CS 453: Business Strategies and Models Fall 2007

1. CS 453: Business Strategies and ModelsFall 2007 Based on: Chap. 3 of Treese and Stewart text

2. Overview • Is use of the Internet a revolution in commerce? • Where does the Internet add value? • Four Internet business strategies • Threats and Opportunities, SWOT analysis

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. An analogy: railroads • 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 are not co-located in time and place • Distribution: more variety, choice, availability • New opportunities • New corporations • New businesses in new areas

8. Discussion again: • Revolution or not?

9. 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 business: 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.

10. 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

11. 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 inconvenient afterthought • Now software, service downloads central to the value a business provides • Global distribution now easier (for bits instead of physical goods)

12. 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

13. 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 • An example: Cisco • Hardware has been sold for decades • Cisco uses the net at all four parts of the “Commerce Value Chain”

14. 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 • One example (of many): Yahoo • Search, shopping, news, financials, email, IM, groups,… • Similar: Amazon, AOL

15. 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) • One example: Autoweb • Importance on interacting with customers • Traditional suppliers are used • Other pirates?

16. 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 • One 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 • Touches all four steps in commerce value chain • Others with this strategy?

17. 4. Threats and Opportunities • SWOT Analysis • Part of a business plan, or an evaluation • Sets of questions to be answered • See pp. 30-31 in handout

18. 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?

19. Disintermediation • Removing the middle-man • Example: customer goes directly to producer • Has this happened in e-commerce? • What do you think? Discuss.

20. 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

21. 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