Electronic Commerce

Business Models and Strategies

Minder Chen, Ph.D.

Associate Professor of Management Information Systems and Decision Sciences
School of Management, George Mason University
mchen@gmu.edu
 Reference
1. Net Ready, by Amir Hartman and John Sifonis, McGRaw-Hill, 2000.
2. Now or Never, by Mary Modahl, Harper Business, 2000
3. Designing Systems for Internet Commerce by G. Winfield Treese, Lawrence C. Stewart
(May 1998) Addison-Wesley Pub Co; ISBN: 0201571676
4. Net Results: Web Marketing that Works by Rick E. Bruner (Editor), Cybernautics, Usweb
Corporation Hayden Books; ISBN: 1568304145
5. E-Business : Roadmap for Success by Ravi Kalakota, Marcia Robinson, Don Tapscott
(June 1999) Addison-Wesley Pub Co (C); ISBN: 0201604809
6. Customers.Com: How to Create a Profitable Business Strategy for the Internet and Beyond
by Patricia B. Seybold (Contributor), R. T. Marshak, Ronni Marshak 1 Ed edition
(November 1998) Times Books; ISBN: 0812930371
7. Net Success : 24 Leaders in Web Commerce Show You How to Put the Web to Work for You
by Christina Ford Haylock, Len Muscarella, Ron Schultz, Steve Case (May 1999) Adams
Media Corporation; ISBN: 1580621147
8. Creating the Virtual Store: Taking Your Web Site from Browsing to Buying, by Magdalena
Yesil, Published by John Wiley & Sons, November 1, 1996
9. Understanding Electronic Commerce (Strategic Technology Series), by David R. Kosiur,
Published by Microsoft Press, May 1, 1997.

© Minder Chen, 1996-2000 EC - 2

 Cyber-Seminar Outline
• EC Introduction
Introduction
The cycle of electronic commerce
EC and Business Process
EC statistics
• EC Strategies
4Cs strategy: Customer, Content, Community, Commerce
Revenue streams
EC development process
• EC Business Models
B2C Virtual stores: physical and digital goods and services
Infomediaries: Seller-side
Informediaries: Buyer-side
Infomediaries: B2B marketspace

© Minder Chen, 1996-2000 EC - 3

 EC Introduction

• Introduction
• The cycle of electronic commerce
• EC and business process
• EC statistics

© Minder Chen, 1996-2000 EC - 4

 Electronic Commerce: Introduction

E-Business

E-Commerce
Commerce
Internet
Commerce

© Minder Chen, 1996-2000 EC - 5

 Electronic Commerce
• Electronic commerce is broadly as the ability to
execute business activities (transactions,
contracts, and partnership) over a computer
network. The execution of these activities lead to
the exchange of goods, services, and money.
• Online business activities are changing market
dynamics and structures of various industries.
• Electronic commerce adds a new dimension
"information" to business activities involving
information goods, information services, and
electronic money.

© Minder Chen, 1996-2000 EC - 6

 The Low-Friction Market
"[The Internet] will carry us into a
new world of low friction, low-
overhead capitalism, in which market
information will be plentiful and
transaction costs low."
-- Bill Gates, The Road Ahead

"Where there is a friction,

there is opportunity!"
-- Net Ready.

© Minder Chen, 1996-2000 EC - 7

 The Cycle of Electronic Commerce

Access
Searches
Queries Follow-on
Surfing Sales

Customer Online Online

s Ads Orders

Standard
Orders

Distributio
n
Online: soft goods
Delivery: hard goods

Electronic Customer Support

Source: Understanding Electronic Commerce (Strategic Technology Series),

by David R. Kosiur, Published by Microsoft Press, May 1, 1997. EC - 8
© Minder Chen, 1996-2000
 Components of Electronic Commerce

Institution Processes
• Government • Marketing
• Merchants • Sales
• Manufacturers • Payment
• Suppliers • Fulfillment
• Consumers Electronic
• Support
Commerce

Networks
• Intranet
• Extranet
• Internet

Source: adapted from David Kosiur, Understanding Electronic Commerce, Microsoft Press, 1997.

