Chapter Three Digitizing the Business: e-Business Patterns.

Chapter ThreeChapter Three

Digitizing the Business: e-Business Patterns

www.ebstrategy.com- 2 -© e-Business Strategies, Inc.

e-Channele-Channel

e-Portale-Portal

e-Market Makere-Market Maker

e-Business Patterns: e-Business Patterns: The Structural FoundationThe Structural Foundation

Pure-E “Digital Products”Pure-E “Digital Products”

Click-and-BrickClick-and-Brick

Table of ContentsTable of Contents


e-Business Patterns: Structural Foundatione-Business Patterns: Structural Foundation

In dynamic market environment, manager’s challenge is how to tell forest from trees

– Are we investing in the right business opportunity?– Are these opportunities ever going to be useful?– Are we using the right business model to attack

these opportunities?

The Scoop: New, Web-enabled firms eating into large, old-economy companies’ businesses

So: Managers of old-economy companies need right support tools to make strategic moves, allocate scarce resources, and manage risk



But: Choosing target strategy complex– To move online, large brick-and-mortar

corporations either swallow a startup or go at it alone. Which is the right approach?

Implication: With focus shifting from physical to digital assets, managers must monitor macroeconomic and customer trends

– To trigger new e-business structural designs– Resulting new business models form the basis for

next gen corporate strategic planning

Sadly: Many companies still not taking the digital world seriously



Bottom line: We are still in early stages of the e-Business revolution

– There have been and will be moments of extreme optimism; also moments of extreme pessimism

– What is certain is that it is creating opportunities for companies willing to adapt

– For others, it represents a destabilizing threat to the status quo of business-as-usual

– When all is said and done, we’ll find big corporate winners join ranks of premiere companies in the world

Aim of this chapter – Help identify winners– Discuss characteristics leading to their success– Analyze discernible patterns for better understanding


Going DigitalGoing Digital

First step in identifying an e-business leader– Look at companies asking the innovative questions that are

transforming the rules of today’s business game

When innovative companies change the types of strategic questions that they ask themselves, the result is business revolution

– In 1970s, the Japanese posed new questions and changed rules of the Auto industry

• Not gas-guzzlers, how do we create fuel-efficient cars?• Not cars that break down, how can we create a high-

quality car with few manufacturing defects?• Not piles of “just-in-case” inventory, how can we create a

“just-in-time” inventory process?



In mid 1980s, it was Wal-Mart– Not what business are we in, what business should we be

in?– Wal-Mart turned from retailer into supply chain expert– Offered right product mix at right store

In mid 1990s, it was new entrants who rose to challenge almost every leading company

– Questions about customer and business model, not processes, thus challenging sentiment of early 1990s among leading companies

– AOL vs. CompuServe and Prodigy– Dell vs. Compaq and IBM– EMC vs. IBM and StorageTek– Sun Microsystems vs. HP and Silicon Graphics



In the 2000s, the questions for today’s business leader will be on the speed with which his/her firm implements e-business solutions powered by recent innovations

– How fully digital can we make our customers’ experience?

– Our supply chain?– Our internal operations and processes?– Intuit transformed from a stand-alone PC-based

business model into an online financial services portal when the Internet emerged to threaten it’s business



Startups continue to shape the direction of today’s business by taking advantage of recent technological innovations

E-Business can change the way companies interact with customers, communicates, sells, purchases, manufactures, and develops products

Asking a new question not only produces new answers but also reinvents the game

Result: a cost advantage that’s not 10 percent better than competitor’s but rather many fold.


• What models are better suited to take advantage of new business opportunities?• What business processes need to change?• How do you move from existing model to an e-model reflecting your firm’s organizational readiness?• What are the challenges management must face when executing the new business model?

Analyzing the EnvironmentAnalyzing the Environment

• What is the new opportunity based on certain customer and market trends?• What are the macro-economic drivers of the business change?• Which digital technologies are going to dominant your industry?

e-Business Models

The strategic framework allows you

to compete in the game

e-Business Patterns

The structural foundation sets the

new rules of the game

• Who are your target customers?• What is your value proposition?• How do you make money?• How to finance the company? • How do you get and retain customers?• How to attract and retain talented people?

e-Business Designs

A specific strategy for what you need to do in

the marketplace


Focusing on the Whole PictureFocusing on the Whole Picture

• Basic efficiency, effectiveness enhancements as the selling becomes E-enabled

• Selling goods/services

• Payment/settlement enhancements

• Traditional business transferred to the Net

• Rise of new intermediaries

• New forms of supply chain integration

• Consolidation/transformation of intermediary industry

• Customer Expects “E” everywhere

• Fundamental re-design of business

• New structures to allow market making, trading and virtual warehousing

Begins as a Channel, But Extends to Total Transformation of Business

Pure E

E-Portal(B2C)

