CS 453: Business
Strategies and Models
Fall 2007
Based on:
Chap. 3 of Treese and Stewart text
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Overview
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Is use of the Internet a revolution in commerce?
Where does the Internet add value?
Four Internet business strategies
Threats and Opportunities, SWOT analysis
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1. Revolutionary? Or not?
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Things have changed for businesses, certainly
Enough so that we can call this a revolution?
What do you think? Why, why not?
 Evidence, logic on this please
Groups of three or four
 Reasons why, why not
 Present, then vote
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Your comments on this debate
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An analogy: railroads
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Differences from 1825 to 1890
 Travel time reduced 4x
 Transportation cost of goods 5-15x less
 Routes independent of waterways
 Work-force dispersal, vacation habits
 Standardization: e.g. time
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Railroads and the Internet
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Comparison of Infrastructure Issues
 New infrastructures needed
 Original purpose perhaps not commerce
 Standards required to make it happen
 Security issues
 Technical innovation required first
 Accelerates or enables a larger trend
 Industrial revolution
 Information age
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Similar Factors
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Economies of scale
Source of competitive advantage
 RRs: e.g. regional advantages
 The net: many examples (we’ve talked about)
Inventory needs:
 Changes how inventory and production are or are
not co-located in time and place
Distribution: more variety, choice, availability
New opportunities
 New corporations
 New businesses in new areas
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Discussion again:
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Revolution or not?
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2. Where does the Internet Add Value?
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From a company’s perspective, the Internet must add value
somehow.
Two high-level views of how:
 Transform customer relationships
 Displace sources of value
 (Change how value was added in the past)
Term used in business: value proposition
 The unique added value an organization offers customers
through their operations
 A statement summarizing the customer targets, competitor
targets and the core strategy for how one intends to
differentiate one's product from the offerings of competitors.
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Customer Relationships
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Move from supplier-centered to customer-centered
Old view: one-to-many view
 Supplier chooses hours; location
 Supplier delivers services
 Focus on supply chain
Now, customer-centered: one-to-one view
 Supplier always available; no physical store
 Services come to customer at their site
 Customer servers herself
 Focus on customer needs
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Displacing Sources of Value
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Now, economies of scope as well as scale
 More kinds of things as well as lots of them
Mass production still important (a given) but
customization more important
 Customization is possible for more people
Distribution was an inconvenient afterthought
 Now software, service downloads central to the
value a business provides
Global distribution now easier (for bits instead of
physical goods)
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3. Four Internet Business Strategies
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The preceding ideas let us characterize Interent
business strategies like this:
 Channel Master
 Customer Magnet
 Value Chain Pirate
 Avast! Talk Like a Pirate Day is Sept. 19!
 Digital Distributor
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Channel Master
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Customer oriented but based around a particular type
of product
 Possibly traditional goods and services
 Build deep, strong relationships
 Marketing channels and other direct ties to
customers made to work with the Internet
An example: Cisco
 Hardware has been sold for decades
 Cisco uses the net at all four parts of the
“Commerce Value Chain”
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Customer Magnet
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Customer centered: draw a larger set of customers
Meet broadly shared needs, aggregate larger number
of services
 Must integrate multiple suppliers behind one
interface
Become a destination of choice
One example (of many): Yahoo
 Search, shopping, news, financials, email, IM,
groups,…
 Similar: Amazon, AOL
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Value Chain Pirate
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Focus on displacing someone in the value chain,
grabbing their share of the value
Perhaps by connecting suppliers to customers in a
new way
 Leapfrog or displace someone in the “old” way
May focus on customer issues (e.g. Attract step in
commerce value chain)
One example: Autoweb
 Importance on interacting with customers
 Traditional suppliers are used
Other pirates?
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Digital Distributor
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Focus on supply, products/services
New or heavily altered traditional channels
Build new commerce value chain for customers that supplies
products and services in a new way
One example: Monster.com
 Previously: employers handled hiring (mostly)
 Services for job-seekers (including some shift of activities)
 Services for employers
 New tools: agents, resume screening, moving assistance
 Touches all four steps in commerce value chain
Others with this strategy?
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4. Threats and Opportunities
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SWOT Analysis
 Part of a business plan, or an evaluation
Sets of questions to be answered
 See pp. 30-31 in handout
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Threats and Opportunities
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Note that a threat to you is someone else’s opportunity (and
vice versa)
Channel master:
 In your product area, can they use the Net better?
Customer magnet:
 Can they outdraw you? Better or broader services?
Better community? (Discuss in relation to Amazon.)
Value Chain Pirate
 Can you lose your position? Someone sells directly to your
customers using our suppliers?
Digital Distributor
 Can part of what you do somehow be merged into another
company’s new aggregation?
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Disintermediation
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Removing the middle-man
 Example: customer goes directly to producer
Has this happened in e-commerce?
 What do you think?
Discuss.
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Reintermediation
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(Today’s word-of-the-day!)
Did the internet eliminate the middle-man between
consumer and suppliers?
 Not really for various reasons
In fact, new kinds of middle-men
 Old chains of distribution disrupted and reassembled
 Aggregate services
 Provide broader services and product together
 Products alone not enough
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Summary and Wrap-up
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Note that these model strategies aren’t mutually
exclusive
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Are they even complete? What doesn’t really fit
this?
Note that you could base a business strategy on
these models
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