CMPE 484

1. CMPE 484 Feb 20-22, 2001

2. Electricity Insurance Retail Insuring Information Technology Telecomms Broadcasting Convergence Web accelerates convergence that is already happening in the physical world Electricity companies look at Internet access via wall sockets British Gas Insurance Gas Psion + Nokia, Ericsson Citigroup, many others Entertainment British Telecom +BSkyB=BIB Consumer Goods Sainsbury Barclay Square Character merchandising Disney Stores Rainforest Cafe Consumer Direct

3. Implications on the Industry Companies must make three strategic e-business choices Choosing what e-market to compete in wisely Basing value propositions around a deep understanding of customer buying habits E-markets Implications and strategic choices Customer buying behavior E-business model Selecting an appropriate business model

4. Consumer to Consumer Business to Business Business to Consumer A. Choosing E-markets Wisely Companies must understand that e-market segments are fundamentally different Major E-market Segments

5. Business to Consumer Offerings Wingspan has supplemented a broad range of product offerings with a massive marketing campaign, positioning itself as a new economy, net-centric player Critical Success Factors WingspanBank.com • Broad Product Set • Deposit, credit, brokerage, insurance, and mortgage offerings • Instant approval in all 50 states • Have begun to offer travel and entertainment services through “Online Concierge” • Embrace web model of distribution - partnering with other providers to broaden offerings • Mortgages through E-LOAN • Insurance through INSWEB • $150 million marketing campaign has helped to position them as a net-centric, yet reliable brand • Place emphasis on speed/performance of site (twice as fast as industry average) Source: Company web sites; Gomez Advisors

6. Business to Business Although attention is focused on Consumer-to-Business, the potential for Business-to-Business trade over the web is enormous U.S. Business to Business U.S. Business to Consumer $ Billions (Goods & Services Sold) Commerce Threshold Hypergrowth Year Source: Forrester Research

7. Company • A Hub is… • Focused on industry verticals • Aggregates buyers and sellers Business to Business Hubs Forget about E-Trade, Schwab or Amazon-Business to Business is a different animal Business to Business Characteristics Business to Consumer Characteristics Business to Business Hubs Company Two-way networks that mediate between buyers and sellers, creating benefits for both One-way networks that deal directly with buyers to benefit sellers Company Company Deep knowledge of specific categories not required-witness Amazon migration across categories Company Company Domain expertise is a must Company Company Company Direct marketing, advertising and bulletin boards Lots of sales calls, business processes must be understood, rules defined

8. Possible Third Party Roles: • Hub manager • Payment facilitator • Information aggregator • Trusted third-party for authentication and delivery • Credit provision Business to Business hubs • Who Will Win? • Those in large fragmented markets • Those with the sharpest focus - “one problem one industry” • First movers win - increasing returns business model • Big capital spenders - customer acquisition is not cheap here Business to Business Hubs Grows $211 Billion $750 Million 1998 2002 Estimated Market Size

9. SciQuest applies a markup to every item • Offers auctions and catalogue buying • Has opportunity to charge for advertising and to sell customer data Business to Business Hub Example SciQuest has simplified the task of buying obscure laboratory equipment by uniting buyers and sellers in a tightly focused hub Buyers Suppliers Corporate scientists and researchers go to SciQuest to buy lab equipment Thousands of suppliers list their products on SciQuest’s site • Benefits: • Reduced search costs • Low prices • Consolidated order tracking • Benefits: • Additional distribution • Reduced marketing costs Source: Company web sites; Company prospectus

10. Consumer to Consumer Market Although less clear, potential exists for banks to carve out a role in Consumer-to-Consumer segments Enable transformation Bring buyers and sellers together Reap financial rewards • Create community for buyers and sellers • Spend to enhance brand • Take small responsibility for authenticating transactors • Generally leave it up to the transactors to complete transaction • Take % of every sale Opportunities for financial services firms in transaction enabling…. • Assist with authentication of buyer and seller in consumer to consumer transactions • Enable transactions through exchange of digital cash

11. C. Selecting a Business Model Web Business Model Description Example Build a complete value chain around activity or economic event. Market share is everything and first mover advantage is critical Category killers Mix content and value-added services to create online properties that people return to repeatedly Information marketing and transactional content Offer complete transactional support for an activity along entire value chain Value chain innovation Create a commerce and payments infrastructure that competitors can’t easily replicate Transaction processing

