MP3Electronic Commerce II

Dealing w/Competitive Threats

Fall 2000

Dealing with Competitive Threats

• Strengthen brands– inspire trust, communicate quality, lower search costs

• Create economies of scale

• Differentiate products / constant innovation

• Create switching costs– pref. databases, communities, loyalty programs

• Dominate or create distribution channels

• Leverage alliances and partnerships

Customer Acquisition Costs

CompanyAquis.

Cost

CDnow 40EarthLink 75America Online 93Credit card companies 90-100Long distance telephone companies 100Mortgage lenders 100-250

Avg. Costs: $11 - catalog; $31 - physical; $82 - online(Shop.org, 2000)

Strong Brand Can Be Extended

If you build it...

• … will they come? Maybe, but they might not return.

Vis

ito

rs

Time

Branding &Value Delivery

Scale in theMarketplace vs. Marketspace

• Turnover– 2.6 times / year– avg. book in store 20

weeks

• Inventory– shelf & warehouse

stock– 20-40% returns– little float / title

• Turnover– 26 times / year– avg. book in house 2

weeks

• Inventory– all warehouse stock– few returns– avg. 32 days of

float / title

Scale, IPOs, and DifferentiationLetting in the Little Guy

The Firm Underwriters, institutions, &

large investors

$12/share7% fee

small Investors

small Investors

small Investors

$15/share

&Online

Brokerages

small Investors

small Investors

small Investors

• Result: differentiated service enabled by scale

Commodity Products

• Time available = X

• High search costs – (e.g. time to visit a firm = X/3)– customer can only visit 3 firms

• Low search costs – (e.g. time to visit a firm = X/30)– customer can visit 30 firms

Differentiation & Switching Costs

• Differentiate the product or service via:– mass customization– preference databases & collaborative filtering– communities

• Switching costs created via:– preference databases & collaborative filtering– frequent buyer programs– communities of users– learning, compatibility, standards

Cookies• stored in a text file on your hard drive• usage

– track users (unique ID)– save passwords / prefs.– temporary storage (shopping

basket)• each cookie can only be accessed by

the domain that placed it (ads have own domain)

• may be disabled (prefs) • a cookie single user

TargetingTargeting Options• site categorization• visitor frequency• geography• domain name• service provider• SIC codes• company size (emp, $)• browser type• operating system• click stream

Privacy Issues• Policy - posting & updating

• Trust Seals– industry lead: TRUSTe– weak, effectiveness questioned

• Consumers in Control– P3P: Platform for Privacy Preferences– MS Internet Explorer 5.5 and greater

• Government Regulation

• Internal Policies

Why Communities?

• Communities create switching costs & provide a reason to return– 57% of surfers return to the same sites

• Communities generate traffic– chat boosts traffic from 50% to 300%

• Communities pre-qualify users• Community members spend more• Communities can lower support costs

Users = Value

source: InternetWorld, Wired News

Date Service Purchaser # of Users Deal $ $/UserJun-00 eGroups Yahoo 17 million $428 million 25$ Jun-00 AnyDay.com Palm 3 million $80 million 27$ Nov-99 Gamesville Lycos 2.2 million $207 million 94$ Jan-99 GeoCities Yahoo 3.5 million $3.56 billion 1,017$ Aug-98 WhoWhere Lycos 10.6 million $133 million 13$ Aug-98 PlanetAll Amazon 1.5 million $87.9 million 59$ Jun-98 Mirabilis/ICQ AOL 11 million $287 million 26$ Apr-98 WebChat InfoSeek 2.7 million $6.7 million 2$ Feb-98 Tripod Lycos 1 million $58 million 58$ Jan-98 HotMail Microsoft 9 million $400 million 44$ Oct-97 Four11 /

RocketmailYahoo 1 million $92 million $ 92

Sep-97 CompuServe AOL 2.6 million $425 million 163$

Distribution Channels

• PC Makers (Compaq, Dell, IBM, Gateway, Apple)

• Operating System (Microsoft Apple, Sun)

• Browsers (Microsoft, Netscape/AOL)

• ISPs (AOL, AT&T, @Home, BabyBells, Earthlink) • Portals (Yahoo, Excite, Infoseek, Lycos, AOL)

• Focused Aggregators (Quicken.com, Auto-By-Tel)

• Internet Appliances (WebTV, i-Opener)

• Hybrids (Pixel Co., RadioWave, Pointcast)

Web Site Promotion Schemes

• Popularity: – Banners 98%– Buttons 55%– Television 30%– Affiliate Programs

17%

• Effectiveness (Scale of 1-5):

– Affiliate Programs 4.3– Television 4.0– Banners 2.8– Buttons 2.0

Source: Iconocast.

AOL’s Cooperative Agreements

AOL Mobile Communicator:RIM and BellSouth

AOL Touchpad:Gateway

“Speed is God,Time is the Devil”