Porter’s Competitiveness Model

1. Porter’s Competitiveness Model MGT 30660 Khalil Fadil Matta University of Notre Dame

2. Impact of the Internet Competitiveness • On the Bargaining Power of Suppliers • On the Bargaining Power of Buyers • On the Barriers to Entry • On the Threat of Substitute Products • On the Rivalry among existing competitors

3. On the Bargaining Power of Suppliers • Increase number of suppliers available • Provide a direct channel to reach end customers • Give all companies (big & small, far & close) equal access to suppliers thereby reducing product differentiation, service & cost • Increase the number of potential customers for suppliers as barriers are reduced

4. On the Bargaining Power of Buyers • Reduces switching costs for consumers • Increases the number of companies that can deliver product or service • More transparency of information about products, prices & service • Reduces the number of steps in the supply chain thereby allowing customers to reach OEMs directly • Increases the number of potential customers

5. On the Barriers to Entry • Reduces the need for a sales force • Reduces or even eliminates the need for a physical presence • Provides easier access to production & distribution channels • Reduces the amount of capital required to start a new business

6. On the Threat of Substitute Products • Create new approaches for providing the same service or products • Help create add on products & services • Fosters an innovation-oriented culture • Increases the efficiency of established companies • More info on other products

7. On the Rivalry among existing competitors • Reduces differences among competitors • Migrates competition towards price • Widens the geographic reach thereby adding competitors to the company’s space

8. The Internet & Economy • Reduces Inflation • Redistribution of wealth from rich to poor & from developed countries to developing countries • Reduces the cost of capital • Fosters & quickens the pace of innovation MGT 30660 Khalil F. Matta

9. To Summarize last LectureThe aim of IT • Strategy involves creating a niche or focus … something you are good at.. Something that differentiates you.. Provide value added product or service to a select customer base. • Focus IT initiatives on the strategic goals of the organization • Use IT to increase profits by either: • Growing the business (increasing revenue) especially for high margin companies • Expanding the profit margins (reducing costs relative to revenue) particularly for those companies with low margin businesses

10. Business Models&Web Strategies

11. Business Models • Advertising • Merchant / Retailer • Manufacturer • Brokerage • Infomediary • Affiliate • Subscription • Utility • Financial • Community MGT 30660 Khalil F. Matta

12. Advertising Model • Generalized Portal: Yahoo, Google, AOL, Facebook • Success depends on volume (eg. # of eyeballs!!) • Free Model: BlueMountain • offer customers something for free to increase volumes • Bargain Discounter: Buy.com • Sell at or below cost to attract shoppers MGT 30660 Khalil F. Matta

13. Merchant Model (Online Retailing) • Virtual Merchant: Amazon, OnSale • sell list price or auction. Make money on margins • Catalog Merchant: Grainger • mail order to Web order • Surf and Turf: Gap, Wal*Mart • Channel conflicts or opportunities?? • On-line music: iTunes MGT 30660 Khalil F. Matta

14. Manufacturer • Dell, Cisco • Compress the distribution channel by eliminating the middle man • enhance customer service • faster response time • more efficient supply chain • better customer knowledge • Personalized products MGT 30660 Khalil F. Matta

15. BrokerageMarket Makers • Buy/Sell fulfillment: eTrade and CarsDirect • Charge buyer or seller a transaction fee • Market Exchange: ScrapSite • Charge the seller a transaction fee based in value of sale • Business Trading: GE • product designs., buyers and supplier guides, job listings • Virtual Mall: Yahoo! Stores • Setup, Monthly Listing and/or transaction fees MGT 30660 Khalil F. Matta

16. Brokerage (continued) • Metamediary: Travelocity • setup and transaction fee for processing transactions, tracking orders, billing and collection • Auction: ebay • fee scaled with the value of transaction • Reverse Auction: Priceline, • fee based on the spread between bid and ask price • Classified: South BendTribune • listing fee charged regardless of outcome of transaction • Professional services: Monster, Guru • Listing fees • Search Agents: MySimon, RoboShopper • referral charge MGT 30660 Khalil F. Matta

17. Infomediaries • Consumer Info: Doubleclick • Sell customer info to merchants (offer consumers freebees) • Merchant Info: Gomez • Sell website performance info to internet merchants • Recommender System: ePinions • Monitor user habits and give feedback to merchants • Search Engine Optimization: iHelpYou, ReinventBusiness MGT 30660 Khalil F. Matta

18. Affiliate (Real Estate Model) • Godiva chocolates at Amazon, • Pay for performance model whereby a merchant is paid by another for the referrals they generate - variations include pay-per-click and banner exchange MGT 30660 Khalil F. Matta

19. Subscription Model • Provide content of product: Wall Street Journal, Consumer Reports, The Street.com, Forrester Research • Consumers pay to access the site] • On-demand software: Salesforce • Music on-line: Napster 2.0 • VOIP: Vonage, Comcast • Virus Protection:McAfee MGT 30660 Khalil F. Matta

