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CHAPTER 3. E-BUSINESS. Amazon.com. The “worlds biggest (virtual) bookstore” turned the industry upside down. There are no physical stores
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CHAPTER 3 E-BUSINESS
Amazon.com • The “worlds biggest (virtual) bookstore” turned the industry upside down. • There are no physical stores • Comments and recommendations of buyers are captured, customer traffic is monitored all in an effort to evaluate buying and selling patterns and the success of promotions • It’s more than just a website, it’s an intelligent, global digital business. • Personalized recommendations • Online customer reviews • 1-click ordering • Amazon marketplace where customers sell their own items
DISRUPTIVE TECHNOLOGY • How can a company like Polaroid go from $60 share in 1997 to $.08 a share in 2002 and eventual bankruptcy? They had a 50% market share with their instant camera. • Using Porter’s Five Forces, they may have seen two threats: one-hour film processing and digital cameras • Digital Darwinism – implies that organizations which cannot adapt to the new demands placed on them for surviving in the information age are doomed to extinction
Disruptive versus Sustaining Technology • What do steamboats, transistor radios, and Intel’s 8088 processor all have in common? • Disruptive technology – a new way of doing things that initially does not meet the needs of existing customers but tends to open new markets • Sustaining technology – produces an improved product in an established market that customers are eager to buy
Disruptive versus Sustaining Technology • Disruptive technologies: • Disruptive technologies redefine the competitive playing fields of their respective markets • Disruptive technologies tend to open new markets and destroy old ones • Disruptive technologies typically cut into the low end of the marketplace and eventually evolve to displace high-end competitors and their reigning technologies • Sustaining technologies: • Sustaining technologies tend to provide us with better, faster, and cheaper products in established markets • Sustaining technologies virtually never lead in markets opened by new and disruptive technologies
Disruptive versus Sustaining Technology • The Innovator’s Dilemma - discusses how established companies can take advantage of disruptive technologies without hindering existing relationships with customers, partners, and stakeholders • Xerox, IBM, Sears and DEC all listened to their existing customers and invested aggressively in technology but still lost their dominant positions in the market. • Too much emphasis on satisfying the current needs of their customers rather than looking to meet the customers’ future needs
The Internet – Business Disruption • One of the biggest forces changing business is the Internet • Was this always the case? • Organizations must be able to transform as markets, economic environments, and technologies change • Focusing on the unexpected allows an organization to capitalize on the opportunity for new business growth from a disruptive technology
The Internet – Business Disruption • There were 1 billion Internet users in 2005 • How will 2 billion additional Internet users change the competitive landscape for businesses over the next few years? • Greater access to a larger number of customers • More competitors • Location and distance becomes a smaller factor for businesses
The Internet – Business Disruption Estimates predict more than 3 billion Internet users by 2010
The Internet – Business Disruption • The Internet has had an impact on almost every industry including: • Travel Travel site Expedia.com is now the biggest leisure-travel agency, with higher profit margins than even American Express. Thirteen percent of traditional travel agencies closed in 2002 because of their inability to compete with online travel. • Entertainment The music industry has kept Napster and others from operating, but $35 billion annual online downloads are wrecking the traditional music business. U.S. music unit sales are down 20 percent since 2000. The next big entertainment industry to feel the effects of e-business will be the $67 billion movie business. • Electronics Using the Internet to link suppliers and customers, Dell dictates industry profits. Its operating margins have risen from 7.3 percent in 2002 to 8 percent in 2003, even as it takes prices to levels where rivals cannot make money.
The Internet – Business Disruption • Financial services Nearly every public e-finance company left makes money, with online mortgage service Lending Tree growing 70 percent a year. Processing online mortgage applications is now 40 percent cheaper for customers. • Retail Less than 5 percent of retail sales occur online. eBay is on track this year to become one of the nation’s top 15 retailers and Amazon.com will join the top 40. Wal-Mart’s e-business strategy is forcing rivals to make heavy investments in technology. • Automobiles The cost of producing vehicles is down because of SCM and Web-based purchasing. eBay has become the leading U.S. used-car dealer, and most major car sites are profitable. • Education and training Cisco saved $133 million last year by moving training sessions to the Internet, and the University of Phoenix online college classes please investors.
