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Page 2Prof. Rushen Chahal
ECONOMICS OF E-
BUSINESS1. Shift From An Economy of Scarcity to One ofAbundance.
2. Both Businesses and Consumers Have a Glut ofMarketplace Choices.
3. Transaction and Coordination Costs areDisappearing.
4. It is Possible to Calculate Demand With Precision.
5. Switching Costs Approach Zero in the Absence ofActions by Marketers.
6. Costs for Many Products Have High Fixed Costs ofDevelopment and Virtually No Variable Cost ofProduction.
7. Scale is More Likely to be Defined by Number ofCustomers Than by Production Capacity.
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Page 3Prof. Rushen Chahal
3-3
THE CUSTOMERHAS NOMORETIME
The Struggle toAcquire
Customers is Exceeded
Only by the Struggle toRetainThem.
MARKETER
VISITOR
Internet Time is not ReadilyDevoted to theAdvertising
There.
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Page 4Prof. Rushen Chahal
3-4SHIFTFROMAN ECONOMYOF
SCARCITYTOONEOFABUNDANCEAmazon is a Good Example ofInformation
Becoming More ValuableAs It Is Shared
Broad and DeepAssortment of Products
Much Content Provided by Visitors
Use of Data to Provide Personalized
Purchase Recommendations
Customer Behavior on Site
Behavior of Similar Customers
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Page 5Prof. Rushen Chahal
3-5BOTHBUSINESSESAND CONSUMERS
HAVEAGLUTOFCHOICES
IN THEMARKETPLACE
Used with permission of HotHotHot.com
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Page 6Prof. Rushen Chahal
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TRANSACTIONAND COORDINATION
COSTSARE DISAPPEARING
AffiliateMarketingas Portrayed
ByAmazon
Used with permission of Amazon.com
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Page 7Prof. Rushen Chahal
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ITIS POSSIBLETO CALCULATE
DEMAND WITH PRECISION
InformationFlows
Quickly
Freely
Up and Down the Value Chain
Winners and Losers Can beSpotted Quickly
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Page 8Prof. Rushen Chahal
3-8SWITCHING COSTSAPPROACH
ZEROIN THEABSENCEOFACTIONS BYMARKETERS
The CommonTCP/IPPlatformMakes It Easy
to Move FromOne Site
toAnother
Retention/Relationship
MarketingKey
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Page 9Prof. Rushen Chahal
3-9COSTS FORMANY PRODUCTS FOLLOWA
MODELOFHIGHFIXED DEVELOPMENT
COSTSAND VIRTUALLY NO VARIABLE COSTOF PRODUCTION.
High Up-Front Costs for
NecessaryTechnology
ServingAnIncremental
CustomerAlmost Cost-
Free Except forDistribution
Stair-Step Fixed Costs
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Page 10Prof. Rushen Chahal
3-10SCALEIS MORE LIKELYTOBE
DEFINED BYNUMBEROFCUSTOMERS
THAN BY PRODUCTION CAPACITY.
FewerResources Devoted to
Physical Production
Serving a Large Customer
Base is Cost Effective
BUTIt is Important to
Devote Sufficient Resources
to Distribution and Customer
Service
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Page 11Prof. Rushen Chahal
3-11
THEADVERTISING-DRIVEN MODEL
Content
Advertising
Monetize
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Page 12Prof. Rushen Chahal
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REVENUEMODELS
Access
Membership/Subscription
Syndication/Licensing
Advertising
Transactions
Services
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STRATEGYRECOMMENDATION
Web Sites Need
Multiple Revenue Streams.
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ENTERPRISE VALUE
CREATION
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MAPPING CONSUMER
NEEDSTO RETAIL TACTICS
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Source: Jupiter Communications
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DIMENSIONSOFVALUEAccording to Rayport and Svoikla
Content
Context
Infrastructure
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Page 17Prof. Rushen Chahal
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ELEMENTS OFTHE VALUE PROPOSITION
According to Kim and Mauborgne
Eliminate
Reduce
Raise
Create
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Page 18Prof. Rushen Chahal
QUICKENS VALUE CURVE3-18
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Page 19Prof. Rushen Chahal
3-19DEFINITION OF BUSINESS MODELThe Functions of a Business Model
According to Chesbrough and Rosenbloom:
Articulate the Value Proposition
Identify a Market Segment Define the Structure of the Value Chain
Estimate the Cost Structure and Profit Potential
Describe the Position of the Firm in the ValueNetwork
Formulate the Competitive Strategy
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INTERNETBUSINESS MODELS
The B2C Space The B2B Space
Aggregator ASP
Bricks N Clicks Infomediary
Content Provider Marketplace
Consumer Portal Machine-To-Machine
Peer-To-Peer
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Page 21Prof. Rushen Chahal
INTERNET BUSINESS
MODELS
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The B2C Space
AggregatorBricks N Clicks
Content Provider
Consumer Portal
Peer-To-Peer
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CONTENT PROVIDER
The Traditional Media Model
Content Free to Visitors
Revenue FromAdvertising
Difficult to Realize SufficientAdvertisingRevenue
OtherRevenue StreamsSubscriptions
Syndication
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CONSUMERPORTALS
A Doorway to Major Collections
of Content and to the Internet
Niche
Voice
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AGGREGATOR
As Intermediaries, Provide Selection,
Organization, Price, Convenience, Matching,
and Fulfillment (Tapscott,Ticoll and Lowy)
Not Unlike Physical World Retailers
Many Successful on Web
New OpportunitiesIntegrating Financial Services
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BRICKS N CLICKS
Combination ofOnline and Offline Retailing
Physical Products
Services
Degree ofIntegration Depends on
Brand, Management, Skills, Resources (Gulati andGarino)
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PEER-TO-PEER
File Transfer BetweenIndividuals
Napster
Gnuetlla and Other Emerging File-
Swapping Services
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Page 27Prof. Rushen Chahal
STRATEGIC SUMMARY
Take Advantage of the New Economics
Value =f(Customer Needs, Core
Competencies)
Multiple Revenue Streams Essential
Viable B2C Models Are Evolving
Little Distinction Between B2C and B2B Models
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