Exploring the Internet
The Internet and Business
91.113-021
Instructor: Michael Krolak
91.113-031
Instructor: Patrick Krolak
See also http://www.cs.uml.edu/~pkrolak/
Authors: P. D. & M. S. Krolak Copyright 2005
Tonight
• The Internet and Business (e-Commerce)
• Building a form
http://itom.fau.edu/sgalup/ISM6026_Spring2005_schedule.htm
Class Announcements
• Class Notes Have been
posted.
• The Final Blogs are
Wednesday Dec. 21!
• Class Vote
Follow Up from Last Class
•
•
•
•
Average grade: 90.9
Highest grade: 108
Maximum grade: 110
Mid-term was 30% of your
grade!
• Blogs are still due ( 2 per
week)
• Blogs count as 30% of
your grade.
Source:
Internet Business
The Internet was seen as a major area for business growth in the mid-90s
and the “dot com” craze overcame Wall St. making young entrepreneurs
millionaires (even Billionaires) over night. In the late 90s the bubble burst
almost as rapidly. Some companies survived and prospered while many
of the dot coms disappeared almost as fast as they had appeared.
The traditional brick and mortar companies that adapted and modified
their business model to utilize the Internet flourished; while those who did
not or could not fell by the wayside.
What is technology?
Source: http://digilander.libero.it/stanleykubrick/2001/images/dawn06.jpg
What is technology
tech·nol·o·gy
n.
1. The application of science, especially to industrial or
commercial objectives.
2. The scientific method and material used to achieve a
commercial or industrial objective.
3. The body of knowledge available to a society that is
of use in fashioning implements, practicing manual
arts and skills, and extracting or collecting materials.
Source: http://www.dictionary.com
What are barriers of entry?
barriers of entry
n.
1. In economics and especially in the theory of
competition, barriers to entry are obstacles placed
in the path of a firm which wants to enter a given
market. The term may be used to refer to an
individual who is barred from entering some
profession or trade, or to a firm or even a country
that is barred somehow from entering an industry
or trade grouping
Source: http://www.wikipedia.com
Hmmm. . . What does that make you think of?
Maybe Barriers of Trade?
• Tariffs - An added cost when you bring a good
across a border
• Non-tariff barriers to trade
– State subsidies, procurement, trading, ownership
– National regulations on health, safety, employment
– Quotas
How about the Digital Divide?
digital divide
n.
1. A social issue referring to the differing amount
of information between those who have access to
the Internet (especially broadband access) and
those who do not. The term became popular
among concerned parties, such as scholars,
policy makers, and advocacy groups, in the late
1990s
Also referred to as the digital split
Source: http://www.websters-online-dictionary.org/definition/DIGITAL+DIVIDE
What are economies of scale?
economies of scale
n.
1. The ability to leverage capabilities and
infrastructure to increase a market participant’s or
a network of participant’s revenues or profits
within a single product line or market.
Example
If you shop at Costco or Sam’s Club, you are
leveraging economies of scale.
Source: Applegate, Austin, and McFarlan, “Corporate Information and Management”
What could you leverage on the Internet?
What is E-Commerce?
Electronic commerce or e-commerce
n.
1. The distributing, buying, selling, marketing, and servicing of
products or services over electronic systems such as computer
networks. The information technology industry might see it as an
electronic business application aimed at commercial transactions.
It can involve electronic funds transfer, supply chain management,
e-marketing, online marketing, online transaction processing,
electronic data interchange, automated inventory management
systems, and automated data-collection systems. It typically uses
electronic communications technology such as the Internet,
extranets, e-mail, Ebooks, databases, and mobile phones.
According to Forrester Research (as cited in Kessler, 2003),
electronic commerce generated sales worth US $12.2 billion in
2003.
Source: http://en.wikipedia.org/wiki/E-commerce
E-Commerce Market Size and Trends
The increase and penetration of online use
in the US increases the potential market size
for E-Commerce on an annual basis. A large
share of the expected growth in Internet
commerce can be attributed to the increase
in the online population:
•U.S. online population estimated to
increase nearly 50%, from 141.5 million in
2001 to 210.8 million by 2006 (CAGR of
8.2%). [1] (see Figure )
•U.S. online retail sales will grow from $47.8
billion in 2002 to an estimated $130.3 billion
in 2006 (see accompanying Figure). [2]
•There are 2.3 million small companies in
the U.S.; with 16% of these in the retail trade
and 60% of all small companies have an
online presence – potential market size for
our service is upwards of 200,000
companies. [3]
•Annual spending per buyer will increase
from $457 in 2001 to $784 in 2006. [4]
Source: http://www.goecart.com/ecommerce_solutions_facts.asp
The dot com craze
The Dot Com Bubble
• Based on the expectation for e-commerce growth,
venture capital companies rushed in to find and fund new
companies.
