Chapter 3 Enhanced Lecture Slides

Chapter 3 Enhanced Lecture Slides
e-Commerce Rayport, Jaworski Chapter 3 Enhanced Lecture Slides Business Models Exhibits and Tables Copyright © 2002 by Marketspace LLC

Business Models — Today’s Objective
To develop an understanding of business models for the networked economy Chapter 2 Where will the business compete? Chapter 3 How will the business win?

Chapter 3: Business Models
Components of a business model Defining the value proposition Articulating the Marketspace offering Aligning the resource system Selecting the financial model Best taxonomies for the networked economy Case study: Schwab Conclusion

Exhibit 3–1: Components of a Business Model
Developing a business model in the networked economy requires four key choices on the part of the senior management: Value Cluster Specify the value proposition or the value cluster for the business Marketspace Offering Articulate the online product, service and information offer Resource System Define how the company needs to align its resources to deliver the value proposition Financial Model Define and select the most appropriate revenue model to pursue

Percentage of Customers Who Care About Attribute
Exhibit 3–2: Shattering the Myth That Consumers Care Only About Prices Online Percentage of Customers Who Care About Attribute Attribute Source: JP Morgan Report: etailing and the five Cs

Exhibit 3–3: Value Proposition/Cluster
The first step in the articulation of the business model is clearly specifying the value proposition or the value cluster for the business: Defining the value proposition or the value cluster requires managers to answer the following questions: Which target segments should the company focus on? What is the combination of customer benefits that is offered? What makes the firm and its partners better positioned to deliver the offering than anybody else? Value Cluster Marketspace Offering Resource System Financial Model

Exhibit 3–4: Value Proposition/Cluster
The definition of the value proposition is the result of a combination of choices about the customers, the benefits offered and the unique capabilities of the firm: Target Segments Key Benefits Offered Unique Capabilities Value Proposition + + PC Flowers & Gift “The special occasion segment” Fresh flowers Complementary gifts Low prices Online experience Unique, broad product line of complementary gifts “PC Flowers & Gift serves the special occasion segment by providing fresh flowers and unique complementary gifts” FTD.com “Mid- to high-end market” Easy delivery of flowers Strong brand name Market Communication Supplier network “FTD.com provides the mid- to high-end market with the easiest way to send flowers thanks to its extended network of suppliers”

Supporting Slide 3–A: CarPoint Example
CarPoint’s value cluster offers benefits that address multiple segments of customers: Target Segments Key Benefits Offered Unique Capabilities Value Cluster + + CarPoint Information about cars and their prices Help on how to deal with dealers (tactics used, etc.) Knowledge of the Internet Software development expertise “The efficiency of the Internet makes selecting and purchasing your car easier” “The intimidated by the process” “The information seekers” Extensive information In different formats (3D views, pictures, videos) From different sources (i.e., Kelley Blue Book) Microsoft brand name Network of partners “Provides a one-stop source with all the necessary information to make a car purchase”

Supporting Slide 3–B: Point-Counterpoint: Single vs
Supporting Slide 3–B: Point-Counterpoint: Single vs. Cluster of Benefits Should the company focus on delivering a single benefit exceptionally well, or should it attempt to deliver all the benefits that online customers are seeking?

Exhibit 3–5: Marketspace Offering
The next step is to articulate the online product, service and information offering: Value Cluster Defining the Marketspace offering requires managers to complete the following sequential tasks: Identify the scope of the offering Identify the customer decision process Map the offering to the consumer decision process Marketspace Offering Resource System Financial Model

Exhibit 3–6: Scope of the Offering
The scope of the offering refers to the number of categories of products and services offered on the site: Continuum of Scope Category-Specific Dominance Focus on one product category Secondspin.com (used CDs) PremiumOrchids.com (orchids) Peapod (online grocery) Cross-Category Dominance Focus on a large number of categories Dealtime (electronics and other goods) 1-800-Flowers (flowers) Streamline* (online grocery, dry cleaning service, etc.) * Streamline closed down in 2000

