Lecture 1: History and Business Models

Assignment 1: Auction Registration and bidding

Assignment 2: Turn in profiles

Assignment 2: Internet Profile

On an Excel Spreadsheet, provide on separate rows:

1. DO NOT(!!!!) PROVIDE YOUR NAME ON THE SPREADSHEET 2. Gender: Male/Female 3. Married: Yes / No 4. Children: Yes/ No 5. Currently Full-time employed: Yes/No A list of 20 Internet sites you visited last month. They must each be on a

separate row. Also, they must be distinct.: http://www.cnn.com/2002/WORLD/europe/08/19/chechnya.helicopter/index.html and http://www.cnn.com/2002/US/08/19/mckinsey.report/index.html would not be counted as separate sites.

Email the spreadsheet to me at eharuvy@utdallas.edu

WHAT DO WE USE THE INTERNET FOR?

Email Chat Personal web pages Banking Look for a job. Post resume. News, weather and stock quotes Brokerage services and retirement portfolio Movie shows and times Airline tickets, hotel reservations, car rental Finding information about products. Feature and price comparison. Buying books and CDs and misc. Finding information for the class Finding information to settle disputes Dictionary and thesaurus

Was the Internet Revolution over-hyped?

Yahoo! Inc. | YHOO

Last Sale: $ 28.41

Net Change: 0.22 0.77%

Share Volume: 16,512,662

Yahoo! Inc. | YHOO

Last Sale: $ 28.41

Net Change: 0.22 0.77%

Share Volume: 16,512,662

WHAT WENT WRONG?

The Gold Rush of E-Commerce. Capital foolishly invested. E.g., Dot-coms are able to raise capital without having to demonstrate profitability or viability

Lots of new economy startup millionaires and billionaires with no understanding of business models

Common assumption that old business rules are obsolete

Companies jump in, undermining own competitive advantage and industry profitability (airilines, cars, books, toys, computers)

Companies forfeiting proprietary advantages in misguided relationships and partnerships

Distorted signals: subsidized revenues (Amazon, eToys)– When price is artificially low, demand is artificially high Some revenues were in terms of stock rather than cash. Much of the $450 million of revenues

Amazon reported one year were from partners in stock (stock shows in revenue but not in cost).

subsidized inputs in terms of free content from content providers (Yahoo!). Some content providers paid portals to distribute their contents

Some suppliers agreed to accept stock in lieu of cash (stock does not appear as cost)

Fuzzy new performance metrics Price competition becomes more intense as search costs decline Barriers to entry reduced or eliminated in many instances

What have Internet intensive companies done wrong?

1. Stretch resources.– R&D– Acquisitions– Executive compensation

2. Accounting– Swaps of products– Sales for stocks– Loans for buyers– Focus on stock price

2. Demand Assessment

3. Products and target segments

4. Defensible position

5. Identification of competitors and substitutes

A Brief History of Internet 1969 - first link UCLA to Stanford Research Institute 1971 - email and use of @ symbol 1972 - remote access of computers -telnet 1973 - multiple person chat sessions 1973 - file transfer protocol Was meant to be an emergency military communication and sharing of ideas

among academic community - funded by NSF 1994 - NSF withdrew funding - private web browsers and servers - WWW –

hypertext

Possible to mix pictures, sound, and video with simpler text. Clickable links

Jupiter Communications (2000), 336 billion of B2B in 2000. 6.3

trillion by 2005

Goldman Sachs (2000) projected 4.5 trillion by 2005.

Jupiter Communications (2000), 336 billion of B2B in 2000. 6.3

trillion by 2005

Goldman Sachs (2000) projected 4.5 trillion by 2005.

Types of E-Commerce

B2C – Business-to-Consumer

B2B – Business-to-Business

C2C – eBay – Market maker involved

P2P – (Legal) Music sharing

M-Commerce (mobile)--- PDAs, cellphones

Other buzz words:Brick and MortarClick and Mortar

Internet Advertising

TNS Media Intelligence/CMR reported that advertisers spent $4.7 billion in the first nine months of this year on Internet ads, representing a 13.8 percent gain over the same period in 2002.

Year Ad expenditures (in millions)

% change

1998 654 77.00%

1999 3,086 372%

2000 5,597 81%

2001 2,662 -52%

2002 2,150 -19%

2003 2,200 2.30%

Consumer Advertising By Dot-Com Brands(Percent change over previous year)

Universal McCann, “Insider’s Report,” December 2003

Consumer Advertising By Dot-Com Brands(Percent change over previous year)

Universal McCann, “Insider’s Report,” December 2003

Year Revenue

2000 7,087

2001 7,134

2002 6,010

2003 5,037* (3rd Q)

Ad Revenues, 2000-present (in millions) Source: Internet Ad Revenue Report, IAB and PwC

OTHER DIMENSIONS

growth in …Web contentInternet communication.Internet auctionsRethinking of basic business principles and modelsAbility to collect individual level dataAbility to customize products, services, and information

Strategy Basics

Porter’s 5 forces framework

Industry competitorsRivalry

Threat from Substitutes

Bargaining power of Buyers

Threat of new Entrants

Entry barriers

Bargaining Power of suppliers

Porter’s Five forces framework

Supplier bargaining power – – Increased or decreased?

Internal rivalry - increased Inability to monopolize network due to common standards Differentiation – difficult to maintain proprietary offerings

Buyer power – increased or decreased?-INCREASED: Shop bots: Price sensitivity increases Differentiation decreased Switching costs decrease Information and comparability increase

-DECREASED: Competition between buyers

Threat of entry – increased Entry and exit barriers Economies of scale– sales force, access to channels, physical locations

Substitutes – new approaches to meeting needs and performing functions

First Mover Advantage?Pioneer Leader

Browser -- Mosaic Explorer Search Directory -- Yahoo Google / Yahoo Free Email -- Hotmail Hotmail E-tailing -- ISN Amazon Books -- Amazon Amazon Music -- CDNow! CDNow, Amazon C2C Auctions -- Ebay Ebay B2B eProcurement -- Ariba Ariba B2B Auctions -- FreeMarkets FreeMarkets

Is there pioneering advantage on internet? (Porter thinks not) Unique assets accumulate

Number of members, member content Barriers to new allegiances get higher

Relationship and trust grows Adapt to technology

Factor costs increase shortage of skilled hosts of bulletin boards and chat rooms

Acquisition becomes expensive High stock prices and deep pockets