Chapter 8:
E-Business Strategy
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Chapter 8 Slide: 1
LEARNING OBJECTIVES(1):
• Outline the steps involved in strategy development.
• Explain the major drivers of e-business strategy and
their impact.
• Explain the importance of an e-business value chain.
• Discuss the roles of alliances and acquisitions to
strategy development.
• Identify the major strategies e-businesses are using
to differentiate themselves.
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Chapter 8 Slide: 2
LEARNING OBJECTIVES(2):
• List the advantages that a pioneering firm can gain.
• Explain the importance of brand names for ebusinesses.
• Describe the strategic role of portals.
• Identify the alternative competitive arenas where ebusinesses can find opportunities.
• Describe the measures that businesses can use to
judge e-business success.
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Chapter 8 Slide: 3
Vignette:
Microsoft vs. The World (1)
• Thinking Strategically
– Determine what environmental factors are
influencing Microsoft.
– Contrast Microsoft’s strengths and weaknesses.
Decide which of Microsoft’s strengths allow it
to gain an advantage over its competitors.
– List environmental threats that Microsoft faces
currently and could face in the future.
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Chapter 8 Slide: 4
Microsoft's Internet Strategic Actions:
Purchases/License/Alliances
• 1994 License Spyglass browser
•
•
•
•
•
•
•
technology.
1995 MS invests UUNet.
1995 AOL.
1996 Purchase Vermeer
Technology.
1996 Purchase Colusa Software Inc.
1996 Purchases eShop, Inc.
1996 Purchases Electric Gravity,
Inc.
1996 Sun Microsystems License.
• 1996 AT&T, Netcom,
•
•
•
•
•
MCI, CompuServe
alliances.
1997 Invests in
Realnetworks.
1997 Purchases HotMail
for $400 million.
1997 Purchases WebTV for
$425 million.
1999 Invests in Nextel.
1999 Invests in AT&T.
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Chapter 8 Slide: 5
Vignette:
Microsoft vs. The World (3)
• Thinking Strategically
– Determine what steps Microsoft could take to
lower those threats.
– Speculate on the future opportunities that
Microsoft may have.
– List the different competitive arenas in which
Microsoft is competing.
– Determine what steps Microsoft would need to
take to take to pursue those opportunities.
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Chapter 8 Slide: 6
What Is Strategy
• A strategy consists of a pattern of decisions
that set the goals and objectives that lead to
long run competitive advantages for a firm.
– Undertake a SWOT analysis.
– Determining distinctive competencies.
Determining the competitive arena.
– Develop a plan to reach the business goals.
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Chapter 8 Slide: 7
Steps for Strategy Development (1)
• Undertake a SWOT analysis.
– Evaluate the Strengths, Weaknesses,
Opportunities, and Threats facing a business.
• Determining distinctive competencies.
– Analyze a business’s value chain to help
identify internal strengths and weaknesses that
can help determine how a business can
compete.
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Chapter 8 Slide: 8
Definitions:
• A value chain is a way of envisioning the
collection of activities that a business
undertakes to design, produce, market,
deliver, and support products or services.
• The Competitive Arena is the competitive
environment in which a business competes.
• Distinctive Competencies are unique areas
of advantage where a firm can differentiate
itself from competitors.
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Chapter 8 Slide: 9
Steps for Strategy Development (2)
• Determining the competitive arena.
– Determine the competitive environment in which a
business competes
• Helps set the mission
• Indicates the windows of opportunity to be pursued
• Identifies the competitive environment.
• Develop a plan to reach the business goals.
– Outline the strategic actions and tactics a business must
undertake to move from where and how it currently
competes to where and how it needs to compete given
its distinctive competencies.
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Chapter 8 Slide: 10
Model of Strategy Development
Strategy
Environmental Forces
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Competitive
Threats
Strategic
Drivers
Value Chain
(Strengths &
Weaknesses)
Chapter 8 Slide: 11
Table 8.1: Drivers of
Environmental Turbulence
Environmental
Drivers
Technological
change
Changing
customers
Description
Moore's law more power and lower costs is allowing technology to
be applied across a broader spectrum of products and uses.
Customers around the globe accepting Internet use and on-line
purchasing. Individuals are facing time compression and technology
is being used as an enabler to accomplish more. Customers have
increased power due.
