Transcript business model - University of Birmingham

The University of
Birmingham
MSc International Business
International e-business 2014
Lecture 2:
How the Internet and WWW Work (briefly)
Strategy Framework, Markets
and Value Creation
Learning Objectives
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The University of
Birmingham
Basic Underlying Technology and Related Jargon
Discuss the meaning of strategy
What determines and drives business strategy?
Understand the necessity to align IS and business strategy
Determine what is meant by “business model”
Identify various types of business model and revenue model
(especially “new” models for conducting e-business)
What determines competitive advantage and its
sustainability?
How is competitive advantage eroded?
What can we learn from successful (and unsuccessful)
e-business organizations?
What guidelines are there for developing successful business
strategies?
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Reading and Online Activity
The University of
Birmingham
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Schneider Chapters 2 & 3
Chaffey, Chapter 2
Jelassi & Enders, Chapter 2
Farhoomand, Chapters 2 and 3
Laudon & Traver, Chapter 2
Papazoglou & Ribbers, Chapters 2 and 3
Mohamed et al, Chapters 1 - 3
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http://www.research.ibm.com/strategy/pub/ebbb.pdf
http://www.economywatch.com/business/e-business-strategy.html
(Very useful site)
http://www.tutor2u.net/ebusiness/index.html
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• http://www.hec.unil.ch/yp/Pub/01-thunderbird.pdf
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http://www.cardellmedia.co.uk/marketing15.html
http://www.KnowledgeStorm.com
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Basic Ideas
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• Origin, growth, and current structure of the Internet
• How packet-switched networks are combined to form the
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Internet
How Internet, e-mail, and Web protocols work
About Internet addressing and how Web domain names are
constructed
history and use of markup languages on the Web
How HTML tags and links work
About technologies people and businesses use to connect to
the Internet
About Internet2 and the Semantic Web
Basic XML concepts
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The Internet and World Wide Web
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Birmingham
• Computer network Around since 1970s (ARPANET)
• Technology allowing people to connect computers
• Internet
• Interconnected global computer networks (capital “I”)
• internet (small “i”): group of interconnected computer
networks
• Basic technology structure
• Supports networks, the Internet, and e-commerce
• World Wide Web (Web): Invented 1992
• Subset of Internet computers
• Includes easy-to-use interfaces
• Multiple Platform Interoperability (Excellent Concept)
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Growth of the Internet and Web
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• Up to 1990s: Largely an Academic Network
• 1993: Sir Tim Berners-Lee developed www
• 1995: Commercial Activities Permitted
• Network Access Points / Access Providers
• Sold Access Rights to larger Customers, and
ISP (Internet Service Providers) – SMEs, etc.
• Internet Hosts: Directly Connected Computers
• One of the most significant Technological and
Social Developments of the last Millennium
• Massive Growth since 1995, and expected to
continue ever faster.
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Growth of WWW
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Source: Schneider 2013
Packet-Switched Networks
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• Local area network (LAN)
• Network of computers located close together
• Wide area networks (WANs)
• Networks of computers connected over greater distances
• Circuit
• Combination of telephone lines and closed switches
connecting them to each other
• Circuit switching
• Centrally controlled, single-connection model
• Single electrical path between caller and receiver
• Good for Phone Systems; Poor for LANs and WANs
• Solution: Packet-Switching – moving data between 2 points
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Packet-Switched Networks (2)
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• Packet-switched network
• Packets
• Small pieces labelled electronically
• (origin, sequence, and destination address)
• Travel along interconnected networks
• Can take different paths
• May arrive out of order
• Destination computer
• Collects packets
• Reassembles original file or e-mail message
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Routing Packets
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• Routing computers
• Decide how best to forward each packet
• Also known as:
• Router computers, routers, gateway
computers, border routers
• Gateway from LAN or WAN to Internet
• Border routers between organization and
the Internet
• Routing algorithms
• Programs on routing computers
• Determine best path for packet
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Routing Packets
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• Routing algorithms applied to routing table
(configuration table) information
• Routing table (configuration table) information
• Includes lists of connections
• Includes rules for:
• Specifying connection to use first
• Handling heavy packet traffic and network
congestion
• Variety of rules and standards for creating packets
• Hubs, switches, and bridges
• Devices that move packets
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Router-Based Architecture
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Public and Private Networks
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• Public network
• Public availability
• Private network
• Private, leased-line connection
