Chris Hossfeld
January 9, 2002
Dr. Buchholz
ECT 250
Chapter 1-2 Questions
Chapter 1
Questions:
10. The major limitations on the growth of E-Commerce are:
1. Home penetration of PCs- Limited exposure to PCs around the world limit
accessibility and ability of third world countries to compete in global e-commerce
markets.
2. Expensive Technology- The cost of home PCs, internet connections (normal
and high-speed), and wireless technology limit global reach because of economic
means.
3. Complex software interface- Relatively complex operating systems and internet
connection interfaces limit accessibility to educated computer “literate”
individuals with access to internet applications and complex training.
4. Sophisticated skill set- Computer skills and training are needed to effectively
utilize the internet and complex software interfaces.
5. Persistent cultural attraction of physical markets and traditional shopping
experiences- The e-commerce world lacks the social interaction found in “one on
one” traditional retailers who produce a unique and interactive environment not
found on a computer screen.
6. Persistent global inequality limiting access to telephones and personal
computers- Economic and social circumstances limit many peoples access to PCs
and internet connections.
7. Cultural barriers- Language and cultural traditions differ from individual
societies creating limitations on both the reach and acceptance of new
technological advances like e-commerce.
Technological advances will increase e-commerce growth, while eliminating
many of the limitations hindering its world wide acceptance. However, cultural and
social barriers are formable barriers limiting the expansion of e-commerce into global
communities and global markets. Cultural traditions set in the foundation of many
societies challenge traditional cultural values and are largely resistance to
technological influence. In the coming “digital decade” cultural acceptance will be a
major barrier in terms of e-commerce gaining global acceptance and global reach.
16. The 5 major differences between E-Commerce I and II are:
E-COMMERCE I
E-Commerce II
1. Technology driven- Explosive tech
1. Business driven- Focus on realistic
advances caused emphasis on ingenuity
financial goals and better use of present
of tech rather than use as viable business. technology in order to be a successful
company.
2. Revenue growth emphasis- Focus on
customer basis growth and company
expansion instead of financial well being.
3. Venture capital financing- Business
entrepreneurs who poured financial
capital into high risk enterprises for
personal benefit.
4. Entrepreneurial- small business
entrepreneurs competed for large market
creating economic Darwinism “survival
of fittest.” Business’s had benefit of
being first in individual markets.
5. Ungoverned- The internet was seen as
a free enterprise marketplace with
limitless possibilities. The lack of any
restrictions increased its overall appeal.
2. Earnings and profits emphasisDirected towards ability of business to
seek profits and remain financially
competitive.
3. Traditional financing- Bank loans and
Public funding creating less capital, but
directed it in a more productive, less risk,
and, more effective manner.
4. Large traditional firms- Larger
retailers and defined companies emerged
setting foundations and dominating
individual markets.
5. Stronger regulation and governanceAlthough still largely un-taxed and
unregulated new restrictions prohibiting
certain material and taxing sales will
ultimately prohibit growth to some
markets in the future.
18. A multi-disciplinary approach covering vastly different fields (technical and
behavioral) is needed in order to understand e-commerce because of the broad
vastness of both the internet and the global marketplace itself. Because e-commerce
is a global phenomenon that encompasses global markets, cultures, and societies, one
must understand all aspects of the global community in order to understand ecommerce in its full entirety. Composed of Sociology, Computer science,
Management science, Information systems, Economics, Marketing, Management and,
Finance/Accounting, the E-Commerce world posses unique challenges to the both the
consumer and the E-Businessman.
Project 4:
(Information was used (but not directly) from Standard & Poor’s and Market
Guide/Provestor Plus Company Report as stock reports with other affiliated web sites
concerning Amazon’s 2nd and 3rd quarter earnings report for the 2001 business year.
Chart from http://www.fidelity.com/ then stock quote for AMZN)
History- Jeff Bezos, 1999 Times Person of the Year, and his company
Amazon.com has seen both the highs of the dot.com era and lows of crashing stock
prices, mounting financial loses, enormous debt, and a failing economy. Stock prices
dropped from a high of $113.00 per share in 1999 to lows around $5.51 per share in the
4th quarter of 2001. The rise and fall of Amazon’s stock price is directly related to the
rise and fall of the dot.com era. Amazon.com attempted to market the wide base of
internet users (increasing at 2,300% per year in 1994) by selling an enormous collection
of books at discounted process. Since its birth in 1994 it has accumulated a good
reputation, brand name, consistent and repeat customer base, a solid foundation, and
billions of dollars of debt and yearly losses ($545 million 4th quarter of 2000 and $1.411
billion for the year). As Amazon continues to accumulate financial debt it is more and
more unlikely the company will achieve a yearly profit.
Update- Although the company continued to accumulate debt in the 2nd and 3rd
quarters of the 2001 financial year, the company is expected to post earnings for the first
time in the fourth quarter of 2001. Gross margins are expected to continue to improve,
increased product volume, more efficient inventory management, and better shipping and
customer services are expected to cut operating expenses and eliminate yearly losses.