Product life cycles are growing shorter due to the rapid development
Shorter
of new technology, aggressive marketing, and a willingness of buyers
product life
to try new products.
cycles
Distance between competitors is vanishing. causing an increase in the
Number of
intensity of competition.
competitors
Need for speed Instant connectivity is becoming the norm in business-to-business
applications as well as in the way that consumers shop.
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Chapter 8 Slide: 12
E-Business Value Chain (1)
E-business value chains view information technology
as part of a business’ overall value chain adding to the
competitive advantages of a business
Inbound
Logistics
Extranets:
Lowers costs
increase speed
Production
ERP Software:
Lowers costs
Customized
Production:
Differential
Advantage
Management
Leadership:
Management
Intranets: Lower costs,
better communication.
Innovativeness: Speed,
flexibility, new
product ideas
Marketing/Sales
E-commerce:
Lower costs, new
market entry.
Databases: Meet
market needs
better, make better
decisions.
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Customer
Support
Internet:
Lower costs,
speeds service.
Competitive
Advantage
Through Stronger
Customer
Relationships
Chapter 8 Slide: 13
E-Business Value Chain (2)
Inbound
Logistics
Extranets:
Lowers costs
increase speed
Inbound
Logistics
Extranets:
Lowers costs
increase speed
Production
ERP Software:
Lowers costs
Customized
Production:
Differential
Advantage
Management
Leadership:
Management
Intranets: Lower costs,
better communication.
Innovativeness: Speed,
flexibility, new
product ideas
Marketing/Sales
E-commerce:
Lower costs, new
market entry.
Databases: Meet
market needs
better, make better
decisions.
Production
ERP Software:
Lowers costs
Customized
Production:
Differential
Advantage
Customer
Support
Internet:
Lower costs,
speeds service.
Competitive
Advantage
Through Stronger
Customer
Relationships
Management
Leadership:
Intranets: Lower costs,
better communication.
Innovativeness: Speed,
flexibility, new product
ideas
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Chapter 8 Slide: 14
E-Business Value Chain (2)
Inbound
Logistics
Extranets:
Lowers costs
increase speed
Production
ERP Software:
Lowers costs
Customized
Production:
Differential
Advantage
Marketing/Sales
E-commerce:
Lower costs, new
market entry.
Databases: Meet
market needs
better, make
better decisions.
Management
Leadership:
Management
Intranets: Lower costs,
better communication.
Innovativeness: Speed,
flexibility, new
product ideas
Marketing/Sales
E-commerce:
Lower costs, new
market entry.
Databases: Meet
market needs
better, make better
decisions.
Customer
Support
Internet:
Lower costs,
speeds service.
Customer
Support
Internet:
Lower costs,
speeds
service.
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Competitive
Advantage
Through Stronger
Customer
Relationships
Competitive
Advantage
Through
Stronger
Customer
Relationships
Chapter 8 Slide: 15
Figure 8.3: Coca-Cola
E-Business Value Chain(1)
Inbound
Logistics
Extranets:
Lowers costs
increase speed
Inbound
Logistics
Extranets:
Links Coke
with bottling
partners and
suppliers.
Production
ERP Software:
Lowers costs
Customized
Production:
Differential
Advantage
Management
Leadership:
Management
Intranets: Lower costs,
better communication.
Innovativeness: Speed,
flexibility, new
product ideas
Production
ERP Software:
Links Coke with
its bottling
partners.
Provides
interconnected
management
system.
Marketing/Sales
E-commerce:
Lower costs, new
market entry.
Databases: Meet
market needs
better, make better
decisions.
Customer
Support
Internet:
Lower costs,
speeds service.
Competitive
Advantage
Through Stronger
Customer
Relationships
Management
Leadership:
Intranets: Management willing
to change and sell ideas.
Intranets: Worldwide systems
improves communication.
Innovativeness: New approach
in the soft-drink industry.
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Chapter 8 Slide: 16
Figure 8.3: Coca-Cola
E-Business Value Chain(2)
Inbound
Logistics
Extranets:
Lowers costs
increase speed
Production
ERP Software:
Lowers costs
Customized
Production:
Differential
Advantage
Marketing/Sales
E-commerce:
Cellular linked
vending machines.
Databases: Used
with decision support
systems. Can
determine the
effectiveness of
marketing efforts.
Management
Leadership:
Management
Intranets: Lower costs,
better communication.