• Physically connects intranets to one another
• Leased line
• Permanent telephone connection between two
points
• Advantage: security
• Drawback: costs (EXTREMELY Expensive)
• Scaling problem: adding companies
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Virtual Private Network (VPN)
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Birmingham
• Connection via public networks and protocols
• Sends sensitive data
• Uses IP tunneling (encapsulation) system
• Private passageway through public Internet
• Secure transmission
• Encapsulation
• Encrypts packet content, places inside another packet
• IP wrapper: outer packet
• VPN software installed on both computers
• “Virtual” since connection seems permanent
• Actually a temporary connection
• Easy to set up (one click on a Mac)
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Intranets and Extranets
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• Intranet
• An internet within the boundaries of the
organization
• Interconnected private networks
• Extranet
• An internet that extends beyond the
organization and incorporates networks of
outside entities
• Technologies (public networks, private networks,
or VPNs)
• Independent of organizational boundaries
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Internet Protocols
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Protocol: collection of network data rules
• Includes transmission rules
• Computers must use same protocol
Open architecture (Internet core)
• Uses common protocol
• Four key message-handling rules
• Contributed to the Internet’s success
Internet protocols
• Transmission Control Protocol (TCP)
• Controls message or file disassembly into packets before
Internet transmission
• Controls packet reassembly into original formats at
destinations
• Internet Protocol (IP)
• Specifies addressing details for each packet
• Labels packet with origination and destination addresses
TCP/IP: Drives the Internet / Web (EXTREMELY IMPORTANT)
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IP Addressing
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• Internet Protocol version 4 (IPv4)
• Used for past 20 years
• IP address
• 32-bit number identifying computers
• Base 2 (binary) number system
• Computers use binary for internal calculations
• Digit: 0 or a 1 (on or off condition)
• Four billion different addresses (232 = 4,294,967,296)
• Router breaks message into packets
• Contains source and destination IP address
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IP Addressing (2)
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• Dotted decimal notation
• Four numbers separated by periods
• IP addresses range: 0.0.0.0 to 255.255.255.255
• Unwieldy; difficult to remember (Use URL instead; DNS)
• Internet Protocol version 6 (IPv6)
• Replaces IPv4 (future)
• IPv4 and IPv6 not directly compatible
• Advantages
• 128-bit number for addresses
• 228 addresses: 34 followed by 37 zeros
• Packet format change eliminates unnecessary fields
• Adds fields for security, other optional information
• Shorthand notation system for expressing addresses
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Web Page Request and Delivery Protocols
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• Hypertext Transfer Protocol (HTTP)
• Internet Web page file delivery rules
• Web page request using Web browser
• User types protocol name
• Followed by “//:” characters before the
domain name
• Uniform Resource Locator (URL)
• Combination: protocol name, domain name
• Locates resources (Web page) on another
computer (Web server)
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The Development of Hypertext
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• HTML
• Set of codes (tags) attached to text
• Describes relationships among text elements
• Web markup language
• Most commonly used now in Version HTML5
• (Audio and Video Support; Better than Flash)
• Hypertext link (hyperlink)
• Points to another location
• Same or another HTML document
• Extensible Markup Language (XML)
• Describes properties of DATA: Benefits – virtually
costless Electronic Data Interchange (EDI)
• Allows for real-time Data Updating (e.g. Inventories)
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Website Organization
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Wireless Web Connection
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• Becoming Increasingly Important
• Mobile telephone networks
• Broadcast signals to/receive signals from antennas
• Three miles apart in grid
• Short message service (SMS) protocol
• Send and receive short text messages
• Also used for netbooks and tablet devices
• Third-generation (3G) wireless technology
• 2 Mbps download/800 Kbps upload speeds
• Fourth-generation (4G) technology
• Long Term Evolution (LTE) and Worldwide
Interoperability for Microwave Access (WiMAX)
• Significance in Mobile commerce or m-commerce
• Smartphones, Tablets and Wearable Devices (Google)
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Internet2 & Semantic Web
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Internet2
• Replacement for original ARPANET laboratory
• Experimental networking technologies test bed
• High end of the bandwidth spectrum (10 Gbps)
• Used by universities, medical schools, CERN
• Focus
• Mainly technology development
See www.internet2.edu (University Consortium)
Semantic Web project (next-generation Web)
• Goal: blending technologies and information into a nextgeneration Web
• Have words on Web pages tagged (using XML) with their
meanings
• Uses software agents (intelligent programs)
• Read XML tags, determine meaning of words in their contexts
• Essentially provides an “Intelligent Web”
• Search for www.semanticweb.org
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Management Issues
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What are the implications of changes in marketplace
structures for how we trade with customers and other
partners?
