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					NEW BUSINESS MODELS AND STRATEGIES FOR THE INTERNET ECONOMY

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Outline
 Internet Technology and Market Structure
 Strategy-Shaping Characteristics of the E-

Commerce Environment
 E-Commerce Business Models and Strategies
 Internet Strategies for Traditional Businesses

 Innovative Business Models and Fast-

Evolving Strategies are KSFs in E-Commerce

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Impact of the Internet and E-Commerce
 Impact on external industry environment  Changes character of the market and competitive

environment  Creates new driving forces and key success factors  Breeds formation of new strategic groups  Impact on internal company environment  Having, or not having, e-commerce capabilities tilts the scales toward valuable resource strengths or threatening weaknesses  Creatively reconfiguring the value chain will affect a firm’s competitiveness vis-à-vis rivals
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Characteristics of Internet Market Structure
 Internet is composed of

 Integrated network of users’ connected computers  Banks of servers and high-speed computers
 Digital switches and routers  Telecommunications equipment and lines  Individuals – professionals, amateurs, software

sharers, ―hackers‖ and other groups yet to emerge

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Supply Side of the Internet Economy
 Makers of specialized communications    

components and equipment - examples Providers of communications services - examples Suppliers of computer components and hardware Developers of specialized software E-commerce enterprises  Business-to-business merchants  Business-to-consumer merchants  Media companies  Content providers  Others?
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Strategy-Shaping Characteristics of the E-Commerce Environment
 Internet makes it feasible for companies to more

easily compete in global markets – small, international entrepreneurs
 Competition is intensified by new e-commerce

strategic initiatives of existing rivals and by entry of new, enterprising e-commerce rivals
 Entry barriers into e-commerce world are relatively

low and e-commerce may lower barriers to entry into traditional business such as retail
 On-line buyers gain bargaining power
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Strategy-Shaping Characteristics of the E-Commerce Environment (continued)
 Internet makes it feasible for firms to reach

beyond borders, find best suppliers, collaborate to achieve efficiency gains/cost-savings  Internet and PC technologies advancing rapidly, often in uncertain and unexpected directions  Internet results in much faster diffusion of new technology and new ideas across the world  E-commerce environment demands that firms move swiftly - ―at Internet speed‖

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Strategy-Shaping Characteristics of the E-Commerce Environment (continued)
 Internet and e-commerce technology open up a

host of opportunities for reconfiguring industry and company value chains
 Internet can be an economical means of

delivering customer service (Dell)
 Capital for funding potentially profitable e-

commerce businesses is readily available
 Needed e-commerce resource in short supply is

human talent, in the form of both technological expertise and managerial know-how
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Effects of the Internet and E-Commerce
 Can produce important shifts in an industry’s

competitive forces
 Alters industry value chains, spawning

substantial opportunities for increasing efficiency and reducing costs
 Affects a company’s resource

strengths and weaknesses
 Rapid pace of technological change

with an often uncertain direction
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Overview of E-Commerce Business Models and Strategies
Build globally-connected Exploit opportunities in a

Internet infrastructure

e-commerce environment
 E-procurement*  E-retailing
 Content  Services

 Build out telecom system  B2B

 Install servers
 Provide high-speed ISP

connections
 Develop software and

networks
 Virtual ―global villages‖

 Others?

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Business Models: Suppliers of Communications Equipment
 Demand for more of existing products (servers)  Demand for newer products (routers)  Strategic issues facing equipment makers
 Several competing technologies for various

components of the Internet infrastructure exist  Competing technologies may  Have different performance pluses and minuses  Be incompatible  Especially problematic for telecom
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Strategy Options for Suppliers of Communications Equipment
 Invest aggressively in R&D to win the

technological race against rivals
 Form strategic alliances to build consensus for

favored technological approaches
 Acquire other companies with complementary

technological expertise
 Hedge firm’s bets by investing sufficient

resources in mastering one or more of the competing technologies
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Business Models: Suppliers of Communications Services
 Alternate business models: fee, flat rate, volume
 AOL’s Experience and Evolution?