Innovativeness: Speed,
flexibility, new
product ideas
Marketing/Sales
E-commerce:
Lower costs, new
market entry.
Databases: Meet
market needs
better, make better
decisions.
Customer
Support
Internet:
Lower costs,
speeds service.
Customer
Support
Internet:
Provide
more timely
delivery to
trade
customers.
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Competitive
Advantage
Through Stronger
Customer
Relationships
Competitive
Advantage
Through
Stronger
Customer
Relationships
Chapter 8 Slide: 17
Alliances & Acquisitions
• The creation of an e-business value chain
may come from forming alliances or
through the acquisition.
– Alliances are formal or informal relationships
between independent companies that work
together for a common purpose.
– An acquisition exists when one corporation
purchases all or a controlling part of another
company.
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Chapter 8 Slide: 18
Portals
• A portal is an entranceway onto the Internet.
• They are often the preferred starting point for:
– Searches
– Entertainment
– Information,
– Email,
– Or any other Internet based product.
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Chapter 8 Slide: 19
E-BUSINESS STRATEGY
• Low cost and therefore low price
competitor.
– A "frictionless" Internet market implies that
customers have almost perfect information and
can compare prices around the world (by using
intelligence agents to search out the best prices
enhances this process).
• Differentiation strategy by finding a
unique market position against competitors.
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Chapter 8 Slide: 20
Table 8.2: Methods of Differentiation
Differentiation
Advantages
Strategy
Gain Speed & This provides a
number of first mover
First Mover
advantages including
Advantages
costs, meeting needs,
lowering risk, and
lower prices.
Gives buyers
Build Brand
assurance when
Name
interacting with a site.
Allows for easy name
recognition.
Disadvantages
Firms need to be
flexible to be fast.
Being first increases
risks and may require
large amounts of capital
to maintain advantages.
Requires a large
amount of capital to
obtain and maintain a
brand name.
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Chapter 8 Slide: 21
Table 8.2: Methods of Differentiation
Differentiation
Advantages
Strategy
Allows for economies of
Portal
Development scale and builds barriers to
entry.
Pursue Niche Very good strategy for
smaller or weaker
Strategies
businesses. Allows a
business to focus and
become an expert in one
competitive arena.
Allows businesses to build
Enhanced
barrier to entry. By staying
Customer
Relationships close to customers business
can meet needs better.
Disadvantages
Requires large amount of
capital, pushing off
profitability.
Having only one niche can
be risky because all of the
"eggs" could be in one
basket or with one
customer.
Could result in a loss of
power by the business
supplying the product or
service.
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Chapter 8 Slide: 22
Case 8.1: CDNOW: Here for Now
• Thinking Strategically
– Consider how a business that sells CDs could differentiate
itself from other CD selling businesses.
– Determine what components of the e-business value chain
could be used to create value.
– Visit the CDNOW web site (www.cdnow.com). Determine
how this site is differentiated from other CD selling sites.
– List a number of competitive threats that could impact
CDNOW’s competitive position.
– Suggest strategic actions that CDNOW can take to remain
competitive into the future.
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Chapter 8 Slide: 23
Speed and First Mover Advantages
• A pioneering firm has differentiated itself
from competition because it is the first to
enter a competitive arena or it is able help
define the competitive arena.
– Advantages:
• Lower Costs
• Meeting Current Needs
• Lower Consumer Risk Perception
• Charge Higher Prices
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Chapter 8 Slide: 24
Costs Advantages
• May increase the business’ or product's time in a
life cycle, spreading development costs over time
and the number of products produced. Firms that
follow have less time in the life cycle to recover
all costs
• An early entry firm can gain cost advantages
through experience curves and when greater
market shares are obtained they obtain greater
economies of scale.
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Chapter 8 Slide: 25
Meeting Current Needs
• The faster a business can respond to the market,
the more likely that information from areas such
as marketing research will be valid resulting in
actions that could lead to higher market share.
• First, movers have been shown to have a
substantially higher market share than later
entrants. A product that is six months late to
market may miss out on one third of the potential
profit over the product's lifetime.
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Chapter 8 Slide: 26
Consumer Risk Perceptions
• First mover may become the comparison standard for all
rival products by setting the standard for performance.
• Consumers may lower the risk involved in purchasing by
choosing a product with an established image or brand.
• Innovators and early adopters may try first mover products
first and influence others through the diffusion process.
