MP3 Electronic Commerce II Dealing w/Competitive Threats Fall 2000

1. MP3Electronic Commerce IIDealing w/Competitive ThreatsFall 2000

2. Dealing with Competitive Threats • Strengthen brands • inspire trust, communicate quality, lower search costs • Create economies of scale • Differentiate products / constant innovation • Create switching costs • pref. databases, communities, loyalty programs • Dominate or create distribution channels • Leverage alliances and partnerships

7. Customer Acquisition Costs Avg. Costs: $11 - catalog; $31 - physical; $82 - online (Shop.org, 2000)

8. Strong Brand Can Be Extended

9. If you build it... • … will they come? Maybe, but they might not return. Visitors Branding & Value Delivery Time

13. Turnover 2.6 times / year avg. book in store 20 weeks Inventory shelf & warehouse stock 20-40% returns little float / title Turnover 26 times / year avg. book in house 2 weeks Inventory all warehouse stock few returns avg. 32 days of float / title Scale in theMarketplace vs. Marketspace

14. small Investors $12/share 7% fee $15/share Underwriters, institutions, & large investors small Investors & Online Brokerages small Investors small Investors small Investors small Investors Scale, IPOs, and DifferentiationLetting in the Little Guy • Result: differentiated service enabled by scale The Firm

15. Commodity Products • Time available = X • High search costs • (e.g. time to visit a firm = X/3) • customer can only visit 3 firms • Low search costs • (e.g. time to visit a firm = X/30) • customer can visit 30 firms

18. Differentiation & Switching Costs • Differentiate the product or service via: • mass customization • preference databases & collaborative filtering • communities • Switching costs created via: • preference databases & collaborative filtering • frequent buyer programs • communities of users • learning, compatibility, standards

24. Cookies • stored in a text file on your hard drive • usage • track users (unique ID) • save passwords / prefs. • temporary storage (shopping basket) • each cookie can only be accessed by the domain that placed it (ads have own domain) • may be disabled (prefs) • a cookie  single user

25. Targeting Targeting Options • site categorization • visitor frequency • geography • domain name • service provider • SIC codes • company size (emp, $) • browser type • operating system • click stream

26. Privacy Issues • Policy - posting & updating • Trust Seals • industry lead: TRUSTe • weak, effectiveness questioned • Consumers in Control • P3P: Platform for Privacy Preferences • MS Internet Explorer 5.5 and greater • Government Regulation • Internal Policies

27. Why Communities? • Communities create switching costs & provide a reason to return • 57% of surfers return to the same sites • Communities generate traffic • chat boosts traffic from 50% to 300% • Communities pre-qualify users • Community members spend more • Communities can lower support costs

28. Users = Value source: InternetWorld, Wired News

30. Distribution Channels • PC Makers (Compaq, Dell, IBM, Gateway, Apple) • Operating System (Microsoft Apple, Sun) • Browsers (Microsoft, Netscape/AOL) • ISPs (AOL, AT&T, @Home, BabyBells, Earthlink) • Portals (Yahoo, Excite, Infoseek, Lycos, AOL) • Focused Aggregators (Quicken.com, Auto-By-Tel) • Internet Appliances (WebTV, i-Opener) • Hybrids (Pixel Co., RadioWave, Pointcast)

31. Popularity: Banners 98% Buttons 55% Television 30% Affiliate Programs 17% Effectiveness (Scale of 1-5): Affiliate Programs 4.3 Television 4.0 Banners 2.8 Buttons 2.0 Web Site Promotion Schemes Source: Iconocast.

32. AOL’s Cooperative Agreements AOL Touchpad: Gateway AOL Mobile Communicator: RIM and BellSouth

33. “Speed is God, Time is the Devil”