What Was This Technology? • “An almost instantaneous communication system that would allow people and governments all over the world to send and receive messages about politics, war, illness, and family events. The government has tried and failed to control it.”
What Was This Technology? • It was the humble telegraph • The parallels between the now-ubiquitous Internet and the telegraph are amazing, offering insight into the ways new technologies can change the very fabric of society within a single generation. • With the invention of the telegraph, the world of communications was forever changed. The telegraph gave rise to creative business practices and new forms of crime. Romances blossomed over its wires. In addition, attitudes toward everything from news gathering to war had to be completely rethought. The saga of the telegraph offers many parallels to that of the Internet in our own time, and is a remarkable episode in the history of technology. • The telegraph was eventually replaced by another disruptive technology. What was it?
EVOLUTION OF THE INTERNET • The Internet began in the late 1960s as an emergency military communications system operated called the APRANet by the Department of Defense • Gradually the Internet moved from a military pipeline to a communication tool for scientists to businesses • Internet – computer networks that pass information from one to another using common computer protocols • Protocol – standards that specify the format of data as well as the rules to be followed during transmission
Evolution of the World Wide Web • Two events changed the history of the Internet • On August 6, 1991 Tim Berners-Lee built the first Web site using HTML and HTTP • Marc Andreesen built and distributed Mosaic • World Wide Web (WWW) – a global hypertext system that uses the Internet as its transport mechanism • Hypertext transport protocol (HTTP) – the Internet standard that supports the exchange of information on the WWW
INTERNET ≠ WWW • People often interchange the terms Internet and the World Wide Web, but these terms are not synonymous • The Internet is a global public network of computer networks that pass information from one to another using common computer protocols • The World Wide Web is a global hypertext system that uses the Internet as its transport mechanism • The World Wide Web operates on the Internet
Internet’s Impact on Information • Easy to compile - Searching for information on products, prices, customers, suppliers, and partners is faster and easier when using the Internet. • Increased richness - refers to the depth and breadth of information transferred between customers and business. Businesses and customers can collect and track more detailed information when using the Internet.
Internet’s Impact on Information • Increased reach - refers to the number of people a business can communicate with, on a global basis. Businesses can share information with numerous customers all over the world. • Improved content - A key element of the Internet is its ability to provide dynamic relevant content. Buyers need good content descriptions to make informed purchases, and sellers use content to properly market and differentiate themselves from the competition. Content and product description establish the common understanding between both parties to the transaction. As a result, the reach and richness of that content directly affects the transaction.
Evolution of the World Wide Web • The Future of the Web • The Semantic or Intelligent Web • http://news.bbc.co.uk/nolavconsole/ukfs_news/hi/newsid_5010000/newsid_5018400/nb_wm_5018452.stm • http://news.bbc.co.uk/nolavconsole/ukfs_news/hi/newsid_5010000/newsid_5014600/nb_wm_5014644.stm
Evolution of the World Wide Web • What is the difference between information richness and information reach? • Information richness refers to the depth and breath of information transferred between customers and business • Instead of a company catalog with a simple text box and perhaps a small photo, the Web allows companies to post 3-dimensional photos, video, customer reviews, newspaper and magazine articles, product comparisons including price, etc. • Information reach refers to the number of people a business can communicate with, on a global basis • Companies can now reach customers around the world, not just customers who can physically travel to their store
Evolution of the World Wide Web • File formats offered over the WWW
Evolution of the World Wide Web • The Internet makes it possible to perform business in ways not previously imaginable • It can also cause a digital divide • Digital divide – when those with access to technology have great advantages over those without access to technology • People living in the village of Siroha, India, must bike five miles to find a telephone. For over 700 million rural people living in India, the digital divide was a way of life, until recently. Media Lab Asia sells telephony and e-mail services via a mobile Internet kiosk mounted on a bicycle, which is known as an “info-thelas.” The kiosk has an onboard computer equipped with an antenna for Internet service and a specially designed all-day battery. Over 2,000 villages have purchased the kiosk for $1,200, and another 600,000 villages are interested
One Laptop Per Child • One Laptop Per Child http://laptop.org/en/index.shtml It's an education project, not a laptop project.” Nicholas Negropontehttp://olpc.com/videos.html • The goal: To provide children around the world with new opportunities to explore, experiment and express themselves • OLPC is a non-profit organization providing a means to an end—an end that sees children in even the most remote regions of the globe being given the opportunity to tap into their own potential, to be exposed to a whole world of ideas, and to contribute to a more productive and saner world community.
