Assignment 2

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Part 1

Introduction

Chapter 2

Opportunity analysis for

digital business and e-commerce

Digital Business and E-Commerce Management Seventh Edition

Learning outcomes

Complete an online marketplace analysis to assess competitor, customer and intermediary use of digital technologies and media as part of strategy development

Identify the main business and marketplace models for digital communications and trading

Evaluate the effectiveness of business and revenue models for online businesses, particularly digital start-up businesses

What are the implications of changes in marketplace structures for how we trade with customers and other partners?

Which business models and revenue models should we consider in order to exploit the Internet?

What will be the importance of online intermediaries and marketplace hubs to our business and what actions should we take to partner these intermediaries?

Strategic agility- a process that can be actioned quickly to review market place structure and market access methods and then implement change as appropriate.

Management issues

Figure 2.2 The environment in which digital business services are provided

The macro environment needs continual monitoring. Discuss each influence in the diagram in an e-business context, give examples showing importance.

Society – what is the ethical and moral consensus on holding personal information?

Country specific, international legal – what are the local and global legal constraints, for example, on holding personal information, or taxation rules on sale of goods?

Macro environment constraints and opportunities need particular focus

International – economic, what are the economic constraints of operating within a country or global constraints?

Technology – what new technologies are emerging by which to deliver online services such as interactive digital TV and mobile phone-based access?

Macro environment constraints and opportunities (Continued)

Customers – which services are they offering via their website that your organisation could support them in?

Competitors – need to be benchmarked in order to review the online services they are offering – do they have a competitive advantage?

Intermediaries – are new or existing intermediaries offering products or services from your competitors while you are not represented?

Micro environment constraints and opportunities need particular focus

Suppliers – are suppliers offering different methods of procurement to competitors that give them a competitive advantage?

Micro environment constraints and opportunities (Continued)

Figure 2.8 A digital marketplace map

Objective: bring customers to web sites of organisations offering product.

Source: www.google.com/trends

Figure 2.9 Google Trends – useful for consumer interest in products

Figure 2.10 B2B and B2C interactions between an organisation, its suppliers and its customers

B2B and B2C characteristics

Characteristic	B2C	B2B
Proportion of adopters with internet access	Medium, increasing	High to very high
Complexity of buying decisions	Relatively simple – individual and influencers	More complex – buying process involves users, specifiers, buyers, etc.
Channel	Relatively simple – direct or from retailer	More complex, direct or via wholesaler, agent or distributor
Purchasing characteristics	Low value, high volume or high value, low volume. May be high involvement	High volume/value. May be high involvement. Repeat orders (rebuys) more common
Product characteristic	Often standardised items More customised in the future?	Standardised items or bespoke for sale

Market place channel structures

Disintermediation-cutting out the middle man,

cost savings (value chain non value add components removed)

price reductions (cost savings passed to customer)

closer to the customer (direct communication)

Reintermediation- adding value to the customer in aiding the purchase process

Figure 2.11 Disintermediation of a consumer distribution channel showing (a) the original situation, (b) disintermediation omitting the wholesaler, and (c) disintermediation omitting both wholesaler and retailer

Figure 2.12 From original situation (a) to disintermediation (b) and reintermediation (c)

Creation of a new intermediary controlled by a supplier (or supplier group) that controls the intermediary function. Tactic is to take advantage of reintermediation opportunity but controlled by the supplier

Example:

B&Q www.diy.com (set up by DIY chain)

Opodo www.opodo.com (set up by European airlines)

Acquiring an existing intermediary – Random House bought Figment.com, a community for aspiring writers of young adult fiction

Countermediation

Figure 2.13 Example channel chain map for consumers selecting an estate agent

to sell their property

Timmers (1999) defines a ‘business model’ as:

An architecture for product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and a description of the sources of revenue.

Business model

Source: Smart Insights. With permission.

Figure 2.15 Business Model Canvas example

Figure 2.16 Alternative perspectives on business models

Location of Trading in the market place (McDonald and Wilson (2002))

Seller controlled (web homepage of seller organisation)

Seller orientated (intermediaries controlled by third parties such as distributors or agents)

Neutral (intermediaries not controlled by buyer industry, product specific search engines, comparison sites, auction space

Buyer orientated ( intermediaries controlled by buyers, or purchasing agents, or aggregators)

Buyer controlled (buyer own site, procurement portal)

Subscription access to content. Documents can be accessed from a publisher for a fixed period.

Pay per view content access. Payment for a single access to a document, music, whatever downloaded.

CPM (cost per thousand (M=milli)) display advertising. Site owners charge a fee for advertising, charges for number of times ads are served to site visitors

CPC advertising on site. Advertisers are charged for the number of times their add is clicked on.

Sponsorship of sections, content or widgets. A company can pay for a site or channel, may be a fixed amount per year

Affiliate revenue (CPA or CPC). Commission based, cost-per-acquisition.

Subscriber data for email marketing. Data a site owner has about customers to be used for emailing (permission required)

Revenue models – publisher example

On line ‘start up’ considerations

Clicks only or mix channel

Assess the business opportunity

Valuing the start up

Cost of acquiring customers

Margin per customer

Revenue projections

Customer churn

Practical execution

Traffic

Financing

Questions

Choose a business and complete an online marketplace analysis to assess competitor, customer and intermediary use of digital technologies and media as part of strategy development.

Choose a business and identify the main business and marketplace models for digital communications and trading.

Choose a business and evaluate the effectiveness of business and revenue models for online businesses. Do you know of a digital start-up businesses to assess?

Questions

What types of changes can be introduced to the value chain through digital business?

Choose a NZ or global organisation you are familiar with and consider alternative business models made possible using the internet and assess the options.

Discuss the pro and cons of partnering with an intermediary portal v providing similar services from your web site.

Discuss the concepts of reintermediation and disintermediation.

Questions

5 Choose a well-known intermediary and discuss the key features.

6 Select an intermediary site and assess its features, business models, revenue models.

7 What are the advantages and disadvantages of the following revenue models: Online subscription, Pay-per-view, Advertising, Affiliate

Summary

You should be able to complete an online marketplace analysis to assess competitor, customer and intermediary use of digital technologies and media as part of strategy development

You should be able to identify the main business and marketplace models for digital communications and trading

You should be able to evaluate the effectiveness of business and revenue models for online businesses, particularly digital start-up businesses