© Minder Chen, 1996-2000 EC - 9

 EC and Business Processes
Seller Phone,
Customer
Send info Request info
fax, e-mail
Provide Identify
Info need
Data sheets,
catalogs, demos Web surfing
Web searches,
Get web ads Find
Web site
customer source
Corporate Databases

Newsgroups
Evaluate
Provide Net offerings
info communities

Demos,
reviews
Web site Purchase
Credit cards, e-cash
P.O.s
Fulfill
order EDI

Maintain,
Deliver soft goods electronically Repair,
Support Web site, phone, Operate
fax, e-mail, e-mailing list

Source: adapted from David Kosiur, Understanding

© Minder Chen, 1996-2000 Electronic Commerce, Microsoft Press, 1997. EC - 10
 World Wide Internet Commerce

© Minder Chen, 1996-2000 Forester Research, Inc. June 1999 EC - 11

 Business Internet Commerce Trends

B2C: Business to Consumer

B2B: Business to Business
Reference: http://cyberatlas.internet.com/
© Minder Chen, 1996-2000 EC - 12
 Business-to-Business E-Commerce
• International Data Corporation forecasts that business-to-business e-
commerce revenue will jump from $80 billion worldwide in 1998 to $1.1
trillion in 2003. Forrester Research believes that number will go even
higher to $1.3 trillion by 2003.
• Business-to-Business -- Vertical Industries
– Computing and Electronics: For this year, businesses will invest $50
billion in computers and other electronic equipment online. Increase
to $319 billion by 2002.
– Motor vehicles: Companies will spend $9 billion online to purchase
fleets of cars and trucks this year. 2002—grow to $114 billion—more
than a 1000% increase.
– Online utilities: Online trades of $15 billion in 1999 will grow to $110
billion by 2002.
– Food and agriculture: Expected to be about $3 billion in 1999--$20
billion by 2002.
– Pharmaceutical and medical: Forecasted $1 billion this year. Increase
20-fold by 2002.

Source: Business 2.0, March, 1999 re: Forrester Research

© Minder Chen, 1996-2000 EC - 13
 Statistics
• Holiday Season 1998
– 2.1 million households shopped online for the first time
– Generated $2.3 billion
– Virtually all (98%) of AOL shoppers said they would shop online again in
the next 6 months (Source: Jupiter Communications)
• By 2003 . . .
– Consumers on the Web will spend more than $177 billion worldwide.
– There will be an eight-fold increase in Web buyers worldwide to 143
million (International Data Corporation, March 1999)
– In Europe, 43 million households will be online. (Source: Nua Internet
Surveys 12/98 re: DataMonitor)
– In Japan, buyers will spend one trillion Yen online. (Source: Nikkei
Multimedia, 12/98)
• 1% of 5 million US merchants are able to collect payments via
the Internet in 1999.
• 10% E-merchants by year 2003.

© Minder Chen, 1996-2000 EC - 14

 Retailing Trends

1950s 1960s-1970s 1980s 1990s

Ma
Ma

Su

W
lls
in

pe

eb
st r

rs
to
ee

re
t

s
• Home Depot
• CompUSA
• Barnes and Nobles
• Border

© Minder Chen, 1996-2000 EC - 15

 AOL Findings
• Buy brands
• Seek convenience
• Are increasingly time-starving
• Are not solely motivated by price
• Require simplicity

Source: America Online, 1999

© Minder Chen, 1996-2000 EC - 16

 Net Economy
• 1940s - 1980s
– Manufacturing to information economy
– Local - regional - national - multinational
– Tangible brick-and-mortar assets: offices, shops, service
centers, and warehouse
• 1990s - 21st Century
– Net economy:
» Information & Knowledge
» Communication and interactions
– Global and virtual
– Business Focus: Information, channel, flow, customer
loyalty, reliable service, relationship
– Intangible assets: Knowledge, experiences, relationships

© Minder Chen, 1996-2000 EC - 17

 Internet Economy Driving Forces
• Changing customer demands
• Globalization
• Internet ubiquity
• New technology
• New marketplace and intermediacies

© Minder Chen, 1996-2000 EC - 18

 Selling Points of Virtual Stores
• "The Internet is going to become a channel of
distribution." -- The president of a major U.S.
advertising agency
• Another firm advertise its virtual store as "The
parking is easy, there are no checkout lines, we
are open 24 hours a day, and we deliver right to
your door."
• The trend toward point-of-sale moving into the
home is accelerating.