E-Market-Makers (B2B)

e-Channel

Click and Brick


e-Channele-Channel

e-Portale-Portal







Transaction Transaction EnhancementEnhancementTransaction Transaction

EnhancementEnhancement

e-Channele-ChannelCompressionCompression

e-Channele-ChannelCompressionCompression

e-Channele-ChannelExpansionExpansione-Channele-ChannelExpansionExpansion

e-Channele-ChannelInnovationInnovatione-Channele-ChannelInnovationInnovation

e-Channele-Channel



Transaction EnhancementTransaction Enhancement

Augments or replaces the old transaction method– Home Depot

In most cases, does not alter other aspects of the process

Sometimes, more technically savvy companies may gain business from other firms, thereby altering the identify of players in the channel

– Dell– Gap

Consumer

Electronic Transaction

Manufacturer


E-Channel CompressionE-Channel Compression

Eliminates redundant steps in the channel– When value added by channel is less than cost of

the channel– Cisco partner/reseller “always on” e-channels– Southwest eliminated the ticketing agent “link” by

moving information sharing and transaction processing online

– Online stock trading– Amazon.com

Consumer

Electronic Transaction with Disintermediation

ManufacturerX


E-Channel ExpansionE-Channel Expansion

• Lengthens the legacy channel

• Counterintuitive? Inefficiencies in the marketplace can make this approach a necessity

• Infomediaries – Carpoint in automotive market– Intuit in financial services

• Vstore.com

Consumer Manufacturer

Electronic Transaction, Metamediation


E-Channel InnovationE-Channel Innovation

Pioneering new channels to satisfy and to anticipate unmet and potential customer desires

– E-Stamp

Given the high stakes, companies everywhere want to make it easier and more enjoyable for customers to do business with them

– In every industry, customer base is fragmented into multiple segments, each with its own behavior and needs

– Diversity of customer tastes and needs has led to a revolution in where, when and how customers buy the products and services they seek

– Winner will take all!


e-Channele-Channel

e-Portale-Portal







The Click-and-Brick PatternThe Click-and-Brick Pattern

Brick and mortar + Click and order = Click and Brick

The C&B pattern allows an existing offline business to profit from partnering with an emerging online presence.

– Charles Schwab

Established retailers are creating new C&B patterns.

– Land’s End

A new variation in C&B strategy

– Amazon.com and Toys “R” Us

Brick & Mortar

• Localized inventory

• In-store shopping experience

• Immediacy (try, buy, take home)

• Service (returns, repairs, exchanges)

Click

• Infomediation• Speed• Direct, one-to-

one experience• Personalized

content• Automation

(assistants, alerts)

Click & Brick


Why the Click-and-Brick PatternWhy the Click-and-Brick Pattern

Physical stores offer convenience and personal service– Order online but return at store for an exchange

Established retailer’s clout should procure higher-quality merchandise for its Web sites than a start up

– Exceptions: commodity items, ex. books

Efficient branding of Web sites through store fronts– Established retailers’ storefronts are living, 3-D billboards

Traditional retailers have serious cost advantages– Spend half as much to acquire each new customer as do

Web-only retailers


WebvanWebvan

Discuss with Ravi the purpose and nature of this case, now that Webvan is out of this business


Management ChallengesManagement Challenges

• Lack of merchandise selection on site

• Lack of communication and mgmt collaboration between the Web site and store staffs and separate channels for fulfilling orders and resolving customer and process problems

• Hiring second-tier talent to staff the Web sites

• Continuing to invest millions of dollars on Web commerce initiatives w/o generating a positive ROI (return on investment)


e-Channele-Channel

e-Portale-Portal







The e-Portal PatternThe e-Portal Pattern

Portals are “Killer” apps of e-business

An intermediary or middleman offering an aggregated set of services for a specific well-defined group of users

– Yahoo! Organizes collections of news, search and communication services for consumers

– E-Bay, E-Loan, and E*Trade for business activities related to auctioning, loan financing, and stock trading, respectively

Portals occur when new players succeed in positioning themselves between customers and suppliers

– Customer focused, enter chain to address specific customer dissatisfaction with current way of doing business

– Either add value-added services to market channel or decrease transaction costs of customer/supplier relationship


