Transcript Managing Risks of the Internet and Electronic Commerce

Monitoring the Rate of Return
on Investment in Internet Applications
Presented by Allen Monroe
International Quality and Productivity Center
San Francisco, February 24, 1998
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Background
 Most
web sites begin as “no-brainer”
investments, motivated by:
– CEO, head of Marketing or head of
Information Systems achieving “Internet
Vision”
– Desire not to be left behind in a competitive
world when every TV commercial has a
www address
– Client or customer insistence
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It’s Simple in the Beginning
 Low
Cost effort
 “Proof of Concept” stage usually
doesn’t require performance measures
 “Get it up quickly” and move on to next
step
 Key users and contributors of content
need to see it in order to bettervisualize how to use and benefit from
the site.
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The “Textbook” Approach
 Develop
a clear business plan first
 Identify Objectives
 Identify How to Measure Success or
lack thereof.
 Periodic Review of Performance
Measures
 Feedback from key management
personnel and user groups
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Site Evolution
2: Now that you’ve got their attention
 Obtain diverse user input. Can we include …?
 Designing a better look, easier “navigation,” build
traffic through reciprocal links and registering
with search engines.
 Greater cost, clearer idea of objectives
 Introduction of site measurements and provision
for visitor tracking and feedback.
 Step
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Building on Success:
Step 3: Interactive Applications and Depth of Content
 Interactive
Bulletin Boards, Search
Engines, Forms to Apply for or Order
Products and Services
 Password-Protected Areas
for use
by diverse user groups, including inhouse personnel, outside sales
force, clients, and suppliers
 Cost
increases to attention-getting
levels.
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Step 4: Extension to Software Applications
 Scott
McNealy: “The network is the
computer”
 Ability of HTML web pages to
connect to any other computer
connected to the Internet
 One web page can draw data or
applications from many computers
at the same time.
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Multiplicity of Users
Complicates Measuring
Success
 Prospects
 Clients
/ Customers
 Employees
 Management
 Suppliers
and Business Partners
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What is ROI?
 Return
on Investment: The discounted
present value of the sum of all future net,
after-tax profits, divided by the sum of
investment outlays required to generate
the income stream
 Use
the company’s “cost of capital” or
“required rate of return” as the “discount
factor” in calculating “present value.”
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The Real Objective of ROI Analysis
 Determining
how much to invest in
the Internet effort.
 Under-investment can be as
dangerous than over-investment if
competitors leverage their
investments into dominance.
 The difference between “marginal”
rate of return and “average” rate of
return.
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Components of ROI Analysis
 Stream
of Profits over time = each
year’s Revenue attributable to
Internet initiative less Operating
Expenses.
 Importance
of Timing
 Importance
of Discount Rate
 Possibly
break down by Application
Types or User Groups
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An Example: Internet Insurance Quotes
 The
exception rather than the rule
 Concern over the existing distribution
network of agents and brokers
 Examples include InsWeb, Intuit,
CyberQuote, QuickQuote.com (life
and annuities)
 Secure Server
 Connections to Data Bases
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The OnLine Quote Process: CyberQuote
 CQuote.com
 Jim
Brown: Parkville, Missouri
 “Proof of Concept” : Missouri and Kansas
 Investment: $100,000 programming,
$1,200 web site + personal time
 Focus on “Main Street Business”
property/casualty agents
 Modem access by downloaded software to
filed rate data of 14 carriers
 $7.50 / quote to compare 5 carriers or $10
for 10 carriers.
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Ramifications for the Existing
Distribution System

By comparison, a $1,000
premium commercial policy
takes 3-4 hours for an agent
paid $20+ per hour to rate a
few alternative quotes = $80
- $100.

Compare with $7.50 for the
quote.com process.
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Regulatory Issues
 Provide
tool for licensed
agents and brokers, rather
than sell insurance without a
license.
 National and International
scope of web site poses
regulatory problems.
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Objective
 Improve
your access to
clients, customers, and
suppliers.
 Invest to such a degree that
the marginal ROI is
commensurate with other
investment opportunities.
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Contact Us
Allen Monroe
Founder and CEO
RiskINFO
234 West Baltimore Avenue
Larkspur, CA 94939
(415) 927-8824
Email: [email protected]
Web Site: http:www.riskinfo.com
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