© Minder Chen, 1996-2000 EC - 19

 Benefits to the Merchants
• Increased sales of existing products to
generate additional revenues
• Use the web to target their offers to a niche
market
• "The store is always open!"
• Establish better relationships with customers.
• Low cost information distribution
• Increased speed to market
• Expanded delivery channels
• Global exposure and reach

© Minder Chen, 1996-2000 EC - 20

 Benefits to the Consumers
• Convenience
• Informative
• Value presented upfront: Demo and free
download
• No long wait times
• Easy flow and navigation
• Search capabilities
• Engaging presentation
• Constant updates
• Easy to buy

© Minder Chen, 1996-2000 EC - 21

 All 3 Steps in One Medium
• Web and EC allows you to integrate three major
steps of markting and sales in one medium.

Get Attention Give More Information/ Transact/

Answer Questions Service

Branding Informing Selling

• TV Ads • Brochures • Store

• Sales People • Telephone
• Magazines
• Print/editorial • Catalogue

© Minder Chen, 1996-2000 EC - 22

 Internet Industry
Sports
Malls Commerce Instruments
Content Electronic Portals
Entertainment
and Commerce Commerce Servers
Newsfeed
Activity Infrastructure
Publications

Client/Server
Consulting
Internet Software
Economy
System Integration
and Design Browsers
Web Server
Application Servers
Security
Backbone Router Tools
Internet ISP
Access Equipment Network
Equipment Internet Service
Server Computers Services Consumer Services
Carriers
© Minder Chen, 1996-2000 EC - 23
 EC Strategies
• 4Cs Strategy:
– Customer
– Content
– Community
– Commerce
• Revenue Streams
• EC Development Process

© Minder Chen, 1996-2000 EC - 24

 New Competition From Surprising Places
• Most Visited Retailers:
1. Bluemountainarts.com
Not in Top 25:
2. Amazon.com • Towerrecords.com
3. AOL.com
4. Ebay.com
• Borders.com
5. Etoys.com • Toysrus.com
6. Barnesandnoble.com • Target.com
7. CNet.com (software)
8. Egghead.com • Gap.com
9. CDNow.com • Macys.com
10. Musicblvd.com
11. ColumbiaHouse.com
• Sears.com
12. Classifieds2000.com • WalMart.com
13. Beyond.com
14. Coolsavings.com
• “BigCompany.com”
15. Valupage.com •
•
• YourCompany.com??

© Minder Chen, 1996-2000 EC - 25

 Moving Your Business Online
• Companies are motivated by either fear or
greed to move to their businesses to the net.
• To .com your company is becoming an
imperative.
• They have to obsolete their current business
models and work very hard to search a new
business model.

Your competitor is just

one-click away

© Minder Chen, 1996-2000 EC - 26

 Electronic Commerce Applications and the Cycle of Commerce

Seller's Cycle of Commerce

Bil
Pr
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od

Se
ng
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rk

rv
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ice
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on

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Time

© Minder Chen, 1996-2000 EC - 27

 Electronic Commerce Applications and the Cycle of Commerce

Buyer's Cycle of Commerce

Re
Sh

Pr

ce
op

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ure

era
Pa
ing

g/L

ym
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g

Time

© Minder Chen, 1996-2000 EC - 28

 EC Strategies: 4 Cs

Custo
mers
Commerce

Content Community
© Minder Chen, 1996-2000 EC - 29
 Customers
• Obsess over your customers
• Remember that the Web is an infant
– What do you have to offer that the physical world
cannot in order to attract customers?
• If you make one customer unhappy, he won't tell
five friends -- he'll tell 5,000 on newsgroups, list
servers, and so on.
– "Word of mouth" factor gets
amplified on the Net
• The shifts of balance of power away from
business and toward customer.
- Jeff Bezos