12. Web Business Model Description Example Create new channels or alter existing ones to change the means and costs of doing business Channel reconfiguration Automate or improve functions or processes. Emphasize self-service. Build economies of scale Efficiency Integrate a variety of related goods and services from many suppliers to provide an integrated experience around an event Event aggregation Tailor products/services from one or more suppliers to specific high value market segment of one marketing Market segment aggregation

13. Critical Success Factors The success of any Internet venture is a combination of distinctive value propositions and six main factors Virtual Customer Intimacy Collection and intelligent analyses of customer data for forecasting customer needs Service Excellence Development of world class customer service over all available channels Innovation/ Experimentation Experimentation with emerging web models for continuous improvement Critical Success Factors Channel Integration Leveraging multiple channels to serve the on-line customer Electronic Communities Design of value added content and functionality for strengthening relationships Alliances Development of strategic alliances to meet customer demands by utilizing core competencies of other providers

14. 2001 2003 1999 1997 1995 2005 1. Customer Intimacy Evolving Methods for Deepening Customer Relationships What the Future Holds 4. New Technology - Smart Cards, Wireless Banking, WebTV Emerging battleground Increasing depth of customer relationship 3. Personalize Advice and Self Service Current focus of many players 2. Customize Products and Services - Mass Customization 1. Integrate Customer Information

15. 2. Service Excellence Customers have a larger voice on the web - you have to listen

16. Customer service continues as a key differentiator for companies engaging in electronic commerce Dedicated Loan Consultant assigned to work with each customer Customer support via phone, e-mail, or fax 24 hour access to status and details of loan Proprietary software to track phone or e-mail service requests of corporate customers Identifies customers at call in and routes to agents with the right knowledge Resulted in $180M in incremental sales to date

17. Compelling Customer Proposition & Service Excellence 3. Alliances Companies must look to third party alliances to build networks and to develop products REACH RANGE Consumer access alliances Product alliances P C P C P C P C In-house products & education Direct Customer access E C EFFICIENCY

18. 4. Channel Integration Multi-channel companies have an advantage - US-internet shopping market example - Online Revenues (1) Market Share Growth Rate Customer Loyalty (3) Hit Ratio (2) Multi-channel companies $2.6 bn 59% 260% 6% 25% Pure internet retailer $1.8 bn 41% 160% 3% 17% Traditional multichannel retailers (e.g., Dell, Schwab, Eddie Bauer) are winning the race 1) First six months of 1999 2) % of website visitors purchasing online 3) % of customers with repeated purchases

19. Decreased costs • Streamlined processes • Strengthened vendor/ customer relationships • Improved information capture 5. Electronic Communities Electronic communities will offer opportunities to strengthen vendor/customer relationships and increase efficiencies Key Elements Value Added Electronic Catalogs Auction/Bidding Systems Payment Capabilities Transaction Security Integration with Member Back End Systems

20. VerticalNet receives: • $6,000 annual storefront hosting fee from 41 different communities • Sponsorship fees • Commissions on transactions Business to Business Communities VerticalNet creates vertical online trading communities such as toolingonline.com by adding industry specific content to the vertical hub concept • Buyer Benefits: • Relevant, focused content • Discussion forums • Reduced search costs • Consolidated order tracking • Supplier Benefits: • Additional distribution • Reduced marketing costs • Content rich site attracts and retains more visitors Source: Company web sites; Company prospectus, Forrester

21. 6. Innovation/Speed The web will continue to enable companies to offer more innovative products and services PNC Bank NextCard • PNC Bank recently launched an auction service for Certificates of Deposits • Customers can bid on CD’s with interactive rates • NextCard can perform online credit approval in 30 seconds • Has developed a service called “1 Click Shopping” - software that automatically populates online forms with customer data

22. Business Experimentation Companies must be willing to experiment with their business models and consider opportunities, such as outsourcing, to ensure success in this dynamic environment New Business Model Traditional business models must be adapted to gain new revenue streams by leveraging electronic commerce opportunities and core business strengths. “…toss out that old business plan, think weird, and try the unexpected.” Business Week March 1999 Outsourcing Outsourcing will be key to business experimentation, as the scale and capabilities of outsources can provide improved time to market and reduced risk.