Which Business Models and revenue models should we
consider in order to exploit the Internet?
What will be the importance of online intermediaries and
marketplace hubs to our business and what actions should we
take to partner these intermediaries?
What are the implications of recent developments, such as
Social Networking Sites, Web 2.0 and rapid rate of penetration
of mobile PDAs and Tablet computers (e.g. iPad, Android) for
e-business? [e.g. How can we monetize SNS sites?]
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A note on Business Models
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Business Model:
Set of business processes designed to help organisation make a profit
How does a business do this?
Through its Business Plan (describes the business model)
E-commerce Business Model: one that exploits the enabling
technology offered by the Internet /WWW
Ghosh* identifies 8 components:
1. Value proposition
2. Revenue model
3. Market opportunity
4. Competitive environment
5. Competitive advantage
6. Marketing strategy
7. Organisational development
8. Management Team
*Ghosh, D (1998): “Making Business Sense of the Internet”,
Harvard Business Review, (March-April)
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Ghosh’s Classification
• Value Proposition
• Revenue model
• Market
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Opportunity
Competitive
Environment
Comp. Advantage
Market Strategy
Org. Development
Management
Team
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Why should the Customer buy from you?
How will you earn money?
What marketspace will you serve;
how big is it?
Who else is competing in this
marketspace?
What special advantage do you bring?
How will you promote your products?
What organizational structure you adopt?
What experience and background?
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What Types of Business Model?
The University of
Birmingham
• Many examples (often overlapping in definition)
• Good Source of Information on Business Models:
Professor Michael Rappa
(Director of eCommerce Research Centre, University of North
Carolina, http://www.ecommerce.ncsu.edu excellent site!)
• Revenue Model: How does the business generate cash and
ROI?
• Various Types:
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Advertising revenue model (“banners” receive fee from advertisers)
Subscription model (Annual fee paid to provider)
Transaction fee model (Price per transaction undertaken)
Sales revenue (sale of goods, services, information, expertise, etc)
Affiliate model (refer business to company; paid referral fee)
Various combinations of the above models
Further Examples provided in Schneider Chapters 2 & 3
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Business Drivers
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Market Opportunity: Estimate total size of the market (marketspace)
and estimate what share the business can realistically expect to win
Analysis of Competitive Environment
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Market Research (needs to be done carefully and scientifically)
Assess Direct Competitors
Assess Indirect Competitors
Analyse the effects of New Entrants into marketspace
Identify own Competitive Advantage: How? What? Sustainability?
Develop Marketing Strategy
Assess Organisational Development and capabilities for development
Critically assess quality and “strategic fit” of Management Team
• Research suggests that the quality of the management team
and its vision is critical to organisational success
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Partial Taxonomy of Business Models
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http://www.1000ventures.com/business_guide/business_model.html
Profitability of a firm is determined by:
• Industry factors
• Firm-specific factors: Positions, activities and resources
Industry
factors
Resources
Activities
Positions
Profitability
Costs
See also: http://digitalenterprise.org/
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Business Model and Strategy
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• Business Model:
• Set of Which activities a firm performs
• How it performs these activities
• When it performs them as it uses its resources
• Resources depend on the industry it operates in
• Objective: to create superior customer value
• Either low-cost
• Or differentiated products
• To allow it to attract value (money) to itself
• So, PROFITABILTY is a function of all the above
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What sort of Business Model?
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• In e-commerce Wave 1 it was common to describe
firms as having a particular type of business
model:
• Advertising model
• Subscription model
• Production model
• Various types of revenue model (more than 100
at time of “dot-com bust” [“dot-bomb”]
• Gave and Kaletsky (2005) identify the “platform
company” - see next couple of slides.
