Compare the four categories of ebusiness models

Business Driven Information Systems, Ch. 3.1 & 3.2: Web 1.0: Ebusiness & Web 2.0: Business 2.0

Read Ch. 3.1 & 3.2 of Business Driven Information Systems: "Web 1.0: Ebusiness" and "Web 2.0: Business 2.0".

LEARNING OUTCOMES

3.1Compare disruptive and sustaining technologies and explain how the Internet and WWW caused business disruption.

3.2Describe ebusiness and its associated advantages.

3.3Compare the four ebusiness models.

3.4Describe the six ebusiness tools for connecting and communicating.

3.5Identify the four challenges associated with ebusiness.

DISRUPTIVE TECHNOLOGY

LO 3.1: Compare disruptive and sustaining technologies and explain how the Internet and WWW caused business disruption.

Polaroid, founded in 1937, produced the first instant camera in the late 1940s. The Polaroid camera, whose pictures developed themselves, was one of the most exciting technological advances the photography industry had ever seen. The company eventually went public, becoming one of Wall Street’s most prominent enterprises, with its stock trading above $60 per share in 1997. In 2002, the stock dropped to 8 cents and the company declared bankruptcy.2

How could a company such as Polaroid, which had innovative technology and a captive customer base, go bankrupt? Perhaps company executives failed to use Porter’s Five Forces Model to analyze the threat of substitute products or services. If they had, would they have noticed the two threats—one-hour film processing and digital cameras—which eventually stole Polaroid’s market share? Would they have understood that their customers, people who want instant access to their pictures, would be the first to try these alternatives? Could the company have found a way to compete with one-hour film processing and the digital camera to save Polaroid?

Many organizations face the same dilemma as Polaroid—what’s best for the current business might not be what’s best for it in the long term. Some observers of our business environment have an ominous vision of the future—digital Darwinism. Digital Darwinism implies that organizations that cannot adapt to the new demands placed on them for surviving in the information age are doomed to extinction.

Disruptive versus Sustaining Technology

A disruptive technology is a new way of doing things that initially does not meet the needs of existing customers. Disruptive technologies tend to open new markets and destroy old ones. A sustaining technology , on the other hand, produces an improved product customers are eager to buy, such as a faster car or larger hard drive. Sustaining technologies tend to provide us with better, faster, and cheaper products in established markets. Incumbent companies most often lead sustaining technology to market, but they virtually never lead in markets opened by disruptive technologies. Figure 3.1 positions companies expecting future growth from new investments (disruptive technology) and companies expecting future growth from existing investments (sustaining technology).3

Disruptive technologies typically enter the low end of the marketplace and eventually evolve to displace high-end competitors and their reigning technologies. Sony is a perfect example. Sony started as a tiny company that built portable, battery-powered transistor radios. The sound quality was poor, but customers were willing to overlook that for the convenience of portability. With the experience and revenue stream from the portables, Sony improved its technology to produce cheap, low-end transistor amplifiers that were suitable for home use and invested those revenues in improving the technology further, which produced still-better radios.4

The Innovator’s Dilemma, a book by Clayton M. Christensen, discusses how established companies can take advantage of disruptive technologies without hindering existing relationships with customers, partners, and stakeholders. Xerox, IBM, Sears, and DEC all listened to existing customers, invested aggressively in technology, had their competitive antennae up, and still lost their market-dominant positions. They may have placed too much emphasis on satisfying customers’ current needs and neglected new disruptive technology to meet customers’ future needs, thus losing market share.5

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FIGURE 3.1

Disruptive and Sustaining Technologies

The Internet and World Wide Web—The Ultimate Business Disruptors

The Internet is a massive network that connects computers all over the world and allows them to communicate with one another. Computers connected via the Internet can send and receive information, including text, graphics, voice, video, and software. Originally, the Internet was essentially an emergency military communications system operated by the U.S. Department of Defense Advanced Research Project Agency (DARPA), which called the network ARPANET. No one foresaw the dramatic impact it would have on both business and personal communications. In time, all U.S. universities that had defense-related funding installed ARPANET computers, forming the first official Internet network. As users began to notice the value of electronic communications, the purpose of the network started shifting from a military pipeline to a communications tool for scientists.6

The Internet and the World Wide Web (WWW) are not synonymous. The WWW is just one part of the Internet, and its primary use is to correlate and disseminate information. The Internet includes the WWW and other forms of communication systems such as email. Figure 3.2lists the key terms associated with the WWW and Figure 3.3 lists the reasons for the massive growth of the WWW.7

WEB 1.0: THE CATALYST FOR EBUSINESS

LO 3.2: Describe ebusiness and its associated advantages.

