Service sector • Largest and fastest growing part of the economy in advanced countries. • More than 40% of US GDP. • Most of the value in services is based on collecting, storing, managing and exchanging information, for which the web is ideal. • Most successful on-line services are: • financial (including insurance and real estate); • travel services; • career services.
Service sector (cont) • Knowledge and information intensive; • To provide value an enormous amount of information has to be processed, e.g. • law firms – textual information; • financial services need IT to keep track of transactions and investments – some 80% of their capital investment goes into IT; • E-commerce/IT helps to personalise and customise services.
Financial Services • The industry provides four generic kinds of services :- • storage & access to funds - banking , lending • protection of assets - insurance • growth - brokerage, investment firms • movement of funds - banks, credit cards • In the USA, the repeal of the Glass-Steagall law (the Banks Act 1933) by the Financial Reform Act 1998 created a wave of mergers, takeovers and acquisitions which has not yet finished. • An online financial supermarket is now possible
Banking cheques, savings credit, loans ATM service mortgages safe deposit boxes Brokerage financial planning brokerage and training account integration loans funds management The Financial Supermarket Model – integrating financial services in a single customer account
Insurance car, home, life commercial, real estate retirement planning pension management Payments electronic bill payment credit card services
On-line Banking • Pioneered by Netbank in 1996. • Fast growth initially, now much slower. • Traditional banks added an on-line channel around 2000. • Multi-channel operations do better than pure on-line banks. • Clients want physical presence for certain operations, e.g., opening accounts, taking out loans, finding a mortgage, renting a safe deposit box. • Pace of change still very slow.
Brokerage The vision was to revolutionise the domestic brokerage business by • low, flat rate discount commissions in stock trades • free online price feeds • free stock quotations • online order entry • more efficient order execution • generally better and cheaper customer service Some also offered: • high quality free stock research • free market analysis
Brokerage (cont) • the promise has largely been fulfilled • more high quality free information is available • transaction costs have fallen • search costs for suitable investment instruments have tumbled this has forced traditional brokers like Merrill Lynch to :- • develop an online presence • drastically reduce the level of commissions • unbundle service charges from transaction charges
Brokerage – E*trade 1982 - started life as a service bureau; E*trade securities began an online quotation and trading service • - became the original all-electronic brokerage Now :- • is in 10 international markets • has over 3 million clients in brokerage • has $50 billion in assets
E*trade (cont) • technology - developed a graphical user-interface engine • this engine handles 95% of company transactions without manual intervention • developed and installed kiosks in certain stores • made alliances with other internet firms, particularly the Fortune 500, to offer packaged financial services to employees (B2B2C) • competition is fierce with ‘clicks and mortar’ operators now offering online brokerage as a sales channel • few purely online traders left but E*Trade survives.
Financial Portals Sites that provide consumers with :- • comparison shopping services • independent financial advice • financial planning • act as steering mechanisms to online providers • revenue comes from advertising , referral and subscription fees • .
On-line Mortgages More difficult than other financial services • the complexity of the mortgage process has retarded progress • it requires physical signatures and documents and usually visits • multiple institutions are often involved in complex financing. There are four basic kinds of mortgage lenders :- • established online banks e.g. Citigroup • pure online bankers/brokers e.g.LoanCity (used by E*Trade and Bank of America) • brokers offering access to hundreds of vendors • service companies like ABN/AMRO which purchased the defunct Mortgage.com
Online Insurance Services • an insurance policy is information intensive e.g. property insurance often requires personal inspection plus a myriad of laws , actuarial knowledge etc. • the internet is ideal for collecting information and making price comparisons . • it has been used for this but online purchasing has been slow . • insurance premiums in the four major areas have all come down , as have the profits of insurance companies • typically prices are some 15% to 20% lower online policies, however, tend to be simpler and more basic
Insurance – sectors • Four major sectors and approximate premiums (USA 2005) • automobile >$180 billion • health >$175 billion • life >$160 billion • property and casualty >$150 billion
Online Insurance • the big insurers now have a web presence – challenging the pure onliners who are still having a difficult time; • the biggest problem for these is to attract customers to their site – some 60% of expenses were marketing costs;
Online Estate Agent Services Here the internet is primarily an information source. Offerings are sophisticated and integrated:- • links to mortgage lenders , house inspectors and surveyors; • on-line loan calculators; • appraisal reports; • sale price histories by area; • school data; • crime reports; • social and historical information by area.
Online Travel Services • single most successful segment of B2C • travel is an information intensive product • elements are :- • planning, researching, comparison shopping, reserving; • suppliers (hotels, airlines, rental cars, holiday rooms, tour guides etc.) are highly fragmented, often with excess capacity; • online sites create a more efficient market place; • consumers and suppliers are together in a low transaction cost environment; • pure on-liners have no overheads in terms of a physical presence.
Online Travel Services - components • airline reservations is already huge and was (in the USA) some $50 billion in 2007, outstripping all the other elements; • airline reservations can easily be described, compared and paid for; • car rentals too are easy to describe etc. and rose to be some $8 billion in 2007; • hotels are more complex with many different classifications, facilities etc; they were to be some $17 billion in 2007; • cruises and tours are also very complex and were forecast to be some $1.5 billion in 2005.
