Introduction to MIS1 Copyright © 1998-2002 by Jerry Post Introduction to MIS Chapter 11 Electronic...

Introduction to MIS 1

Copyright © 1998-2002 by Jerry Post

Introduction to MIS

Chapter 11

Electronic Business


Electronic Business

Large business

Small business/ supplier

CustomerSalesperson

The Internet

Orders, Auctions, and EDI

Sales and CRM

Service, orders, and informationWeb hosting and

Web-based services


Outline Forms of Electronic Commerce Production Chain and Disintermediation Dynamic Pricing Distributed Services Marketing Phases Web Advertising: Advertiser Web Advertising: Publisher Web Traffic Analyzer Web Hosting Options Mobile Commerce Entrepreneurship: Creating a Business Industry Research Business Plans Forecasting Financial Data Forming a Corporation Financing a Startup E-Commerce Startup Cases: Travel Industry Appendix: Business Plans


Forms of Electronic Commerce

Business Consumer

Business B2B

EDI

Commodity auctions

B2C

Consumer-oriented

Sales

Support

Consumer C2B

Minimal examples, possibly reverse auctions like PriceLine

C2C

Auction sites (eBay)

But many of these are dominated by small business sales.


Production Chain

partssupplier

partssupplier

partssupplier

warehouse warehouse

suppliersuppliersupplier

toolmanufacturer

Manufacturerworkers

wholesalerwholesaler

distributordistributordistributor

retail storeretail storeretail storeretail store

Consumers


Disintermediation

Manufacturer

Retailer

Consumer

Production Chain

E-commerce website


Dynamic Pricing

P

Q

D

S

Perfect competition price

Price consumer is willing to pay

The ultimate goal is to set individual prices for each consumer to capture the maximum price each is willing to pay. As opposed to the perfect competition price, where everyone pays the same price, and some customers gain because they were willing to pay more.


Distributed Services

Company 1

Company 2

The Internet

Originaldocument

Translateddocument

Internet Service

e.g., automated document translation


XML: Extensible Markup Language<?xml version="1.0"?><!DOCTYPE OrderList SYSTEM "orderlist.dtd"><OrderList><Order><OrderID>1</OrderID><OrderDate>3/6/2001</OrderDate><ShippingCost>$33.54</ShippingCost><Comment>Need immediately.</Comment><Items><ItemID>30</ItemID><Description>Flea Collar-Dog-Medium</Description><Quantity>208</Quantity><Cost>$4.42</Cost><ItemID>27</ItemID><Description>Aquarium Filter & Pump</Description><Quantity>8</Quantity><Cost>$24.65</Cost></Items></Order></OrderList>


XML In Internet Explorer


Marketing Phases Pre-Purchase

Static data sites. Promotion. Product specifications. Pictures. Schematics. Pricing. FAQs.

Interactive sites. Configuration. Compatibility. Complex pricing.

Purchase Transmission security. User identification. Product selection. Payment validation. Order confirmation.

Post-Purchase Service.

Problem tracking. Sales leads.

Resolve problems. Answer questions. Product evaluation.

Modifications. Tracking customers.


Web Advertising: Advertiser Perspective Want viewers to see the ad. Want viewers to click through to the main site. Need to match site demographics to target audience. Monitor response rates. Cost.


Web Advertising: Publisher Perspective Income

Cost per thousand viewings ($1 - $50) Need volume (25,000 or 1,000,000 per month) Need demographics

Tasks Ad rotation software Tracking and monitoring Ad sales staff Billing Third Party: DoubleClick


Website Log AnalyzerSurfStats pro


Web Hosting Options


Simple Static HTML Website

Main Web Page

Categories…

Category 1

Product photo… …

Category 2


Category 3


Product 1DescriptionPricePhoto


Product nDescriptionPricePhoto



Simple Website with Buy Me ButtonMerchant Web site

ProductDescriptionPrice

Buy Me

Shopping CartItem Price… …

TotalCheck Out

Credit Card DataName

AddressPhone

Card NumberSubmit

Card Processor Site

CustomerNotification(Accept/Reject)

Notify merchant

http://www.goemerchant.com/buymebutton.htm


Web Auctions Uncertain price Can set reserve price Good for unique items Efficiency depends on

Full information Adequate number of

participants


Amazon.com zShops

zShop ProductsCameras, Digital, Brand

Vendor 1

Vendor 2

Vendor 3Vendor TransferDescriptionPriceScanned imageContact info

ConsumerProduct searchChoose vendorPay for item

Transaction ProcessingAmazon.com handles creditSends order info to merchantMerchant ships item to consumer


Virtual Malls

Essentially a marketing agreement The “mall” provides a directory to merchants The merchant site runs on a different server

Directory of Shops

Product categoryVendor 1Vendor 2 Merchant Site

ProductsSales


Web Commerce Servers

Your Web siteProducts

Shopping cartSales

Web servers

Database

Commerce Server Shell

Web/Commerce Hosting Company

CustomersMerchants

Load database

Images

Descriptions

Prices

Customize site


Application Service Provider

Business Applicatione.g., Accounting

Store dataAnalyze dataFacilitate companyinteraction

Businesses that lease the use of the application


Web Hosting Questions


Mobile Commerce

Fujitsu’s tablet computer

As PDAs, cell phones, and tablet computers converge; people will ultimately be able to connect to any business every place they go.

