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E-Business (1): Overview 电电电电 (1): 概概 Content 电电 The size and growth of E-Business 电电电电电电电电电电 Elements of E-Business 电电电电电电 Evaluating E-Business models 电电电电电电电电 Andreas S. Weigend, PhD 电电电电电 SJTU Dec 2004

E-Business (1): Overview (1):

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  • E-Business (1): Overview (1): Content The size and growth of E-Business Elements of E-Business Evaluating E-Business models Andreas S. Weigend, PhD SJTU Dec 2004

  • What is E-Business (EB)?(EB)EB uses technology (especially the Internet and the Web) To communicate To find, aggregate, create, and deliver information To transact To buy, sell, trade, and exchange EB enables new ways: To deliver value to customers To create value from customers and their data To create (and monetize) transparencyAbbreviation EB := E-Business / E-Commerce EBNote: EB is NOT dot-com, NOT Nasdaq bubble, NOT just online ads, NOT free email ,

  • Key Aspects of EB New forms of value creation New pricing mechanisms Customization and personalization, based on data

    Scale: Opportunity and threat SpeedAbility to reach the whole Earth immediately Need to create barriers to entry (e.g., lock-in)

    EB Technology (communication, connectivity, )

  • ScaleInternet Age: Network economies of scale / Network effectsEach new member increases the value of the network Demand-side economies of scale

    Vs Industrial Age: Production economies of scaleAverage price of product drops as production is increasedSupply-side economies of scale

    Implications Quantitative Qualitative changeSearch for information Rank information

  • What is the Internet?A very large collection of computers that are connected to each other that follow a common protocol (speak the same language)

    Information may pass through several other computers

  • Began 1969 as U.S. Military Project1969

  • Internet Users Worldwide Source: Various, 11/2001. Compiled by: NUA Internet Surveys http://www.nua.ie/Canada,USA 167 million 1.67 Europe113 million 1.13 Asia/Pacific105 million 1.05 Latin America16.5 million 1650 Africa3.11 million 311 Middle East2.40 million 240 World Total407 million 4.07 (March 2002: 550 million)(200235.5About 10% of entire worlds population 10%

  • The Internet and the WebThe World Wide Web (WWW, or the Web) consists of applications that run on the Internet WWWNumber of pages on the Web (9/2002) 9/2002Google searches 3 billion pages Google30Q: Nr of emails sent per minute?About as many pages on Web as people on Earth!

  • Worldwide E-BusinessWorldwide E-Business (total), in US$ billion10Source: Forrester ResearchWorldwide EB:US$ 3 trillion (1/2003, est.) 320031

  • AgendaThe Internet Communication platform Number of users Worldwide: About 10% of entire population 10%Size of EB About US$ 3 trillion (1/2003) 3(1/2003) About 7% of entire business (worldwide)

    Elements of EB

    Evaluating EB models

  • Elements of EBSome ingredients of EB Search Pricing Logistics Payment Product Representation Authentication and Security Legitimization Dispute Resolution

    Some EB technologies and tools

  • 1. SearchTechnology assisted search Search engines Comparison search

    Use additional information sources Search-history of user Current location of user Connectivity of Web pages (link structure) Past: Information scarce Present: Information abundant Need for search Need for ranking

  • 2. PricingVariety of pricing mechanisms

    Exchanges (similar to financial markets)Auctions Dynamic pricing Based on inventory Based on competition Based on estimate of customers willingness-to-pay Buyer-set price

  • 3. LogisticsInformation products (also called digital goods): Logistics is easy if products in digital form Information products ideally suited for EB Storage and delivery easy Physical storage space close to zero Physical products: Better coordination with suppliers to reduce inventory

    Outsource inventory (Amazon.com)Shift inventory risk to supplier

    Note: Physical goods always need physical delivery services

  • 4. PaymentCurrently, main payment method in U.S.: Credit and debit cards

    Direct payment between parties (eBay / PayPal)

    Electronic payments (e-Cash)

    Future possibility: Micro-payments E.g., NetBill (purchase a single paragraph) NetBill )

  • 5. Product RepresentationHow are product attributes communicated?

    The Web is a rather limited medium Good for information Limited for multimedia (bandwidth) Impossible for touch, smell

    Problems with limited representation of product Mistrust Misinformation

  • 6. AuthenticationValidity of transacting parties and of exchanged goods AuthenticityReliabilityQuality

    Technological solutions Public-key cryptographyReputation, rating, reviews Experts (GomezStiftung Warentest)Community (epinions, eBay, Bizrate.com, Openratings.com)

  • 7. LegitimizationWhen is an agreement/sale/transaction considered valid? //

    Time and space of transactions Distributed network (Is the company at the server or the HQ?) Did the sale go through at the mouse click or after the processing?

  • 8. Dispute ResolutionLegal Issues No international bodies for dispute resolution What happens in disputes between direct buyer and seller? In particular, at intermediaries like eBay? eBay

  • Some EB technologies and toolsCatalog Engines Create, manage and distribute online product catalogs Configuration Tools Help end-customers configure their products online Content Management Tools Create, manage, maintain and distribute content E-mail Automation Analyze, route, respond to email. Manage email campaigns (contd)

  • Some EB technologies and toolsMarketplace Technologies Establish and operate online marketplaces Payment Technologies Collect, make, or process payments online Personalization Tools Create recommendations based on customer behavior Procurement Systems Automate corporate purchasing of materials (contd)

  • Some EB technologies and toolsSearch Engines Security Technologies Shopping Engines, Shop Bots

  • AgendaThe Internet Size of E-Business (EB) Elements of EB Tools for EB

    Evaluating EB models

  • EB: A Brave New World??...

    Federal ExpressWal-Mart

    Cisco/Nortel/DellMicrosoft/Oracle/AmazonAOLeBayYahooCharles Schwab

    IBM

  • or Jurassic Park?ValueAmericaCyberRebate.comBeyond.comPeapodOnlineChoice.comdrkoop.comBoo.comFreeRide.comCarClub.comWine.comArt.comKozmoiExchange.comUrban CoolMarch FirstMCIWorldcom

  • A traditional distinction: B2B, B2C, From To BusinessConsumerBusinessConsumer B2CC2BC2CB2B

  • Basic questions to evaluate a business modelSources of customer value How is the firm generating value for its customers? What is different about the Internet? Sources of revenues Where do revenues come from? Who pays for what value and when? What are the margins in each market? Are the revenue sources different with the Internet compared to without?

  • Value created for customersCreate content Provide entertainment Sell products and services Process transactions Collect/analyze data /EB technologies Tools for e-communities Integration, supply chain etcIntermediate Aggregator Search/facilitator/infomediary //Market maker Disintermediate Enable direct sales via Web

    Other suggestions?

  • RevenuesSales Products Services Information products Trends and analytics Consumer information Technology and Tools Sell License Fees Sales commissions, referral fees Transaction fees Membership fees Subscription Advertising

    Other suggestions?

  • Jeff Bezoss Seven Myths about the Internet

    Seven Myths about the InternetJeff Bezos, CEO and founder of Amazon.comFrom speech given at Harvard Business School Cyberposium on 26 February 2000

  • Myth #11The Internet changes everything. Not really, according to Bezos, since human beings like things certain ways, no matter how much the technology advances. For instance, physical stores aren't going away any more than movie theaters did with the advent of television. "People like to go outside and get together with others," Bezos observed. Since bricks-and-mortar operations can't compete with e-commerce on price, however, they'll focus on other things, such as making shopping a more entertaining experience.Bezos Bezos

  • Myth #22There are no barriers to entry on the Internet. If that's the case, asked Bezos, how do you explain the fact that Amazon.com and other e-commerce companies are investing hundreds of millions of dollars in their businesses. The fact of the matter is, the barriers to entry on the Internet are high and getting higher in the face of technological developments that will make today's online stores seem quaint at best in the next five to ten years.Bezos510

  • Myth #33Intermediaries are dead. Intermediaries are a fact of life to some degree, Bezos asserted. The litmus test will be who adds value and who doesn't. Those that don't will be "toast." Bezos

  • Myth #44There are going to be only a few winners in the Internet economy. Bezos doesn't believe that one for a second. "The world of e-commerce will be as richly varied as the physical world, probably more so," he said, "because more business models are possible online." But that doesn't mean that success is in the cards for everyone, he cautioned. "I liken it to the Cambrian era 550 million years ago, which saw the development of multi-celled life. While nature tried every kind of experiment possible, the creation of new species was offset by the extinction of others.Bezos5.5

  • Myth #55It's easy for bricks-and-mortar retailers to extend their business. Forget about it, said Bezos. It's an easy trap for people to fall into, he explained, because they reason that a store is a store, whether it's physical or on line. Not so. Take books, for example. Online sellers are essentially in the technology business; off-line operations are in the real estate business. One group deals mainly with variable costs, the other with fixed costs. Below the superficial similarities, the differences run deep.Bezos

  • Myth #66Current market leaders can't fail. If they take their eyes off the customer, just watch them, said Bezos. In addition, many business pioneers were good at risk taking until they became successful and had something to lose. Then they fell off the leading edge and never recovered.Bezos

  • Myth #77Every company needs an Internet strategy. Not. "The Internet is an enabling horizontal layer that is causing broad disruptions across a big part of the economy, but it's not for every industry," Bezos concluded. "Yet you see people making business decisions based on the Internet, even where it doesn't belong. Bezos

    Possibly do Bezos myths in intro?Also: old stuff / quantitative -> qualitative (1st paragraph of syllabus)E-Business can empower customers and suppliersSpeedSPEED!Under certain conditions:Winner-takes-all First mover advantage

    Not only you have scale, but also others need to create barriers to entryOthers lose everything

    IPJuly 2000 143.96 million 52.24% of US populationSourced NielsenNetRatings

    4 msg a day -> 24bn / day -> 1bn / hour -> 1 million per minuteKey: find stuffInformation revolution

    Other estimates: about one third as big (see B2B market lecture)Worldwide Net commerce -- both B2B and B2C -- will hit $6.8 trillion in 2004. North America represents a majority of this trade, but its dominance will fade, as some Asian-Pacific and Western European countries hit hypergrowth over the next two years. 1,000 billion = 1 trillionE-biz = E-commerceProblem not searching, but RANKING(1) Content-based, (2) CommunityRecommender systems Ability to communicate crucialInformation withheld until transaction completedTimescaleFASTAmazon turn-overUPDATE!Solutions: improved media, standardization, virtual reality

    ASK: Community vs experts: pros and consDirect: not communicationE-biz = E-commerceWhy we need biz modelsDissolve traditional boundariesEnabled by Internet communication and transactionTargeted adsShow adClick throuhgComissionCafesTransparencyDifferent segments, much easier in the virtual world, specialized products1997: easier for BN to start hardware stores than .comNetscape, Altavista