1

CS 453: Business Strategies and Models

Fall 2007

Readings:Chap. 3 and 4 in textbook

2

Overview1. Is use of the Internet a revolution in

commerce?2. Where does the Internet add value?3. Four Internet business strategies4. Threats and Opportunities5. Business models/segments

Consumer retail, B2B cataloging, Information commerce

3

1. Revolutionary? Or not? Things have changed for businesses, certainly Enough so that we can call this a revolution? What do you think? Why, why not?

Evidence, logic on this please Groups of three or four

Reasons why, why not Present, then vote

4

Your comments on this debate

5

Book’s analogy: railroads See pages 32-35 Differences from 1825 to 1890

Travel time reduced 4x Transportation cost of goods 5-15x less Routes independent of waterways Work-force dispersal, vacation habits Standardization: e.g. time

6

Railroads and the Internet Comparison of Infrastructure Issues

New infrastructures needed Original purpose perhaps not commerce Standards required to make it happen Security issues Technical innovation required first Accelerates or enables a larger trend

Industrial revolution Information age

7

Similar Factors Economies of scale Source of competitive advantage

RRs: e.g. regional advantages The net: many examples (we’ve talked

about) Inventory needs:

Changes how inventory and production are or anre not co-located in time and place

Distribution: more variety, choice, availability New opportunities

New corporations New businesses in new areas

8

2. Where does the Internet Add Value?

From a company’s perspective, the Internet must add value somehow.

Two high-level views of how: Transform customer relationships Displace sources of value

(Change how value was added in the past)

Term used in the book: value proposition The unique added value an organization offers

customers through their operations A statement summarizing the customer targets,

competitor targets and the core strategy for how one intends to differentiate one's product from the offerings of competitors.

9

Customer Relationships Move from supplier-centered to customer-

centered Old view: one-to-many view

Supplier chooses hours; location Supplier delivers services Focus on supply chain

Now, customer-centered: one-to-one view Supplier always available; no physical store Services come to customer at their site

Customer servers herself Focus on customer needs

10

Displacing Sources of Value Now, economies of scope as well as scale

More kinds of things as well as lots of them Mass production still important (a given) but

customization more important Customization is possible for more people

Distribution was an incovenient afterthought Now software, service downloads central to

the value a business provides Global distribution now easier (for bits instead

of physical goods)

11

3. Four Internet Business Strategies The preceding ideas let us characterize

Interent business strategies like this: Channel Master Customer Magnet Value Chain Pirate

Avast! Talk Like a Pirate Day is Sept. 19! Digital Distributor

12

Channel Master Customer oriented but based around a

particular type of product Possibly traditional goods and services Build deep, strong relationships Marketing channels and other direct ties to

customers made to work with the Internet Textbook’s example: Cisco

Hardware has been sold for decades Note book’s comments on how Cisco uses

the net at all four parts of the Commerce Value Chain

13

Customer Magnet Customer centered: draw a larger set of

customers Meet broadly shared needs, aggregate larger

number of services Must integrate multiple suppliers behind

one interface Become a destination of choice Textbook’s example: Yahoo

Search, shopping, news, financials, email, IM, groups,…

See textbook’s analysis Similar: Amazon, AOL

14

Value Chain Pirate Focus on displacing someone in the value chain,

grabbing their share of the value Perhaps by connecting suppliers to customers in

a new way Leapfrog or displace someone in the “old”

way May focus on customer issues (e.g. Attract step

in commerce value chain) Book’s example: Autoweb

Note discussion about interacting with customers

Note how traditional suppliers are used Other pirates?

15

Digital Distributor Focus on supply, products/services New or heavily altered traditional channels Build new commerce value chain for customers that

supplies products and services in a new way Textbook’s example: Monster.com

Previously: employers handled hiring (mostly) Services for job-seekers (including some shift of

activities) Services for employers New tools: agents, resume screening, moving

assistance See book for more on this

Note all four steps in commerce value chain Others with this strategy?

16

4. Threats and Opportunities Note that a threat to you is someone else’s opportunity

(and vice versa) Channel master:

In your product area, can they use the Net better? Customer magnet:

Can they outdraw you? Better or broader services?Better community? (Discuss in relation to Amazon.)

Value Chain Pirate Can you lose your position? Someone sells directly to

your customers using our suppliers? Digital Distributor

Can part of what you do somehow be merged into another company’s new aggregation?