20. Utility • Metered usage - pay as you go approach • Skype • Microsoft Office Live MGT 30660 Khalil F. Matta

21. Financial • Make money by providing financial services • Banking online: ING Direct • New financial model: PayPal • Virtual societies: Second life MGT 30660 Khalil F. Matta

22. Community • Voluntary Contributor • support the site through voluntary contributions..must establish user loyalty • Experts: Experts • Social Networks: YouTube, Facebook, MySpace • Encyclopedia: Wikipedia • Games: Second Life MGT 30660 Khalil F. Matta

23. Amazon Used technology to create a completely New Retailing model A DEMAND-DRIVEN RETAILING MODEL A pull rather than a push system of retailing

24. Old Book Retailing Model Bank Pay Info. ProcessPayments Payment Publishers Publishers Payment Invoice Flyers Authors Exam copies Invoice Acct. DB BookSelection Process Unsold Books Books Magazine Renews BookReviews OrdersReceived Warehouse/DC Inventory Update Inventory Update ProcessBackorders ProcessBackorders Orders byRetail Outlets Customer Demand Customer Demand Refund Refund Books Books Retail Stores Retail Stores Customers Flyers Flyers Market to Customers Market to Customers Pay Customers Customers Orders ProcessPayments Bank CustomerOrders

25. New Book Retailing Model Books GenerateCustomerInterface Customers Books Orders Cust.Info. OrderInfo. BookInfo. BooksUpdate ProcessOrders Orders Orders Customers Publishers Pay Info. Credit Card Information ProcessPayments Payment Payment Details Bank

26. Success Drivers • Change traditional payment scheme – being paid first before having to pay suppliers • Reduce and potentially eliminate inventory at retail & distribution centers • Reduce the number of processes required & therefore the processing costs • Improve quality by matching demand & supply perfectly • Customize the store for each customer – personalized shopping experience • Increase the geographical reach of the store and time of operations • Increase product offerings

27. Amazon’s creative use of Technology to eliminate competitors • World’s largest book store (started with over 1 million titles) • Customization of shopping experience • Purchase recommendations based on other customer purchases – data mining • Customer feedback and ratings of products • Enhancing trust by using secure order processing and 100% guarantees • One-click purchasing • Use of tabs • Using e-mails to push products to customers • Automate the order processing and fulfillment procedure to insure that standardization of performance • Commitment to use technology to enhance, simplify and increase customer satisfaction & delight

28. Always on the move! • Expanding product line • Becoming the largest mall in the world • Consulting/Developing & Managing other companies’ sites • Auctions • Search engine • Cloud computing • Crowdsourcing – Amazon Turks • Kindle

29. Google changing the face of Advertising Google – Organize ALL information and make it universally accessible to everyone

30. PAGERANK – Link Analysis algorithm • PAGERANK is an algorithm that ranks pages based on the relationships between websites: • number of links to the website from other site • Importance of these links (measured by how many links they draw from other sites).

31. Pagerank Simplified • examine how many WebPages address the page • calculate the ranking of each one of those pages • use these ranking to weigh each connection • combine to come up with a single score

32. ADWORDS: Bidding for Keywords and Pay-per-Click (PPC) • Companies bid for search keywords • The companies are only charged when a customer clicks on a company’s ad • The cost per click can be anywhere from a cent to a few dollars and this is determined by having advertisers bid for keywords • Rank ads based on those that are expected to generate the highest revenue to Google based on the interaction between bid price and the likelihood of purchase.

33. Adsense • A way for other website to monetize their web contact by adding advertising to on other websites • Purpose is to serve ads based on web content, user geographical location or other relevant factors • Has been particularly an important way for websites with smaller web traffic to develop advertising sales programs

34. Compared with traditional (print media, TV, Yellow Pages, Coupons, Flyers, Banner Ads, etc.) Advertising, Pay-Per-Click • Ability to reach the right target audience • Easy to measure success (Clicks can be counted) • Direct correlation between ads and purchases • Performance-based ads --Pay for results • Cost-effective (Avg. Customer Acquisition cost) • Search $8.50 • Yellow Pages $20 • Online ads $50 • E-mails $60 • Direct mail $70

36. Threats to Google’s business Model • Click Fraud: Potential for abuse by rival companies (have a virtual agents click continuously on an ad thereby raising the cost of doing business to a competitor • SEOs (Search Engine Optimization) : artificially raising page rank by advertisers • Rise of customized search engines (law, medicine, geographically based, etc.) • Better search algorithm • Better advertising business model (Pay-for-Action) • Rise of social networks (new gateways to the internet, competition for ad dollars) • Rise of mobile computing (Apps new gateway to the internet) competition of coupons for ad dollars)

37. Google’s New Businesses • Google new Operating system for phones ..Android (new gateway to the internet) • Google Cloud … storing other companies apps & data • Google Docs … Software on demand  .. • Google Mail • Google Search Appliance (GSA) … search engine to other web companies • Buying YouTube and other social networking companies • Google maps & other information services • Google local advertising initiatives • Google Mobile