1. First Mover Advantage? Pioneer Leader Browser -- Mosaic Explorer
Search Directory -- Yahoo Google / Yahoo
Free Hotmail Hotmail
E-tailing -- ISN Amazon
Books -- Amazon Amazon
Music -- CDNow! CDNow, Amazon
C2C Auctions -- Ebay Ebay
B2B eProcurement -- Ariba Ariba
B2B Auctions -- FreeMarkets FreeMarkets

2. Is there pioneering advantage on internet? (Porter thinks not)
Unique assets accumulate
Number of members, member content
Barriers to new allegiances get higher
Relationship and trust grows
Adapt to technology
Factor costs increase
shortage of skilled hosts of bulletin boards and chat rooms
Acquisition becomes expensive
High stock prices and deep pockets

3. Components of a Business Model
VALUE PROPOSITION
The first decision is the specification of a value proposition. This value proposition, in turn, has three parts:
1. The choice of the target segment
2. The choice of a focal customer benefit (Volvo, Southwest Airlines (conv), Four Seasons)
3. The rationale for why the firm can deliver significantly better than competitors:
core competencies, business strength, unique resources
Unique capabilities: tangible assets– location, intangible– brand name, special skills
Marketspace Offering
Need, search, evaluation, purchase, post-purchase
Resource System
Link resources to capabilities
Financial Model
Revenue models(adv, good, trans, subs), shareholder

4. Components of an ONLINE Business Model
VALUE CLUSTER
The choice of target SEGMENTS
A focal COMBINATION of customer-driven benefits
A rationale for why the firm and its PARTNERS can deliver the cluster significantly better than competitors
Online Offering
Resource System
Financial Model

5. Value proposition: 1. Target segment, 2. focal benefit, 3
Value proposition: 1. Target segment, 2. focal benefit, 3. Rationale Criteria to Use in Picking the Target Segments
Size of the market
Expected Growth: The size of the market may be small, but if growing …
Unmet and unsatisfied customer needs
4. Competitive position: Number and relative strengths of competitors: The less competition the better
5. Cost of reaching the market: Is the market accessible to a firm’s marketing actions?
6. Compatibility with the organization’s objectives and resources.

6. Value proposition: 1. Target segment, 2. focal benefit, 3
Value proposition: 1. Target segment, 2. focal benefit, 3. Rationale Four value propositions for flower dot com competitors
PC Flowers and Gifts serves the “special occasions” segment (the target segment) with “fresh flowers, complementary gifts, and lower prices (the three key benefits) because of their accumulated online experience and knowledge since 1989 and their unique, broad product line of complementary gifts (the two key differentiating capabilities).
Proflowers serves the “price sensitive and convenience oriented customers” with the “freshest cut flowers at a competitive price” because of their unique sourcing and FedEx shipping arrangements.
FTD.com serves “the mid- to high-end market” by providing the “easiest way to send flowers and gifts” because of their strong brand name, market communications, and supplier network.
1-800-flowers.com serves the “mid- to high –end market” with a broad gift assortment, fresh flowers, reasonable prices, and easy access because of their strong brand name, product and media partnership, and brick-and-mortar network of franchises (i.e., Blooment).

7. The Marketspace or Online Offering
The senior management team must complete three sequential tasks:
Identify the scope of the offering
Number of categories offered in the site
“Category killer”
Online: Extension from one category to others: Amazon
Amazon: Supply-side cross-category dominance– products that naturally group together from a logistics and distribution point of view. (1) physical goods, (2) can be stored in inventory, (3) cannot be digitized, (4) are consumer focused.
Online Metamarkets: Clustering categories based on how consumers engage in activities: entertainments site, sports sites, dining, travel.
Identify the customer decision process
map the offering (product, service, and information) to the consumer decision process

8. Consumer Decision Process
Disposal
Loyalty
Satisfaction
Purchase Decision
Evaluation of Alternatives
Information Search
Problem - Recognition
PRE-PURCHASE
PURCHASE
POST-PURCHASE