• Companies were often funded even though they had an
immature leadership, a six page business plan, and no
discernable business model.
• The dot com boon quickly showed the first company with
the idea could get funded, perhaps the second but not
many others.
• The boon ended after large numbers went to the equity
market (Initial Public Offerings, IPOs) and it became
clear that they were way overvalued without a long term
change of making a profit.
The inevitable bursting of the
bubble and the consolidation
of the market
Source: www.londonstimes.us/.../johann_dotcom.gif
The bubble burst!
Netflix vs. Blockbuster
• Blockbuster – Started in
Massachusetts
• Business Model –
– rent VCRs and DVDs from local
stores
– Charge for each selections
– LATE FEES
• While Blockbuster still
survives it has had to modify
its Late Fee policy
• Blockbuster and Wal-Mart
now are trying to compete
using a NetFlixs business
model
• Netflixs Business model –
– Rent DVDs online with tools for
creating lists of movies desired,
history of orders, etc.
– Selections are sent thru the mail
– Allows DVDs at a time for an
unlimited time.
– Ships DVDs in a postage paid
return envelope,
– One monthly fee for all
selections during the month and
NO Late Fees
Amazon.com vs. the traditional
retailer
• Founder and CEO-- Jeff
Bezos
• Amazon.com business model
to be the Wal-Mart of the web.
• After the bubble burst it
maintained the vision despite
lack of profits, it created a
stable and reliable supply
chain, and expended into new
products.
• Pioneered consumer's
evaluations and used tools to
determine what buyers of
similar products purchased to
suggest further sales.
Dell vs. Gateway Computers
• Gateway business modelsell computers as a
commodity against the
high overhead corporate
sales teams of the old line
computer makers.
• Go to the retail site and
place an order for a
customized computer that
would be fabricated and
shipped in 3 business
days.
• Dell offered the same
customization in an e-tail
mode.
• Customer service is done
through off shore phone
service.
Lycos.com
•
•
•
•
Founder Bob Davis, a Northeastern graduate, did
not know how to use a computer until he became
the CEO.
Location: Waltham, MA.
Business model: Search engine and portal
Funded initially for $2M, late in the market behind
Yahoo, etc.
–
–
–
•
•
Considered itself a media company, and viewed Old
Economy conglomerates like Viacom and Disney as
role models.
Rather than swallowing companies whole, Lycos
would become an umbrella under which numerous
established brands would cooperate and promote one
another. The key was to build out quickly.
Buy a company, make the necessary adjustments, and
move on to the next deal,
IPO in 1997 for $40M & at the time -- fastest IPO in
NASDAQ history
Lycos, after turning down a stock deal by USA
Networks for $6-billionl, is acquired by Terra, the
Internet arm of Telefónica, the Spanish
telecommunications giant. The trade for a large
amount of cash was done at the top of the market,
Davis walked away a rich man.
Source: http://www.bizforward.com/bos/issues/2001-07/lycos
Monster.com vs. Newpapers
• Business model: A global jobs
portal for business and job
seekers.
• Founder: Jeff Taylor, U Mass
graduate. His area of
concentration was "Human
Capital and Marketing in the
New Economy."
• The Boston Globe was offered
the chance to buy out
Monster.com in its inception.
Source: http://www.umass.edu/commencement/2001/speakers.html
Ebay
• Ebay created the first
successful auction site where
buyers and sellers could sell
everything from heirlooms to
junk in the attic.
• Pioneered the concepts of
buyers comments on sellers,
invented means to insure the
buyer from fraud, etc.
• Allowed thousands to create
basement businesses to sell
overstocks, art, handicraft,
etc.
Google, Yahoo, and Microsoft chase
the geographic search engine market
• Google, Yahoo, and Microsoft
have staked out the
geographic search engine to
do battle.
• Geographic search engines
provide:
– People and places near an
address,
– Provide information about a
place, location, directions,
services located in the area, etc.
– GIS, Satellite imagery, 3-d view
of terrain and buildings
Source: http://earth.google.com/
What are the requirements
for using the Internet for
commerce?
e-commerce has many forms. Electronic
Retail or e-tail is the most common one.
E-tail from the view point
of the customer
Service:
The problem that is presented to every e-commerce strategy is this:
1. How to utilize the advent of automated service without losing
customer satisfaction or attraction? The pleasure of shopping
and dealing with real salespersons versus the time saved via
online purchases.
