lec 1 - overview of ecomm framework

e-Commerce

Chapter 1

Overview of e-Commerce Framework

Exhibits and Tables

Overview of E-Commerce Framework — Today’s Objective

Develop an understanding of the framework of e-commerce

Chapter 1:Overview of E-Commerce Framework

Definition of e-commerce

Distinct categories of e-commerce

E-commerce vs. traditional commerce

The importance of e-commerce

Decision-making in e-commerce

A framework for e-commerce

What is to come?

Conclusion

Chapter 1Overview of E-Commerce Framework







What is to come?

Conclusion

Definition of E-Commerce

“[The Internet] is global. It favors intangible things – ideas, information, relationships. And it is intensively interlinked.”

- Kevin Kelly, “New Rules for the New Economy”

E-commerce is characterized by several specific attributes: • It is about the exchange of digitalized information between parties• It is technology-enabled• It is technology-mediated• It includes intra- and inter-organizational activities that support the exchange

E-commerce can be defined as technology-mediated exchange between parties (individuals, organizations or both) as well as the electronically based intra- and inter-organizational activities that facilitate such exchange








What is to come?

Conclusion

B2B

B2C

C2B

C2CConsumers

Business

And selling to...

Business originating from...

Business Consumers

Table 1 — 1: Four Categories of E-Commerce

Four distinct categories of e-commerce can be defined, based on the business origination and the customer type

e.g., Freemarket, Covisint e.g., Mercata.com

e.g., Groupsgoogle.com, Monster.com

e.g., Amazon, Staples.com, Yahoo








What is to come?

Conclusion

How Is E-Commerce Different From Traditional Commerce?

1. Core Strategic Decisions Are Technology-Based• Digital businesses cannot separate technology choices from the strategic decision-making process

2. Real-Time Competitive Responsiveness• Speed is becoming increasingly important as a means to increase differentiation as well as to

simulate competitors

3. 24/7 Access• Consumers expect to be able to constantly access a business’s online storefront, forcing

businesses to adjust their level of responsiveness (both strategic and tactical)

4. Technology-Based Consumer Interface• “Screen-to-face” customer interaction has increased the importance of capturing and delivering a

positive customer experience

5. Customer in Control of the Interaction• Technology-based interfaces limit the company’s influence on the buying process and give the

customer more control of the interaction

6. Increased Knowledge of Customer Behavior• A technology-based interface, however, gives the company the opportunity to more accurately

track consumer behavior

7. Networked Economics and Positive Feedback• Networked economics and positive feedback can allow “increasing returns”

Supporting Slide 1 — A: Point-Counterpoint: Do Valuations Make Sense?

Point-CounterpointValuations Make Sense Valuations Do Not Make Sense

After the April 2000 Nasdaq slump, there has been an increased focus on path to profitability and revenue

– Lines are beginning to get drawn between winners and losers

Techniques such as real options valuation yield observed valuations

Investors are placing hundreds of billions of dollars based on their projected valuations

Network economics and information economics will combine to create highly profitable companies that dominate their industries

There is a high level of uncertainty leading to wide fluctuations

– Nasdaq fell by 30% in April 2000 Many companies do not demonstrate

profits for a long period of time, making it hard to value them

There is an inconsistency between assumptions made in the valuation of online and offline companies

There is often a “bending” of the accounting rules by online companies

Valuations are based on the number of customers and make the assumption that the economics of “monetizing” these customers will remain favorable

Many stocks tend to be moved by momentum








What is to come?

Conclusion

US Online Population Forecasts

Population (Millions)

• At the end of 2003 approximately 55% of the US population will be online

Exhibit 1 — 1: Growth in Number of Internet Users

E-Commerce is significant in several respects, first of which is the expected growth of the online population

66,470

134,000

153,000

140,000

600

125

210

500

1 10 100 1,000 10,000 100,000 1,000,000

Forrester

Yankee Group

IDC

eStats

19962000

Exhibit 1 — 2: Growth in the B2B Sector

0200400600800

10001200

1999 2003

$Bill

ions

B2B E-Commerce Projections

USA

World

• The B2B sector is expected to grow significantly

• While different sources provide different estimates, they all show a fast growth between 1996 and 2000

• IDC estimated that US annual revenues of $50 billion in 1999 could go up to $634 billion by 2003. Total B2B revenues are forecasted to reach $1.1 trillion by 2003

International Data Corporation

-20

0

20

40

60

80

100

120

1922

1926

1930

1934

1938

1942

1946

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

E

Internet as Mass Medium — North American Adoption Curves

North American Users /

Households (MM)

* Launch of HBO in 1976 used to estimate the beginning of cable as an entertainment / advertising medium

Radio

TV

Cable CommercialInternet

50 Million Users / Households

Years to Reach50 MM UsersRadio: 38 years

TV: 13 years Cable*: 10 yearsCommercial Internet: 5 years

Exhibit 1 — 3: Adoption Rate of the Internet vs. Other Mediums

The fast growth of the Internet compared with other media is an indication of the velocity of how E-commerce is affecting the nature of economic activity

Exhibit 1 — 4: Estimated Savings From E-Commerce

In addition to the growth in online population, B2B revenues and Internet adoption, E-commerce is important for the cost savings it can generate as well as for its impact on industry boundaries and on many aspects of the social life

• Cost savings from e-commerce are expected to exceed $1 trillion by the end of year 2002








What is to come?

