Electronic CommerceBy

Khalil Matta

Executive Certificate Program

Oct 31, 2001

Understanding eBusiness

The conduct of any business interaction ortransaction on an electronic network between the firm and its customers, trading partners, external constituents, and employees.What

More than transactions

WhoMore than customers

WhyMore than efficiency

Internet Impact

• Ability to enlarge the world - namely customer and supply chain

• Ability to shrink the world – make local talent available anywhere

• Ability to enlarge time by making service, products and information available 24/7

• Ability to shrink time by making information available instantaneously

Other Internet Properties

• Distribution Channel

• Transaction Cost Reducer

• Creative Destroyer

Business Models&

Web Strategies

Business Models

• Brokerage• Advertising• Infomediary• Merchant• Manufacturer• Subscription

BrokerageMarket Makers

• Buy/Sell fulfillment: eTrade and CarsDirect• Charge buyer or seller a transaction fee

• Auction: ebay, AuctionNet• fee scaled with the value of transaction

• Reverse Auction: priceline, MyGeek.com• fee based on the spread between bid and ask price

• Search Agents: MySimon, RoboShopper, CareerCentral

• referral charge

Advertising Model

• Portals: Yahoo, Excite, AOL• Success depends on volume (eg. # of eyeballs!!)

• Attention/Incentive Marketing: CyberGold, NetCentives• pay customers for viewing content or filling forms

• Free Model: FreeMerchant, BlueMountain• offer customers something for free to increase volumes

• Bargain Discounter: Buy.com• Sell at or below cost to attract shoppers

Infomediaries

• Consumer Info: eMachines, NetZero• Sell customer info to merchants (offer consumers freebees)

• Merchant Info: Gomez• Sell website info to customers

• Recommender System: Deja.com, ePinions• Monitor user habits and give feedback to merchants

• Registration Model: NYTimes.com• track user navigation and habits for targeted advertising

Merchant Model

• Virtual Merchant: Amazon, OnSale• sell list price or auction. Make money on margins

• Catalog Merchant: Chef’s Catalog• mail order to Web order

• Surf and Turf: Gap, B&N, Borders, Wal*Mart• Channel conflicts or opportunities??

Manufacturer • Dell, Cisco

• Compress the distribution channel by eliminating the middle man

• enhance customer service• faster response time• more efficient supply chain• better customer knowledge

• GE• E-procurement• Creative Business Destruction• B to E• Partner Support

• Ford• Product Development• Auto Hub

Subscription Model

• Wall Street Journal, Consumer Reports, The Street.com, Forrester Research

• Consumers pay to access the site

• AOL

The Web as a Mediating Technology

Interconnecting:

• Business-to-Business

• Business-to-Consumer

• Consumer-to-Consumer

• Consumer-to-Business

• Company-to-Employee

Two Different Approaches• Business-to-Customer

– Aggressive industry player. Primarily retail.

– Gain market and mind share using Internet and Portals

– Primarily Focused on seller-side of supply chain.

– Large scale, mass-market appeal.

– Brand recognition.

– High availability.

• Business-to-Business

– Aggressive industry player. Gain market and mind share.

– Using the Internet and Extranets to capture business community.

– Many business models.

– Security intensive.

– Typically targeted at an industry segment.

Best in Class Do Both!!

On-line Retailing• Advantages to leverage

– Offer the best products and services – Ability to offer a larger selection– Reduced search costs– Convenience of 24x7– Personalized shopping experience– Availability of product information– Targeted selling & promotions– Buyer rewards/loyalty program– Interaction with others who share common interests– Sales tax savings

• Challenges to address– Inability to ‘try before you buy’– Delivery delays– Shipping charges – Customer Service Challenges– Requires computer and Web access

Products on Line

• Purchase decision is information- intensive• Product demonstration and atmospherics are

unimportant• Selection is vast and stores carry limited selection• Prices and selection change frequently• Retail buying experience is unpleasant• Logistically efficient (volume and value)• Non- perishable• Delayed gratification acceptable• Gift- oriented

Quantifying vulnerability:Four dimensions of “E-

suitability”• Information- intensity : How much information does

the• consumer need to gather in the entire buying process?• Multisensory appeal : To what extent does the product• evaluation require consumers to engage the senses of• smell, taste, and touch?• Atmospherics : How important is the role of the• physical store environment and the interaction with the• salesperson in the purchase process?• Logistical efficiency : How efficiently can the product• be packed and shipped to individual consumers?

