branding & Value Delivery

13. Scale in the Marketplace vs. Marketspace Turnover –2.6 times / year –avg. book in store 20 weeks Inventory –shelf & warehouse stock –20-40% returns –little float / title Turnover –26 times / year –avg. book in house 2 weeks Inventory –all warehouse stock –few returns –avg. 32 days of float / title

14. Scale, IPOs, and Differentiation Letting in the Little Guy The Firm Underwriters, institutions, & large investors $12/share 7% fee small Investors $15/share & Online Brokerages small Investors Result: differentiated service enabled by scale

15. Commodity Products Time available = X High search costs –(e.g. time to visit a firm = X/3) –customer can only visit 3 firms Low search costs –(e.g. time to visit a firm = X/30) –customer can visit 30 firms

18. Differentiation & Switching Costs Differentiate the product or service via: –mass customization –preference databases & collaborative filtering –communities Switching costs created via: –preference databases & collaborative filtering –frequent buyer programs –communities of users –learning, compatibility, standards

24. Cookies stored in a text file on your hard drive usage –track users (unique ID) –save passwords / prefs. –temporary storage (shopping basket) each cookie can only be accessed by the domain that placed it (ads have own domain) may be disabled (prefs) a cookie  single user

25. Targeting Targeting Options site categorization visitor frequency geography domain name service provider SIC codes company size (emp, $) browser type operating system click stream

26. Privacy Issues Policy - posting & updating Trust Seals –industry lead: TRUSTe –weak, effectiveness questioned Consumers in Control –P3P: Platform for Privacy Preferences –MS Internet Explorer 5.5 and greater Government Regulation Internal Policies

27. Why Communities? Communities create switching costs & provide a reason to return –57% of surfers return to the same sites Communities generate traffic –chat boosts traffic from 50% to 300% Communities pre-qualify users Community members spend more Communities can lower support costs

28. Users = Value source: InternetWorld, Wired News

30. Distribution Channels PC Makers (Compaq, Dell, IBM, Gateway, Apple) Operating System (Microsoft Apple, Sun) Browsers (Microsoft, Netscape/AOL) ISPs (AOL, AT&T, @Home, BabyBells, Earthlink) Portals (Yahoo, Excite, Infoseek, Lycos, AOL) Focused Aggregators (Quicken.com, Auto-By-Tel) Internet Appliances (WebTV, i-Opener) Hybrids (Pixel Co., RadioWave, Pointcast)

31. Web Site Promotion Schemes Popularity: –Banners 98% –Buttons 55% –Television 30% –Affiliate Programs 17% Effectiveness (Scale of 1-5): –Affiliate Programs 4.3 –Television 4.0 –Banners 2.8 –Buttons 2.0 Source: Iconocast.

32. AOL’s Cooperative Agreements AOL Mobile Communicator: RIM and BellSouth AOL Touchpad: Gateway

33. “Speed is God, Time is the Devil”