Conclusion

E-Commerce Decision-Making Process

New E-Commerce Business

Which customers

should I target?

What unique benefits should I

provide?

How do I communicate

with customers?

How can I provide a

compelling online

experience?

How should I structure the organization?

Who should be my partners?

What metrics should be used to

track performance?

How will the business create

shareholder value?

Supporting Slide 1 — B:Point-Counterpoint: Who Will Win? Online vs. Offline

Point-Counterpoint

Online Will Win Offline Will Win

Offline companies can’t easily cannibalize their own businesses

Offline companies’ stock does not allow them to adequately incentivize key talent

Offline companies move too slowly Key elements of business (e.g., business

design, strategy, value proposition) are different in the networked economy

“Innovator’s Dilemma”: focusing on current customer needs causes companies to divert focus from new technologies

Market will not tolerate blue chip companies running loss-making businesses

Offline companies may face a channel conflict

Companies like Schwab have become leading players in the online brokerage industry

Companies with established market leadership have key assets such as relationships with customers and suppliers, deep industry knowledge and experienced management

Established companies have deep pockets

Offline companies have established and trusted brands

Offline companies can create spinoff businesses with new culture, processes, funding, etc.

There have been other technology revolutions

– from 1894 to 1903, there were 20,000 telephone companies that started in the US








What is to come?

Conclusion

Exhibit 1 — 5: Framework for E-Commerce

The E-commerce framework helps managers develop a sound E-commerce strategy

Frame the Market Frame the Market OpportunityOpportunity

Select the Select the Business ModelBusiness Model

Design Customer Design Customer InterfaceInterface

Develop Marketing Develop Marketing Communication Communication

StrategiesStrategies

Implement the StrategyImplement the Strategy DefineDefine MetricsMetrics

EstimateEstimate Market Value Market Value

• “Where will I play?”• The emphasis is more on potential business partnerships

• “What is the value proposition?”• What products/services should be offered?• What resources are necessary?• What financial model should be used?

• “What should the online interface look like?”• Look and feel• Content• Transaction capabilities• Community building

• “How do I attract and retain customers?”• Includes all offline and online methods to reach customers

• “How do we go to market?”

• “How are we doing?”• What metrics should be used to track the business performance?

• “What value are we creating for shareholders?”

Sample eCommerce Sites

Fulfillment Systems

CustomerInterface

Online Offline

Yahoo!

Amazon.com

BN.com

McD

onal

ds

Egg h

e ad

Exhibit 1 — 6: Where to Play Online and Offline

Many companies are combining both online and offline capabilities to serve customers. There are different positions a company can hold when deciding where to play.

• Yahoo only plays online; it only communicates with its customers online

• Egghead also plays online only, but the Internet is used for both customer interface and back-office systems

• Amazon employs both online and offline back-office resources, but interacts with customers only online

• McDonald’s interacts with customers offline (mainly) and online, but only uses offline back-office systems

• BN.com plays in all four quadrants

Exhibit 1 — 7: Market Infrastructure

Underlying each e-commerce decision is the industry environment or market infrastructure, which is generally outside the company’s control and presents both opportunities and constraints. This environment can be divided into two broad categories:

Network Infrastructure Media Infrastructure

• Basic, underlying group of electronic devices and connecting circuitry designed as a system to share information

• Devices: telephone, radio, cable TV, computer, satellite, etc.

• Companies: ISPs, hardware providers, software companies, telcos, etc.

• All the various communication companies and their channel of communication

• Media infrastructure refers to the content of communication

Telephone/DSL

Cable

Broadcast Radio & TV

Satellite

Wireless

Print (Newspapers and Magazines)

Television

Radio

Music

Motion Pictures

DigitalConvergence

NetworkInfrastructure

MediaInfrastructure

Network and media infrastructure are independently converging due to the digitalization of information, causing competition in the market to increase

• The network to deliver digitized content has converged, leading to cross-industry competition

• The major content players are now competing to deliver content to the same target segments

Exhibit 1 — 8: Media Convergence to a Digital Platform








What is to come?

Conclusion

Exhibit 1 — 9: A Framework for E-Commerce

There are six interrelated, sequential decisions to make to implement an e-commerce strategy. These decisions are made in the context of a changing market-level infrastructure

• Vertical boxes are analyses and decisions that are “controllable” by the firm• Horizontal boxes represent forces that are “non-controllable” by the firm

Framing the Market

Opportunity

Implemen-tation

Market Communica-

tions and Branding

Evaluation: Metrics and Valuation

Business Model

Customer Interface

Network Infrastructure

Media Infrastructure

Publics and Politics

E-CommerceStrategy

Market Infrastructure








What is to come?

Conclusion

E-Commerce Framework Overview — Conclusion

After today’s lesson, you should be able to answer the following questions:

1. What is the definition of e-commerce?

2. What are the distinct categories of e-commerce?

3. What are the key characteristics of e-commerce that make it different from traditional commerce?

4. Why is understanding e-commerce so critical?

5. What is the e-commerce framework? What are its main components? Which of them are “controllable” and which are “non-controllable”?

lec 1 - overview of ecomm framework

Documents

commerce distinct

customer interface

network infrastructure

market infrastructure

b2b sector

business model

supporting

cost savings