monitoring the rate of return on investment in internet applications presented by allen monroe...
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RiskINFO
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 better-visualize 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 Step 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.
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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 in-house 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 UsAllen Monroe
Founder and CEO
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234 West Baltimore Avenue
Larkspur, CA 94939
(415) 927-8824
Email: [email protected]
Web Site: http:www.riskinfo.com
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Contact Us