CMPE 484

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					                   CMPE 484

                   Feb 20-22, 2001

Ayşe Başar Bener
Web accelerates convergence that is already happening in the physical
                                                                            Electricity companies
                                                                            look at Internet access
                                                                            via wall sockets
                    British Gas                     Electricity
                                          Gas                                         Psion + Nokia,
                    Insurance                                     Information         Ericsson
              Citigroup,                                          Technology
              many others
                         Insuring                                   Broadcasting
                                                                                       British Telecom
      Barclay Square                                Goods
                       Disney Stores                               Character merchandising
                       Rainforest Cafe
                                                Consumer Direct
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               Implications on the Industry
 Companies must make three strategic e-business choices

       Choosing what e-market                         Basing value propositions
       to compete in wisely                           around a deep understanding
                                                      of customer buying habits

                                  and strategic

                                E-business model

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                       Selecting an appropriate business model
           A. Choosing E-markets Wisely
 Companies must understand that e-market segments are fundamentally different

                       Major E-market Segments

              Business to
                                 Business to
                                                        Consumer to

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          Business to Consumer Offerings
 Wingspan has supplemented a broad range of product offerings with a massive
 marketing campaign, positioning itself as a new economy, net-centric player
                                                       Critical Success Factors
                         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
                                                   Embrace web model of distribution -
                                                     partnering with other providers to broaden
                                                      • 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)
Ayşe Başar Bener Gomez Advisors
 Source: Company web sites;
                                           Business to Business
  Although attention is focused on Consumer-to-Business, the potential
  for Business-to-Business trade over the web is enormous
    (Goods & Services Sold)

                                                                                       U.S. Business to Business
                                                                                       U.S. Business to Consumer
           $ Billions

                              400       Threshold                 Hypergrowth
                                 1998    1999       2000      2001    2002      2003
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 Source: Forrester Research
                   Business to Business Hubs
  Forget about E-Trade, Schwab or Amazon-Business to Business is
  a different animal
                                             Business to Consumer          Business to Business
        Business to Business Hubs               Characteristics              Characteristics

                   Company                   One-way networks that       Two-way networks that
                                             deal directly with          mediate between buyers
                                             buyers to benefit sellers   and sellers, creating
       Company               Company                                     benefits for both

                                             Deep knowledge of
             Company               Company
                                             specific categories not     Domain expertise is a
                                             required-witness            must
                                             Amazon migration
                                             across categories
       Company               Company
                                             Direct marketing,           Lots of sales calls,
                                             advertising and bulletin    business processes must
                                             boards                      be understood, rules
        A Hub is…
        • Focused on industry verticals
        • Aggregates buyers and sellers
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                   Business to Business hubs
                                         Who Will Win?
               Business to Business      • Those in large fragmented markets
                  Hubs Grows
                                         • Those with the sharpest focus - “one problem
                    $211 Billion           one industry”
                                         • First movers win - increasing returns
                                           business model
                                         • Big capital spenders - customer acquisition is
                                           not cheap here

                                                     Possible Third Party Roles:
                                                     • Hub manager
      $750 Million                                   • Payment facilitator
                                                     • Information aggregator
                                                     • Trusted third-party for
          1998       2002                              authentication and
         Estimated Market Size                         delivery
Ayşe Başar Bener                                     • Credit provision
                  Business to Business Hub Example
 SciQuest has simplified the task of buying obscure laboratory
 equipment by uniting buyers and sellers in a tightly focused hub
         Buyers                                                                       Suppliers
        Corporate                                                                   Thousands of
      scientists and                                                              suppliers list their
     researchers go                                                                  products on
     to SciQuest to                                                                SciQuest’s site
         buy lab
   Benefits:                                                                    Benefits:
   • Reduced search                                                             • Additional
     costs                                                                        distribution
   • Low prices                                                                 • Reduced marketing
   • Consolidated order                                                           costs

                             – SciQuest applies a markup to every item
                             – Offers auctions and catalogue buying
                             – Has opportunity to charge for advertising and to sell customer data
Ayşe Başar Benerweb sites; Company prospectus
   Source: Company
            Consumer to Consumer Market
 Although less clear, potential exists for banks to carve out a role in
 Consumer-to-Consumer segments

     Bring buyers and                     Enable                         Reap financial
     sellers together                     transformation                 rewards

  • Create community for        • Take small responsibility      • Take % of every sale
    buyers and sellers            for authenticating
  • Spend to enhance brand
                                • Generally leave it up to
                                  the transactors to
                                  complete transaction

       Opportunities for financial services firms in transaction enabling….