© Minder Chen, 1996-2000 EC - 30

 Self Assessment: Customer Caring
What do your customers need?
What process do they go through?
What do you need from customer?
What can you do to build relationships?
© Minder Chen, 1996-2000
What requests do they make of you?
How do you respond to customer’s requests?
What kind of information can they get from you?
How do you produce and distribute it to them?
What are the steps that your customers have to take
to complete a purchase transactions?
How do they get shipment status?
How are exceptions handled?
What do you know about customer preferences?
What information could you use to better target your
product and service offerings?
How can you engage customers in an ongoing dialog?
How can you continue to provide information, products,
and services to reinforce your ongoing relationships?
EC - 31
 5 Steps to Success in EC
• Set strategy
– Make it easy for customers to do business with you!
• Focus on the end-customer
– Identify end-customers and their needs
– Distinguish from channel partners
– Identify other internal and external stakeholders
• Redesign customer-facing business processes
• Wire your company for profit and success
• Foster customer loyalty
– Determine and prioritize objectives
– Decide what to measure and how to measure
– Measure profitability and other critical success
indicators
Source: Adapted from Customer.com by Patricia Seybold, 1998
© Minder Chen, 1996-2000 EC - 32
 Foster Customer Loyalty
• The key to profitability in EC
• Achieving higher revenues via customer
acquisition and customer retention
– Acquisition costs
– Base profit
– Revenue growth
– Cost savings
– Referrals
– Price premium
• Benefits:
– No-cost acquisition
– Experienced customer
• Strategies
– Increase customer "inventory"
– Increase customer "tenure"

© Minder Chen, 1996-2000 EC - 33

 8 Critical Success Factors
• Target the right customers
• Own customer's total experience
• Streamline business processes that impact the
customer
• Provide a 360-degree view of relationships with
your customers
• Let customers help themselves
• Help customers do their jobs
• Deliver personalized services
• Foster community

© Minder Chen, 1996-2000 EC - 34

 Target the Right Customers
• Know who your customers and prospects are
• Find out which customers are profitable
• Decide which customers you want to attract (or
keep from losing)
• Decide which customers influence key
purchases
• Find out which customers generate referrals
• Don't confuse customers, partners, and
stakeholders

© Minder Chen, 1996-2000 EC - 35

 Own the Customer's Total Experience
• Deliver a consist and branded experience
• Focus on saving customer time and irritation
• Offer a peace of mind
• Work with partner to deliver consistent service
and quality
• Respect the customer individuality
• Give customers control over their experience

© Minder Chen, 1996-2000 EC - 36

 Creating Sustainable Value in EC
• Develop a brand based on consumer experiences
– The brand emerges as the two-way communication on
the net and off the net.
• Develop superior physical distribution
– Physical distribution is a choke point in EC
• Leverage customer information
– Use personal information to more convenience
shopping and customized services
» Privacy issue
» Ask customer explicitly for such data
» Require a more subtle approach
– Use collective data
» Use it to adjust pricing, product offering, and target market

© Minder Chen, 1996-2000 EC - 37

 Virtual Communities

• Content
• Money • Hard goods
• Content
Virtual • Games
• Demographics Community • Services

Users Providers
• Advertising

Advertisers Other
Websites

© Minder Chen, 1996-2000 EC - 38

 Consumers' Needs for Community
• Communities of transaction: Facilitate the buying and selling of products
and services and deliver information related to those transactions.
– Bring in a critical mass of sellers and buyers to facilitate certain types of
transactions.
– Virtual Vineyards (wine.com)
• Communities of Interest: Bring together participants who interact
extensively with one another on specific topics.
– Higher degree of interpersonal communication.
– GardenWeb: www.gardenweb.com
– Motley Fool created by David and Tom Gardners on AOL (fool.com)
– Parents Place: www.parentsplace.com
• Communities of Fantasy
– Chat rooms: Red Dragon Inn
– Virtual Team competition at ESPNet: espnet.sportszone.com
• Communities of Relationship: People come together around certain life
experiences that are very intense and can lead to the formation of deep
personal connections.
– Cancer Forum on CompuServe

