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					e-business strategies and models


            Eduardo J C Beira
       Department of informaton systems
              University of Minho




                                          Eduardo Beira
                                          11-10-2001
                              What is your best price?

•   What is finding the best price?

•   To search across the web for the lowest posted price?

•   NO!
•   In (e-)commerce price usually emerges from some kind of dickering
     – Fixed posted prices are exceptions
         • B2C markets, specially




                                                              Eduardo Beira
                                                              11-10-2001
                                                      Fundamentals

•   Selling the same product to customers at different prices is
    fundamental to profitable business

•   Principle: concealing your best selling secret:
     – key to the sucess of the dealer´s strategy of different prices for different
       customers is keeping the best price secret
     – Sellers try to keep the prices of actual deals secret and they try to keeep
       secret any information that would help buyers figure out the seller’s rock-
       bottom price, determined by cost




                                                                         Eduardo Beira
                                                                         11-10-2001
                                                                    E-deals

•   A broad principle is that e-commerce does not change the
    fundamentals of deals

     – The forces that make the players conceal their best prices are no different
       as the internet improves communication

     – A core of the successful e-commerce enterprise (outside books, CDs and
       groceries) will be a way to make deals happen despite the desire to conceal
       their best prices.




                                                                       Eduardo Beira
                                                                       11-10-2001
                                             Variety of e-markets

•   eBay model
     –   One of a kind product, several buyers, automated auction
•   OffRoad model
     –   Multiple units of the same product, many buyers bidding (pure B2B)
•   FreeMarkets model
     –   Buyers specifies the component; reverse auction between suppliers
           • Dickering in the supply chain
•   Nasdaq model
     –   Standard product, many buyers and sellers, automated continuous exchange
•   Priceline model
     –   Customer makes an offer (may accept restrictions). Seller accepts or not
           • Products that trade in a markets where usually some buyers pay much more than
             others
•   Grainger model
     –   Products in high volume, fixed asking price
           • No discount (Amazon) or special pre-negotiated discount (Grainger)
           • MRO (maintenance, repair, operations) products


                                                                                    Eduardo Beira
                                                                                    11-10-2001
•   A bot can´t tell you what price you will pay after you dicker, nor can it
    predict the price you would pay in an auction.
•   Despite bots, prices in e-markets, like books, have not fallen to a
    uniformly low level




                                                                  Eduardo Beira
                                                                  11-10-2001
•   Zero-profit principle:
     – New sellers will enter a market until the prospective profit (in excess of the
       normal return to capital) is zero


•   Unless a pioneer in an e-market has a powerful patent or builds up a
    real head start (like eBay) its profit will erode as others enter the
    market

•   Because trading on e-markets is so much cheaper than in traditional
    markets, the opening up of e-markets has expanded opportunities for
    dealers
     – eBay traders


•   e-markets generate information, and information is property.


                                                                         Eduardo Beira
                                                                         11-10-2001
                                         The essence of the
                                                digital deal
•   Conceal your best price
•   Build your e-market within a robust e-commerce infrastructure
     – Trading partners, payments, deliveries
•   Choose an e-market business model suited for your business
•   Make an intelligent choice about transparency
•   Recognize the role of the secondary markets and dealers
•   Recognize that competition will limit your profits




                                                                 Eduardo Beira
                                                                 11-10-2001
                                                   Old vs new

•   Traditional companies have built-in advantages over pure e-commerce
    firms
     –   Substantial customer base
     –   Brand recognition
     –   Knowledge capital
     –   Physical plants and outlets
     –   Solid supplier relationships
     –   Market power
     –   Processes, policies & people in place

     – Advantages in look & feel products
     – Disadvantages in commodities




                                                             Eduardo Beira
                                                             11-10-2001
                                             The dot com
                                         retail continuum
•   On the web all goods are not equal




                                                   Eduardo Beira
                                                   11-10-2001
                   e-opportunity

•   e-operations
•   e-marketing
•   e-services




                          Eduardo Beira
                          11-10-2001
                                   Seven misconceptions

