1. Copyright © 2010 Pearson Education, Inc.Copyright © 2007 Pearson Education, Inc. Slide 1-1 ELC 200 Day 3

2. Agenda Questions? Assignment 1 posted  Due Monday, September 19 @11:05 AM This date was incorrect on last class slides  Upload in BlackBoard  assignment1.pdf assignment1.pdf Assignment 2 posted in BlackBoard  Due Monday, September 26 @ 11:05 AM Finish Discussing The Revolution Is Just Beginning Begin Discussing E-Commerce Business Models and Concepts

3. Copyright © 2010 Pearson Education, Inc. E-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. Sixth Edition

4. Copyright © 2010 Pearson Education, Inc.Copyright © 2007 Pearson Education, Inc. Slide 1-4 Chapter 1 The Revolution Is Just Beginning

5. Copyright © 2011 Pearson Education, Inc. E-commerce: A Brief History 1995-2000: Innovation  Key concepts developed  Dot-coms; heavy venture capital investment 2001-2006: Consolidation  Emphasis on business-driven approach 2006-Present: Reinvention  Extension of technologies  New models based on user-generated content, social networks, services Slide 1-5

6. Getting The Money Equity investors  Private Equity Angel Investors Venture Capitalists Private Equity Funds/Firms  Going Public IPO’s Stock options Warrants Debt investors  Loans and promissory notes Copyright © 2010 Pearson Education, Inc. Slide 1-6

7. Copyright © 2011 Pearson Education, Inc. Insight on Business “Noodlenomics” Guides Internet Investment in 2010 Class Discussion What explains the rapid growth in private investment in e-commerce firms in the period 1998–2000? Was this investment irrational? What was the effect of the big bust of March 2000 on e- commerce investment? What is the value to investors of a company such as YouTube which has yet to show profitability? Why do you think investors today would be interested in investing in or purchasing e-commerce companies? Would you invest in an e-commerce company today? Slide 1-7

8. Copyright © 2010 Pearson Education, Inc. Slide 1-8 Source: http://scottsambucci.blogspot.com/2008/03/venture-capital-investment-trends-since.htmlhttp://scottsambucci.blogspot.com/2008/03/venture-capital-investment-trends-since.html

9. Copyright © 2011 Pearson Education, Inc. Assessing E-commerce Many early visions not fulfilled  Friction-free commerce Consumers less price sensitive Considerable price dispersion  Perfect competition Information asymmetries (still) persist  Disintermediation  First mover advantage Fast-followers often overtake first movers “Get it right first” not “Get big fast” Facebook overtakes MySpace Slide 1-9

10. Copyright © 2011 Pearson Education, Inc. Predictions for the Future Technology will propagate through all commercial activity. Prices will rise to cover the real cost of doing business. E-commerce margins and profits will rise to levels more typical of all retailers. Cast of players will change.  Traditional Fortune 500 companies will play dominant role. http://money.cnn.com/magazines/fortune/fortune500/2011/index.html  New startup ventures will emerge with new products, services. Number of successful pure online stores will remain smaller than integrated offline/online stores. Regulatory activity worldwide will grow. Cost of energy will have an influence. Slide 1-10

11. Copyright © 2011 Pearson Education, Inc. Understanding E-commerce: Organizing Themes Technology:  Development and mastery of digital computing and communications technology Business:  New technologies present businesses with new ways of organizing production and transacting business Society:  Intellectual property, individual privacy, public welfare policy Slide 1-11

12. Copyright © 2011 Pearson Education, Inc. The Internet and the Evolution of Corporate Computing Figure 1.9, Page 44 Slide 1-12

13. Copyright © 2011 Pearson Education, Inc. Insight on Society Who Really Cares About Online Privacy? Class Discussion What techniques of privacy invasion are described in the case? Which of these techniques is the most privacy- invading? Why? Is e-commerce any different than traditional markets with respect to privacy? Don’t merchants always want to know their customer? How do you protect your privacy on the Web? Slide 1-13

14. Copyright © 2011 Pearson Education, Inc. Academic Disciplines Concerned with E-commerce Technical approach  Computer science  Management science  Information systems Behavioral approach  Information systems  Economics  Marketing  Management  Finance/accounting  Sociology Slide 1-14

15. Copyright © 2011 Pearson Education, Inc. E-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. seventh edition Copyright © 2011 Pearson Education, Inc.

