Strategies in Ecommerce

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Strategies in E-commerce

• differentiate between richness and reach
• describe the dimensions of richness
• discuss why richness and reach are important
• discuss the process of deconstructing and its
  advantages
• apply the value chain model
• discuss the role of intermediaries
• discuss the reasons for disintermediation

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Richness vs. Reach

• Traditionally needed to sacrifice richness for
  reach
• Now can have both richness and reach
• explosion of connectivity
• advent of universal standards
• Make channels universally accessible and
  information asymmetry collapses

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Dimensions of Richness

• Bandwidth (amount of information moved)
• Customization
• Interactivity
• Reliability
• Security
• Currency

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Standards

• Expand network externalities
• Reduce uncertainty
• Reduce customer lock-in
• Moves competition away from features to price
• Moves competition away from systems to components

5
Who Wins and Loses from New Standards

• Customers (though remember QWERTY)
• Complementors (usually)
• - Incumbents
• Innovators (collectively)

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Axioms of Traditional Business

• Axiom 1 Value comes from scarcity
• Axiom 2 When things are made plentiful, they
  become devalued

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Axiom for the New Economy

• Value is derived from plentitude
• or What good is a single fax machine?

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Deconstruction

• Shifting tradeoff between richness and reach
  deconstructs value chains, supply chains,
  franchises and organizations
• Deconstruction is most likely to strike in
  precisely that sliver of the value chain where
  the incumbent can least afford to have it hit

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Firm Infrastructure(general management,
accounting, finance, strategic planning)
Support Activities
Human Resource Management (recruiting, training,
development)
Technology Development (RDimprovement)
Procurement (purchasing of raw materials,
machines, supplies)
Inbound Logistics (raw materials handling and ware
hous- ing)
Outbound Logistics (warehous- ing
and distribution of finished product)
Marketing and Sales (advertising, promotion, prici
ng, channel relations)
Service (installation, repair, parts)
Operations (machine assembling, testing)
Primary Activities
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Value Chain Model

• Chain of basic activities that add to firms
  products or services
• Industry value chain other business units in the
  industry conduct similar activities
• Primary activities
• Secondary activities
• Useful way to think about business strategy

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Value Chain Primary Activities

• Inbound
• Outbound
• Operations
• Marketing and Sales
• After-Sale Services

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Value Chain Support Activities

• Technology development
• Procurement
• Human Resources Management
• Management Control
• accounting/finance
• coordination
• general management
• central planning

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Web Strategy - Sample Questions (Value-Chain)

• How is e-commerce going to change our business?
  (new, expansion)
• How can we take advantage of new electronic
  linkages with customers and trading partners?
• Will intermediaries be eliminated in the process?
• How do we change the nature of our products and
  services?

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4 Steps to Assessing Vulnerability

• Examine how informational economics shape your
  industry
• Consider how new technologies can shift these
  existing structures
• Analyze how the various players in the business
  system could create economic value as a
  consequence of these changes
• Lead the transition from the old business model
  to the new one

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Example Automotive Retailing

• Tell customers about models and options
• J.D. Powers
• Consumer Reports
• AutoVantage
• CarPoint
• Autobytel
• Manufacturer for information on inventory
• Make a market in secondhand cars
• Old cars cant be standardized
• CarPoint, CarMax

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Example Automotive Retailing

• Broker financing
• on-line possibilities
• Hold inventory prepare cars for final delivery
• handful of large regional sites
• direct factory delivery
• Perform after-sales maintenance (warranty)
• smaller repair shops
• Offer test drives

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Deconstruction

• Advantage on the average doesnt matter when
  value chain is deconstructed
• Companies can no longer subsidize poor
  performance in one activity by combining it with
  others in which they are advantaged
• Information businesses are either monopolies or
  they arent businesses at all (?)

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Delayering Distribution Channels
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Disintermediation

• Enables more efficient and effective interaction
  between companies and their end customers
• Also called compression
• May create problems between established
  distributors and online distribution channels
• Disintermediation may be a threat to some
  enterprises, but it creates opportunities for
  others

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Impact of E-Commerce on Intermediaries?

• Will middlemen be disintermediated in e-commerce
  environments?

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On-line Channels
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New Intermediaries- Market Makers

• Market makers -bring buyers and sellers together
• ONSALE
• eBay
• priceline
• Dangers of online auctions
• poor quality
• overpaying
• nondelivery

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New Intermediaries - Buyer and Seller Agents

• Seller agents - make markets more accessible to
  providers
• Firefly (customer profiles)
• Buyer agents - perform search and evalution tasks
  on goods and services for purchasers
• Amazon.com
• Auto-By-Tel

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New Intermediaries

• Context Providers - help buyers and sellers by
  simplifying the virtual terrain
• ISPs - America Online
• Portals- Yahoo!, Excite
• Online communities - GeoCities
• Payment enablers -handle purchase transactions
  and their related funds transfers, as well as
  risk management
• CyberCash
• Verisign

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New Intermediaries - Fulfillment specialists

• Fulfillment specialists - handle the transfer and
  storage of goods and coordinate allied
  information, such as the management of shipping
  logistics
• Fed Ex
• UPS
• E-commerce has helped their business

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Checklist for New Intermediaries

• High concentration of info not available
  elsewhere
• Internet is the delivery vehicle
• Intermediary starts and completes transaction
• There is a critical mass of users
• There is no apparent competition
• Person-to-person interaction is eliminated
• Virtual partnerships exist
• Costs could be much lower than traditional

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Intermediaries

• Traditional intermediaries sacrificed richness
  for reach SEARS
• New intermediaries are adding richness and reach
  simultaneously SCHWAB
• Intermediaries are separating economics of
  information from economics of things
• The fast follower is always too late