9. Consumer Decision Process — Flower Example
Flowers
Disposal
Loyalty
Satisfaction
Purchase Decision
Evaluation of Alternatives
Information Search
Problem - Recognition
Pre-Purchase
Purchase
Post-Purchase
Need recognition, potentially triggered by a holiday, anniversary or everyday events
Search for ideas and offerings, including:
Available on-line and off-line stores
Gift ideas and recommendations
Advice on selection style and match
Evaluation of alternatives along a number of dimensions, such as price, appeal, availability, etc.
Purchase decision
Message selection (medium and content)
Post-sales support
Order tracking
Customer service
Education on flowers and decoration
Post sales perks

10. The Online Offering for 1-800-flowers.com
Gift reminder service
Holiday specials
Everyday celebrations suggestions
Special occasion suggestions
Ideas and Information
“Care and handling”
“Do it yourself”
Special events and educational workshops held at stores
Floral ideas
Garden ideas
Home ideas
Gift ideas
Gourmet ideas
Store locator
Recommendations by budget
Best sellers
Flower / Gift Decision Process
Need Recognition
Product Offering
Gift Recommendations
Education on Flowers and Decoration
Search For Ideas and Offerings
Gift guru
Favorite gifts
Gift frequency
Gift impossible
Gift baskets
Corporate gift services
Post-Sales Support
Order receipt
eQ&A online customer service
FAQ
Customer service inquiry form
Post Sales Support and Perks
Evaluation of Alternatives
Product price
Product picture
Product description
Delivery information
Delivery availability
Perks
Miles earned with flower purchases
Free gifts
Discounts at AOL & BN with flower purchases
Member specials
Message Selection
Purchase Decision
Shopping basket
E commerce transaction
Special shopping features
Delivery outside U.S.
1-800-lasfloras.com
Gizmo fully-animated greeting cards
Physical cards in gifts

11. Travel (Travelocity?) Five steps
Need Recognition– reminders of football games, events, approaching vacations
Information Search – Ideas for vacations, information about places
Evaluation of alternatives – Time, Price, Class, # of connections, restrictionss
Purchase – Internet and phone secure transactions, combos with peripherals
Post purchase– Order receipt , Frequent flier miles, customer service, flight reminders

12. Schwab
1970s: Mission: To provide investors with the most useful and ethical brokerage services in America. Resolved to build the business around client needs. Over the next several years, Schwab became a resource for individual investors - a discount brokerage where investors could manage their assets, make decisions and transact business without the conflict of interest and high-pressure sales tactics of traditional brokerages.
1980s: Mutual funds began emerging as the primary investing vehicles for investors seeking convenience and portfolio diversification. In 1984 created the mutual fund supermarket concept: hundreds of funds available through The Schwab Mutual Fund MarketPlace®. By the end of the decade, it sold itself to Bank of America and then bought itself back, then took the company public. In 1992, Schwab introduced MutualFund OneSource®.  In its first five years, OneSource assets grew from less than $2 billion to more than $50 billion.
In the mid-1990s, Schwab anticipated the power the Internet would have for individual investors, and invested heavily in, and aggressively prepared for, online investing. Foresight in the mid-1990s earned Schwab an early and significant leadership position in online investing. From 1996 to 1998, online accounts grew to 2.2 million from 600,000, and online assets grew to $174 billion from $42 billion.

13. Schwab Online Offering
Schwab Learning Center
Live Events
Principles of Investing
Understanding Market Cycles
“Did You Know” Q&A
Overall
General Goal Planner
Investor Profile
Sample Investment Plans
Retirement
Retirement Planner
IRA Analyzer
Product Offering
Estate
Estate Tax and Probate Calculator
Alternatives Comparison
College
College Planner
Tax
Tax Strategies
IRS Withholding Calculator
On-Line Investment Process
Get educated about investing
Online chat with Customer Service Representatives
Customer Service via phone
Customer Service via
Customer Service at Branch
My Watch List
Plan investments
Post Investment Support
Overall
Quotes and Charts
Analyst Center
Stocks and Options
Stock Analyzer
Bonds and Treasuries
Schwab BondSource Services
CDs and Money Markets
SchwabOne
Perform Research
Margin Loans
Money Transfers
Automatic Investing
Options Service
After Hours Trading
Account Protection
Bill Payment
Perform Investment
Decide on Investment
Annuities
Schwab Select Annuity
Life Insurance
Insurance Needs Calculator
Schwab Signature Services
Schwab AdvisorSource
Options Service
Global Investing Service

14. The Resource System Five steps in constructing a resource system:
Identify core benefits in the value cluster.
Identify capabilities that relate to each benefit
Link resources to each capability
Identify to what degree that firm can deliver each capability.
Identify partners who can complete capabilities.

15. 1-800-flowers.com Resource System
Address Book
BloomNet Network
Third Party Contractors
Strong Distribution Network
Gift
Recommend-
ations
Fulfillment Center
Stores
Online Gift Center
Gift Reminder
Broad Assortment of Gifts
High Quality of Flowers
Rich Content
Personalization Capabilities
Popular Web Site
Garden Works
Integrated Partner Offers
Telephone
3,000 Affiliates
Plow & Hearth
On-line
Customer Service
Widespread, Easy Access
Great Foods
Multiple Contact Points
Franchise Stores
Catalog
Technology
Strong Brand Name
Wide Reach to Customers
Customer Service Centers
= Core Benefits
SNAP
Starmedia
= Activities & assets
Integrated on-line off-line systems
AOL
MSN
= Capabilities

16. Schwab Resource System
Learning Center
Onesource
Invest in CSR Training
Align CSR
Compensation
with Quality
of Service
Center of Knowledge and Innovation
Customer Service
Innovative Products
Superior Service
Hire IT Staff
Investment in R&D
Train IT Staff
24x7 Access
Cutting Edge Technology
Investment in IT
System Reliability
Partnerships with Content Providers
Multiple Points of Access
Optimize Staff in Branches
Hoovers
Online
Lower Prices
Streamlined Operations
Charge For Value Added Services
S&P
Phone
Media General
Branch
Provide
Lower
Commission
for Frequent
Traders
Competitive Commission Rates
= Core Benefits
= Capabilities
= Resources

17. Financial Models– Revenue Models
Advertising: A site can earn advertising revenue through banner ads and other forms of communication.
Good, service, or information sales: Income is generated from straightforward sale of goods, services, or information.
Transaction- Charging a fee for facilitating a seller-buyer transaction (Schwab, eBay)
Subscription- charging a periodic fee for services or information.
Web-business models:
Revenue-based business models.
Provider-based: Content sponsorship, retail alliance, exclusive deals, banner ads, prospect fees, commissions.
User-based models: …

18. VALUE MODELS
Profit and high margins – provide better than competitors in marketspace.
Six value models that rely on key customer need or benefit:
Best information (zagat.com)
Widest Assortment (Secondspin.com)
Lowest Prices – avoid competing directly – hotwire, priceline
Broadest User Network – network externalities-- AOL
Best experience – quality and perceived luxury-- Ashford.com
Most personalized – customization – reflect.com, Amazon.com

19. Alternative Value Models

20. The Dell Direct Model
The Dell Direct Model is a low-cost distribution system characterized by direct customer relationships, build-to-order manufacturing, and targeting specific market segments.
The Dell process became a model of efficiency for the industry. Entire process from order receipt to product shipping: 36 hours. Parts ordered on a just-in-time basis. Suppliers locating warehouses right next to Dell factory.
When a system is ready for shipping, the monitor supplier would ship monitor, scheduled for arrival same day as system.
1,300 technical support representatives to solve problem over phone –
Maintenance agreements with service companies who send technicians.

21. PC DISTRIBUTION Four fundamental means of distribution for PCs:
Direct – Dell is only one to focus solely on direct
Consumer Retail
Indirect through VARS
Indirect through national resellers

22. PC Distribution Channels
Indirect through VARs
Indirect through National Resellers
RETAIL

23. Dell Direct Model Dell’s value cluster: 1. Target segments
Transactional 30%
Businesses with employees
Catalogue sales
Relationship 40%
Companies with > 400 employees
Less price sensitive
2. Focal customer benefits
Lower Prices
Quick delivery
Fully customized product
High post purchase service quality
3. Rationale for why it can deliver better than competitors
Just-in-time inventory and Built-to-order manufacturing– factory and agreements with suppliers, such as location of supplier warehouses, and vendors’ delivery schedules
Direct customer relationship -- Cutting out the middleman
Strong and coordinated sales and support staff

24. Can Dell really deliver better than competitors?
Direct customer relationship: In July 1997, Compaq announced its new build-to-order manufacturing process and established direct sales teams and telephone centers that would ship directly to customers.
By September, it was not working for Compaq:
Bill Ramsey, VP of manufacturing:
“By no means is Compaq abandoning the channel, but if it is to fight back against Dell and other direct PC vendors it must have the same advantages and mirror their business practices. It is a calculated risk, because we must do so without upsetting the channel, because the Dell model for all its efficiencies can only cover so much of the market. You need the channel if you want to get them all.”
Mass customization: IBM and HP were transferring more assembly to distributors and dealers, shipping them only “bare bones” systems.

25. How is the Dell Online Business Model Different?
Look at Dell’s Web Site
Direct Extension
Segmentation and Profiling
Service Efficiencies
Premier Pages for Relationship Customers
Residential Customers (“dudes”)
Diversification
What are the risks in Dell’s expansion to other segments and product lines?

26. Grocery Online: Can it be Done? What are some problems?
Timely delivery and freshness of items
Cost of delivery
Quality of delivery and
Delivery schedule convenience
Aisle browsing and Item selection

30. Shipping Rates

31. PEAPOD DELIVERY SCHEDULE-- CONVENIENCE

32. COST OF DELIVERY TO CONSUMER
Delivery Fees Peapod shopping and delivery costs just: For orders over $75.00 the delivery fee is $ For orders less than $75.00 (min $50) the delivery fee is $9.95.
Delivery regions:
Limited: Eight metropolitan markets in the United States translating into 100,000 households.
How Peapod keeps cost of delivery low yet speedy:
Limited regions
Royal Ahold alliance
Order fulfillment technology and proprietary transportation routing system, which helps it achieve accuracy and efficiency in picking, packing and delivering.
Two distribution centers - one in Chicago and the other in the New York suburbs.
In other regions, workers pull products off supermarket shelves and deliver them same-day.
Peapod also generates revenues by charging supermarkets to fulfill phone and Net orders.
Peapod will not use its new warehouses to get into the national dry-goods shipping business. They argue that with the NetGrocer model, it costs more "to ship a box of Tide than it does to make a box of Tide. Dry-grocery products just don't have the margin that permits you to ship them at a profit.”

35. VIRTUAL GROCERY STORES
Can it be done?
Can it be profitable?
Will it ever become more popular than brick and mortar grocery stores? Why or why not?

37. STREAMLINE’S BUSINESS MODEL
VALUE CLUSTER
Target SEGMENTS
A focal COMBINATION of customer-driven benefits
A rationale for why can do better than competitors
Online Offering
Resource System
Financial Model

38. Streamline’s Value Proposition
Affluent busy suburban families
Lifestyle solutions– assortment
Simplicity

39. Rationale
Streamline’s unique ability to eliminate the requirement that customers be available to receive shipment
Streamline’s wide assortment of expertises

40. Online Offering
Deliveries for groceries, dry cleaning, photo development, and video rental
Payment and billing

41. Resources Consumer Resource Center – fill orders
A patented delivery receptacle - refrigerator
Consumer Learning Center as an ongoing research lab for consumer-direct industry

42. Streamline What aspects of the business are easily replicated?
What aspects represent key competitive advantages?
What kinds of information is Streamline likely to collect on its subscriber households? How might Streamline use such information in serving customers?
Given Peapod’s model, what is wrong with Streamline’s?