16. Copyright © 2007 Pearson Education, Inc. Slide 1-16 Chapter 2 E-commerce Business Models and Concepts Copyright © 2011 Pearson Education, Inc.

17. Objectives Identify the key components of e-commerce business models. Describe the major B2C business models. Describe the major B2B business models. Describe business models in other emerging areas of e-commerce. Explain the key business concepts and strategies applicable to e-commerce Copyright © 2010 Pearson Education, Inc. Slide 1-17

18. Copyright © 2011 Pearson Education, Inc. Tweet Tweet: What’s Your Business Model? Class Discussion What characteristics or benchmarks can be used to assess the business value of a company such as Twitter? Have you used Twitter to communicate with friends or family? What are your thoughts on this service? What are Twitter’s most important assets? Which of the various methods described for monetizing Twitter’s assets do you feel might be most successful ? Slide 2-18

19. Copyright © 2011 Pearson Education, Inc. E-commerce Business Models Business model  Set of planned activities designed to result in a profit in a marketplace Business plan  Describes a firm’s business model E-commerce business model  Uses/leverages unique qualities of Internet and Web Slide 2-19

20. Copyright © 2011 Pearson Education, Inc. 8 Key Elements of a Business Model 1. Value proposition 2. Revenue model 3. Market opportunity 4. Competitive environment 5. Competitive advantage 6. Market strategy 7. Organizational Development 8. Management team Slide 2-20

21. Copyright © 2011 Pearson Education, Inc. 1. Value Proposition Why should the customer buy from you? Successful e-commerce value propositions:  Personalization/customization  Reduction of product search, price discovery costs  Facilitation of transactions by managing product delivery Slide 2-21

22. Copyright © 2011 Pearson Education, Inc. 2. Revenue Model How will the firm earn revenue, generate profits, and produce a superior return on invested capital ? Major types:  Advertising revenue model  Subscription revenue model  Transaction fee revenue model  Sales revenue model  Affiliate revenue model Slide 2-22

23. Copyright © 2011 Pearson Education, Inc. 3. Market Opportunity What marketspace do you intend to serve and what is its size?  Marketspace: Area of actual or potential commercial value in which company intends to operate  Realistic market opportunity: Defined by revenue potential in each market niche in which company hopes to compete Market opportunity typically divided into smaller niches Slide 2-23

24. Copyright © 2011 Pearson Education, Inc. 4. Competitive Environment Who else occupies your intended marketspace?  Other companies selling similar products in the same marketspace  Includes both direct and indirect competitors Influenced by:  Number and size of active competitors  Each competitor’s market share  Competitors’ profitability  Competitors’ pricing Slide 2-24

25. Copyright © 2011 Pearson Education, Inc. 5. Competitive Advantage Achieved when firm:  Produces superior product (Better) or  Can bring product to market at lower price than competitors (Cheaper) Important concepts:  Asymmetries  First-mover advantage  Unfair competitive advantage  Leverage Slide 2-25

26. Copyright © 2011 Pearson Education, Inc. 6. Market Strategy How do you plan to promote your products or services to attract your target audience?  Details how a company intends to enter market and attract customers  Best business concepts will fail if not properly marketed to potential customers Slide 2-26

27. Copyright © 2011 Pearson Education, Inc. 7. Organizational Development What types of organizational structures within the firm are necessary to carry out the business plan? Describes how firm will organize work  Typically divided into functional departments  As company grows, hiring moves from generalists to specialists Slide 2-27