Online Travel Services - segments • two major segments, leisure and business; • initially on-line concentrated on the leisure side; • however, the focus now is on business travel because the industry rule of thumb is: • 60% of trips are for leisure and 40% for business but as for expenditure the ratios are reversed. • the forecast is for on-line sales to reach 70% of managed bookings by 2012.
Online Travel Services - business travel • because corporations’ travel costs have mushroomed recently, they are increasingly outsourcing to online solutions suppliers; • they already used computerised systems via travel agents and now tend to route all their business through one website or one company; • small companies tend to use specialised on-line agents; • large corporations have budgets and rules and on-line agents have to offer an almost bespoke, flexible service, e.g. providing a tailored website for employees to log on to.
Online Travel Services - suppliers Recently consolidation has been intensive. Off-line agents have been forced to add an on-line presence or disappear! • Orbitz is an online reservation company owned by the airlines. • Alamo, Hertz and Budget have all created their own on-line reservation systems. • Expedia (owned by IAC) has been buying companies who specialise in managing business travel. • Sabre Travel created ‘GetThere’ and serves some 1000 large corporations; it now has billings of over $15 billion.
Online Travel Services - Orbitz Orbitz was founded by 5 airlines to bypass GDS. (GDS – Global Distribution Systems had a monopoly on airline seats which it sold on to travel agents etc.) • It has a supplier link with the following airlines’ internal reservation systems :- American Airlines, Continental, Delta, Northwest and United airlines. • Now some 455 airlines can be accessed via Orbitz. • It also employs former air controllers to keep their eye on potential problems (strikes, accidents, terrorist alerts, hurricanes etc.) • however in 2005/6 started to become profitable.
TRAVEL SERVICES There are three major players worldwide: • Cendant • Sabre Holdings • Interactive Corporation (IAC)
TRAVEL SERVICES - Cendant Comprises the following companies :- • seat reservations: Orbitz, Gallileo, Gullivers, eBookers • car rentals: Avis, Budget • hotels: Ramada, Days Inn, Travelodge • estate agent: Century 21
InterActive Corporation maintains that three online services are key: • travel - interpersonal - financial. The conglomerate comprises: • Expedia • Hotwire • eVite • Match • Citysearch • Lending tree • Real Estate • Ticketmaster • Turnover > $7 Billion
SABRE HOLDINGS • Comprise: • Travelocity - online travel service: flights, car rental, hotels, cruises etc. • Travel network– world’s largest electronic network for buyers and sellers e.g. corporate booking tools. • Airline solutions – optimise airline operations and reduce costs e.g. crew management solutions • Get there – corporate travel bookings • Nexion – systems for travel agents • Turnover net revenue • 2003 $ 1.9 billion $ 119 million • 2004 $ 2.1 billion $ 203 million
Online Career Services Traditional recruitment tools are (were?) • classified and print advertising • career exhibitions or trade shows • on-campus recruiting • private employment agencies head hunters • internal referral programmes • government agencies. In various ways they all had their limitations.
Online Career Services job seekers Online recruitment is ideally suited to the web for both employers and job seekers Job seekers can:- • make their resumés (CVs) widely available • see a wide range of job vacancies • get an idea of their real salary expectations • use skills assessment services • use personality assessment questionnaires • use personalised account management • use organisational culture assessments • use job search tools • use employer blocking system.
Online Career Services -employers Conversely, employers benefit because they can :- • reach a very wide audience with their listings; • make considerable savings by avoiding traditional head hunters; • save, particularly on low and medium management recruitment; • sift through potential employees before offering an interview e.g. Dow chemical only accepts online resumes. This has more than halved the time (from 90 to 34 days) to fill job vacancies; • achieve employee blocking (prevent employees seeing your listing).
Online Career Services – on-line firms Consolidation has been the watchword in the online recruitment industry. TMP has become the world leader. It bought over 70 sites including Monster. It bought Hotjobs in 2001 then sold it to Yahoo in 2002.
Value chain – definition • a value chain is the set of activities performed in an industry or firm that transforms raw inputs into final products and services • each activity adds economic value to the final product • so the term Value Chain is the interconnected set of value – • adding activities. • the term was coined by Michael Porter in1985, in his book Competitive advantage – creating and sustaining superior performance
Value chain – key players • suppliers - supply chain management systems; • manufacturers - supply chain management systems; • distributors - inventory management systems; • logistics - transport and distribution management systems; • retailers - customer relations management systems; • customers - who may be intermediate or final.
Value chain – primary activities Value-adding primary activities are directly concerned with the creation and delivery of a product or service. They comprise:- • inbound logistics • operations • outbound logistics • sales and marketing • after sales service.
Value Chain – support activities Primary activities are linked to support activitieswhich help to improve their efficiency and effectiveness. There are four main areas:- • procurement • technology development (including R & D) • human resource management • infrastructure - systems for planning , finance , quality, information management etc.