Channel outcomes of E-commerce

Brand Augmentation Channel Augmentation

Channel Proliferation Channel Disintermediation

Ric

hnes

s of

ph

ysic

al i

nte

ract

ion

sin

buy

ing

Pro

cess

Low

High

Low High

Intensity of information in buying process

• Grocery products

• Garden products

• Footwear

• Apparel

• Consumer electronics

• Appliances/white goods

• Automobiles

• Home furnishings

• Travel

• Computer hardware/software

• Personal investing

• Prescription drugs

• Books

• Music and videos

• Videos

• Office Supplies

Applying the “E-radar”

Atmosphericsfit

Logisticalfit

Informationalfit

Sensoryfit

Apparel

Books

The promise of online shopping…

• Convenience• Choice• Control• Customization• Context• Community

The Challenges of B2C

• Getting customers to visit your site

• Enticing site visitors to buy things

• Building customer loyalty

• Fulfillment

• Generating Profits

Whatever happened to:

• Amazon?

• Priceline?

• E-bay?

• Yahoo?

• AOL?

The promise of B to B e-commerce

• Managing inventory more efficiently

• Adjusting more quickly to customer demand

• Getting products to market faster

• Cutting the cost of paperwork

• Reigning in rogue purchases

• Obtaining lower prices on some supplies

Example – IBM as an eBusinesse-commerce

$15b sold over the web in 1999, run rate of $40/day.

e-procurement$13 billion procured over Web, saving $750m in costs.

e-supply chain managementSupply/demand planning time – 45 days to 20 days, order cycle time

27-44 days to 2-23 days, rapid response (QuickShip and Custom QuickShip) revenues from 0 to $1.3b.

e-customer relationship management52, inquiries handled on Web, saving $750m in support

e-partner relationship managementPartnerCommerce allows 45,000 partners to order, track status, and

get financing and credit online through IBM

Example – IBM as an eBusinesse-external relationship management

Tailored web sites for press, IT consultants, financial analysts and shareholders. Investor page – 300,000 page views/month.

e-learningOnline management development programs, learning simulators and

training tools. Savings of $200 million in 1999.

e-product developmentCentralized part descriptions for vendors. Collaborative design tools

for software developers. Savings of $175m in 1999.

e-employee relationsIBM intranet gets 11m hits per day, 87% of IBM employees use the

intranet every day. Employee directory, customized news delivery, performance scorecard for IMB vis-à-vis competitors.

Example: e-Business at Ford Motor Company

Customer Service

Supply Chain Management

Marketing

Sales

New Product Development

Procurement

EmployeesOffer 350,000

employees computers and web access for $5 per month. Move B2E

transactions to the Net.

• Auto-exchange web site with Oracle/Cisco for online purchasing from 30,000 suppliers. Save $8.9b in purchasing. Generate $3b in exchange fees.

• OwnerCommection web site for online help, warranty service management, financing status. Cut customer interaction costs.

• Build cars with”digital dashboards” – Net access, location-based GPS services. Generate ISP, commerce and subscription fees.

• Team up with portal sites to sense buying preferences.• Move Ford Credit to web-based model. Save 15% in costs.

• BuyerConnection and MSN CarPoint for web-based lead generation and “pull” model of ordering cars. Save $650/car in selling costs.

B2B efforts require:

• Negotiationhaggling over prices, delivery and product specifications.

Not so with most consumer sales.

• IntegrationRetailers don't have to integrate with their consumer

customers‘ systems. Most companies selling to businesses do integrate because their systems have to be able to communicate with those of their customers without human intervention.