                       • Assist with authentication of buyer and seller in
                         consumer to consumer transactions
Ayşe Başar Bener       • Enable transactions through exchange of digital cash
            C. Selecting a Business Model
   Web Business                     Description                             Example
                             Build a complete value chain around
                             activity or economic event. Market
  Category killers
                             share is everything and first mover
                             advantage is critical

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

                             Offer complete transactional support for
 Value chain innovation
                             an activity along entire value chain

                             Create a commerce and payments
 Transaction processing      infrastructure that competitors can’t easily
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   Web Business                    Description                          Example

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

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

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

                            Tailor products/services from one or more
 Market segment aggregation suppliers to specific high value market
                            segment of one marketing
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                               Critical Success Factors
    The success of any Internet venture is a combination of distinctive value
    propositions and six main factors

              Virtual Customer
              Intimacy                                        Service
              Collection and                                  Excellence
              intelligent analyses of                         Development of
              customer data for                               world class
              forecasting customer                            customer service
              needs                                           over all available

        Experimentation                     Critical           Channel Integration
        Experimentation                     Success            Leveraging multiple
        with emerging web                                      channels to serve the on-
        models for                          Factors            line customer

                   Alliances                                  Electronic
                   Development of                             Communities
                   strategic alliances to                     Design of value added
                   meet customer                              content and
                   demands by utilizing                       functionality for
                   core competencies of                       strengthening
                   other providers                            relationships
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                           1. Customer Intimacy
 Evolving Methods for Deepening Customer Relationships
                                             What the Future Holds

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

                          Current focus of              3. Personalize Advice
                           many players                    and Self Service

                                         2. Customize Products
                                            and Services - Mass
                     1. Integrate Customer

                   1995           1997        1999        2001       2003       2005

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                   2. Service Excellence
 Customers 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 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

        Resulted in $180M in incremental sales to date
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                                       3. Alliances
 Companies must look to third party alliances to build networks and to
 develop products
                   RANGE                                               REACH

               Product                                                  Consumer
               alliances                                                 access
                                   P                               C    alliances

                               P                                        C
                                           Compelling Customer
                           P               Proposition & Service
                               P                                        C
          In-house products
             & education                                                 Direct Customer
                                       E                           C          access

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                              4. Channel Integration
 Multi-channel companies have an advantage
                                 - US-internet shopping market example -
                                 Online           Market   Growth     Hit Ratio (2)   Customer
                               Revenues (1)       Share     Rate                      Loyalty (3)

      Multi-channel                 $2.6 bn       59%      260%            6%            25%

      Pure internet                 $1.8 bn       41%      160%            3%            17%

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

     1) First six months of 1999
     2) % of website visitors purchasing online
     3) % of customers with repeated purchases
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                   5. Electronic Communities
 Electronic communities will offer opportunities to strengthen
 vendor/customer relationships and increase efficiencies

                        Key Elements                      Value Added

                                                        • Decreased costs
          Auction/Bidding                 Payment
             Systems                     Capabilities   • Streamlined processes
                                                        • Strengthened vendor/
                                                          customer relationships
                           Security                     • Improved information
                    Integration with Member
                       Back End Systems

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             Business to Business Communities
  VerticalNet creates vertical online trading communities such as by adding industry specific content to the
  vertical hub concept
  Buyer Benefits:                                                             Supplier Benefits:
  • Relevant, focused                                                         • Additional
    content                                                                     distribution
  • Discussion forums                                                         • Reduced marketing
  • Reduced search
    costs                                                                     • Content rich site
                                                                                attracts and retains
  • Consolidated order                                                          more visitors

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

Ayşe Başar Benerweb sites; Company prospectus, Forrester
   Source: Company
                         6. Innovation/Speed
 The web will continue to enable companies to offer more innovative
 products and services
                   PNC Bank                            NextCard

       • PNC Bank recently launched an         • NextCard can perform online
         auction service for Certificates of     credit approval in 30 seconds
         Deposits                              • Has developed a service called “1
       • Customers can bid on CD’s with          Click Shopping” - software that
         interactive rates                       automatically populates online
Ayşe Başar Bener                                 forms with customer data
                   Business Experimentation
 Companies must be willing to experiment with their business
 models and consider opportunities, such as outsourcing, to ensure
 success in this dynamic environment

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

                   “…toss out that old business plan, think weird, and try the
                   unexpected.”                                      Business Week
                                                                     March 1999

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

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