sbh lecture 01

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Copyright © 2002 by Marketspace LLC

Rayport, Jaworskie-Commerce

Chapter 1 Enhanced Lecture Slides

Overview of e-CommerceFramework

Exhibits and Tables



Last Updated: 08/08/01

Copyright 2002 by Marketspace LLC

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 1








What is to come?

Conclusion





Definition of E-Commerce

“[The Internet] is global. It favors intangible things – ideas, info rmation, relat ions hips .

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 def ined as technolo gy-mediated exchange between part ies

( indiv idu als, organizat ions or b oth) as wel l as the electronical ly based intra- and inter-

org anizat ional act ivi t ies that faci l i tate such exchange





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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 andthe customer type

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

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

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





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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 tosimulate 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 interaction6. Increased Knowledge of Customer Behavior

• A technology-based interface, however, gives the company the opportunity to more accurately trackconsumer 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-Counterpoint

Valuations Make Sense Valuations Do Not Make Sense

After the April 2000 Nasdaq slump, therehas been an increased focus on path toprofitability and revenue – Lines are beginning to get drawn

between winners and losers

Techniques such as real options valuationyield observed valuations

Investors are placing hundreds of billionsof dollars based on their projectedvaluations

Network economics and informationeconomics will combine to create highlyprofitable companies that dominate theirindustries

There is a high level of uncertainty leadingto wide fluctuations – Nasdaq fell by 30% in April 2000

Many companies do not demonstrateprofits for a long period of time, making it

hard to value them There is an inconsistency between

assumptions made in the valuation ofonline 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 thatthe economics of “monetizing” these

customers will remain favorable Many stocks tend to be moved by

momentum





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What is to come?

Conclusion





50

100

150

200

1999 2000 2001 2002 2003

CommerceNet / Nielsen

Cyber Dialogue (Aggressive)

Cyber Dialogue (Conservative)

International Data Corp.

Jupiter / NFO

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 theonline 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

1996

2000

Exhibit 1 — 2: Growth in the B2B Sector

0

200

400

600

800

1000

1200

1999 2003

$ B i l l i o n s

B2B E-Commerce Projections

USA

World

• The B2B sector isexpected to growsignificantly

• While different sourcesprovide differentestimates, they all showa fast growth between1996 and 2000

• IDC estimated that USannual revenues of $50billion in 1999 could goup to $634 billion by2003. Total B2Brevenues are forecastedto reach $1.1 trillion by2003

International Data Corporation





-20

0

20

40

60

80

100

120

1 9 2 2

1 9 2 6

1 9 3 0

1 9 3 4

1 9 3 8

1 9 4 2

1 9 4 6

1 9 5 0

1 9 5 4

1 9 5 8

1 9 6 2

1 9 6 6

1 9 7 0

1 9 7 4

1 9 7 8

1 9 8 2

1 9 8 6

1 9 9 0

1 9 9 4

1 9 9 8 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 Reach

50 MM UsersRadio: 38 years

TV: 13 years Cable*: 10 years

Commercial

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 ofhow 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 onindustry boundaries and on many aspects of the social life

• Cost savings from e-commerce are expectedto exceed $1 trillion by

the end of year 2002





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What is to come?

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E-Commerce Decision-Making Process

New E-Commerce

Business

Whichcustomers

should I target?

What uniquebenefits should I

provide?

How do Icommunicate

with customers?

How can Iprovide a

compellingonline

experience?

How should Istructure theorganization?

Who should bemy partners?

What metricsshould be used to

trackperformance?

How will the

business createshareholder

value?





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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

Opportunity

Select the

Business

Model

Design

Customer

Interface

Develop

Marketing

Communicati

on Strategies

Implement the

Strateg

y

Defin

e

Metric

s

Estim

ate

Market

Value

• “Where will I play?” • The emphasis ismore on potentialbusinesspartnerships

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

• “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 andonline methods to reachcustomers

• “How do we go to

market?” • “How are we doing?” • What metrics should beused to track thebusiness performance?

• “What value are we

creating forshareholders?”





FulfillmentSystems

Customer

Interface

Online Offline

Yahoo!

Amazon.com

BN.com

M c D o n a l d s

Exhibit 1 — 6: Where to Play Online and Offline

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

• Yahoo only plays online; it onlycommunicates with its customersonline

• Egghead also plays online only,but the Internet is used for both

customer interface and back-officesystems

• Amazon employs both onlineand offline back-office resources,but interacts with customers onlyonline

• McDonald’s interacts withcustomers offline (mainly) andonline, but only uses offline back-office systems

• BN.com plays in all fourquadrants





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 circuitrydesigned as a system to shareinformation

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

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

• All the various communication

companies and their channel ofcommunication

• Media infrastructure refers to thecontent of communication





Telephone/DSL

Cable

Broadcast Radio & TV

Satellite

Wireless

Print(Newspapers and Magazines)

Television

Radio

Music

Motion Pictures

DigitalConvergence

Network

Infrastructure

Media

Infrastructure

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

• The network to deliver digitizedcontent has converged, leading tocross-industry competition

• The major content players arenow competing to deliver contentto the same target segments

Exhibit 1 — 8: Media Convergence to a Digital Platform

Ch t 1





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What is to come?

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Exhibit 1 — 9: A Framework for E-Commerce

There are six interrelated, sequential decisions to make to implement an e-commercestrategy. 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 theMarket

Opportunity

Implemen-tation

MarketCommunica-

tions and

Branding

Evaluation:Metrics and

Valuation

BusinessModel

CustomerInterface

Network Infrastructure

Media Infrastructure

Publics and Politics

E-CommerceStrategy

Market

Infrastructure

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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”?

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