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CMPE 472

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ConvergenceWeb accelerates convergence that is already happening in the physicalworld

Gas

Insuring

InformationTechnology

Telecomms

Broadcasting

Entertainment

Consumer Goods

Retail

Electricity

Insurance

British GasInsurance

Citigroup,many others

Electricity companieslook at Internet accessvia wall sockets

Psion + Nokia,Ericsson

British Telecom+BSkyB=BIB

Character merchandising

Consumer Direct

Disney StoresRainforest Cafe

SainsburyBarclay Square

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Implications on the Industry

Companies must make three strategic e-business choices

Choosing what e-marketto compete in wisely

Basing value propositionsaround a deep understandingof customer buying habits

E-business model

E-m

arke

ts

Customer buying behavior

Implicationsand strategic

choices

Selecting an appropriate business model

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A. Choosing E-markets Wisely

Companies must understand that e-market segments are fundamentally different

Major E-market Segments

Business toConsumer

Business toBusiness

Consumer toConsumer

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Business to Consumer OfferingsWingspan has supplemented a broad range of product offerings with a massive marketing campaign, positioning itself as a new economy, net-centric player

Source: Company web sites; Gomez Advisors

WingspanBank.com Broad Product Set• Deposit, credit, brokerage, insurance,

and mortgage offerings• Instant approval in all 50 states• Have begun to offer travel and

entertainment services through “Online Concierge”

Embrace web model of distribution - partnering with other providers to broaden offerings

• Mortgages through E-LOAN• Insurance through INSWEB

$150 million marketing campaign has helped to position them as a net-centric, yet reliable brand

Place emphasis on speed/performance of site (twice as fast as industry average)

Critical Success Factors

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Business to BusinessAlthough attention is focused on Consumer-to-Business, the potential for Business-to-Business trade over the web is enormous

Source: Forrester ResearchYear

$ B

illi

ons

(Goo

ds &

Ser

vice

s So

ld)

0

200

400

600

800

1000

1200

1400

1600

1998 1999 2000 2001 2002 2003

U.S. Business to Business

U.S. Business to Consumer

HypergrowthCommerceThreshold

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Business to Business HubsForget about E-Trade, Schwab or Amazon-Business to Business is a different animal

Business to Business Hubs

Company

Company

Company Company

Company Company

Company

Company

Business to BusinessCharacteristics

Two-way networks that mediate between buyers and sellers, creating benefits for both

Domain expertise is a must

Lots of sales calls, business processes must be understood, rules defined

Business to ConsumerCharacteristics

One-way networks that deal directly with buyers to benefit sellers

Deep knowledge of specific categories not required-witness Amazon migration across categories

Direct marketing, advertising and bulletin boards

A Hub is…• Focused on industry verticals• Aggregates buyers and sellers

Company

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Business to Business hubsWho Will Win?

• Those in large fragmented markets

• Those with the sharpest focus - “one problem one industry”

• First movers win - increasing returns business model

• Big capital spenders - customer acquisition is not cheap here

Possible Third Party Roles:• Hub manager• Payment facilitator• Information aggregator• Trusted third-party for

authentication and delivery

• Credit provision

$211 Billion

1998 2002

$750 Million

Business to BusinessHubs Grows

Market Size

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Business to Business Hub ExampleSciQuest has simplified the task of buying obscure laboratory equipment by uniting buyers and sellers in a tightly focused hub

Benefits:• Additional

distribution

• Reduced marketing costs

Benefits:• Reduced search

costs

• Low prices

• Consolidated order tracking

– SciQuest applies a markup to every item– Offers auctions and catalogue buying– Has opportunity to charge for advertising and to sell customer data

Source: Company web sites; Company prospectus

Thousands of suppliers list their

products on SciQuest’s site

Corporate scientists and researchers go to SciQuest to

buy lab equipment

SuppliersBuyers

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Opportunities for financial services firms in transaction enabling….