 Firms must invest heavily in extending lines

and installing equipment to have capacity to
 Provide point-to-point service and traffic load

 Investment requirements are particularly heavy

for backbone providers, creating sizable up-front expenditures and heavy fixed costs
 Possible key to success – First mover positioning

by establishing networks ahead of rivals to get in position to sign up customers
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Business Models: Suppliers of Communications Services (continued)
 Fierce competition has emerged among ―last mile‖

providers selling high-speed Internet access  Strategic options
 Provide high-speed (broadband) Internet

connections using new digital signal line  Provide cable or broadband services  Bundle local telephone service, long distance service, cable TV service and Internet access into a single package for a single monthly fee
 Key strategic weapons for last mile providers -

Name recognition and advertising (Verizon, Road Runner)
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Business Models: Suppliers of Computer Components and Hardware
 Strategic approaches  Stay on cutting edge of technology  Invest in R&D  Move quickly to imitate technological advances

and product innovations of rivals  Key to success - Stay with or ahead of rivals in introducing next-generation products  Competitive advantage will most likely be based on strategies keyed to best-cost

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Business Models: Developers of Specialized E-Commerce Software
 Business model involves
 Investments in designing and developing

specialized software  Marketing and selling software to other firms
 Profitability hinges on volume  Strategic approaches
 Sell software at a set price per copy  Collect a fee for every transaction provided by

the software  Rent or lease the software
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Business Models: E-Commerce Retailers
 Sell products at or below cost and make money by

selling advertising to other merchandisers  Use traditional model of  Purchasing goods from manufacturers and distributors  Marketing items at a Web store  Filling orders from inventory at a warehouse
 Operate Web site to market and sell

product/service and outsource manufacturing, distribution and delivery activities to specialists  Few success stories – many failures
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Strategic Approaches: E-Commerce Retailers
 Spend heavily on advertising to build widespread

brand awareness, draw traffic, and start process of developing customer loyalty
 Add new product offerings to help

attract traffic to firm’s Web site
 Be a first-mover or at worst an early mover

 Pay consideration attention to Web site

attractiveness to generate ―buzz‖ about the site among surfers
 Keep Web site innovative, fresh, and entertaining
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Business Models: Suppliers of E-Commerce Services
 Key strategic issue for e-commerce retailers -

Handling warehousing and delivery activities  Firms are using services of ―Internet middlemen‖ to efficiently sort all the supplier choices  Firms are using focus strategies to zero in on specific niches, pursuing competitive advantage based on  First-mover mastery of a particular technology  Product superiority  Unique product attributes  Convenience and ease of use  Speed  More value for the money
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Business Models: Media Companies and Content Providers
 Using intellectual capital to develop music, games,

video, and text, media firms  Charge subscription fees or  Rely on a pay-per-use model  Business model of content providers involves creating content to attract users, then selling advertising to firms wanting to deliver a message  Key success factors for content providers  Create a sense of community  Deliver convenience and entertainment value as well as information
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Internet Strategies for Traditional Businesses
 Use Internet technology to communicate and

collaborate closely with suppliers and distribution channel allies
 Reengineer company and industry value chains

to revamp how certain activities are performed and to eliminate or bypass others
 Make greater use of build-to-order

manufacturing and assembly
 Build systems to pick and pack

products that are shipped individually
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Internet Strategies for Traditional Businesses (continued)
 Use Internet to give both existing and potential

customers another choice of how to interact with the company
 Adopt Internet as an integral distribution

channel for accessing new buyers and geographic markets
 Gather real-time data on customer tastes and

buying habits, doing real-time market research, and use results to respond more precisely to customer needs and wants
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Key Success Factors: Competing in the E-Commerce Environment
 Employ innovative business model  Develop capability to quickly adjust business model



  

and strategy to respond to changing conditions Focus on a limited number of competencies (core and distinctive) and perform few, specialized number of value chain activities Stay on the cutting edge of technology Use innovative, efficient, effective marketing techniques Engineer electronic value chain that enables differentiation or lower costs or better value
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eBay: Industry Conditions
F/G:  What would an industry/ competitive analysis reveal about the on line auction industry?

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eBay: Competitive Arena
D/E:  What is the competitive arena in online auctions — local, regional, national, multinational, or global?  Is the arena changing? Is global competition a future possibility? What are constraints to globalization of on line auctions?

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eBay: Corporate Capabilities
B/C:  What does a SWOT analysis reveal about eBay’s situation? Is the company in an attractive situation and position?

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eBay: Macroenvironment
A:
 What forces are operating in the online

auction macroenvironment that have the power to alter the nature and structure of competition?

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eBay: The Future
 All Groups:  What are the main “drivers” of the on line

auction industry of the future?  What would would you recommend for eBay’s future strategies?  How well is eBay now positioned for the future?

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Group Exercise: Start a Company!
 A – E-retailer  B – Financial Services  C – Breakup value chain of manufacturer  D – New device or modification  E – Content  F – Procurement or marketplace  G – B2B

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