As people began learning about the WWW and the Internet, they understood that it enabled a company to communicate with anyone, anywhere, at anytime, creating a new way to participate in business. The competitive advantages for first movers would be enormous, thus spurring the beginning of the Web 1.0 Internet boom. Web 1.0 (or Business 1.0) is a term to refer to the World Wide Web during its first few years of operation between 1991 and 2003. Ecommerce is the buying and selling of goods and services over the Internet. Ecommerce refers only to online transactions. Ebusiness includes ecommerce along with all activities related to internal and external business operations such as servicing customer accounts, collaborating with partners, and exchanging real-time information. During Web 1.0, entrepreneurs began creating the first forms of ebusiness.

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FIGURE 3.2

Overview of the WWW

Ebusiness opened up a new marketplace for any company willing to move its business operations online. A paradigm shift occurs when a new, radical form of business enters the market that reshapes the way companies and organizations behave. Ebusiness created a paradigm shift, transforming entire industries and changing enterprisewide business processes that fundamentally rewrote traditional business rules. Deciding not to make the shift to ebusiness proved fatal for many companies (see Figure 3.4 for an overview of industries revamped by the disruption of ebusiness.)8

FIGURE 3.3

Reasons for Growth of the World Wide Web

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APPLY YOUR KNOWLEDGE

BUSINESS DRIVEN ETHICS AND SECURITY

Unethical Disruption

Did you know you can make a living naming things? Eli Altman has been naming things since he was six years old and has named more than 400 companies and brands while working for A Hundred Monkeys, a branding consulting company. Altman recently noticed an unfamiliar trend in the industry: nonsensical names such as Flickr, Socializr, Zoomr, Rowdii, Yuuguu, and Oooooc. Why are names like this becoming popular?

The reason is “domain squatting” or “cyber squatting,” the practice of buying a domain to profit from a trademarked name. For example, if you wanted to start a business called Drink, chances are a domain squatter has already purchased drink. com and is just waiting for you to pay big bucks for the right to buy it. Domain squatting is illegal and outlawed under the 1999 Anticybersquatting Consumer Protection Act.9

Do you agree that domain squatting should be illegal? Why or why not? If you were starting a business and someone were squatting on your domain, what would you do?

FIGURE 3.4

Ebusiness Disruption of Traditional Industries

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Both individuals and organizations have embraced ebusiness to enhance productivity, maximize convenience, and improve communications. Companies today need to deploy a comprehensive ebusiness strategy, and business students need to understand its advantages, outlined in Figure 3.5. Let’s look at each.

Expanding Global Reach

Easy access to real-time information is a primary benefit of ebusiness. Information richness refers to the depth and breadth of details contained in a piece of textual, graphic, audio, or video information. Information reach measures the number of people a firm can communicate with all over the world. Buyers need information richness to make informed purchases, and sellers need information reach to market and differentiate themselves from the competition properly.

Ebusinesses operate 24 hours a day, 7 days a week. This availability directly reduces transaction costs, since consumers no longer have to spend a lot of time researching purchases or traveling great distances to make them. The faster delivery cycle for online sales helps strengthen customer relationships, improving customer satisfaction and, ultimately, sales.

A firm’s website can be the focal point of a cost-effective communications and marketing strategy. Promoting products online allows the company to target its customers precisely whether they are local or around the globe. A physical location is restricted by size and limited to those customers who can get there, but an online store has a global marketplace with customers and information seekers already waiting in line.

Opening New Markets

Ebusiness is perfect for increasing niche-product sales. Mass customization is the ability of an organization to tailor its products or services to the customers’ specifications. For example, customers can order M&M’s in special colors or with customized sayings such as “Marry Me.” Personalization occurs when a company knows enough about a customer’s likes and dislikes that it can fashion offers more likely to appeal to that person, say by tailoring its website to individuals or groups based on profile information, demographics, or prior transactions. Amazon uses personalization to create a unique portal for each of its customers.

Reducing Costs

Chris Anderson, editor-in-chief of Wired magazine, describes niche-market ebusiness strategies as capturing the long tail , referring to the tail of a typical sales curve. This strategy demonstrates how niche products can have viable and profitable business models when selling via ebusiness. In traditional sales models, a store is limited by shelf space when selecting products to sell. For this reason, store owners typically purchase products that will be wanted or needed by masses, and the store is stocked with broad products because there isn’t room on the shelf for niche products that only a few customers might purchase. Ebusinesses such as Amazon and eBay eliminated the shelf-space dilemma and were able to offer infinite products.