Palm VII wireless PDAPrototype Nokia 3G


Creating a Business

Idea

Plan

Implementation


Expand Your Focus

customers

Big competitor

You might try to compete directly.

It might be better to sell your innovation as a service to the dominant firm or to be an intermediary for consumers.


Industry Research Competition

Number Concentration ratios Sales by firm Technology plans

Size of the market Number of customers Amount of revenue Growth rate Market comparison for substitute products Consumer focus group interviews

Production costs Startup/fixed costs Operating costs

Legal environment


Business Plans

Executive Summary

Strategy, Competition, and Market Analysis

Forecasts, Cash Flow, and Investment Budget

Marketing

Organization and Timetabletasks

time


Forecasting Financial Data

Customers and Sales estimate

Infrastructure scale

Employees

Sales revenue

Marketing costs

Operating and selling costs

Salary costs

Balance Sheet

Income Statement

Profit and Loss

Cash Flow

Financial statement estimates

Financial statements and ratios


Breakeven Analysis

0

200000

400000

600000

800000

1000000

1200000

0 10000 20000 30000 40000 50000 60000

Sales

Revenue

Cost

Breakeven point


Forming a Corporation State Forms

Articles of Incorporation Corporate Bylaws Registered Agent (self) Business Registration Form

State Employer Number Withholding ID Sales Tax ID

Additional licenses Federal Forms

SS-4 Application for Employer Identification Number

2553 Election by a Small Business Corporation

Commercial Bank Account DUNS Number

Accounting System Purchase software Hire accountant Define chart of accounts

Standards Additional detail

Define processes


Financing a Startup

Venture Capital

Angel Investor

Partners

Become owners with some control over management.

Funding for development and operations.

Successful firm IPO:

Additional funds

Reward to original investors


Additional Setup Steps for E-Commerce Additional risk and challenge

of obtaining funding. Website development.

Programming cost. Time and management. Purchase or lease merchant

software if possible. Find a web hosting ISP.

Site complexity. Internet connectivity. Costs.

Host site yourself. Time to get leased line. Choose site location based

on Internet access.

Obtain digital security certificate (Verisign).

Find bank that will provide merchant account services to accept credit card payments. Setup fee. Monthly fee. Transaction fee.

Find a credit card processing firm that works with your bank and your software. Setup fee. Monthly fee. Transaction fee.


Cases: Travel Industry


Cases: The Sabre GroupAmerican Express

What is the company’s current status?

What is the Internet strategy?

How does the company use information technology?

What are the prospects for the industry?

www.sabre.com

www.americanexpress.com


Appendix: Business Plan Purposes

Help managers identify strategies and plan for future Identify goals and concrete objectives Provide measurement of success and identify problems Provide detailed information to investors Outline budget needs


Business Plan Structure Introduction

Outline and summary of the company and the plan Marketing

Competitors Market analysis Advertising Sales Management Product Management: prices and costs

Historic Analysis Sales, profits, structural changes

Organization Structure of the firm and management

Financing Detailed cash needs

Projections Estimates of sales, costs, growth with detailed data and forecasts


Marketing Plans Products

Costs Prices Profits

Competition Strategy Sales Goals and Forecasts Promotional methods Sales Management Distribution and Service


Rolling Thunder Bicycles Example

Rolling Thunder Estimated SalesNumber of Bicycles

Year Increase Hybrid Mountain Race Road Tour Track Annual Total1 250 250 350 200 350 50 14502 10% 275 275 385 220 385 55 15953 10% 302 302 423 242 423 60 17524 10% 332 332 465 266 465 66 19265 10% 365 365 511 292 511 72 2116

Average Sale Price of a Bicycle$1,000 $1,500 $2,500 $2,000 $1,000 $2,000

Estimated Sales ValueYear Hybrid Mountain Race Road Tour Track Annual Sales

1 $250,000 $375,000 $875,000 $400,000 $350,000 $100,000 $2,350,0002 $275,000 $412,500 $962,500 $440,000 $385,000 $110,000 $2,585,0003 $302,000 $453,000 $1,057,500 $484,000 $423,000 $120,000 $2,839,5004 $332,000 $498,000 $1,162,500 $532,000 $465,000 $132,000 $3,121,5005 $365,000 $547,500 $1,277,500 $584,000 $511,000 $144,000 $3,429,000

Sales estimated while the firm was being formed.