Exhibit 3–7: Metamarkets
The term ‘metamarkets’ refers to sites that group products and services that are closely related in the mind of customers: BabyCenter.com offers a good example of a “goal-derived” metamarket. The site’s products and information focus on one goal: raising a healthy child. Shopping for baby and maternity products Support community for parents User personalization Reference information Support and help from experts

Exhibit 3–8: Customer Decision Process
The second step in the construction of the online offering is the articulation of the customer decision process for the various product categories: Flowers Example Problem Recognition Need recognition, potentially triggered by a holiday, anniversary or everyday events Prepurchase Information Search Search for ideas and offerings, including: Available online and offline stores Gift ideas and recommendations Advice on selection style and match Evaluation of Alternatives Evaluation of alternatives along a number of dimensions, such as price, appeal, availability, etc. Purchase Purchase Decision Purchase decision Message selection (medium and content) Satisfaction Post-sales support Order tracking Customer service Postpurchase Loyalty Education on flowers and decoration Post-sale perks Disposal

Exhibit 3–9: Mapping the Offering to the Decision Process
The last step in the construction of the online offering is mapping the products and services onto the customer decision process: What occasions trigger the need for my product? What tactics can be used to stimulate demand? Customer Decision Process Need Recognition What information would the consumer need to make a selection? Search for Ideas and Offerings What post-sale services can the website offer to create loyalty? Post-Sale Support and Perks Evaluation of Alternatives What are the key evaluation criteria that the consumer will use to evaluate my product/service? What information should the website offer to make the consumer comfortable with his or her choice? Purchase Decision What functionality should the site present to communicate privacy, trust and security?

Exhibit 3–10: Egg Diagram 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 Bestsellers 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-Sale Support Order receipt eQ&A online customer service FAQ Customer service inquiry form Post-Sale 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.com with flower purchases Member specials Message Selection Purchase Decision Shopping basket E-commerce transaction Special shopping features Delivery outside US 1-800-lasfloras.com Gizmo fully-animated greeting cards Physical cards in gifts

B2B Example: FreeMarkets Customer Decision Process
The customer decision process is applicable to the B2B space as well and is used to understand how companies choose their partners/suppliers for a particular product/service: The company recognizes the saving associated with online B2B auctions Need Recognition The company starts looking for information on online auction providers Information Search Prepurchase The company evaluates potential online auction providers, based on factors such as fees for conducting the auctions, knowledge of markets, reputation Evaluation of Alternatives FreeMarkets works directly with buyers, analyzing spending and applying its market-making experience to help buying organizations identify potential savings. Identify Savings Opportunities Working with client buyers and engineers, FreeMarkets creates a comprehensive RFQ, which defines all elements of total cost. Prepare Total-Cost RFQ Purchase Identify, Screen and Support Suppliers FreeMarkets identifies potential suppliers, whose capabilities best match the buyers’ needs. Selected suppliers prepare their quotes with the support of FreeMarkets and submit real-time bids. Buyers watch the online bidding from their facility. Conduct Online Bidding Events Provide Post-Bid Analysis and Award Support FreeMarkets collects cost breakdowns from suppliers to validate quotes and also supports final supplier analysis and qualifications to achieve optimal award decisions. Postpurchase

B2B Example: FreeMarkets Egg Diagram
Industry case studies Supply markets case studies Buyer and supplier testimonial Buyer and supplier benefits Market information Fees for conducting the auctions Global reach Depth of information Reputation and experience Technology platform Immediate savings Fast ROI Improved purchasing decisions The Online Auction Process Information Search Product Offering Evaluation of Alternatives Need recognition Identification of products and services Commodity expertise Industry analysis Opportunity identification and assessment Identify Saving Opportunities for Buyers Post-sale support Provide Post-Bid Analysis Contract award implementation Final supplier analysis Project management services Online request for quotation Collecting the RFQ information RFQ creation and distribution Prepare Total-Cost RFQ Conduct Online Bidding Events Identify, Screen and Support Suppliers Real-time online auction Auction supervision Nine vertical market groups True market prices Development and enforcement of market rules For buyers Supplier research, identification and recruiting In depth, global knowledge of supply markets 185 product and service categories For suppliers Free registration and participation New business opportunities RFQs Bidding strategy formulation Bidder training and support in over 30 languages