The company is however expected to continue to have high operating expenses and the
events of September 11 may delay profitability even further to the first or second quarter
of 2002. Recent layoffs totaling 1,300 and the closing of distribution plants, centers, and
customer service facilities has further decreased operating costs and caused numbers to
trend towards a yearly profit. In the 9 month period ending on 9/30/01, revenues
increased 12% to $2.01 Billion and net losses fell 35% to $561.8 Million reflecting
increasing sales in the e-market place and better efficiency. Sales are expected to
increase 9% in 2002, demonstrating growth in e-commerce sectors and international emarkets in the upcoming year. The company has made enormous progress towards
positive revenue and will be aided by an improving economy in the next year.
Competitors such as Toys “R” Us, Borders, and Target have either eliminated or greatly
diminished their investments in similar online commerce sites giving Amazon a dominant
advantage in the e-retail sector (some have even gained partnership with Amazon). The
company currently has 9,000 employees with sales totaling $331,069 per employee.
Current stock price is around $11.03 (1/11/2002) and significantly higher than its 52
week low of $5.51 (10/1/2001). The company has shown increased earnings for the last
three quarters indicating it will achieve a positive profit in the next two financial quarters.
Amazon has an enormous potential market opportunity and a strong trend towards
profitability despite its lack of profits and substantial debt of billions of dollars. Through
good management, better efficiency, and decreases in business operating expenses
Amazon can become a profitable company with a well know brand name, while
dominating the e-commerce marketplace.
quick brown fox ju
er the lazy over the lazy dog
Chapter 2:
1. A business model is a set of planned activities (sometimes referred to as business
processes) designed to result in a profit in a marketplace. The business model is at the
center of the business plane. A business plane is an actual document that describes the
business model and lays out the business plan and goals in its entirety. Both are needed if
a company is to achieve financial success in the form of revenue or gain capital in order
to start a new E-Business.
2. The eight key components of an effective business model are:
1. Value Proposition- defines how a company’s product or service fulfills the
needs off customers.
2. Revenue Model- describes how the firm will earn revenue, generate profits, and
produce a superior return on invested capital (advertising revenue model,
subscription revenue model, transaction fee revenue model, sales revenue model,
affiliate revenue model)
3. Market opportunity model- refers to the company’s intended marketplace and
overall potential financial opportunities available to the firm in the marketplace.
4. Competitive environment- refers to the other companies operating in the same
marketplace selling similar products.
5. Competitive advantage- The ability to produce a superior product and/or bring
the product to the market at a lower price than most, or all, of their competitors.
6. Market Strategy- is the plan you put together that details exactly how you intend
to enter a new market and attract new customers.
7. Organizational Development- describes how the company will organize the
work that needs to be accomplished.
8. Management Team- the most important element of business responsible for
making the model work.
4. The five revenue models are:
1. Advertising revenue model- a web site that offers its users content, services,
and/or products also provides a forum for advertisements and receives fees from
advertisers. Revenue from advertisements.
2. Subscription revenue model- a web site that offers its users content or services
and charges a subscription fee for access o some or all of its offerings.
3. Transaction fee revenue model- a company receives a fee for enabling or
executing a transaction. Revenue from subscription fees.
4. Sales revenue model- companies derive revenue by selling goods, information,
or services to customers. Revenue from direct sales.
5. Affiliate revenue model- sites that steer business to an “affiliate” receive a
referral fee or percentage of the revenue from any resulting sales. Revenue from
referrals.
6. Applications, files, texts, movies, and services can all be shared through peer-to-peer
sites such as Napster and MP3, using shareware. Almost anything stored on your
personal computer can be shared to other users on a internet link in a peer-to-peer
environment. The possibilities are endless raising serious concerns over pirated movies,
songs, applications, and any other transferable data that can be illegally copied and
distributed over such shareware programs.
13. Virtual storefronts such as marthastewart.com are purely digital business models
located solely on the Web. Where walmart.com has thousands of stores across the
country as well as a web site to increase its marketplace range. Wal-Mart extensive
reputation as a retailer increases its value as a brand name and its chances of success in
the virtual marketplace. Marthastewart.com must, however, create an individual niche in
which to make a brand name for themselves in the digital world. Although it the site is
know for its connection to the T.V. show, it does not have the notoriety that a “clicks and
bricks” operation often has from the start. “Clicks and bricks” operations are often better
know and merely a digital version of a physical and already successful retailer. Virtual
storefronts do not have the to deal with the enormous costs of maintaining and building
physical establishments in which to sell their products (usually only warehouses) and the
ability to appeal to individual markets that large retailers have not already tapped.
“Clicks and bricks,” however, already have a brand name, reputation, capital, successful
business, and means to start a viable e-commerce business.
14. Content providers distribute information content, such as music, photos, video, art
work, and any other form of textual information such as virtual encyclopedias and other
related material that does not only constitute news or news articles.
17. An application service provider is a company that sells access to Internet-based
software applications to other companies.
21. The four generic strategies for achieving a profitable business are:
1. Differentiation- the ways in which a producer can make their product unique and
distinguish it from those of competitors.
2. Cost (Commoditization)- a situation where there are no differences among
products or services, and only the basis of choosing a product is price.
3. Scope- is a strategy to compete in all markets around the globe, rather than merely
in local, regional, or national markets.
4. Focus- is a strategy to compete within a narrow market segment or product
segment.