2. What type of service is the e-commerce consumer expecting
from a commercial site? Most e-commerce sites, certainly
around the Holidays, try to focus on marketing the speed and
convenience of their service. The consumer would rather wait a
few days for the product to be shipped to them, than spend time
in lines. Therefore, when designing a e-commerce site, one
should recognize the importance of speed and convenience.
3. The majority of the customers of any e-commerce site will not be
computer literate. Therefore, the site should be easy enough to
use that someone who can do nothing more than browse web
sites can still purchase goods.
Security:
An important rule of marketing is: To make a sale you must
gain the consumer's trust.
• This is why there exist warranties, price protection
guarantees and assorted other marketing strategies.
• With e-commerce, one must develop a strategy to
overcome the consumer fears that develop by losing the
person-to-person experience. Security is the largest
concern of consumers on the Internet. If consumers don't
trust their credit card number to the process, you will lose
their sales.
• Therefore, while security can cost a small fortune, it is a
necessary investment in today's e-commerce market.
Safety:
• While it is rare the individuals physical safety is compromised by
access to information that is too easily obtainable over the web,
some people risk home invasion by publicly advertising events that
take them away from home, i.e. weddings, funerals, etc. The
convenience of online bridal registries and similar services open
the individual to more that a gift from Aunt Susie.
• The more dangerous issue and growing more common crime is
identity theft. The gathering of information of social security
number, credit cards, and few other pieces of data can be woven
into a fabric of another life that could lead to bankruptcy, loss of
family and friends, and other undesirable outcomes.
• E-business must protect the customer data if it intends to stay in
business and should demand that other take a similar stand to
push for a public code of conduct and support harsh penalties for
crimes like identity theft.
Privacy and Confidentiality
• In the early 90’s, one of the greatest fears of the users of the
Internet was that an Orwellian society was coming of age. The
vision of Big Brother collecting information from the Internet and
using it in ways the consumer would never suspect nor want,
caused many pioneers of the Internet to pause.
• Due to the sensitivity of this issue, e-commerce sites must respect
the privacy of its consumers. Ethical issues come into the picture
when one conceives of storing consumer information in large
databases that will later use the data to determine how one views
the site.
• Personalization over the Internet could come at a very high cost to
the consumer if e-commerce sites didn't respect the confidentiality
of the consumers. Once again, in order to effectively market a site,
one must build a trust between the consumer and the company.
Invasions of privacy are obvious breeches of that trust and would
only gain short term profits. Eventually consumers would refuse to
use a site that violated the privacy of a consumer.
Reliability and Repeatability
• In a market where technological fads come and go within
a matter of months, the stability and sustainability of a
site is a great asset. New sites are popping up on the
internet at a mind boggling rate.
• Consumers will hesitate to use fly-by-night sites,
because they can not offer reliability and repeatability.
The most reliable sites on the internet will guarantee
delivery of products and will even track the products’
shipping status. Such practices allow the consumer to
feel at ease with buying goods on the internet and it will
cause them to return to your site.
• In short a e-tailer is only as strong as its supply chain.
Telework or
Telecommuting
The cost of leasing or buying office space, the cost and loss
of productivity during commuting, and the workers’ desire to
remain part of the work force during the child rearing years
has lead government and industry to begin experimenting
with a new work model.
Called telework or telecommuting the worker uses a home
office along with the Internet and phone to maintain
accountability, transmit work, and to take part in tele (video)
conferences, and to stay in the office life and flow of business.
The worker may or may not actually go into an office weekly,
In some cases the worker rents a temporary or virtual office to
hold meeting, prepare presentations, and to share secretarial
and other support.
Internet Services for time-strapped
families
• Online grocery shopping
and delivery
Peapod.com
• Online banking and bill
paying
BankofAmerica.com
• Online Travel Agents and
low cost tickets
Orbitz.com
• Distance Learning
Umassonline.net
The Internet and the family
The family in the US is no longer the “Leave It To
Beaver” television image of the 1950’s.
1. The two parent, two children families with
one wage earner are now a distinct minority.
2. Single parent or divorced single parent
families are common.
3. Blended families are growing in large
numbers.
4. Gay marriage and civil unions are now
recognized in several states.
5. The families are being formed later and with
fewer children and more disposable income.
6. American families with two wage earners are
working increasingly longer hours.
7.
The global trend in other industrial countries
-- workers and management alike are
seeking shorter work weeks..
8. Telecommuting (working out of a home office
for government or industry) and/or home
based businesses depend on the Internet for
services, data, and markets.
The advent of Internet and wireless
devices is effecting the quality of life
• The constant barrage of
music, video, and
information shortens our
attention span and allows
little quiet time for family.
• The wireless devices
means we are always on
call and can always be
interrupted.