Eyeball Aggregators Eyeball Aggregators Or SuperportalsOr Superportals

Eyeball Aggregators Eyeball Aggregators Or SuperportalsOr Superportals

Auction PortalsAuction PortalsAuction PortalsAuction Portals

MegatransactionMegatransactionPortalsPortals

MegatransactionMegatransactionPortalsPortals

e-Portale-Portal



Eyeball Aggregators or SuperportalsEyeball Aggregators or Superportals

Attract and direct consumer traffic with free content and service offerings

– Deliver customers to retailers for a fee (advertisement based or % of transaction)

Retailers leery of superportals

– Disintermediation, especially of repeat buyers

Yet the mass buying power of superportals considerable

– Forcing online retailers to bid for a superportal’s business Search Engine

Sticky Content (GeoCities Acquisition)

Commerce Portal

Communications Portal

Media Network

Content Portal


Auction PortalsAuction Portals

• Enable buyers and sellers to engage in transactions across geographic and demographic boundaries

• More than just marketplaces– Unique community of collectors and hobbyists

• Similarity with traditional auctions– Highest bidder wins

• What is different– Online auction does not have the physical merchandise

• eBay


Megatransaction PortalsMegatransaction Portals

Category killers – Lock up portal real estate and create a critical mass of customers– Travelocity in online travel and Hoovers for financial news

Online travel services portals– Killing traditional agencies

• Reduced agent commissions; Consumers’ acceptance of paperless transactions; Ease of use of completing online transactions

– Expect to see consolidation and integration in online travel• Expedia offers airline tickets, hotel rooms, air/hotel packages

– Travel services portals to consolidate along two segments• Full-service and off-price discount

– Keys to success• Automation of the look-to-book process• Channel synchronization


e-Channele-Channel

e-Portale-Portal







The e-Market Maker PatternThe e-Market Maker Pattern

Online intermediary, connects disparate buyers and sellers within a common vertical industry

– Eliminates channel inefficiencies; aggregates offerings from many sellers or matches buyers and sellers

– Buyers: lower purchasing costs; reach new suppliers

– Suppliers: lower sales cost; reach new customers

Revenue models: – % of transaction, subscription, mark-up


The e-Market Maker PatternThe e-Market Maker Pattern

Major role for e-Market makers in industries with these characteristics:

– Large market size– Fragmented supply chain– Unrecognized vendor or product differentiation– High information-search costs– High product-comparison costs– High workflow costs


The Pure E-Digital Products PatternThe Pure E-Digital Products Pattern

New innovations in s/w, h/w and communications placing digital content at center of business

– software, music, video, news– digital goods produced, delivered, consumed and licensed

electronically– delivery of digital goods already changing; delivery as a

service

Growth of digital products due to– proliferation of Internet devices– cheap and abundant availability of bandwidth– inexpensive PCs, more free PC programs– industry standardization of APIs– XML permitting interface between data and speech and

other systems


The Pure E-Digital Products PatternThe Pure E-Digital Products Pattern

3 types of entrepreneurial activity characterize digital-goods market

– high-quality end user technologies, services and products

– s/w and h/w platforms– distribution infrastructure


High-Quality, High Speed Content to High-Quality, High Speed Content to Consumers: Digital MusicConsumers: Digital Music

Internet altered how music will be distributed

– “Collapse of the middle” pattern

– Artists bypassing major labels to reach audience directly

– Business as usual will soon mean no business at all for many of the industry’s middlemen

– New companies and peer-to-peer technologies emerging to meet needs of the digital music download business: MP3.com, Napster, Gnutella, Pointera


New Platforms for Digital-Media DeliveryNew Platforms for Digital-Media Delivery

Market for delivery of Internet services through handheld devices new and evolving rapidly

– PDAs and mobile phones

WAP standard emerging for delivery of Internet-based services to mass-market wireless phones

WML for Internet apps and content for wireless phones

Next gen mobile delivery systems include voice browsers and speech-recognition systems

– TellMe and HearMe


New Infrastructure Services for Digital New Infrastructure Services for Digital Content DeliveryContent Delivery

New infrastructure services required to support faster content distribution

– Content delivery or congestion mgmt services• Digital Island and Akamai Techologies

– Caching services• Inktomi and CacheFlow

– Outsourcing services• Exodus or Level 3

Supported by different business models– Content delivery vendors paid by Web site owners

but

E-Business E-Business Strategies, Inc.Strategies, Inc.

www.ebstrategy.comwww.ebstrategy.com

[email protected]@ebstrategy.com

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Chapter Three Digitizing the Business: e-Business Patterns.

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