Rolling Thunder Bicycles Estimated Sales

Estimated Sales

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

1 2 3 4 5

Year

Track

Tour

Road

Race

Mountain

Hybrid


Projected Income StatementIncome Statement--projected Year

1 2 3Sales $2,350,000 $2,585,000 $2,839,500 Material 822,500 904,750 993,825 Labor 550,000 550,000 550,000 Lease 60,000 60,000 60,000 Advertising/Promotion 500,000 250,000 250,000 Tools depreciation 50,000 60,000 70,000Cost of merchandise sold 1,932,500 1,764,750 1,853,825Operating and Admin Expenses 100,000 100,000 100,000Operating Profit 317,500 720,250 885,675Other income (expense) Interest Income 0 0 93 Interest Expense 0 0 0 Shareholder related expense (10,000) (10,000) (10,000)Earnings before income taxes 307,500 710,250 875,768Federal and state income taxes (123,000) (284,100) (350,307)Net earnings $184,500 $426,150 $525,461

Interest rate on borrow 8.00%Interest rate on short term investments 3.00%Depreciation, 5 years, straight line 0.2Tools purchases $250,000 $50,000 $50,000


Projected Balance

Sheet

YearBalance Sheet--projected at year end 1 2 3AssetsCurrent Assets Cash ($193,550) $3,095 $302,395 Receivables 235,000 258,500 283,950 Inventories 98,700 108,570 119,259 Pepaid expenses 1,000 1,000 1,000 Total Current Assets 141,150 371,165 706,604Property, Plant and Equipment Land 0 0 0 Buildings 0 0 0 Fixtures and Equipment 250,000 50,000 50,000 Subtotal 250,000 50,000 50,000Less accumulated depreciation 50,000 110,000 180,000 Net Property, Plant and Equip 200,000 (60,000) (130,000)Total Assets $341,150 $311,165 $576,604Liabilities and Shareholders' EquityCurrent Liabilities Acccounts payable 82,250 90,475 99,383 Accured payroll and benefits 0 0 0 Income taxes payable (123,000) (284,100) (350,307) Other current liabilities 0 0 0 Total Current Liabilities (40,750) (193,625) (250,925)Other Liabilities 0 0 0Long Term Debt 0 0 0 Total Liabilities (40,750) (193,625) (250,925)Shareholders' Equity 0 0 0 Additional paid-in capital 0 0 0 Retained earnings (193,550) 196,645 299,300 Total Shareholders' Equity (193,550) 196,645 299,300Total Liabilities and Shareholders' Equity ($234,300) $3,020 $48,375

Money to be raised (equity or debt) $575,450 $308,145 $528,229

Assumptions

Receivables as percent of sales: 10%

Payables as percent of material costs: 10%

Inventory as percent of material costs: 12%


Projected Cash Flow

Cash Flow--projected Year1 2 3

Net earnings $184,500 $426,150 $525,461Depreciation 50,000 110,000 180,000Net (gain) loss on asset sales 0 0 0Other 0 0 0 Subtotal from sales 50,000 110,000 180,000(Increase) decrease in current assets: Receivables (235,000) (23,500) (25,450) Inventories 98,700 9,870 10,689 Prepaid expenses (1,000) 0 0 Subtotal from assets (137,300) (13,630) (14,761)Increase (decrease) in current liabilities Accounts payable 82,250 8,225 8,908 Other current liabilities 0 0 0 Accrued payroll 0 0 0 Income taxes payable (123,000) (284,100) (350,307) Total change in current liabilities (40,750) (275,875) (341,400)Total adjustments (128,050) (179,505) (176,161) Net cash provided by operations 56,450 246,645 349,300Cash flows from Investing: Expended for property, plant, equip (250,000) (50,000) (50,000) Proceeds from sale of assets 0 0 0 Net cash used in investing (250,000) (50,000) (50,000)Cash flows from Financing: Proceeds (payments) from long-term debt 0 0 0 Stock or Additional paid in capital 0 0 0 Cash dividends 0 0 0 Net cash provided by financing 0 0 0Net increase (decrease in cash) (193,550) 196,645 299,300Cash and cash equivalents: Beginning of year $0 (193,550) 3,095 End of year ($193,550) $3,095 $302,395

Introduction to MIS1 Copyright © 1998-2002 by Jerry Post Introduction to MIS Chapter 11 Electronic...

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Transcript of Introduction to MIS1 Copyright © 1998-2002 by Jerry Post Introduction to MIS Chapter 11 Electronic...