Exhibit 3–11: Resource System
The third step is to define the resource system and how the company must align it to deliver the benefits in the value proposition: Value Cluster A series of activities is required to construct 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 the firm can deliver each capability. Identify partners who can complete capabilities. Marketspace Offering Resource System Financial Model

Exhibit 3–12: Step No. 1 — Identify Core Benefits
The core benefits must be identified in the construction of the value cluster: 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 its strong brand name, product and media partnerships and bricks-and-mortar network of franchises. Broad Assortment of Gifts High Quality of Flowers Customer Service Widespread, Easy Access

Exhibit 3–13: Step No. 2 — Link Capabilities to Benefits
Managers need to identify which capabilities are required to deliver each benefit, regardless (at this point) of the ability of the company to access or develop that capability: For Flowers.com, the benefit “widespread, easy access” is linked to four capabilities: strong brand name, wide reach to customers, multiple points of contacts and a popular website. Broad Assortment of Gifts High Quality of Flowers Popular Website Multiple Contact Points Customer Service Widespread, Easy Access Wide Reach to Customers = Core benefits Strong Brand Name = Capabilities

Exhibit 3–14: Step No. 3 — Link Resources to Capability
After the capabilities are identified, the firm should determined the resources necessary to deliver each capability: Broad Assortment of Gifts High Quality of Flowers Popular Website Telephone 3,000 Affiliates Online Franchise Stores Multiple Contact Points Customer Service Widespread, Easy Access Catalog Wide Reach to Customers Strong Brand Name = Core benefits = Activities & assets = Capabilities

Exhibit 3–15: Steps No. 4 and 5 — Ability to Deliver Capabilities
The next steps assess whether the company has all the necessary capabilities in-house or if it has to look outside and select the most appropriate partners to complete the missing capabilities. 1-800-Flowers.com would not be able to deliver the capability “wide reach to customers” alone, and therefore would need to create partnerships. Companies like MSN, AOL and Snap are potential partners. Broad Assortment of Gifts High Quality of Flowers Popular Website Multiple Contact Points Starmedia Customer Service Widespread, Easy Access MSN Wide Reach to Customers AOL Snap = Core benefits Strong Brand Name = Activities & assets = Capabilities = Partners

Exhibit 3–16: 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 Website Garden Works Integrated Partner Offers Telephone 3,000 Affiliates Plow & Hearth Online 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 online offline Systems MSN AOL = Capabilities

Supporting Slide 3–C: 1-800-Flowers
Supporting Slide 3–C: Flowers.com Resource System Online and Offline Integration BloomNet Network Strong Distribution Network Third-Party Contractors Address Book Gift Recommend- ations Fulfillment Center Stores Rich Content Online Gift Center Broad Assortment of Gifts High Quality of Flowers Gift Reminder Personalization Capabilities Popular Website Garden Works Integrated Partner Offers Telephone 3,000 Affiliates Plow & Hearth Online Customer Service Widespread, Easy Access Great Foods Multiple Contact Points Franchise Stores Catalog Technology Strong Brand Name Wide Reach to Customers Customer Service Centers Snap Starmedia Integrated Online and Offline MSN AOL = Online Activities & Assets = Offline Activities & Assets