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Traditional Firm Behaviour
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• Vertical Model:
• Design Product
• Make Product
• Sell Product
Design
Make
Sell
Examples:
Ford
Toyota
GM
GE
IBM
Etc, etc
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“Platform” Company
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Birmingham
• Design
• Organise Production and Logistics processes
• Sell globally
Design
High-value added
Design
Make
High risk, volatile
Others Make
Sell
Low risk, stable
Sell
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Who are the “platform” firms?
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Dell.com
Apple
Cisco
IKEA
Li & Fung
Wal-Mart
Hennes & Mauritz
Hilton Hotel Group - manage not own hotels
Marriott
Others?
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E-business Environment
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Environment: Constraints & Opportunities
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Birmingham
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Customers – which services are they offering via their web site that your
organization could support them in?
Competitors – need to be benchmarked in order to review the online services
they are offering – do they have a competitive advantage?
Intermediaries – are new or existing intermediaries offering products or
services from your competitors while you are not represented?
Suppliers – are suppliers offering different methods of procurement to
competitors that give them a competitive advantage?
Macro-environment
Society – what is the ethical and moral consensus on holding personal
information?
Country specific, international legal – what are the local and global legal
constraints for example on holding personal information, or taxation rules on
sale of goods?
Country specific, international economic – what are the economic
constraints of operating within a country or global constraints?
Technology – what new technologies are emerging by which to deliver online
services such as interactive digital TV and mobile phone-based access?
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Interactions Between Economic Agents
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B2B and B2C Characteristics
Characteristic
B2C
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B2B
Proportion of adopters with
access
Low to medium
High to very high
Complexity of buying decisions
Relatively simple – individual
and influencers
More complex – buying process
involves users, specifiers,
buyers, etc.
Channel
Relatively simple – direct or
from retailer
More complex, direct or via
wholesaler, agent or distributor
Purchasing characteristics
Low value, high volume or high
value, low volume. May be high
involvement
Similar volume/value. May be
high Involvement. Repeat
orders (rebuys) more common
Product characteristic
Often standardized items
Standardized items or bespoke
for sale
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Disintermediation
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Reintermediation
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Countermediation
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• Creation of a new intermediary
• Example:
• B&Q www.diy.com
• Opodo www.opodo.com
• Boots www.wellbeing.com ; www.handbag.com
• Partnering with existing intermediary – Mortgage
broker Charcol and Freeserve
• Expect new entrants in mobile e-commerce
marketspace
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Decision to Go Online
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1. Requires Careful Planning
1. What type of business do we want to be?
2. B2C (simple), or B2B (complex)?
3. What service(s) do we want to offer?
4. What is our market? Local or Global?
2. How will we attract Customers?
1. Where are they?
2. Who are they?
3. What is their profile/demographic?
3. What do we NEED? …. An e-Strategy
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What is Strategy?
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“A firm’s theory about how to compete successfully.” [Barney]
“A firm’s theory of how it can gain superior performance in the
markets in which it operates.” [Drucker]
The overall plan for deploying resources to establish a favourable
position.” [Grant]
“A commitment to undertake one set of activities rather than
another.” [Oster]
“The creation of a unique and valuable position, involving a different
set of activities.” [Porter]
Obviously, many definitions; most academics emphasise the
(relatively) long-term nature of Strategy - as opposed to Tactics,
Campaigns and Projects [I.e. “What do we do on Monday morning?”]
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Purpose of e-business Strategy
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Jelassi & Enders (2009)
Goal: Long-term Business Success
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Formulation
Environment
Goals
Market
positioning
Competitive
advantage
(Long-term)
success
Resource
exploitation
Resources
Implementation
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e-business Strategy Framework
Mobile e-commerce strategy
E-business strategy
Strategic
analysis
Strategy formulation
Strategy
implementation
External
analysis
Strategy
options
Internal
organisation
Opportunities/
threats
Strengths/
weaknesses
Sustaining
competitive
advantage
Exploring
new market
spaces
Interaction with
suppliers
Internal
analysis
Creating and
capturing
value
Interaction with
users/customers
Jelassi and Enders (2009)
Implementation
Strategy Formulation: Evaluation
Key environmental/
industry developments
Internal
Focus
Opportunities
Strengths
Firm
characteristics
Weaknesses
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External
Focus
Threats
• Do we have
the strengths to seize
possible
opportunities?