•   First mover
     – First mover status is a precarious perch on which to rest strategy
•   Reach
•   Customer solutions
•   Internet sectors
•   Best of breed partner
•   Born global
•   Technology is the strategy




                                                                       Eduardo Beira
                                                                       11-10-2001
                                                                                B2B

•   Proprietary electronic marketplaces (e-markets)
•   e-exchanges

     – A particular important question about B2B is how much trading will occur in
       neutral, independent owened e-markets, and how much in e-markets
       operated by existing players
         • A large part of the story of the crash was the finding that neutrals were
           making little headway ahainst the captive e-markets set up by big
           companies or consortiums


     – Captive e-markets
         • Tremendous natural liquidity
         • Perception of non neutral operation




                                                                           Eduardo Beira
                                                                           11-10-2001
                                                            B2B

•   Network externalities
         • Kelly law: nn


•   Dynamic pricing models
         • Shifting power from sellers to buyers


•   Virtual exchange concept
         • Bring buyers and sellers together on line




                                                       Eduardo Beira
                                                       11-10-2001
                             B2B (IIIa)

•   Multiple buyers
•   Multiple sellers
•   Many to many model
•   Post-trade information
•   Liquidity




                                 Eduardo Beira
                                 11-10-2001
                                               B2B (IIIb)

•   Towards EDI compliant + XML capable
•   New infomediaries
•   Lower comissions
     – 10% to 1%
•   Community of buyers and sellers
     – In a structured and organized fashion
•   Critical vertical knowledge
•   Membership: open vs closed
•   Ownership issues
•   Uthentication isssues
•   Settlement / clearing




                                                   Eduardo Beira
                                                   11-10-2001
                                                               B2B
                                                     trading models
•   Fixed price
         • Low price items; small quantity transactions


•   One to one negotiation

•   Auction markets
     – Seller driven
         • Liquidation sales
     – Buyer driven
         • Reverse auction


•   Electronic autoexecution systems
     – Constinuous two way auctions (Nasdaq)
         • Standard products
         • High liquidity



                                                             Eduardo Beira
                                                             11-10-2001
                                                              B2B
                                                   business models
•   Agregators
         • One stop shopping, multisupplier catalogues
•   Trading hubs
         • Vertical markets communities
•   Post & browse markets
         • Buleeetin board with expressions of interest
•   Auction markets
         • Multiple buyers ans dellers in competitive bidding
•   Fully automated exchanges
         • Centralized markets for standardized (commodities like) products
              – Automatic matching of orders
              – Efficient price-setting on line mechanisms
              – Prequalificaton required




                                                                         Eduardo Beira
                                                                         11-10-2001
                                            Channel conflits

•   From B2B
•   To B2B2C?

•   And the traditional brokers of the market?




                                                      Eduardo Beira
                                                      11-10-2001
                                               B2B exchanges
                                                    7 secrets
•   Stay focused: specialize in a vertical market
•   Plan to win: the need to dominate
•   Maintain commercial neutrality
•   Ensure transparency and integrity
•   Add value by building a virtual community
•   Make the right partnership
•   Operate as a virtual corportaion




                                                       Eduardo Beira
                                                       11-10-2001
                                                 B2B profile

•   Overview
•   History
•   Vertical market opportunity
•   Membership model
•   Traiding model
•   Market entry stategy
•   Achieving dominance
•   Building a community
     – Services added to the trading mechanism
•   Revenue model
•   Confidentiality and neutrality




                                                      Eduardo Beira
                                                      11-10-2001
– R. Hall, “Digital dealing”, WW Norton & Co., 2001
– A. Sculley e W. Woods, “B2B exchanges”, HaperBusiness, 2001
– E. Brynjolfsson e G. Urban, “Strategies for e-business sucess”, MITSloan
  Management Review, Jopssey-Bass, 2001
– S. Chen, “Strategic management of e-business”, J Wiley & Sons, 2001
– M. Porter, “Strategy and the internet”, Harvard Business Review, Março
  2001
– “Older, wisier, webbier”, The economist, 28 Junho 2001




                                                                 Eduardo Beira
                                                                 11-10-2001

				
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