FIGURE 3.5

Ebusiness Advantages

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FIGURE 3.6

The Long Tail

Netflix offers an excellent example of the long tail. Let’s assume that an average Blockbuster store maintains 3,000 movies in its inventory, whereas Netflix, without physical shelf limitations, can maintain 100,000 movies in its inventory. Looking at sales data, the majority of Blockbuster’s revenue comes from new releases that are rented daily, whereas older selections are rented only a few times a month and don’t repay the cost of keeping them in stock. Thus Blockbuster’s sales tail ends at title 3,000 (see Figure 3.6) However, Netflix, with no physical limitations, can extend its tail beyond 100,000 (and with streaming video perhaps 200,000). By extending its tail, Netflix increases sales, even if a title is rented only a few times.10

Intermediaries are agents, software, or businesses that provide a trading infrastructure to bring buyers and sellers together. The introduction of ebusiness brought about disintermediation , which occurs when a business sells directly to the customer online and cuts out the intermediary (see Figure 3.7). This business strategy lets the company shorten the order process and add value with reduced costs or a more responsive and efficient service. The disintermediation of the travel agent occurred as people began to book their own vacations online, often at a cheaper rate. At Lulu.com anyone can publish and sell print-on-demand books, online music, and custom calendars, making the publisher obsolete.11

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FIGURE 3.7

Business Value of Disintermediation

The more intermediaries that are cut from the distribution chain, the lower the product price. When Dell decided to sell its PCs through Walmart many were surprised, because Dell’s direct-to-customer sales model was the competitive advantage that had kept Dell the market leader for years.

In reintermediation , steps are added to the value chain as new players find ways to add value to the business process. Levi Strauss originally thought it was a good business strategy to limit all online sales to its own website. A few years later, the company realized it could gain a far larger market share by allowing all retailers to sell its products directly to customers. As ebusiness matures, it has become evident that to serve certain markets in volume, some reintermediation may be desirable. Cybermediation refers to the creation of new kinds of intermediaries that simply could not have existed before the advent of ebusiness, including comparison-shopping sites such as Kelkoo and bank account aggregation services such as Citibank.12

Operational benefits of ebusiness include business processes that require less time and human effort or can be eliminated. Compare the cost of sending out 100 direct mailings (paper, postage, labor) to the cost of a bulk email campaign. Think about the cost of renting a physical location and operating phone lines versus the cost of maintaining an online site. Switching to an ebusiness model can eliminate many traditional costs associated with communicating by substituting systems, such as Live Help, that let customers chat live with support or sales staff.

Online air travel reservations cost less than those booked over the telephone. Online ordering also offers the possibility of merging a sales order system with order fulfillment and delivery so customers can check the progress of their orders at all times. Ebusinesses can also inexpensively attract new customers with innovative marketing and retain present customers with improved service and support.13

One of the most exciting benefits of ebusiness is its low start-up costs. Today, anyone can start an ebusiness with just a website and a great product or service. Even a dog-walking operation can benefit from being an ebusiness.

Improving Effectiveness

Just putting up a simple website does not create an ebusiness. Ebusiness websites must create buzz, be innovative, add value, and provide useful information. In short, they must build a sense of community and collaboration.

MIS measures of efficiency, such as the amount of traffic on a site, don’t tell the whole story. They do not necessarily indicate large sales volumes, for instance. Many websites with lots of traffic have minimal sales. The best way to measure ebusiness success is to use effectiveness MIS metrics, such as the revenue generated by web traffic, number of new customers acquired by web traffic, and reductions in customer service calls resulting from web traffic.

Interactivity measures advertising effectiveness by counting visitor interactions with the target ad, including time spent viewing the ad, number of pages viewed, and number of repeat visits to the advertisement. Interactivity measures are a giant step forward for advertisers, since traditional advertising methods—newspapers, magazines, radio, and television—provide few ways to track effectiveness. Figure 3.8 displays the ebusiness marketing initiatives allowing companies to expand their reach while measuring effectiveness.14

The ultimate outcome of any advertisement is a purchase. Organizations use metrics to tie revenue amounts and number of new customers created directly back to the websites or banner ads. Through clickstream data , they can observe the exact pattern of a consumer’s navigation through a site. Clickstream metrics can include the length of stay on a website, number of abandoned registrations, and number of abandoned shopping carts. When a visitor reaches a website, a hit is generated, and his or her computer sends a request to the site’s computer server to begin displaying pages. Each element of a request page is recorded by the website’s server log file as a hit. Stickiness is the length of time a visitor spends on a website. Businesses want their websites to be sticky and keep their customer’s attention. To interpret such data properly, managers try to benchmark against other companies. For instance, consumers seem to visit their preferred websites regularly, even checking back multiple times during a given session.15