ACCESSING INTERNET INFORMATION • Four tools for accessing Internet information • Intranet – internalized portion of the Internet, protected from outside access, for employees • Extranet – an intranet that is available to strategic allies • Portal – Web site that offers a broad array of resources and services • Kiosk – publicly accessible computer system that allows interactive information browsing
PROVIDING INTERNET INFORMATION • Internet service provider (ISP) – a company that provides individuals and other companies access to the Internet along with additional related services, such as Web site building. • Many but not all ISPs are telephone companies. ISPs provide services such as Internet transit, domain name registration and hosting, dial-up or DSL access, leased line access, and collocation. ISPs mostly provide access to the Internet and charge a monthly access fee to the consumer. • Online service provider (OSP) – offers an extensive array of unique services such as its own version of a Web browser. • An OSP offers services such as access to private computer networks and information resources such a bulletin boards, downloadable programs, news articles, chat rooms, and electronic mail services.
PROVIDING INTERNET INFORMATION • Application service provider (ASP) – a company that offers an organization access over the Internet to systems and related services that would otherwise have to be located in personal or organizational computers. • Software offered using an ASP model is also sometimes called On-demand software. The most limited sense of this business is that of providing access to a particular application program (such as medical billing) using a standard protocol such as HTTP. • The need for ASPs has evolved from the increasing costs of specialized software that have far exceeded the price range of small to medium sized businesses. • Also, the growing complexities of software have lead to huge costs in distributing the software to end-users. Through ASPs, the complexities and costs of such software can be cut down. In addition, the issues of upgrading have been eliminated from the end-firm by placing the onus on the ASP to maintain up-to-date service.
PROVIDING INTERNET INFORMATION • Common ISP services include: • Web hosting. Housing, serving, and maintaining files for one or more Web sites is a widespread offering. • Hard-disk storage space. Smaller sites may need only 300 to 500 MB (megabytes) of Web site storage space, whereas other e-business sites may need at least 10 GB (gigabytes) of space or their own dedicated Web server. • Availability. To run an e-business, a site must be accessible to customers 24x7. ISPs maximize the availability of the sites they host using techniques such as load balancing and clustering many servers to reach 100 percent availability. • Support. A big part of turning to an ISP is that there is limited worry about keeping the Web server running. Most ISPs offer 24x7 customer service.
PROVIDING INTERNET INFORMATION Wireless Internet service provider (WISP) WISP - an ISP that allows subscribers to connect to a server at designated hotspots or access points using a wireless connection
PROVIDING INTERNET INFORMATION • ISPs, OSPs, and ASPs use service level agreements (SLA) which define the specific responsibilities of the service provider and set the customer expectations • Availability, accessibility, performance, maintenance, backup/recovery, upgrades, equipment ownership, software ownership, security, confidentiality • ASP market is expected to grow worldwide from around $13 billion in 2005 to $23 billion by 2008
OPENING CASE QUESTIONSAmazon 1. How has Amazon used technology to revamp the bookselling industry? Personalization on its Web site, customers are offered suggestions for other titles. Technology to predict what his customers want to buy next before they even know it. 2. Is Amazon using disruptive or sustaining technology to run its business? • In the beginning Amazon was using disruptive technology to sell its books – the Internet. The Internet is no longer a disruptive technology, but Amazon is still finding ways to use it to disrupt the way it does business. 3. How is Amazon using intranets and extranets to run its business? • Amazon uses intranets to help its employees perform their jobs, find corporate information, and communicate with each other more effectively. Amazon uses extranets to partner with third-party providers who are interested in selling products through Amazon’s Web site, such as zShops and the Amazon.com Marketplace. 4. How could Amazon use kiosks to improve its business? • Amazon could place a kiosk outside physical bookstores allowing customers to check Amazon inventory to compare prices prior to making a purchase. Amazon could also place kiosks in airports allowing passengers to browse Amazon’s inventory while waiting for their flight.
