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TODAY’S CLASS 5:00-6:15 Business Models (Cont.) Case: WebHouse Club 6:15-6:30 Break

TODAY’S CLASS 5:00-6:15 Business Models (Cont.) Case: WebHouse Club 6:15-6:30 Break 6:30-7:50 Group Meeting. Homework due next session. Read: Chapter 4 (Customer interface) Read articles: “E-Loyalty: Your Secret Weapon on the Web” “Getting Real about E-Commerce”.

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TODAY’S CLASS 5:00-6:15 Business Models (Cont.) Case: WebHouse Club 6:15-6:30 Break

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  1. TODAY’S CLASS 5:00-6:15 Business Models (Cont.) Case: WebHouse Club 6:15-6:30 Break 6:30-7:50 Group Meeting

  2. Homework due next session • Read: Chapter 4 (Customer interface) • Read articles: “E-Loyalty: Your Secret Weapon on the Web” “Getting Real about E-Commerce”

  3. The Only Constant in E-Models:Constant Changes B2B B2C Mega E-speculator Originator Exchange Specialist Solution Sell-Side Provider Asset Exchange Yahoo! Amazon eBay …and their constant evolution …and their especialization Economist, 2/3/2001 HBR, 11/2000

  4. Value Cluster • Customer segments: • - People willing to trade brands for cost savings • - Airlines (Last minute excess capacity) • - Sponsors of promotional programs • Customer-driven benefits offered: • - Cost savings • - A shield to address excess capacity without affecting • fair structure • - Promotional programs • Supportive rationale: • - Partnerships (8 major US. Airlines) • - Patents • - Technology + information

  5. Marketspace Offering Based on buyer’s selection of a fare and specific city-pair: Airline ticket (flexible brand and product configuration)

  6. Financial Model - Retained spread between customer’s bid and lowest fair offered by airline partners - Participation in promotional programs

  7. Magnitude of Subsidy required from Manufacturers Full Retail Price $1.50 WebHouse Discounted Price (28% of retail price) $1.08 Wholesale price by manufacture (60% of retail price) $0.90 Cost of goods sold (50% of wholesale price) $0.45 Manufacturer’s gross margin $0.45 Payment required to cover gap between full retail price and WebHouse discounted price $.042

  8. Follow-up - Aug 2000 Expanded into gasoline retailing - Sep 2000 Operated in 10 US markets with 7,000 grocery stores, 1.5M customers (averaged $10 savings), was adding 100,000 customers/week, supported over 140 manufacturers, and over 100 marketing offers. Also had 600,000 gasoline customers (average $0.12 per gallon) - Late Sep Laid off 40 employees + 100 contractors - Oct 5, 2000 Walker announced the closing of WebHouse 375 employees were terminated Investors lost over $360 M

  9. Announcement to Close WebHouse “The unfortunate and terrible disappointment is that capital markets just aren’t going to let us finish what we started. It is like having your baseball game rained out when you are ahead. It doesn’t say anything about your ball team. It’s just the weather. The prudent thing to do was not to bet that the capital markets would reverse again and start to love unprofitable, large-scale, business-to-consumers Internet companies. You don’t build oil rigs when oil is at $8 a barrel” Jay Walker October 5, 2000

  10. THE PRIMARY OBJECTIVES OF • PRICELINE CASE STUDY WERE: • 1) EXAMINE JAY WALKER’S INNOVATIVE PRICE • MODEL (TRADING THE RIGHT TO SELECT • BRAND FOR COST SAVINGS) • 2)EXPLORE HOW STRATEGIC PARTNERSHIPS • MAY HELP IN BUILDING A BUSINESS, BUT ALSO • POSE CONFLICTS FOR CUSTOMERS/PARTNERS • 3) DISCUSS WHY DID WEBHOUSE FAIL

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