28. Copyright © 2011 Pearson Education, Inc. 8. Management Team What kinds of experiences and background are important for the company’s leaders to have?  Employees are responsible for making the business model work  Strong management team gives instant credibility to outside investors  Strong management team may not be able to salvage a weak business model, but should be able to change the model and redefine the business as it becomes necessary Slide 2-28

29. Copyright © 2011 Pearson Education, Inc. Why do you think Webvan failed? Why are more traditional grocery chains succeeding online today? Why would an online customer pay the same price as in the store plus a delivery charge? What’s the benefit to the customer? What are the important success factors for FreshDirect? Do you think FreshDirect would work in your town? Slide 2-29 Insight on Business Online Grocers: Finding and Executing the Right Model Class Discussion

30. Copyright © 2011 Pearson Education, Inc. Categorizing E-commerce Business Models No one correct way We categorize business models according to:  E-commerce sector (B2C, B2B, C2C)  Type of e-commerce technology; i.e. m-commerce Similar business models appear in more than one sector Some companies use multiple business models; e.g. eBay Slide 2-30

31. Copyright © 2011 Pearson Education, Inc. B2C Business Models: Portal Search plus an integrated package of content and services Revenue models:  Advertising, referral fees, transaction fees, subscriptions Variations:  Horizontal / General  Vertical / Specialized (Vortal)  Pure Search Slide 2-31

32. Copyright © 2011 Pearson Education, Inc. How many of you use Google versus Yahoo or Bing? Does the class differ from the overall Web population? Why do you use a particular search engine? Why is Google moving beyond search and advertising into applications? How does Bing try to distinguish itself from Google? Do you think this strategy works? Slide 2-32 Insight on Technology Can Bing Bong Google? Class Discussion

33. Copyright © 2011 Pearson Education, Inc. B2C Models: E-tailer Online version of traditional retailer Revenue model: Sales Variations:  Virtual merchant  Bricks-and-clicks  Catalog merchant  Manufacturer-direct Low barriers to entry Slide 2-33

34. Copyright © 2011 Pearson Education, Inc. B2C Models: Content Provider Digital content on the Web  News, music, video Revenue models:  Subscription; pay per download (micropayment); advertising; affiliate referral fees Variations:  Content owners  Syndication  Web aggregators Slide 2-34

35. Copyright © 2011 Pearson Education, Inc. B2C Models: Transaction Broker Process online transactions for consumers  Primary value proposition—saving time and money Revenue model:  Transaction fees Industries using this model:  Financial services  Travel services  Job placement services Slide 2-35

36. Copyright © 2011 Pearson Education, Inc. B2C Models: Market Creator Create digital environment where buyers and sellers can meet and transact Examples:  Priceline  eBay Revenue model: Transaction fees Slide 2-36

37. Copyright © 2011 Pearson Education, Inc. B2C Models: Service Provider Online services  e.g. Google: Google Maps, Gmail, etc. Value proposition  Valuable, convenient, time-saving, low-cost alternatives to traditional service providers Revenue models:  Sales of services, subscription fees, advertising, sales of marketing data Slide 2-37

38. Copyright © 2011 Pearson Education, Inc. B2C Models: Community Provider Provide online environment (social network) where people with similar interests can transact, share content, and communicate  E.g. Facebook, MySpace, LinkedIn, Twitter Revenue models:  Typically hybrid, combining advertising, subscriptions, sales, transaction fees, affiliate fees Slide 2-38

39. Copyright © 2011 Pearson Education, Inc. B2B Business Models Net marketplaces  E-distributor  E-procurement  Exchange  Industry consortium Private industrial network  Single firm  Industry-wide Slide 2-39

40. Copyright © 2011 Pearson Education, Inc. B2B Models: E-distributor Version of retail and wholesale store, MRO goods and indirect goods Owned by one company seeking to serve many customers Revenue model: Sales of goods Example: Grainger.com Slide 2-40