• Advertising and publicity aids in consumer search, but
given the lack of alternative products in many innovative
markets, advertising may have the effect of setting
relevant product attributes the consumer uses in the
evaluation process.
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Chapter 8 Slide: 27
Comparison Standard
and Switching Cost
• A comparison standard is what the customer
uses to judge a product.
– For example, if a customer had first gained their online
search experience with Yahoo!, they will evaluate all
other search engines against Yahoo.
• A switching cost is the additional "costs" involved
in learning something new.
– The costs involved in adopting a new software package
would include the software expense, support, training
costs, and slowed productivity costs.
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Chapter 8 Slide: 28
Prices
• Higher introductory prices can be charged for innovative
buyers who is often more risk tolerant and may have
higher disposable income.
• With greater amounts of information available to the later
adopting consumer, backed by possible word of mouth
about benefits, a higher price can be maintained.
• Later entering firms are seen as higher risk because of
lack of information on their products, forcing them to
charge lower prices. Remaining customers may be those
who are more risk adverse driving the later entrants price
even lower.
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Chapter 8 Slide: 29
Case 8.2: EToys: First on the Block
• Thinking Strategically
– Speculate on the importance of the first mover
advantage for EToys.
– List some of the advantages that EToys may have
gained because they beat Toys R’Us to the
market.
– Consider if the order of entry was reversed,
would EToys have been able to gain market
share? Recommend a strategy that EToys could
follow to maintain its competitive advantage.
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Chapter 8 Slide: 30
First and Second Movers
• Being the first entrant into a market does not
guarantee a long term competitive advantage.
firm must have:
A
– Expertise, resources, and creativity necessary to
exploit first mover opportunities.
• Pioneers must find ways to forestall or neutralize
the efforts of later entrants or they will not gain
first mover advantages.
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Chapter 8 Slide: 31
Building Barriers
• Entry Into an Industry Can Be Limited by:
– Gaining Economies of Scale
– Cost Advantages
– Developing High Switching Cost
– Brand Names
– Strong Customer Relationships
• Development of Portals
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Chapter 8 Slide: 32
Brand Names
• A brand is a sign, symbol, design, term, name or
combination that allows for easy recognition of a
product or company.
– Brand names often give assurance to the
purchaser because they believe that the risk of
using a brand name is lower.
• Build online brand names by:
– Online and offline advertising
– Ease of navigation and overall experience that a
user has with the Web Site.
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Chapter 8 Slide: 33
Portals
Portals are the sites that users depend on to access
other Internet services. http://www.mediametrix.com/TopRankings/TopRankings.html
1
Table 8.3: Top Web Domains*
From Homes
%
From Businesses
AOL.com
46.0 Yahoo.com
Yahoo.com
40.5 Netscape.com
Microsoft.com
27.3 Aol.com
Geocities.com
25.9 Microsoft.com
Netscape.com
25.4 Excite.com
Excite.com
23.2 Infoseek.com
Infoseek.com
15.6 Geocities.com
Angelfire.com
15.1 Altavista.digital.com
Lycos.com
14.5 Lycos.com
Msn.com
1
%
49.0
40.0
34.1
33.0
30.3
22.8
22.1
19.9
19.7
14.3
Data from July 1998, source: Jim Kerstetter, “Will Portals Pay Off?” PC Week, August 31, 1998, pp. 1+14-15.
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Chapter 8 Slide: 34
Case: AOL: Nobody’s Laughing Now
• Thinking Strategically
– Speculate on the reasons for AOL’s portal success.
– Determine why AOL was able to grow to dominate
Internet access.
– List some advantages that AOL’s size gives it in the
competitive portal arena.
– Compare and contrast AOL (www.aol.com) against
other portal sites. Determine how differentiated these
sites are from each other.
– Justify AOL’s use of strategic alliances to maintain its
advantages.
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Chapter 8 Slide: 35
Niche Portals
• Niche portals target specific markets
– The number one sport site targeted toward males 1834 is ESPN (www.espn.com).
– IVillage is a site targeted toward women
(www.ivillage.com).
– E*Trade (www.etrade.com) targets individuals
interested in receiving financial information.
– Snap (www.snap.com) offers "rich-media”.
• International portals target international
markets
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Chapter 8 Slide: 36
International Portals
• International portals target national or
ethnic markets
– Yahoo have services for European, Asian, and other
country specific markets.