The ladder of E-business evolution

• Basic web site• Information-only• Tactical/outsourced

• Process automation• Department level• Tactical/in-house

• Process redesign• Extended enterprise• Strategic (VP, E-Biz)

• New businesses• Industry-level impact• CEO as leader

Presence

Exploration

Integration

Transformation

Incumbents

Challengers

Business to Business E-commerce (B2B)

• Procurement

• Supply Chain Management

• Customer Relations Management

• Product Development

• Employee Relationship

• PR

Information infrastructure for e-Business

ERP Backbone

Customer-facing Applications(CRM)

Supplier-facing Applications(SCM and ORM)

Customers andInfluencers

Suppliers (direct andIndirect materials)

Par

tner

-fac

ing

Ap

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(PR

M)

Res

elle

rs a

nd P

artn

ers

Em

plo

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faci

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Ap

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(ER

M)

Em

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E-procurement

• Increase # of suppliers

• Aggregate buying activity

• Standardize buying process

• Reduce transaction costs

• Increase competition

E-procurement mechanisms

• Auctions – Force suppliers to bid for your business• Reverse Auctions – name your price and see if

anyone is willing to take your business for that price• Catalogues – Have agents search the web for the

product you want • Hubs – e-marketplaces

GE

S:GELOGO/File.ppt 33

Supplier Exchange Customer Exchange

ProcurementProcurement

Open Exchange• Demand collaboration• Inventory reduction• Transaction efficiency

Private Exchange• Hosted demand and

inventory planning• Inventory pooling• Procurement efficiency• Excess inventory

reduction

Evolution of B2B e-Commerce

Hub

eMarkets(many to many)

EDI(1 to 1)

Dell, Cisco(1 to many)

Many-to-many(Mediated)

One-to-one(Direct)

Nat

ure

of t

rans

actio

ns

Closed (EDI) Open (Web-based)

Infrastructure/Standards

Enter the eMartplace (eHub)

• Electronic hubs (eHubs) are third-party Internet-based intermediaries that specialize in specific vertical markets or specific functional processes, host electronic marketplaces, and enable many-to-many transactions among businesses.

• Sources of value creation:• – Reduced transaction costs• – Buyer and seller aggregation• – Improved marketplace liquidity• – Improved marketplace information• – Redesigned workflowAuto-Xchange

Supply Chain Management

• Provide a single view of customer• Just-in-time buying• Eliminate steps in the buying/selling process

– Increase response time– Reduce delivery cost

• Increase flexibility• Increase information flow• Better management of cash flow

Dell

Supply Chain ManagementSupply Chain Management

DistributionDistributionManufacturinManufacturingg

SupplierSupplierss

TransportatioTransportationn

CustomerCustomerss

InformationMaterial/products

• Demand Management• Planning & Scheduling• Logistics

Moving to one integrated Supply Chain for whole business...Moving to one integrated Supply Chain for whole business...

Changes the DNA of the BusinessChanges the DNA of the Business

Will drive huge impact . . . Real game changers . . .

• Integrated demands, consolidated planning and logistics• Higher service levels with lower working capital• Automated processes drive big productivity• The engine behind e-Business

The VisionThe Vision

Huge Opportunity to Reinvent The BusinessHuge Opportunity to Reinvent The BusinessHuge Opportunity to Reinvent The BusinessHuge Opportunity to Reinvent The Business

Customer Relations Management• Improve Customer Satisfaction

– 24/7 availability– Multi-service capability

• Web• Telephone• Personal

– Improve response time– More accurate response

• Reduce cost– Help groups– Bulletin boards– Most frequent questions– Eliminate steps in the process– Outsource

Harrah Entertainment – Walgreens

Spare Parts

Features:• Price & Availability• Order Information• Saved Parts Lists• Advanced Searching• Order Status

Benefits:

• Most recent prices, availability and status information

• Monitor/track all orders, Personalized product information

• Enhanced accuracy, consistency, and 24 x 7 support

Product Development

• Remove geographic constraints• Use Best-in-class capability• Focus on core competencies – increase outsourcing –

reduce costs• Better information flow• Eliminate redundancies• Reduce time to market• Better after development service

Charles Schwab

B to E e-commerce

• HR - benefits management

• Expense reporting

• Communications tool

• Knowledge Management

Health Canada

eStrategy Competitive Portal Overview Future

Technical Publications

Features:

• Illustrated Parts Catalog

• Engine Service Manuals

• Online Service Bulletins and eMail Notifications

• Fleet Highlites

Benefits:

• Search thousands of pages within seconds

• Immediate desktop access and custom searches

• Visual drill-down of diagrams in Illustrated Parts Catalog

Benefit: Engineers spend an hour each day searchingBenefit: Engineers spend an hour each day searching

through books & CDs--the CWC does it in secondsthrough books & CDs--the CWC does it in seconds