41. Copyright © 2011 Pearson Education, Inc. B2B Models: E-procurement Creates digital markets where participants transact for indirect goods  B2B service providers, application service providers (ASPs) Revenue model:  Service fees, supply-chain management, fulfillment services Example: Ariba Slide 2-41

42. Copyright © 2011 Pearson Education, Inc. B2B Models: Exchanges Independently owned vertical digital marketplace for direct inputs Revenue model: Transaction, commission fees Create powerful competition between suppliers Tend to force suppliers into powerful price competition; number of exchanges has dropped dramatically Slide 2-42

43. Copyright © 2011 Pearson Education, Inc. B2B Models: Industry Consortia Industry-owned vertical digital marketplace open to select suppliers More successful than exchanges  Sponsored by powerful industry players  Strengthen traditional purchasing behavior Revenue model: Transaction, commission fees Example: Exostar Slide 2-43

44. Copyright © 2011 Pearson Education, Inc. Private Industrial Networks Designed to coordinate flow of communication among firms engaged in business together  Electronic data interchange (EDI) Single firm networks  Most common form  Example: Wal-Mart’s network for suppliers Industry-wide networks  Often evolve out of industry associations  Example: Agentrics Slide 2-44

45. Copyright © 2011 Pearson Education, Inc. Other E-commerce Business Models Consumer-to-consumer (C2C)  eBay, Craigslist Peer-to-peer (P2P)  The Pirate Bay, Cloudmark M-commerce:  Technology platform continues to evolve  iPhone, smartphones energizing interest in m-commerce apps Slide 2-45

46. Copyright © 2011 Pearson Education, Inc. Insight on Society Where R U? Not Here! Class Discussion Why should you care if companies track your location via cell phone? What is the “opt-in” principle and how does it protect privacy? Should business firms be allowed to call cell phones with advertising messages based on location? Slide 2-46

47. Copyright © 2011 Pearson Education, Inc. E-commerce Enablers: The Gold Rush Model E-commerce infrastructure companies have profited the most:  Hardware, software, networking, security  E-commerce software systems, payment systems  Media solutions, performance enhancement  CRM software  Databases  Hosting services, etc. Slide 2-47

48. Copyright © 2011 Pearson Education, Inc. How the Internet and the Web Change Business E-commerce changes industry structure by changing:  Basis of competition among rivals  Barriers to entry  Threat of new substitute products  Strength of suppliers  Bargaining power of buyers Slide 2-48

49. Copyright © 2011 Pearson Education, Inc. 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 Slide 2-49

50. Copyright © 2011 Pearson Education, Inc. E-commerce and Industry Value Chains Figure 2.5, Page 105 Slide 2-50

51. Copyright © 2011 Pearson Education, Inc. Firm Value Chains Activities that a firm engages in to create final products from raw inputs Each step adds value Effect of Internet:  Increases operational efficiency  Enables product differentiation  Enables precise coordination of steps in chain Slide 2-51

52. Copyright © 2011 Pearson Education, Inc. E-commerce and Firm Value Chains Figure 2.6, Page 106 Slide 2-52

53. Copyright © 2011 Pearson Education, Inc. Firm Value Webs Networked business ecosystem Uses Internet technology to coordinate the value chains of business partners Coordinates a firm’s suppliers with its own production needs using an Internet-based supply chain management system Slide 2-53

54. Copyright © 2011 Pearson Education, Inc. Internet-Enabled Value Web Figure 2.7, Page 107 Slide 2-54

55. Copyright © 2011 Pearson Education, Inc. Business Strategy Plan for achieving superior long-term returns on the capital invested in a business firm Four generic strategies 1. Differentiation 2. Cost 3. Scope 4. Focus Slide 2-55

56. Copyright © 2011 Pearson Education, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2011 Pearson Education, Inc. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall