PORTER’S COMPETITIVENESS MODEL

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IMPACT OF THE INTERNET COMPETITIVENESS

On the Bargaining Power of Suppliers On the Bargaining Power of Buyers On the Barriers to Entry On the Threat of Substitute Products On the Rivalry among existing competitors

ON THE BARGAINING POWER OF SUPPLIERS

Increase number of suppliers available Provide a direct channel to reach end

customers Give all companies (big & small, far & close)

equal access to suppliers thereby reducing product differentiation, service & cost

Increase the number of potential customers for suppliers as barriers are reduced

ON THE BARGAINING POWER OF BUYERS

Reduces switching costs for consumers Increases the number of companies that can

deliver product or service More transparency of information about products,

prices & service Reduces the number of steps in the supply chain

thereby allowing customers to reach OEMs directly Increases the number of potential customers

ON THE BARRIERS TO ENTRY

Reduces the need for a sales force Reduces or even eliminates the need for a

physical presence Provides easier access to production & distribution

channels Reduces the amount of capital required to start a

new business

ON THE THREAT OF SUBSTITUTE PRODUCTS

Create new approaches for providing the same service or products

Help create add on products & services Fosters an innovation-oriented culture Increases the efficiency of established companies More info on other products

ON THE RIVALRY AMONG EXISTING COMPETITORS

Reduces differences among competitors Migrates competition towards price Widens the geographic reach thereby adding

competitors to the company’s space

THE INTERNET & ECONOMY

Reduces Inflation Redistribution of wealth from rich to poor & from

developed countries to developing countries Reduces the cost of capital Fosters & quickens the pace of innovation

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TO SUMMARIZE LAST LECTURETHE AIM OF IT Strategy involves creating a niche or focus …

something you are good at.. Something that differentiates you.. Provide value added product or service to a select customer base.

Focus IT initiatives on the strategic goals of the organization

Use IT to increase profits by either: Growing the business (increasing revenue)

especially for high margin companies Expanding the profit margins (reducing costs

relative to revenue) particularly for those companies with low margin businesses

BUSINESS MODELS&WEB STRATEGIES

BUSINESS MODELS

Advertising Merchant / Retailer Manufacturer Brokerage Infomediary Affiliate Subscription Utility Financial Community 11

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ADVERTISING MODEL

Generalized Portal: Yahoo, Google, AOL, Facebook

Success depends on volume (eg. # of eyeballs!!)

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

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

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MERCHANT MODEL (ONLINE RETAILING)

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

Catalog Merchant: Grainger mail order to Web order

Surf and Turf: Gap, Wal*Mart Channel conflicts or opportunities??

On-line music: iTunes

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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 Personalized products

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BROKERAGEMARKET MAKERS

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

Market Exchange: ScrapSite Charge the seller a transaction fee based in value of sale

Business Trading: GE product designs., buyers and supplier guides, job listings

Virtual Mall: Yahoo! Stores Setup, Monthly Listing and/or transaction fees

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BROKERAGE (CONTINUED)

Metamediary: Travelocity setup and transaction fee for processing transactions, tracking

orders, billing and collection Auction: ebay

fee scaled with the value of transaction Reverse Auction: Priceline,

fee based on the spread between bid and ask price Classified: South BendTribune

listing fee charged regardless of outcome of transaction Professional services: Monster, Guru

Listing fees Search Agents: MySimon, RoboShopper

referral charge 16

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INFOMEDIARIES

Consumer Info: Doubleclick Sell customer info to merchants (offer consumers freebees)

Merchant Info: Gomez Sell website performance info to internet merchants

Recommender System: ePinions Monitor user habits and give feedback to merchants

Search Engine Optimization: iHelpYou, ReinventBusiness

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AFFILIATE (REAL ESTATE MODEL)

Godiva chocolates at Amazon, Pay for performance model whereby a merchant is

paid by another for the referrals they generate - variations include pay-per-click and banner exchange

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SUBSCRIPTION MODEL Provide content of product:

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

Consumers pay to access the site]

On-demand software: Salesforce Music on-line: Napster 2.0 VOIP: Vonage, Comcast Virus Protection:McAfee

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UTILITY

Metered usage - pay as you go approach Skype Microsoft Office Live

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FINANCIAL

Make money by providing financial services Banking online: ING Direct New financial model: PayPal Virtual societies: Second life

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COMMUNITY

Voluntary Contributor support the site through voluntary contributions..must establish

user loyalty Experts: Experts Social Networks: YouTube, Facebook, MySpace Encyclopedia: Wikipedia Games: Second Life

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AMAZON USED TECHNOLOGY TO CREATE A COMPLETELY NEW RETAILING MODEL

A DEMAND-DRIVEN RETAILING MODEL

A pull rather than a push system of retailing

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Warehouse/DC

OrdersReceived

Acct. DB

ProcessPayments

Bank

Orders byRetail Outlets

Customers

CustomerOrders

Old Book Retailing Model

Retail Stores

Market to Customers

ProcessBackorders

Publishers

Customers

BookSelection

Authors

Magazine Renews

Exam copies

Book

Reviews

Flyers

Orders

Invoice

Payment

Pay Info.

Refund Customer

Demand

Books

Flyers

Bank

ProcessPayments

Pay

Process Unsold Books

PublishersPayment

Invo

ice

ProcessBackorders

Customers

Refund

Retail Stores

Market to Customers

Flyers

Inventory Update

Customer Demand

Inventory Update

Books

Books

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New Book Retailing Model

ProcessOrdersCustomers Publishers

ProcessPayments

Orders Orders

Bank

Payment Details

Credit Card Information

Books

Customers

GenerateCustomerInterface

BooksUpdate

Pay Info.

Orders Books

OrderInfo.

Cust.Info.

BookInfo.

Payment

SUCCESS DRIVERS Change traditional payment scheme –

being paid first before having to pay suppliers

Reduce and potentially eliminate inventory at retail & distribution centers

Reduce the number of processes required & therefore the processing costs

Improve quality by matching demand & supply perfectly

Customize the store for each customer – personalized shopping experience

Increase the geographical reach of the store and time of operations

Increase product offerings26

AMAZON’S CREATIVE USE OF TECHNOLOGY TO ELIMINATE COMPETITORS World’s largest book store (started with over 1 million titles) Customization of shopping experience Purchase recommendations based on other customer

purchases – data mining Customer feedback and ratings of products Enhancing trust by using secure order processing and 100%

guarantees One-click purchasing Use of tabs Using e-mails to push products to customers Automate the order processing and fulfillment procedure to

insure that standardization of performance Commitment to use technology to enhance, simplify and

increase customer satisfaction & delight27

ALWAYS ON THE MOVE!

Expanding product line Becoming the largest mall in the world Consulting/Developing & Managing other

companies’ sites Auctions Search engine Cloud computing Crowdsourcing – Amazon Turks Kindle

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GOOGLE CHANGING THE FACE OF ADVERTISING

Google – Organize ALL information and make it universally accessible to everyone

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PAGERANK – LINK ANALYSIS ALGORITHM

PAGERANK is an algorithm that ranks pages based on the relationships between websites: number of links to the website from

other siteImportance of these links (measured

by how many links they draw from other sites).

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PAGERANK SIMPLIFIED

examine how many WebPages address the page

calculate the ranking of each one of those pages

use these ranking to weigh each connection

combine to come up with a single score

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ADWORDS: BIDDING FOR KEYWORDS AND PAY-PER-CLICK (PPC)Companies bid for search

keywordsThe companies are only charged

when a customer clicks on a company’s ad

The cost per click can be anywhere from a cent to a few dollars and this is determined by having advertisers bid for keywords

Rank ads based on those that are expected to generate the highest revenue to Google based on the interaction between bid price and the likelihood of purchase.

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ADSENSE

A way for other website to monetize their web contact by adding advertising to on other websites

Purpose is to serve ads based on web content, user geographical location or other relevant factors

Has been particularly an important way for websites with smaller web traffic to develop advertising sales programs

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COMPARED WITH TRADITIONAL (PRINT MEDIA, TV, YELLOW PAGES, COUPONS, FLYERS, BANNER ADS, ETC.) ADVERTISING, PAY-PER-CLICK

Ability to reach the right target audience Easy to measure success (Clicks can be

counted) Direct correlation between ads and purchases Performance-based ads --Pay for results Cost-effective (Avg. Customer Acquisition cost)

Search $8.50 Yellow Pages $20 Online ads $50 E-mails $60 Direct mail $70

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THREATS TO GOOGLE’S BUSINESS MODEL

Click Fraud: Potential for abuse by rival companies (have a virtual agents click continuously on an ad thereby raising the cost of doing business to a competitor

SEOs (Search Engine Optimization) : artificially raising page rank by advertisers

Rise of customized search engines (law, medicine, geographically based, etc.)

Better search algorithm Better advertising business model (Pay-for-

Action) Rise of social networks (new gateways to the

internet, competition for ad dollars) Rise of mobile computing (Apps new gateway to

the internet) competition of coupons for ad dollars) 36

GOOGLE’S NEW BUSINESSES Google new Operating system for

phones ..Android (new gateway to the internet)

Google Cloud … storing other companies apps & data

Google Docs … Software on demand  .. Google Mail Google Search Appliance (GSA) … search

engine to other web companies Buying YouTube and other social

networking companies Google maps & other information services Google local advertising initiatives Google Mobile

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