17

Reintermediation (Today’s word-of-the-day!) Did the internet eliminate the middle-man

between consumer and suppliers? Not really for various reasons

In fact, new kinds of middle-men Old chains of distribution disrupted and re-

assembled Aggregate services Provide broader services and product

together Products alone not enough

18

Chapter 3 Summary and Wrap-up Note that these model strategies aren’t

mutually exclusive Are they even complete? What doesn’t

really fit this? Note that you could base a business strategy

on these models See book’s three-step approach on p. 41

1. Select a strategy Consider opportunities and threats

2. Design the commerce value chain3. Implement this in an evolving fashion

19

5. Business Models and Segments Many ways to characterize businesses using

the Internet Our book chooses three “segments”

By “segment” the authors mean companies that use the Internet in similar ways

Usually segment means companies in the same business area

Book chooses to do this so it can focus on system requirements and functions

Consumer Retail Business-to-business cataloging Information Commerce

20

For us… First, observe how the authors think about

these segments and companies in them What are the opportunities for value? What are the needs from a system or

technical point of view due to the segment’s nature?

Is this affected by size of company? How the commerce value chain helps us

understand each one’s e-commerce needs Remember? Attract, Interact, Act, React

Read through examples and discussion looking for things that surprise you or you hadn’t thought of

21

Consumer Retail Selling physical goods to individual consumers What’s the overall value proposition for this

segment? Reach more customers, global market Reduced costs for marketing, sales Increased efficiency of total sales operations Can target customers more precisely Provide more accurate, timely info

On products, prices, availability, etc.

22

Note issues relate to scale Consider three levels of business scale

Small, medium, large Small shops

May not have real-time inventory May use a third-party to handle order processing

A commerce server provider May rely on phone and email more

Medium-sized company Inventory probably in DBMS, with content pages

generated on the fly Order processing more complex

Shopping carts, customer registration, etc. More marketing: coupons, sales, discounts, etc.

23

Issues Related to Scale (2) Large retailer

Website content more complex, dynamic Real-time inventory, pricing, etc.

May need to interface with existing software systems (e.g. ERP, enterprise resource planning system)

Even more complex merchandising, marketing

Multiple languages? Cross selling Integration with existing physical stores

24

Consumer Retail: Attract, Interact Attract (first step in commerce value chain)

Note its relative importance here since success depends on large number of customers

See discussion of various techniques Advertising, coupons, sales, promotions,

frequent buyer programs, etc. Interact (2nd step -- providing content)

Issues of business scale apply here Increasingly complex content generation

system to let consumers seen product information

25

Consumer Retail: Order Processing Some things more complex for some

businesses Single-session vs. persistent shopping carts Application of coupons to items vs. orders Order validation

E.g. a set of computer system options Cross selling opportunities Tax calculations Shipping delivery options and costs Final order presented to user for update,

approval

26

Consumer Retail: Payment, Fulfillment

Payment Perhaps no surprises here. But…

Note seller’s concern about transaction fees Fulfillment

A lot happens here! Much is similar to non electronic business. But…

If warehouse(s) can accept electronic info about orders, system sends info to those facilities

Note splitting of order according to warehouse

Integration with non-electronic sales Perhaps at physical stores

27

Consumer Retail: React Clearly, opportunity for much more value here Human customer service reps often just lookup

info and read Let your customers do this! Costs related to people (including space

etc.) reduced See list of benefits in text

28

Next: Business-to-Business Models Book’s example is suppliers of parts for MRO

goods or components MRO is maintenance, repair, and operations

Not the only B2B segment of course But different enough it’s worth looking at here Examples:

Cleaning supplies, office supplies Small or large physical parts for companies

building things High-volume, low-value purchases Repeat business matters Order processing can be expensive

29

This B2B segment: Value, Attract What’s the value proposition?

Reduce costs of sales operations Reduce order processing costs Better service for low-volume customers Better information for customers

Attract activities Not so different than consumer retail. But… Critical to retain customers, and become a

preferred vendor for that company

30

This B2B segment: content Large number of things to sell, many

variations Search is critical

Must be flexible Needs more information on each item Custom catalogs

Special part numbers, special prices

Note: we see some of these things illustrated when shopping for computers (Dell, Apple) at the university

31

This B2B seg.: orders, payment Order processing

Note that approval process may be required Requisitioner, approver, purchaser

Payment Not (just) credit cards now Purchase orders, credit, procurement cards EFT (Electronic Funds Transfer)

32

This B2B seg.: after the sale Fulfillment

Aggregate multiple orders (say, ship once a week)

Predefine shipping addresses One order, multiple addresses

Customer Service May be a customer interface for companies Training, maintenance Technical support may be richer than for

consumer retail

33

Information Commerce Look this one over yourself!

Pages 61-69 Surprises? Anything new? We’ll chat in the next class

34

Summary on Chap. 4 Main point: different types of businesses have

different needs But these may be shared with what the

book calls a segment Analyze needs or performance in terms of

commerce value chain Think about the value proposition for a

company

Can you use any of this (including terminology in HW1)?