– StarMedia (www.starmedia.com) is a portal site
specifically designed to serve the Spanish speaking
markets of Central and South America as well as in
the United States.
– SurfChina.com (www.surfchina.com) is a search
engine for Chinese Web sites.
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Chapter 8 Slide: 37
Vertical Portals
• Vertical Portals are designed to serve narrow niches
within specific industries.
– Allow business users a one-stop site for all
information and purchase needs, allowing businesses
access to industry or trade information and to buy and
sell online.
• VerticalNet (www.verticalnet.com) hosts vertical
sites for technology, communications, food service,
healthcare, and other firms.
• Asay Publishing (www.asaypub.com) serves the
used office equipment after-market.
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Chapter 8 Slide: 38
Competitive Strategies
Small and Meduim Sized Enterprise Strategies*i
Strategy
% of
Advantages
Respondents
Over 80% Online systems allow channel members and consumers
Customer
to gain access to product and inventory information.
service
Over 60% This allows SMEs access to larger markets without the
Electronic
cost of setting up new distribution systems and target
commerce
narrow markets faster. Lower overhead costs can be
carried over to lower prices to customers.
Over 50% Online connections between the SME and its customers
Customerincrease the speed of response and allow for close to
relationship
instant communication. Linked Extranets allow SMEs to
management
act as virtual partners with other businesses.
applications
Over 40% SMEs can act as a virtual marketing intermediary linking
B-to-B
larger businesses with very small suppliers. Online
connections
access to inventory and supplies helps control costs.
(extranets)
i
Natalie Engler, “Small But Nimble,” Information Week, January 18, 1999, pp. 57-62.
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Chapter 8 Slide: 39
Low Resource
High Resource
Strategies for Existing
Businesses
Table 8.5: E-Business Strategy Matrix
Characterized by: High brand
name recognition. Large portals
and general e-commerce sites
Keys to success: Heavy brand
name advertising.
Examples: Yahoo,
Amazon.com, Disney, WalMart, Schwab.com.
Characterized by: Low brand
name recognition.
Keys to success: First mover
advantages. Enhance customer
relationships.
Examples: CDNow, E-Toys,
SMEs with Web site support.
Low Differentiation
Characterized by: High brand
name recognition with niche
markets.
Keys to success: Develop vertical
portals. Serve niche community.
Examples: iVillage, VerticalNet,
ESPN.com.
Characterized by: Low brand
name recognition outside of niche
market.
Keys to success: First mover
advantages. Serve niche markets.
Enhance customer relationships.
Examples: Asay Publishing,
High Differentiation
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Chapter 8 Slide: 40
ALE 8.1: Evaluating An
E-Business Value Chain
• Develop a value chain model for an industry
or business.
– Identify the key e-business technologies needed
to compete in the chosen industry.
– Identify which of the value chain components
would give a business in that industry a
distinctive advantage.
– Determine if it is possible to hold that
advantage over time.
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Chapter 8 Slide: 41
ALE 8.2: SWOT Box exercise
• Use the following matrix to undertake a SWOT
analysis by identifying the strengths, weaknesses,
opportunities and threats faced by a business or
industry.
Strengths:
Weaknesses:
Opportunities:
Threats:
• Recommend an e-business strategy that could be
pursued to reach the opportunity and limit future
threats.
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Chapter 8 Slide: 42
Exercise 8.3: Evaluating
Differential Advantages
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Free
Home
Pages
Other
Finance
Weather
Personalization
Shopping
Chat
Games
Sports
Free
Email
News
Major
Portal
Sites
Search
• Use the table below to indicate the types of services
offered by portal sites.
• Determine what allows each to differentiate
themselves from others.
• If you can not find any differences, determine what
that means for the long-term survival for some of
these portal sites.
Chapter 8 Slide: 43
ALE 8.4: Strategy Analysis Matrix
• Identify strategic positions of a number of ebusinesses. (Try to find at least one business for each
cell in the matrix.)
• Identify the strategies these businesses are pursuing
and the keys to their long-term success.
Table 8.5: E-Business Strategy Analysis Matrix
High
Characterized by:
Characterized by:
Resource Keys to success:
Keys to success:
Low
Characterized by:
Resource Keys to success:
Low differentiation
Characterized by:
Keys to success:
High differentiation
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Chapter 8 Slide: 44