© Minder Chen, 1996-2000 EC - 39

 www.parentsoup.com

© Minder Chen, 1996-2000 EC - 40

 www.iVillage.com

© Minder Chen, 1996-2000 EC - 41

 Geocities: www.geocities.com
• This collection of themes cyberhoods is populated by a half-million
"homesteaders" who get free home pages.

http://geocities.yahoo.com/home/
© Minder Chen, 1996-2000 EC - 42
 Quick Test for Technographics
More Men More Women

More Educated Less Educated

High Income Low Income

Have Children No Children

Number of new users

Younger Age Older

Mainstreams
Early Adopter
Laggards

Time
© Minder Chen, 1996-2000 Source: Now or Never, 2000 EC - 43
 Technology-Fit: Customer and Product

High Customer Need for Product Information

Second Wave Earlier Adopter
AA
Jenny Craig FedExp
Chrysler Microsoft
Web Laggards Second Wave

Tide Nike
Low Denny's Pepsi

Customer Demographics Match

Source:
Poor High Forrester
Research

© Minder Chen, 1996-2000 EC - 44

 Challenge
• Consumers: Everything on the Internet should to be free.
• Merchant: How can I make a profit if everything is free.
• Examples:
– Free web browsers: Netscape Communicator and Internet Explorer
– Free email: Juno, mail.yahoo.com and hotmail.com
– Free Internet Access: Freeserve in Britain
– Free PC: eMachine and CompuServe; Free-PC
– Free web hosting: Geocities, Angelfire, Zoom
– Free ...

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© Minder Chen, 1996-2000 EC - 45
 Revenue Streams
• Advertising / Sponsorship
• Transaction
• Subscription / Listing Fee
• Value-added services

© Minder Chen, 1996-2000 EC - 46

 Multifaceted Model for Web-Based EC Design
• ATTRACT: Hits
– Communities of interest
– Changing topics for repeat customers
– Features that encourage customers to explore
• ENGAGE: Leads
– Special areas encourage customer to register (i.e. selection of articles customized for visitors
interests)
• PARTICIPATE: Sales revenue
– Free download (video, audio, & software)
– Shopping
– Chat and News
– Subscription
• JUMP: Advertising revenue Attract
– Other products of interest to customer Jump
– Other sites of interest to customer
Engage

Participate

Adapted from Netscape Communications Inc., 1996. EC - 47

© Minder Chen, 1996-2000
 EC Companies Transform the Revenue Mix

Pricing The mix:

Who pays for
Value
what and
Customers how much.

New New
Values Pricing

New
Customers
Highly interrelated!

Source: Now or Never, 2000

© Minder Chen, 1996-2000 EC - 48

 What To Do Now

1. Define your eBusiness strategy FAST

2. Assess readiness:

Rapid innovation
– customers
– products/services
– organization
– technology
– infrastructure

© Minder Chen, 1996-2000 EC - 49

 What To Do Now
3. Identify the target:
– Business objectives
– Customer segment
– Application area
4. Build it in less than 6 months
-- Flexibility
-- Scalability
-- Extendibility
5. Keep extending the function -- new products and services, new
customer interfaces, enhance performance, security and capability
6. START NOW !
You are never done!