Offline Product Offering Flower / Gift Decision Process
Exhibit 3–17: Flowers.com Egg Diagram Online and Offline Integration Prompts on toll-free number recording Suggestions from CSRs* in-store and via phone Special events and educational workshops held at stores Prompts on toll-free number recording Suggestions from CSRs* in-store and via phone Brochure Gift reminder service Holiday specials Everyday celebrations suggestions Special occasion suggestions Ideas and Information Offline Product Offering “Care and handling” “Do it yourself” Floral ideas Garden ideas Home ideas Gift ideas Gourmet ideas Store locator Recommendations by budget Bestsellers Flower / Gift Decision Process Need Recognition Online 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 Suggestions from CSRs in stores via phone Brochure Post-Sale Support In-store customer service Customer service on toll-free number Order receipt eQ&A online customer service FAQ Customer service inquiry form Post-Sale Support and Perks Evaluation of Alternatives Product price Product picture Product description Delivery information Delivery availability Information from CSRs in-store and via phone Brochure Perks In-store specials Specials offered via phone Miles earned with flower purchases Free gifts Discounts at AOL & BN.com with flower purchases Member specials Message Selection Purchase Decision Shopping basket E-commerce transaction Special shopping features Delivery outside US 1-800-lasfloras.com Gizmo fully-animated greeting cards Physical cards in gifts Select card in-store Select card via phone Purchase in-store Purchase via phone *CSR = Customer service representative

Exhibit 3–18: Assess Resource System Quality
A number of criteria can be used to assess the quality of a company’s resource system: Uniqueness of the system Is the system providing unique benefits, capabilities and resources? Links between parts of the system Do capabilities support the benefits? Do capabilities and activities complement each other? Are the resources mutually reinforcing? Links between virtual and physical world Does the online resource system support the offline? Sustainable advantage Is the resource system difficult to replicate?

Supporting Slide 3–D: 1-800-flowers.com Partnerships
American Airlines Advantage, Delta Airlines SkyMiles, United Airlines Mileage Plus Earn frequent-flyer miles with flowers.com purchases MCI WorldCom Receive flowers.com gift certificates with long distance sign-up Receive 10 percent off every flowers.com purchase with MCI WorldCom membership America Online First agreement signed in 1994 Exclusive marketer of fresh-cut flowers across key AOL brands until 2003 One-year exclusive agreement to market gardening products commenced November 1999 Microsoft Networks Premier floral partner and anchor in the MSN home and garden department Products, advertising and links featured on MSN shopping channel Snap.com One of the 45 premier merchants in Snap shopping service (online e-superstore) Anchor tenant in Snap.com flower shop To be spotlighted in select Snap.com on-air promotions, scheduled to run on the NBC Television Network during the Valentine’s Day and Mother’s Day periods Source: flowers.com website, WR Hambrecht & Co., TheStandard.com. Hoover’s Online

Supporting Slide 3–D: 1-800-flowers.com Partnerships (Cont.)
Markets flowers and other gifts through Excite.com and webcrawler.com web sites Products, advertisments and links featured in the Excite Shopping Channel Entered second year of marketing relationship in October 1999 Yahoo Inc. Will run banner advertisements throughout the Yahoo Network, with additional presence in shopping area StarMedia Network Developing Spanish and Portuguese language versions of flowers.com website People PC Signed one-year agreement to become key floral and gift-provider for PeoplePC as of October 1999 Zapa.com Offers selection of online greeting cards on flowers.com website Greeting cards never deleted by Zapa.com Users will be able to personalize greetings with their own photos, clip art or other multimedia creations Sears, Roebuck and Co. Licensing relationship which enables Sears customers to use their store charge cards when shopping with flowers.com Source: flowers.com website, WR Hambrecht & Co., TheStandard.com. Hoover’s Online

Supporting Slide 3–E: 1-800-flowers.com Activity System
Introduction of New Product Categories Electronic Greeting Cards Gift Recommendations Both Online Offline Key Gift Reminder Program Broad Product Line Online Gift Center Address Book Nationwide Presence Florist Participation BloomNet Network Partnership With Associated Product Lines Company Offline Stores Company Franchise Stores MSN Multiple Customer Contacts Strategic Alliances Online BN In-Store AOL Alliance With Distribution Carrier Telephone Affiliate Programs

