Internet Commerce Success

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• Internet Commerce Success what does it take?
• GP Dhillon, PhD
• Associate Professor of IS
• School of Business, VCU

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Understanding where we are .Developing systems
to support the market - (a) service considerations
Type of service contract
Simple or limited domain
Complex or domain contingent
Patronizing the customer
Relationship based
Customized services
High production costs
Type of customer contact
Standardized services
High transaction costs and risks of errors
Transaction based
Mass transactions
Abandoning the customer
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Understanding where we are .Developing systems
to support the market (b) channel considerations
Channel systems
Too heavy organization
Agency support systems
Out of pocket costs
Type of channel
Corporate mediator system
Opportunity costs
Market network
Substandard network
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Understanding where we are .Developing systems
to support the market (c) service-channel matrix
Service Package
Exploiting the Customer
Focus
Consulting and Agencies
Costs vary according to volume of transactions
Differentiation
Delivery Channel
Universal Service
Differentiation
High fixed costs and risks, but low fees
Electronic Markets
Overwhelming the Customer
Low Cost
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Sustaining technologies

• A sustaining technology is the one that nurtures
  improved product performance. This is usually
  achieved by improving performance along
  dimensions that have traditionally been valued by
  the customers.

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Disruptive technologies

• A disruptive technology brings in a rather
  different value proposition. Disruptive
  technologies under perform established products
  in mainstream markets and has features that only
  a few customers value. The product or service
  emerging from a disruptive technology is usually
  cheaper, simpler, smaller and frequently easy to
  use.

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Disruptive Technology Examples
The emergence of online investment and trading
may prove to be the technology that disrupts a
major portion of (if not the entire) U.S.
financial services industry. Full-service
brokerage firms have realized enormous benefits
from the increasing equity investments by
American households and the long-running bull
market. Discount brokerages, however, have made
significant attacks on the market share of the
full-service firms.
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Disruptive Technology Examples
Although this is rare, but recent trends towards
customer relationship management tend to move us
in this direction. Good examples come from the
airlines, especially the way they deal with high
end customers.
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Disruptive Technology Examples
Priceline.com especially with respect to
domestic airline travel
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Disruptive technologies cont/-

• A disruptive technologies is one that results in
  a bad product or service performance (e.g.
  advent of transistors relative to vacuum tubes
  emergence of health maintenance organizations as
  opposed to conventional health insurers)
• Such technologies are disruptive since they fall
  short of improving the performance of products
  and services along the lines that have
  historically been valued by most customers in
  majority of the markets.

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Conventional Technology S-Curve

• Examples
• First Technology incremental improvements to the
  original ferrite-head/oxide disk technology
  enabled manufacturers to grind the heads to
  smaller, more precise dimensions.
• Second Technology thin-film photolithography
  displaced ferrite-heads in most disk drives
  between 1979 and 1990.
• Third Technology magneto-resistive heads.

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Emerging Technologies and Markets
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Technological discontinuities Jumping the S-
Curve
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Impact of sustaining and disruptive technologies
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Disruptive technology S-Curve
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Internet Commerce is a disruptive technology

• Certain Internet based solutions are disruptive
  technologies within a given market (e.g.
  e-commerce solutions relating to selling books
  are disruptive technologies within the market of
  selling books).

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Managing disruptive technology principles

• Companies that utilize disruptive technologies or
  have a product or a service that is disruptive,
  should remember that their success depends on
  both the customers and investors for resources.
• Since small markets don't solve the growth needs
  of large companies, the launch and sustainability
  of a disruptive product or service needs to be
  positioned accordingly.
• Since disruptive technology products and services
  are novel, it is hard to analyze their respective
  markets, which do not exist.
• Ability to create a business model, product or a
  service does not necessarily mean that there is a
  demand for such a product or service, i.e.
  technology supply may not equal market demand.

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Companies depend on customers and investors for
resources

• If a company has invested more than necessary
  into a disruptive technology and the customers
  seem to like it, but it has a negative cash flow
  and has a bad debt load, there is a strong
  likelihood that the investors (or venture
  capitalists) would not be as enthusiastic as they
  would have been.
• In the B2B arena nearly 800 million was invested
  into 77 e-exchanges in early 2000 and another
  500 million in mid 2000 but the customers have
  not been too responsive.
• E.g. Industrialvortex.com attempted to aggregate
  products from numerous suppliers, they faced
  stiff resistance since the suppliers felt that
  such an e-marketplace would give buyers an easy
  access to cheap suppliers

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Small markets don't solve the growth needs of
large companies.

• Companies that successfully leverage the
  disruptive technologies to their advantage, gain
  significant first mover advantages. However once
  these companies get entrenched in their specific
  market, then find it difficult to enter newer
  small markets, which could potentially be very
  profitable.
• Amazon vs Barnesandnoble.com and Barnes Noble

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Markets that don't exist can't be analyzed

• Since research about future success can only be
  carried out for technological impacts that have
  already taken place, it is difficult, if not
  impossible, to analyze a market for disruptive
  technology. Such analysis can only be carried out
  for sustaining technologies.
• It has been rather difficult for Amazon to
  adequately forecast demand for newer products.
  And on 676 million in sales for the fourth
  quarter (1999), Amazon had to write down 38
  million on inventories, particularly for
  electronics and toys.

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Technology supply may not equal market demand

• Since the pace of technological improvement
  usually far exceeds the performance improvement
  rate than mainstream customers can absorb, the
  companies whose technological features match
  customer demands today may overshoot mainstream
  market needs tomorrow.
• Consider developing conventional photographic
  films. The first mover advantage clearly went to
  AOL and Kodak. The service was carefully
  positioned to address the needs of those who
  wanted to have the ability to share digital
  photographs with friends and family. Hence the
  emphasis was on functionality.
• Then came Ememories (sluggish) and Ofoto (low
  reliability) who started offering free processing
  along with the ability to share digital
  photographs. Such advancement was clearly
  surpassing what the current market could absorb.
  The customer expectation hovered around
  functionality and reliability aspects.

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Conclusion

• In the end success will be defined by the ability
  of the respective firms to differentiate between
  sustaining and disruptive technologies and their
  ability to manage the resource allocation
  problem, competence in matching the market to the
  technology and systematically identify and
  position their capabilities.