Business Models[1]

1NEW BUSINESS MODELS AND STRATEGIES FOR THE INTERNET ECONOMY2Outline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-Commerce3Impact 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 rivals4Characteristics of InternetMarket 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 emerge5Supply 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?6Strategy-Shaping Characteristicsof 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 power7Strategy-Shaping Characteristics of theE-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‖8Strategy-Shaping Characteristics of theE-Commerce Environment (continued)Internet and e-commerce technology open up a host of opportunities for reconfiguring industry and company value chainsInternet canbe 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-how9Effects 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 direction10Overview of E-CommerceBusiness Models and StrategiesBuild globally-connected Internet infrastructureBuild out telecom systemInstall serversProvide high-speed ISP connections Develop software and networks Virtual ―global villages‖Exploit opportunities in a e-commerce environmentB2BE-procurement*E-retailingContentServices Others?11Business 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 telecom12Strategy 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 technologies13Business 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 14Business 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)15Business Models: Suppliers ofComputer 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-cost16Business 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 17Business 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 18Strategic 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 entertaining19Business Models: Suppliers ofE-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 money20Business Models: Media Companiesand 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 information21Internet Strategies forTraditional 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 individually22Internet Strategies forTraditional 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 wants23Key Success Factors: Competing inthe 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 value24eBay: Industry Conditions F/G: What would an industry/competitive analysis reveal about the on line auction industry? 25eBay: Competitive ArenaD/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?26eBay: Corporate CapabilitiesB/C: What does a SWOT analysis reveal about eBay’s situation? Is the company in an attractive situation and position?27eBay: MacroenvironmentA: What forces are operating in the online auction macroenvironment that have the power to alter the nature and structure of competition?28eBay: 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?29Group 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