MD703Electronic Commerce II

Dealing w/Competitive Threats

Dealing with Competitive Threats

• Strengthen brands– inspire trust, communicate quality, lower search costs

• Create economies of scale

• Differentiate products / constant innovation

• Create switching costs– pref. databases, communities, loyalty programs

• Dominate or create distribution channels

• Leverage alliances and partnerships

Customer Acquisition Costs

CompanyAquis.

Cost

CDnow 40EarthLink 75America Online 93Credit card companies 90-100Long distance telephone companies 100Mortgage lenders 100-250

Source: Sept. 98 Iconocast.

Strong Brand Can Be Extended

Scale, IPOs, and DifferentiationLetting in the Little Guy

The Firm Underwriters, institutions, &

large investors

$12/share7% fee

small Investors

small Investors

small Investors

$15/share

&Online

Brokerages

small Investors

small Investors

small Investors

• Result: differentiated service enabled by scale

Scale in theMarketplace vs. Marketspace

• Turnover– 2.6 times / year– avg. book in store 20

weeks

• Inventory– shelf & warehouse

stock– 30-40% returns– little float / title

• Turnover– 26 times / year– avg. book in house 2

weeks

• Inventory– all warehouse stock– few returns– avg. 32 days of

float / title

If you build it...

• … will they come? Maybe, but they might not return.

Vis

ito

rs

Time

Branding &Value Delivery

Commodity Products

• Time available = X

• High search costs – (e.g. time to visit a firm = X/3)– customer can only visit 3 firms

• Low search costs – (e.g. time to visit a firm = X/30)– customer can visit 30 firms

Differentiation & Switching Costs

• Differentiate the product or service via:– mass customization– preference databases & collaborative filtering– communities

• Switching costs created via:– preference databases & collaborative filtering– frequent buyer programs– communities of users– learning, compatibility, standards

Bezos vs. the World

Amazon CompetitionBooks $317 million $70 million bn.comMusic $78 million $56 million CDNowToys $95 million $105 million eToysAuctions 140,000 users 3 million users eBay

1 million users Yahoo

Cookies• stored in a text file on your hard drive• usage

– track users (unique ID)– save passwords / prefs.– temporary storage (shopping

basket)• each cookie can only be accessed by

the domain that placed it (ads have own domain)

• may be disabled (prefs) • a cookie single user

TargetingTargeting Options• site categorization• visitor frequency• geography• domain name• service provider• SIC codes• company size (emp, $)• browser type• operating system• click stream

Leveraging the Clickstream

1.Lycos visitor searches on “travel”

2. Lycos shares my usage pattern with the Engage database

3. The same user visits NetMarket

4. NetMarket identifies the user’s activity in the Engage database & customizes page #1 with a great deal on luggage for my trip

Why Communities?

• Communities create switching costs & provide a reason to return– 57% of surfers return to the same sites

• Communities generate traffic– chat boosts traffic from 50% to 300%

• Communities pre-qualify users• Community members spend more• Communities can lower support costs

Users = Value

source: InternetWorld, Wired News

Date Service Purchaser # of Users Deal $ $/UserNov-99 Gamesville Lycos 2.2 million $207 million 94$ Jan-99 GeoCities Yahoo 3.5 million $3.56 billion 1,017$ Aug-98 WhoWhere Lycos 10.6 million $133 million 13$ Aug-98 PlanetAll Amazon 1.5 million $87.9 million 59$ Jun-98 Mirabilis/ICQ AOL 11 million $287 million 26$ Apr-98 WebChat InfoSeek 2.7 million $6.7 million 2$ Feb-98 Tripod Lycos 1 million $58 million 58$ Jan-98 HotMail Microsoft 9 million $400 million 44$ Oct-97 Four11 /

RocketmailYahoo 1 million $92 million $ 92

Sep-97 CompuServe AOL 2.6 million $425 million 163$

Distribution Channels

• PC Makers (Compaq, Dell, IBM, Gateway, Apple)

• Operating System (Microsoft Apple, Sun)

• Browsers (Microsoft, Netscape/AOL)

• ISPs (AOL, AT&T, @Home, BabyBells, Earthlink)

• Hosts (Exodus, Broadcast.com, Frontier, IBM, GTE)

• Portals (Yahoo, Excite, Infoseek, Lycos, AOL)

• Hybrids (Pixel Co., RadioWave, Pointcast)

Web Site Promotion Schemes

• Popularity: – Banners 98%– Buttons 55%– Television 30%– Affiliate Programs

17%

• Effectiveness (Scale of 1-5):

– Affiliate Programs 4.3– Television 4.0– Banners 2.8– Buttons 2.0.

Source: Iconocast.

“Speed is God,Time is the Devil”