© 2002 by Prentice Hall 6-1

The Growth in Computer Use

Region 1993 2000 2005 est.

Asia-Pacific 25 116 257

European Union 44 135 250

United States 77 159 230

Latin America 3 18 44

* All data in millions

© 2002 by Prentice Hall 6-2

Present and Future Computer Growth

Country

Growth Rate (1993-2000)

Projected Growth (2000-2005)

China 1052% 212%

India 604% 258%

Russia 580% Not in top 5

Brazil 565% Not in top 5

Indonesia 552% Not in top 5

Poland Not in top 5 205%

Ukraine Not in top 5 185%

Turkey Not in top 5 171%

© 2002 by Prentice Hall 6-3

Cell Phone Users (1990 and 1999)

Country 1990 (thousands) 1999 (thousands)

China 18 43,240

Egypt 4 465

Finland 226 3,445

France 283 21,434

Germany 273 23,470

India 0 1,195 (1998)

Ireland 25 1,400

Israel 15 2,800

Japan 868 56,849

Sweden 461 5,125

United Kingdom 1,144 23,944

United States 5,283 86,047

© 2002 by Prentice Hall 6-4

The Potential of the Internet

Lower communication costs between people

and companies, and within networks

Lower transaction costs between people and

companies, and within networks

Lower information search costs

Lower costs of monitoring transactions and

search processes

© 2002 by Prentice Hall 6-5

The Internet and Various Industries

Information-intensive industries:

Financial Services

Entertainment

Health Care

Education

Government

Physical-intensive industries:

Retailing

Manufacturing

Travel

Power

© 2002 by Prentice Hall 6-6

Startup Plans for B-School Grads

0

5

10

15

20

25

30

35

1999 2000 2001

Consulting

Banking

Startups

University of Michigan

0

5

10

15

20

25

30

1999 2000 2001

Consulting

Banking

Startups

0

5

10

15

20

25

30

35

40

1999 2000 2001

Consulting

Banking

Startups

University of California at Berkley

Northwestern University

© 2002 by Prentice Hall 6-7

Innovation and Value

Value Creation: The creation of value comes

about when the company has

the resources and

capabilities to produce a

product or service that is

desired by market

participants

Value Capture:

Capturing value means that

the price charged covers the

full cost of production and a

return on investment.

© 2002 by Prentice Hall 6-8

Online Shopper Characteristics

45% demand timely responses to questions and inquiries

22% require informative content on the site

17% highly value communication with a real person

14% want the products displayed clearly and prominently

14% desire 24-hour availability

© 2002 by Prentice Hall 6-9

Versioning

Versioning – Producing different options for an information-based product

Delay

User interface

Convenience

Image resolution

Speed of operation

Capabilities

Features and functions

Annoyance

Support

© 2002 by Prentice Hall 6-10

Lock-in and Switching Costs

Types of lock-in Switching costs for customers

Contracts and subscriptions Damages for breaking the contract or ending the subscription before it expires.

Durable purchases Replacement of equipment. Switching costs decline as equipment ages.

Brand-specific training Customers must learn new system and process. Productivity loss during training.

Information and databases Data conversion costs, potential data loss. Costs increase with database size.

Specialized suppliers Time and cost of finding new supplier. Potential disparities in capability and

quality.

Search costs Aggregate of buyer and seller costs.

Loyalty programs Lost benefits from program. Need to start over with another company’s program.

© 2002 by Prentice Hall 6-11

Rules for Information-Based Businesses

Value pricing

Versioning

Intellectual property

Lock-in

Networks and positive feedback

Cooperation and capability

© 2002 by Prentice Hall 6-12

E-Business Alliance Issues

Lessons for the Startup

The big company’s clout can help you in dealing with customers

Don’t be arrogant

Serve the customer’s needs, not your own egos

Pleasing the big customer is the make-or-break event in the life of

the smaller firm

Find industry veterans to help guide the younger workers in the

politics of big companies

© 2002 by Prentice Hall 6-13

E-Business Alliance Issues

Lessons for the Big Company The small company needs a very specific set of requirements

Supply the details

Invest in the startup and make sure that it has the resources

needed to do your job

Socialize the employees of the smaller firm so that they know and

respect you

Learn from the smaller company people how to do things

differently and develop cutting edge skills

© 2002 by Prentice Hall 6-14

Business Models for the E-Entrepreneur

B2C model

B2B model

B2B2C model

Clicks and Bricks model

Roll-up model

Advertising model

Pay for content model

© 2002 by Prentice Hall 6-15

Online vs. Offline Sales Ratios

Product category Offline purchases for every $1 spent online

Clothing / apparel $2.92

Electronics $2.89

Fitness / sports equipment $2.50

Toys $1.75

Computer hardware / peripherals $1.50

Travel services $1.01

Computer software $.99

Health / beauty and cosmetics $.93

Music / video $.83

Books $.68

© 2002 by Prentice Hall 6-16

E-Sales Options

Alternatives to banner advertising:

E-mail marketing (est. $1.3 billion in 2001)

Skyscrapers (ads along sides of web pages)

Streaming audio and video

Effectiveness tracking

Mini-sites, pop-ups, and interstitials