Supporting Slide 3–F: 1-800-flowers.com Value System
Address Book Gift Recommend- ations Online Gift Center Logistics Gift Reminder Broad Assortment of Gifts Fresh Flowers Sourcing Garden Works Product Partnerships Brand Name Telephone Plow & Hearth Online Reasonable Prices Widespread, Easy Access Great Foods Multiple Contact Points Stores Affiliates Logistics BloomNet Network Media Partnerships = Core Benefits Snap Starmedia = Actions MSN AOL = Capabilities

Supporting Slide 3–G: 1-800-flowers.com Value System
Address Book Gift Recommend- ations Online Gift Center Gift Reminder Logistics Broad Assortment of Gifts Fresh Flowers Sourcing Garden Works Product Partnerships Brand Name Telephone Plow & Hearth Online Reasonable Prices Widespread, Easy Access Great Foods Multiple Contact Points Stores Affiliates Logistics Media Partnerships BloomNet Network = Core Benefits Snap Starmedia = Activities & assets MSN AOL = Capabilities

Supporting Slide 3–H: Point-Counterpoint: Competencies vs
Supporting Slide 3–H: Point-Counterpoint: Competencies vs. Resource Systems

Exhibit 3–19: Type of Financial Models
A variety of financial models can be used to assess the value of the business model that follows from the resource system. Three examples are: Revenues Models Shareholder Value Models Growth Models Identify the flow of cash into the organization Assess how the company intends to generate cash flow or shareholder value Assess how the company will be able to drive revenue growth

Exhibit 3–20: Revenue Models
While firms can pursue a number of revenue models, some are used most frequently: Advertising Advertising revenues can be generated through the selling of ads, site sponsorships, event underwriting, etc. (e.g., Yahoo, AOL, Business2.com) Product, Service, Information Revenues can be generated from the sales of goods and services (e.g., Amazon, CDNow, Buy.com) Transaction Revenues can be accrued from charging a fee or taking a portion of the transaction sum for facilitating a customer-seller transaction (e.g., Schwab, eBay) Subscription Website can gain revenues by offering subscription services for information (e.g., FT.com, NYTimes.com)

Exhibit 3–21: Shareholder Value Models
Shareholder value models help identify how a company plans to generate cash flow or shareholder value. They can be grouped in two broad categories, based on the source of value creation: Company- and User-Derived Company-Derived These models are used when both the company and the users provide content and value-added services to the site. These models are used when value comes through products and services generated by the company with less value-added input from the customers.

Exhibit 3–22: Company- and User-Derived
Alternative Models Metamarket Switchboard Auctions (Traditional & Reverse) Category Switchboard Description Hub for many buyers and seller; multiple categories Competitive bid hub for buyers and sellers Aggregates brands in product category Examples - BabyCenter.com - Varticalnet.com - eBay - Amazon auction - FreeMarkets - Chemdex - PlanetRX - Buy.com Revenue Model - Transactions - Product sales - Advertising Value Source - Perceived value-added services - Brand name credibility - Percent of transaction Key Success Factors - Build buyer database - Build seller database - Value-added services - Credible “hub” brand - Efficient back-office support - Critical mass of buyers and sellers Key Threat Factors - Alternative switchboard emerges - Niche switchboard emerges - Shift in care technology - Alternative auction - Niche auctions - Price of switchboard offering equal to auction - Value-added services differentiate competitors - Emergence of metamarket - Niche category switchboard - Brand name strength of market leaders

Exhibit 3–23: Company-Derived
Alternative Models Best information Widest Assortment Lowest Prices Description Timely, high values-added information Widest assortment within category Lowest prices within category Examples Forrester Zagat NYTimes ArtistDirect.com SecondSpin.com Buy.com Lowestfares.com Revenue Model Product sales Subscription Value Source Premium pricing based on perception of best information Selective premium pricing Unclear Key Success Factors Timeliness of information Perceived quality of information Reduce uncertainty in offering Quality of information Operational excellence Supply-chain management Key Threat Factors Gap between timeliness and generic offerings not perceived Competitors matching High cost of “freshness” Specialization within category Emergence of dominant brands Shopbots Lack of profit imperative Shifting investor confidence Niche market

Exhibit 3–23: Company-Derived (Cont’d)
Alternative Models Broadest User Network Best Experience Most Personalized Description Aggregation of users around standards Highest quality merchandise Highest level of customization Examples ICQ MP3 Mercata FAOSchwartz.com Ashford.com Reflect.com Revenue Model Varied Product sales Value Source Users drive traffic Standard emerges Price premium follows Level of luxury premium drives prices Level of customization drives prices Key Success Factors Establish standard Grow user network Network economics Ability to spot symbolic brands Ability to judge quality Deep customer knowledge Ability to “mine” customer database Key Threat Factors Alternate standard emerges Technology shift Integration of complementary players Sub-niche markets emerge by category Symbolic brand loses appeal Technology advances lead to “me-too” products Customers want control of personalization

Exhibit 3–24: Revenue Growth Choices: 1-800-flowers.com
Financial growth models help understand how a company can drive revenue growth. A classic framework is the Ansoff product/market matrix: Gardenworks Plans to branch into a wide variety of product categories Greatfoods.com Plow & Hearth Home Decor New Plants Gourmet Treats In-Store Seminars Greeting Cards Products Existing Corporate Gift Services Existing New Existing New Online Markets Offline Markets

Supporting Slide 3–I: Point-Counterpoint: Does Profit Matter
Supporting Slide 3–I: Point-Counterpoint: Does Profit Matter? Build Profit or Build User Base?

Exhibit 3–25: What Is a Good Framework?
A good taxonomy or framework should be simple and meaningful. While there a number of different business classification schemes, we will concentrate on three of them: 1. Porter Strategy Model 2. Sawhney and Kaplan Model 3. Rayport, Jaworski and Siegal Model

Exhibit 3–26: Porter Strategy Model
Key concepts: There are only three basic strategies Each implies a different business model Firms can pursue only one strategy at the time Possible Strategies Differentiation Cost Niche Requires constant innovation and leadership on the benefits that matter most to the customer Focus on gaining competitive advantage on costs while maintaining parity level on differentiation Focus the business on a particular segment of the market and then pursue either differentiation or cost strategy Business Model Networked Economy Example Travelocity.com Lowestfare.com Lastminute.com

Exhibit 3–27: Sawhney and Kaplan Model
Key concepts: Introduces the concept of eHubs – B2B and B2C B2B eHubs are the new middleman that can create value by aggregating buyers and sellers, and lowering transaction costs B2B hubs are classified as either vertical hubs (serve vertical markets) or functional hubs (provide common business functions) Vertical hubs eventually will form alliances with functional hubs or “metahubs” can emerge Vertical Hubs Logistics Management Media Buying Advertising Energy Management Steel Plastics Chemicals Paper Functional Hubs Source: Adopted from Business 2.0, September 1999, page 88

Exhibit 3–28: Rayport, Jaworski and Siegal Model
Key concepts: Introduces a 2x2 table to categorize businesses based on the “Source of Content Origination” and the “Focus of Strategy” The matrix categorizes four pure-play approaches, and a number of hybrid approaches Source of Content Origination Single Brand Multiple Brand Forward-Integrated Producer (Walmart.com) Supply-Side Aggregator (Surplusdirect.com) Backward-Integrated User (Dellonline.com) Demand-Side Aggregator (Accompany.com) Supply-Side Focus of Strategy Demand-Side Hybrid Integrator (Cisco.com) Hybrid Aggregator (Amazon.com)

