CS 453: Business Strategies and Models Fall 2007

1. CS 453: Business Strategies and ModelsFall 2007 Readings: Chap. 3 and 4 in textbook

2. Overview • Is use of the Internet a revolution in commerce? • Where does the Internet add value? • Four Internet business strategies • Threats and Opportunities • 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 • Select a strategy • Consider opportunities and threats • Design the commerce value chain • 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)?