© Minder Chen, 1996-2000 EC - 50

 Four Strategies to Start Online Business

Low Slow Low

• Integration

Time to Market
• Subsidiary

Cost

Risk
• Partnership
• Buyout
High Fast High

© Minder Chen, 1996-2000 EC - 51

 Top Three Concerns
• Retailers
– Conflict with investment in physical stores;
– Technology issues; and
– Lack of distribution and fulfillment network.
• Manufacturers
– Products not appropriate for online sales;
– Potential risk to channel relationships; and
– Consumers won’t buy online
– Many manufacturers simply weren't capable of
shipping a single box of Tide or a bottle of Advil. They
had no experience in dealing directly with consumers.

© Minder Chen, 1996-2000 EC - 52

 Becoming Virtual
• Egghead to Egghead.com
• Computer Literacy to Fatbrain.com
• Romac International to KForce.com

Kinder
Kinder Toys
Toys is
is Moving
Moving toto
www.toydomain.com
www.toydomain.com
(Find
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web after
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June 1st)
1st)

© Minder Chen, 1996-2000 EC - 53

 Your 3 Biggest Problems/Opportunities

• What should our strategy be?

• How do we build it in 3 to 6
months?
• How do we stay on the edge of
innovation for life?

© Minder Chen, 1996-2000 EC - 54

 Web Experiences for Consumers
• A many-to-many rather a one-to-many
experience
• Fresh content
• Access to detail information
• Communities unbounded by space and time
• The multimedia appeal of TV
• A redefinition of privacy and identity
• Hyper-impulsivity: The web permits a closer
conjunction of desire, transaction, and payment
than any other environment.

© Minder Chen, 1996-2000 EC - 55

 E-Business Creation Process
• Customer feedback
• Benchmark data
• Competitive analysis
• Personalization • • Systems and
Market forces
• ROI • networks
Usage statistics
• Profiling • • Web architecture
Customer needs
• Segmentation • • Business
Current capabilities
• Experience infrastructure
modeling • Technology
• Expanded components
business E-Vision • Web technology
opportunities strategy

Business Technology
Drivers Drivers

E-Business Rapid
Strategy Implementation
Source: Adapted from
Digital Transformation, 2000
© Minder Chen, 1996-2000 EC - 56
 EC Development Process
• Knowledge building and market evaluation to identify a need and a
niche
• Competitive and capability analysis
• EC Business model design and feature identification
• Determine what you have to offer (merchandizing)
• Set your e-business goals and priorities
• Design your EC architecture
• Assemble your EC teams
• Build your web site
• Set up a system to handle sales
• Provide customer services
• Advertise your online business (online and offline)
• Evaluate your performance and moving on

© Minder Chen, 1996-2000 EC - 57

 Popularity Adds Value in a Network

le
c
cy
us
uo
Value to User

t
e

Vir
cl
cy Positive
Network
s
ou

Externality
ci
Vi

Networks
• Real: LAN, Internet, Fax
• Virtual: Virtual community, Chat
room, Instant messenger

Number of Compatible User

© Minder Chen, 1996-2000 EC - 58
 Keys to Long Term Success
• Fast deployment
• Evolutionary implementation
• First mover advantages
• Promotion, promotion, promotion
• Customer focus and services
• Interaction with customers
• Integrating emerging technologies
• Redefining and redesigning business models
• Comprehensive database and data warehouse design
• Integrating back office operations with the virtual
store fronts
•

© Minder Chen, 1996-2000 EC - 59

 EC Business Models
• Virtual stores: physical and digital goods and
services
• Infomediaries: Seller-side
• Informediaries: Buyer-side
• Infomediaries: B2B marketspace

© Minder Chen, 1996-2000 EC - 60

 Types of Virtual Stores
• Hard goods:
– Food
– Clothes
– Computer hardware and Electronics
– Packaged software
• Soft goods (Bits delivered on-line)
– Information
» Database
» Publishing
» Research
– Software
» Computer games
» Java applets
» Application software
• Services
– Selling time:
» Computer game play
» Consulting
» Legal and medical services
– Selling information (subscriptions)
» Dating services
» Legal and medical advice
– Reservations and tickets
» Airline tickets
» Event tickets
» Hotel and restaurant

© Minder Chen, 1996-2000 EC - 61

 Is EC Appropriate for You?