Public Relations

• News Releases

• Product Developments

• How to

• Financial Reporting

• Advertising

Abbott LabsAbbott Labs

The builders of e-architecture• Enterprise Management

ERP applications (SAP, Peoplesoft)

• ProcurementORM applications (Ariba, Commerce One)

• Supply Chain ManagementSCM applications (i2 Technologies)

• Customer Relationship ManagementCRM applications (Siebel, Silknet)

• MarketingEMA applications (MarketFirst, Rubric, Annuncio)

• SalesSell-side e-commerce applications (Broadvision, OpenMarket)

• Enterprise Applications IntegrationEAI applications (BEA Systems, TIBCO, Crossworlds, etc.)

Challenges facing Suppliers

• Determining core competency – willing to outsource the rest

• Differentiation• Low cost producer• Creative Business destruction/creation• Thinking Globally vs. Regionally• How much info to share with customers and

suppliers• Proactive vs. reactive web strategies

New E-Business Reality

Use e-commerce to focus on and fortify your core competencies!!!

Design Issues of Virtual Sites

Checklist for an e-business case• Outline the business problem that will be solved• Identify the business process that will be targeted• Profile the audiences who will be affected• Estimate the business impact (ROI/NPV) that is

expected• Create metrics for measuring this impact• Select technology, vendors, and implementation

partners• Organize the team and define roles• Develop milestones and prototyping/validation strategy• Address implementation hurdles and contingency plans

Architecture: Challenges

• What are the key challenges facing organizations designing web sites today?– Time to market

– Creating a reliable, maintainable site

– Creating scalable site that can easily grow with demand

– Creating a dynamic site with data driven content

– Integrating data from external systems

– Security

– Privacy

– technology choice

What is Scalability?

• The ability to accommodate more and more users simply by adding resources to the system.

Scalability vs. Performance

• Many sites that perform well with a small number of users do not perform well with a large number of users

• Many sites that perform adequately with a small number of users continue to perform adequately with a large number of users

Scaling Your Web Application

• Scaling Up vs. Scaling Out– Scale up by moving to bigger hardware or

upgrading existing hardware– Scale out by adding more hardware to existing

solution

Scaling Up

• Pros– Fewer machines to manage– Program one system– Simpler programming model– Only option in some cases

• Cons– Expensive hardware– Single point of failure– Downtime for upgrades

Scaling Out

• Pros– More cost effective – No single point of failure– Virtually unlimited growth potential– Easier to add capacity

• Cons– More complicated programming model– More machines to manage

Other Design Challenges

• Accurate load simulation– Volume of hits per second

– Distribution of hits over different site features

• The “Early Adopter” problem– Some of the technology is immature, but there are

few alternatives

– Need to ignore marketing hype and do proof of concept to find out what actually works

Privacy

• Have a Privacy policy in place for both your customers and your employees

• Display policy on website• Explicitly seek customer input and approval when

using their data• When in doubt do not share data outside your

organization• Guaranteed e-delivery • Rights Management • Records Management

Security

• Monitor activity and develop audit trails• Develop backup and Recovery Plans• Establish a password policy to prevent

unauthorized access to data• Use latest Encryption key technology to

combat telecommunication fraud• Use Firewalls to protect internal data from

external hackersRemember that no site is 100% secure

Other issues to ponder

• Outsource Development

• Use ASPs

Economics of E-commerce

How do we put a value on this stuff?

The New E-conomy - Value Shifts*

Old Economy New Economy

Assets Information

Products Services

Vertical Integration Virtual Integration

Money Time

Revenue (Size) Growth Rate

Profit / Loss Market Cap

Fortune 500 The Next Big Thing

* Geoffrey Moore, Living on the Fault Line, 2000

New E-conomy Critical Resources

Scarce

Resources

1. Time

2. Talent

3. Management

attention

Plentiful

Resources

1. Capital

2. Technology

3. Outsourced

Service Providers

Developments that will impact E-commerce

• Technology– Broadband– Wireless Technology– Voice Recognition

• Taxation

• Legislation

• Cultural

Interesting Articles• The New Growth Engine of the Economy

• Leveraging the Web

• Impact on traditional Business

• Managing the Distribution Channels

• Marketing on the Internet

• Globalization issues

• Taxing the Internet

• Privacy Policies

Questions??