Table 3–1: Implications of “Pure Play” Business Approaches

Case Study: Schwab Value Cluster
Schwab’s value cluster offers a combination of benefits that address multiple segments of customers: Target Segments Key Benefits Offered Supporting Rationale Value Cluster + + Schwab Innovative products Superior service Lower prices Superior, cutting edge technology Innovation “Use technology to lower costs and offer superior service at lower price to investors unwilling to pay for investment advice” Existing offline customers Professionals, incomes < 150K, trade frequently < 150K, buy and hold

Case Study: Schwab The Marketspace Offering Egg Diagram
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 Online 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

Case Study: Schwab Resource System
Schwab’s resource system is centered around Schwab’s three main benefits: low price, innovative products and superior services. Learning Center OneSource Invest in CSR Training Align CSR ComZpensation with Quality of Service Center of Knowledge and Innovation Customer Service Innovative Products Superior Service Hire IT Staff Invest-ment in R&D Train IT Staff 24/7 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

Case Study: Schwab Resource System: In-House vs. Outsourcing
Schwab does not have the all the capabilities necessary to deliver the core benefits. Some of them will be acquired trough partnerships: Learning Center OneSource Hire IT Staff Invest in CSR Training Align CSR Compensation with Quality of Service Center of Knowledge and Innovation Capable IT Staff Well-Trained CSRs Innovative Products Superior Service Invest-ment in R&D Train IT Staff 24/7 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 Provide Lower Commission for Frequent Traders Branch Competitive Commission Rates = Company can perform in-house = Company needs to outsource or partner

Case Study: Schwab Activity System
Large investment in R&D Exceptional team of engineers Innovative products Increase in trade volume System able to handle large volume In-house technology development Low price Downsized branch staff Technology leadership Investment in IT Increase in non-trade revenue 24/7 Customer service High-quality investment information Large, well-trained sales force Superior service Hoovers Online Multiple points of access Partnerships with content providers S&P Comstock Comprehensive information Online Phone Branch Media General

Case Study: Schwab Partners Give/Get Matrix
A “give/get” matrix shows the benefits to Schwab and to its partners derived from working together:

Case Study: Schwab Financial Models
Revenue Model Revenues are generated from trading (commission and principal transaction fees) and non-trading activities (mutual fund service fees, net interest revenues, etc.) Value Model Schwab is the provider of the best information for investors (Stock Analyzer, Analyst Center, etc.) Growth Model Development of advance online software tools and after-hours online trading Growth Model Advanced Software Tools New After-Hours Trading International Expansion International Expansion Learning Center Products In-Branch Seminars New Online Investment Bank Existing Existing New Existing New Online Markets Offline Markets

Supporting Slide 3–J: Point-Counterpoint: Who Would You Rather Be: A Dot-Com or a Bricks-and-Mortar Business?

Business Model Options (Not Mutually Exclusive)
Supporting Slide 3–K: Business Model Choices Must be Consistent With Sources of Competitive Advantage Business Model Options (Not Mutually Exclusive) Forward-Integrated Producer Content Production E-Business Interface Content Utilization Backward-Integrated User Content Production E-Business Interface Content Utilization Content Production Supply Aggregator Content Production Content Production E-Business Interface Content Utilization Content Production Content Production Content Production Content Utilization Demand Aggregator Content Utilization Content Production E-Business Interface Content Utilization Content Utilization Content Utilization Content Utilization

Business Models — Conclusion
After today’s lesson, you should be able to answer the following questions: What is a business model? What is the difference between value proposition and value cluster? What different approaches can a business use to develop an online offering? What is a successful, unique resource system and what are its components? What are the steps necessary to develop a resource system? What are the different financial models available to firms? What are the main differences between revenue, shareholder value and growth models? What are some frameworks that can be applied to the networked economy?

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