Consumer to Consumer MarketAlthough less clear, potential exists for banks to carve out a role in Consumer-to-Consumer segments

Enabletransformation

Reap financialrewards

Bring buyers andsellers together

• Create community for buyers and sellers

• Spend to enhance brand

• Take small responsibility for authenticating transactors

• Generally leave it up to the transactors to complete transaction

• Take % of every sale

• Assist with authentication of buyer and seller in consumer to consumer transactions

• Enable transactions through exchange of digital cash

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C. Selecting a Business Model

Information marketing andtransactional content

Build a complete value chain around activity or economic event. Market share is everything and first mover advantage is critical

Mix content and value-added services to create online properties that people return to repeatedly

Value chain innovationOffer complete transactional support for an activity along entire value chain

Transaction processingCreate a commerce and payments infrastructure that competitors can’t easily replicate

Web BusinessModel Description Example

Category killers

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Efficiency

Create new channels or alter existing ones to change the means and costs of doing business

Automate or improve functions or processes. Emphasize self-service. Build economies of scale

Event aggregationIntegrate a variety of related goods and services from many suppliers to provide an integrated experience around an event

Market segment aggregationTailor products/services from one or more suppliers to specific high value market segment of one marketing

Web BusinessModel Description Example

Channel reconfiguration

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Critical Success Factors

Virtual CustomerIntimacyCollection and intelligent analyses of customer data for forecasting customer needs

Innovation/ExperimentationExperimentation with emerging web models for continuous improvement

AlliancesDevelopment of strategic alliances to meet customer demands by utilizing core competencies of other providers

CriticalSuccessFactors

Service ExcellenceDevelopment of world class customer service over all available channels

Channel IntegrationLeveraging multiple channels to serve the on-line customer

Electronic CommunitiesDesign of value added content and functionality for strengthening relationships

The success of any Internet venture is a combination of distinctive value propositions and six main factors

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1. Customer IntimacyEvolving Methods for Deepening Customer Relationships

What the Future Holds

Emerging battleground

Current focus of many players

4. New Technology - Smart Cards, Wireless Banking, WebTV

3. Personalize Advice and Self Service

2. Customize Products and Services - Mass Customization

1. Integrate Customer Information

Incr

easi

ng d

epth

of

cust

omer

rela

tions

hip

1995 1997 1999 2001 2003 2005

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2. Service ExcellenceCustomers have a larger voice on the web - you have to listen

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Customer service continues as a key differentiator for companies engaging in electronic commerce

Dedicated Loan Consultant assigned to work with each customer

Customer support via phone, e-mail, or fax

24 hour access to status and details of loan

Proprietary software to track phone or e-mail service requests of corporate customers

Identifies customers at call in and routes to agents with the right knowledge

Resulted in $180M in incremental sales to date

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3. AlliancesCompanies must look to third party alliances to build networks and to develop products

RANGE REACH

EFFICIENCY

Product alliances

In-house products & education

Consumer access

alliances

Direct Customer access

Compelling Customer Proposition & Service

Excellence

C

C

C

C

C

P

P

P

P

E

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4. Channel IntegrationMulti-channel companies have an advantage

Multi-channelcompanies

Pure internetretailer

OnlineRevenues (1)

MarketShare

GrowthRate Hit Ratio (2) Customer

Loyalty (3)

$2.6 bn

$1.8 bn

59%

41%

260%

160%

6%

3%

25%

17%

- US-internet shopping market example -

Traditional multichannel retailers (e.g., Dell, Schwab, Eddie Bauer) are winning the race

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5. Electronic CommunitiesElectronic communities will offer opportunities to strengthen vendor/customer relationships and increase efficiencies

ElectronicCatalogs

Auction/BiddingSystems

PaymentCapabilities

TransactionSecurity

Integration with MemberBack End Systems

• Decreased costs

• Streamlined processes

• Strengthened vendor/ customer relationships

• Improved information capture

Value AddedKey Elements

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Business to Business CommunitiesVerticalNet creates vertical online trading communities such as toolingonline.com by adding industry specific content to the vertical hub concept

Supplier Benefits:• Additional

distribution

• Reduced marketing costs

• Content rich site attracts and retains more visitors

Buyer Benefits:• Relevant, focused

content

• Discussion forums

• Reduced search costs

• Consolidated order tracking

VerticalNet receives:– $6,000 annual storefront hosting fee from 41 different communities– Sponsorship fees– Commissions on transactions

Source: Company web sites; Company prospectus, Forrester

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Business ExperimentationCompanies must be willing to experiment with their business models and consider opportunities, such as outsourcing, to ensure success in this dynamic environment

New Business ModelTraditional business models must be adapted to gain new revenue streams by leveraging electronic commerce opportunities and core business strengths.

OutsourcingOutsourcing will be key to business experimentation, as the scale and capabilities of outsources can provide improved time to market and reduced risk.

“…toss out that old business plan, think weird, and try the unexpected.” Business Week

March 1999