e-business strategies and models eduardo j c beira department of informaton systems

Eduardo Beira11-10-2001

e-business strategies and models

Eduardo J C BeiraDepartment of informaton systems

University of Minho


What is your best price?

• What is finding the best price?

• To search across the web for the lowest posted price?

• NO!• In (e-)commerce price usually emerges from some kind of

dickering– Fixed posted prices are exceptions

• B2C markets, specially


Fundamentals

• Selling the same product to customers at different prices is fundamental to profitable business

• Principle: concealing your best selling secret: – key to the sucess of the dealer´s strategy of different prices for

different customers is keeping the best price secret– Sellers try to keep the prices of actual deals secret and they try to

keeep secret any information that would help buyers figure out the seller’s rock-bottom price, determined by cost


E-deals

• A broad principle is that e-commerce does not change the fundamentals of deals

– The forces that make the players conceal their best prices are no different as the internet improves communication

– A core of the successful e-commerce enterprise (outside books, CDs and groceries) will be a way to make deals happen despite the desire to conceal their best prices.


Variety of e-markets

• eBay model– One of a kind product, several buyers, automated auction

• OffRoad model– Multiple units of the same product, many buyers bidding (pure B2B)

• FreeMarkets model– Buyers specifies the component; reverse auction between suppliers

• Dickering in the supply chain

• Nasdaq model– Standard product, many buyers and sellers, automated continuous

exchange

• Priceline model– Customer makes an offer (may accept restrictions). Seller accepts or not

• Products that trade in a markets where usually some buyers pay much more than others

• Grainger model– Products in high volume, fixed asking price

• No discount (Amazon) or special pre-negotiated discount (Grainger)• MRO (maintenance, repair, operations) products


• A bot can´t tell you what price you will pay after you dicker, nor can it predict the price you would pay in an auction.

• Despite bots, prices in e-markets, like books, have not fallen to a uniformly low level


• Zero-profit principle:– New sellers will enter a market until the prospective profit (in

excess of the normal return to capital) is zero

• Unless a pioneer in an e-market has a powerful patent or builds up a real head start (like eBay) its profit will erode as others enter the market

• Because trading on e-markets is so much cheaper than in traditional markets, the opening up of e-markets has expanded opportunities for dealers– eBay traders

• e-markets generate information, and information is property.


The essence of the digital deal

• Conceal your best price• Build your e-market within a robust e-commerce infrastructure

– Trading partners, payments, deliveries

• Choose an e-market business model suited for your business• Make an intelligent choice about transparency• Recognize the role of the secondary markets and dealers• Recognize that competition will limit your profits


Old vs new

• Traditional companies have built-in advantages over pure e-commerce firms– Substantial customer base– Brand recognition– Knowledge capital– Physical plants and outlets– Solid supplier relationships– Market power– Processes, policies & people in place

– Advantages in look & feel products– Disadvantages in commodities


The dot com retail continuum

• On the web all goods are not equal


e-opportunity

• e-operations• e-marketing• e-services


Seven misconceptions

• First mover– First mover status is a precarious perch on which to rest strategy

• Reach• Customer solutions• Internet sectors• Best of breed partner• Born global• Technology is the strategy


B2B

• Proprietary electronic marketplaces (e-markets)• e-exchanges

– A particular important question about B2B is how much trading will occur in neutral, independent owened e-markets, and how much in e-markets operated by existing players

• A large part of the story of the crash was the finding that neutrals were making little headway ahainst the captive e-markets set up by big companies or consortiums

– Captive e-markets• Tremendous natural liquidity• Perception of non neutral operation


B2B

• Network externalities• Kelly law: nn

• Dynamic pricing models• Shifting power from sellers to buyers

• Virtual exchange concept• Bring buyers and sellers together on line


B2B (IIIa)

• Multiple buyers• Multiple sellers• Many to many model• Post-trade information• Liquidity


B2B (IIIb)

• Towards EDI compliant + XML capable• New infomediaries• Lower comissions

– 10% to 1%

• Community of buyers and sellers – In a structured and organized fashion

• Critical vertical knowledge• Membership: open vs closed• Ownership issues• Uthentication isssues• Settlement / clearing


B2B trading models

• Fixed price• Low price items; small quantity transactions

• One to one negotiation

• Auction markets– Seller driven

• Liquidation sales– Buyer driven

• Reverse auction

• Electronic autoexecution systems – Constinuous two way auctions (Nasdaq)

• Standard products• High liquidity


B2Bbusiness models

• Agregators• One stop shopping, multisupplier catalogues

• Trading hubs• Vertical markets communities

• Post & browse markets• Buleeetin board with expressions of interest

• Auction markets• Multiple buyers ans dellers in competitive bidding

• Fully automated exchanges• Centralized markets for standardized (commodities like) products

– Automatic matching of orders– Efficient price-setting on line mechanisms– Prequalificaton required


Channel conflits

• From B2B• To B2B2C?

• And the traditional brokers of the market?


B2B exchanges7 secrets

• Stay focused: specialize in a vertical market• Plan to win: the need to dominate• Maintain commercial neutrality• Ensure transparency and integrity• Add value by building a virtual community• Make the right partnership• Operate as a virtual corportaion


B2B profile

• Overview• History• Vertical market opportunity• Membership model• Traiding model• Market entry stategy• Achieving dominance• Building a community

– Services added to the trading mechanism

• Revenue model• Confidentiality and neutrality


– R. Hall, “Digital dealing”, WW Norton & Co., 2001– A. Sculley e W. Woods, “B2B exchanges”, HaperBusiness, 2001– E. Brynjolfsson e G. Urban, “Strategies for e-business sucess”,

MITSloan Management Review, Jopssey-Bass, 2001– S. Chen, “Strategic management of e-business”, J Wiley & Sons,

2001– M. Porter, “Strategy and the internet”, Harvard Business Review,

Março 2001– “Older, wisier, webbier”, The economist, 28 Junho 2001

e-business strategies and models eduardo j c beira department of informaton systems

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