E-BUSINESS BASICS • How do e-commerce and e-business differ? • E-commerce – the buying and selling of goods and services over the Internet • E-business – the conducting of business on the Internet including, not only buying and selling, but also serving customers and collaborating with business partners
E-BUSINESS BASICS Industries Using E-Business
E-BUSINESS BASICS • Manufacturing and Retail: RFID, online payments and orders, sales via the Internet, customer service via the Internet • Financial: online banking, online mortgages, online loans • Telecommunications: Voice over the Internet (VoIP) • Healthcare: digital hospitals, pharmacy orders via the Internet • Travel: online reservations, Travelocity, Expedia
E-BUSINESS MODELS • E-business model – an approach to conducting electronic business on the Internet • Can a business operate with more than one e-business model?
Business-to-Business (B2B) • Electronic marketplace (e-marketplace) – interactive business communities providing a central market where multiple buyers and sellers can engage in e-business activities
Business-to-Business (B2B) • Electronic marketplace (e-marketplace) –present structures for conducting commercial exchange, consolidating supply chains, and creating new sales channels • Their primary goal is to increase market efficiency by tightening and automating the relationship between buyers and sellers • Existing e-marketplaces allow access to various mechanisms in which to buy and sell almost anything, from services to direct materials
Business-to-Consumer (B2C) • Common B2C e-business models include: • e-shop – a version of a retail store where customers can shop any time without leaving their home • e-mall – consists of a number of e-shops; it serves as a gateway through which a visitor can access other e-shops • Business types include: • Brick-and-mortar business:operates in a physical store without an Internet presence. • Pure-play business: a business that operates on the Internet only without a physical store • Click-and-mortar business: a business that operates in a physical store and on the Internet
Consumer-to-Business (C2B) • Priceline.com is an example of a C2B e-business model • The demand for C2B e-business will increase over the next few years due to customer’s desire for greater convenience and lower prices
Consumer-to-Consumer (C2C) • Online auctions • Electronic auction (e-auction) -Sellers and buyers solicit consecutive bids from each other and prices are determined dynamically • Forward auction -Sellers use as a selling channel to many buyers and the highest bid wins • Reverse auction -Buyers use to purchase a product or service, selecting the seller with the lowest bid
Consumer-to-Consumer (C2C) • C2C Communities • Communities of interest -People interact with each other on specific topics, such as golfing and stamp collecting • Communities of relations -People come together to share certain life experiences, such as cancer patients, senior citizens, and car enthusiasts • Communities of fantasy -People participate inimaginary environments, such as fantasy football teams and playing one-on-one with Michael Jordan
ORGANIZATIONAL STRATEGIES FOR E-BUSINESS • Primary business areas taking advantage of e-business include: • Marketing/sales • Financial services • Procurement • Customer service • Intermediaries
Marketing/Sales • Generating revenue on the Internet • An online ad (often called banner ad) is a box running across a Web page that is often used to contain advertisements. The banner generally contains a link to the advertiser’s Web site. Web-based advertising services can track the number of times users click the banner, generating statistics that enable advertisers to judge whether the advertising fees are worth paying. Banner ads are like living, breathing classified ads. • A pop-up ad is a small Web page containing an advertisement that appears on the Web page outside of the current Web site loaded in the Web browser. A pop-under ad is a form of a pop-up ad that users do not see until they close the current Web browser screen.