• Do we have
the strengths to
fend off possible threats?
• Which opportunities
do we miss because
of our deficits?
• To which threats do our
weaknesses expose us to?
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External Focus: Markets
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• Markets have three main functions
• Matching buyers and sellers
• Facilitating the exchange of information, goods,
services and payments
• Providing an institutional infrastructure
• Electronic Marketplaces = Marketspaces
• Increase effectiveness (“liquidity”)
• Lower distribution costs (massively)
• ‘Friction-free’ markets (“Bertrand” Markets)
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E-business and Markets
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Online Marketplace Map
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E-Business and Customer Value
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• How does an e-business generate Customer Value?
• Firm must persuade potential customers that they are
being offered something of value
• Superior value than offered by competitors
• Allows firm to charge premium prices for perceived greater
value - superior products
• May charge lower prices than competitors - price
leadership (relative positioning)
• Offer superior products and lower prices (difficult to do
well)
• Why?
• To establish a differentiation strategy - particularly
important with e-business
(highly competitive global trading environment)
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Differentiation
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What do customers value?
Two reasons why people buy 1. To increase their happiness
2. To reduce their pain
Many companies sell on FEATURES
[clock-speed; CD-player; Air conditioning, etc]
Wise companies emphasise BENEFITS
[do more work in given time; listen to your
favourite music with no interference; travel in
comfort, etc]
How to achieve differentiation?
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Achieving Differentiation
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Features (low on list of priorities for good firms)
Brand (reputation): MUCH more important
Network Effects [Network externalities: e.g. Wintel]
Timing (‘first-mover advantage”)
Location (location, location)
Service [Customer Service and CRM - see later]
Product Mix (and marketing mix)
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Demand for Differentiated Products
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• Multidimensional Scaling
• Benefits Mapping
• Hedonics
• Technological Progress
• Sources of Differentiation
• Economies of Scale
• Economies of Scope
• Factor Costs
• Industry-specific Cost Drivers
• Innovation
• Learning by Doing
• Agency Costs
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Profiting from Customer Value
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• Cooperation (Integration along supply chain)
• Competition (Online / Offline /Both)
• “Coopetition” (“cooperate and compete at the
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same time”, Ray Noorda, Novell)
Streamlining Procurement Processes
Bargaining Power
Impact of Porter’s 5-forces Analysis
• Porter, M E (1998): “Competitive Strategy”,
Boston, Harvard Business School Press
See also, Besanko et al (2011): “Economics of
Strategy”, 5th Edition
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Business Strategy Development
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Birmingham
• Business Models important in strategy choice
(options) and development
• Strategic options determined by attitudes toward
change, business risk and psychological factors
• Mintzberg (1973) identifies 3 fundamental “modes”
• Entrepreneurial mode
• Adaptive mode
• Planning mode
• Modern Strategic Analysis recognises these and
combined modes for strategy development
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Business Planning Process
Strategic Thrust:
4 Key Questions:
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Performance
1.
Where are
we now?
2.
Where do we
go from here?
3.
How do we
get there?
4.
How do we
implement
the decisions to
reach destination?
Changes in
Industry factors
Business Model
Proposed business
Model changes
Implementation
of business
model changes
Expected
performance
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Perspectives on Business Models
Source: Chaffey, 2011
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Decomposition of e-business Model
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E-business Model Literature
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E-business Model Classification
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Variations in Scale and Location
of Trading on e-commerce Sites
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Summary
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How the Internet / Web works
Importance of Protocols
Examined concept of Business and Revenue Models
Looked at e-business models (Rappa’s Website)
Considered environments within which e-commerce/
e-business takes place
Opportunities and constraints for e-business
Interactions within and between e-businesses (see also later
– Inter-Organisational Systems (IOS)
Characteristics of B2C and B2B
Business Planning and Strategy
ACTIVITY: Visit Rappa’s site and analyse Google’s strategy.
We’ll discuss it on Canvas.
Dave Chaffey’s Website: Spreadsheets for Download
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