Industries who set up

virtual storefronts

© Minder Chen, 1996-2000 EC - 62

 What Consumers Are Buying Online
• Computer-related products 49%
• Books 35%
• Consumer electronics 34%
• Travel Reservations 28%
• Cars, boats 19%
• Clothing and apparel 18%
• Recorded music, CDs 18%
• Larger household goods (furniture, major appliances) 15%
• Filmed entertainment, videos 13%
• Gifts delivered by mail (flowers, candy) 12%
• Publication subscriptions 8%
• Investment or financial services 8%
• Food and drink 8%
• Artwork, poster, etc 4%
• Other 13%
» Source: Ernst & Young Internet Shopping Study 1998

© Minder Chen, 1996-2000 EC - 63

 EC Business Models
• Payment direction:
– Buy-side
– Sell-side
– Marketspace: Business is being transacted with both
suppliers and customers.
• Trading parties: Most analysts predict the B2B model
will have a more rapid adoption rate, but that the
volume of transactions in the B2C model will, in the
long run, greatly surpass that of B2B.
– Business to Business
– Business to Consumer
• Type of product or service that is being provided.
– Physical goods and services
– Digital goods (contents)
– Digital services

© Minder Chen, 1996-2000 EC - 64

 Sell-Side E-Commerce Model

Buyer A

Consumer or Business
EDI

Selling HTML & Forms Buyer B

Merchant HTML & XML

Online
Selling OBI
Buyer C

© Minder Chen, 1996-2000 EC - 65

 Sell-Side Storefront
• Primary model used in current
business-to-consumer scenarios
• Single seller, typically a distributor,
constructs a Web storefront to sell to
many consumers (i.e. Amazon.com)
• Unless a single distributor can
aggregate all the suppliers in a given
industry, the buyer remains responsible
for comparison shopping between
stores
• Expensive for buyer; does not meet the
needs of corporate procurement
organizations.

© Minder Chen, 1996-2000 EC - 66

 Buy-Side E-Commerce Model

Seller A

EDI

Business
Buyer HTML & Forms Seller B
HTML & XML

Online
Procurement OBI
Seller C

© Minder Chen, 1996-2000 EC - 67

 Buy-Side eProcurement
• Buy-side applications generally consisting of a
browser-based self-service front end to ERP and
legacy purchasing systems
• Corporate procurement aggregates many supplier
catalogs into a single “universal” catalog and allows
end-user requisitioning from the desktop, facilitating
standard procurement for the organization and
cutting down on “maverick” purchasing
• Purchases made through this system are linked to the
back-office ERP or accounting system, cutting time
and expense from the transaction and avoiding
potential bookkeeping errors
• Model yields reduced transaction costs but not lower
purchase costs; no impact on size of supplier base, no
enablement of dynamic trade; buying organizations
must set-up and maintain catalogs for each of their
suppliers; too costly and technically demanding for
most medium and small-sized businesses.

© Minder Chen, 1996-2000 EC - 68

 Marketplace E-Commerce Model

Buyer A Seller A
EDI
EDI

Buyer B HTML & Forms Virtual HTML & Forms

Seller B
HTML & XML Marketspace HTML & XML

OBI
Buyer C OBI Seller C
Infomediacy (Content Aggregator)
• eBay.com
• Pricelines.com
• Egghead.com
• Amazom.com Auction
• www.chemdex.com
© Minder Chen, 1996-2000 EC - 69
 Business-to-Business vs. Business-to-Consumer
Business-to-Consumer
• No vendor loyally
• No switching costs
• Time-insensitive
• Short-term
• Casual
• Many vendors
• Products differentiated
on price, image
© Minder Chen, 1996-2000
Business-to-Business
• Relationship-based
• Very high switching costs
• Extremely time-sensitive
• Long-term
• Mission-critical
• Few partners
• Partners differentiated on
reliability, flexibility
EC - 70
 B2B Marketspace
• Latest evolution of B2B eCommerce, enabling
a many-to-many relationship between buyers
and suppliers
• Buyers and suppliers leverage economies of
scale in their trading relationships and access
a more “liquid” marketplace
• Sellers find buyers for their goods, buyers
find suppliers with goods to sell
• Many-to-many liquidity allows the use of
dynamic pricing models such as auctions and
exchanges, further improving the economic
efficiency of the market.
• Examples:
– E-Steel.com
– verticalnet.com

© Minder Chen, 1996-2000 EC - 71

Channel Conflict: How About the Distributors
• The concept of complete dis-intermediation - the
elimination of the middleman - remains a theory. New
intermediaries are emerging.
• Cisco System has 2 billion dollars annual sales on the
Web.
• 70% of Cisco online business comes from VARs and
distributors.
• Fruit of Loom Inc. has 31 of its 55 distributors up on its
extranet called Activewear Online. Distributors have to
do lot of value-add and customer support to survive.

© Minder Chen, 1996-2000 EC - 72

 Retailers and Manufacturers Co-exist on the Web
• US retail sales revenues 1998:
– Brick-and-mortar stores 93%
– Catalog sales: 6%
– E-commerce 1%
• Cases:
– Levi Strauss sells jeans at www.levis.com but won't allow retailers to
sell them online.
– Estee Lauder sells Clinique cosmetics at www.clinque.com but doesn't
offer retail promotion.
– Waterford sells a limited selection at www.waterford.com like
chandeliers and corporate gifts.
• Strategies:
– Manufacturers want to maintain channels while stay in direct touch
with their customers.
– Provide online dealer locators.
– Share customers information back and forth.

© Minder Chen, 1996-2000 EC - 73

 Clicks-and-Mortar
• Clicks-and-mortar has become the new buzzword in
retailing circles.
• It means having an integrated, multi-touchpoint
strategy that takes advantage of your physical retail
outlets and integrates them seamlessly into your Web
strategy.
• A good clicks-and-mortar strategy uses the Web to
drive traffic to your stores and uses your stores to drive
traffic to the Web.
Brick-and-Click
YourSherpa.com

© Minder Chen, 1996-2000 EC - 74

 Business Channel: Multi-Channel Presence
• Brick-and-mortar
– Face-to-Face

Click and Mortar

• Mail order
– Mail
– Printed catalog
• Phone order
– Telex
– Phone
Buyer – Fax Seller
• Electronic commerce
• EDI
• Email Pure Play
• Web

Multi-channel plays will have extraordinary power if companies

elegantly blend and synchronize those channels.

© Minder Chen, 1996-2000 EC - 75

 Business Models Based on the Value Chain in the Marketplace

Raw
material
producer Exchange

Manufacturer

C2B

Distributor

New Retailer B2C C2C

Middleman
• B2B: Vericalnet.com
• B2C: Amazon.com
Consumer
• C2B: Priceline.com
• C2C: eBay.com B2C

© Minder Chen, 1996-2000 EC - 76

 Business Models: Multiple Dimensions
• Buy-sell direction: Buyer-side, seller side, and
marketplace
• Industry covered: single vs. multiple (Vertical vs.
Horizontal)
• Ownership: Buyer, seller, independent, software
vendor, consortia
• Service: Core vs. extended services
• Products: Core vs. MRO; Direct vs. Indirect;
• Pricing: Fixed price, Auction, Reversed auction,
negotiated
• Timing of purchase: Contact vs. spot vs. ad hoc

© Minder Chen, 1996-2000 EC - 77

 Portfolio of Buying & Selling Strategies
Size of Buyers and Seller

Direct Sales Big

Big
Big Supplier
Supplier
Big e-Procurement

Buyer
Buyer Small Suppliers
Net
Market Small Suppliers

Small Suppliers
Small Buyers

Small Buyers

© Minder Chen, 1996-2000 EC - 78

 Number of Sellers and Buyers

© Minder Chen, 1996-2000 EC - 79

 The
Goldman
Sachs B2B
Windmill in
the Age of
Consortia

© Minder Chen, 1996-2000 EC - 80