vcu info 640 [email protected] internet commerce success – what does it take? gp dhillon, phd...
TRANSCRIPT
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Internet Commerce Success – what does it take?
GP Dhillon, PhDAssociate Professor of ISSchool of Business, VCU
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uUnderstanding where we are ….Developing systems to support the market - (a) service considerations
Type of service contract
Typ
e of
cu
stom
e r c
o nta
ct
Complex ordomain contingent
Simple orlimited domain
Relationshipbased
Transaction based
Customizedservices
‘Patronizing thecustomer’
High productioncosts
High transaction costsand risks of errors
‘Abandoning thecustomer
Masstransactions
Standardizedservices
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uUnderstanding where we are ….Developing systems to support the market – (b) channel considerations
Channel systems
Typ
e of
ch
a nn
el
Agencysupportsystems
‘Too heavyorganization’
Out of pocketcosts
Opportunity costs‘Substandardnetwork’
Marketnetwork
Corporatemediatorsystem
Stand alonesystems
Servicenetwork
Integrated systemscentralized/decentralized
Independentagent
Direct access / self service
Channelorganization
Field andback officepersonnel
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uUnderstanding where we are ….Developing systems to support the market – (c) service-channel matrix
Service Package
Del
iver
y C
ha n
nel
CustomizedService
StandardService
MassTransaction
AgencySupportSystems
MediatorService
MarketNetwork
Focus
Low Cost
‘Consulting andAgencies’
‘ElectronicMarkets’
‘Exploiting theCustomer’
Costs vary according tovolume of transactions
High fixed costs and risks, but low fees‘Overwhelming theCustomer’
Differentiation
Differentiation
‘UniversalService’
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uSustaining technologies
A sustaining technology is the one that nurtures improved product performance. This is usually achieved by improving performance along dimensions that have traditionally been valued by the customers.
Service Package
Del
iver
y C
han
nel
CustomizedService
StandardService
MassTransaction
AgencySupportSystems
MediatorService
MarketNetwork
‘Exploiting theCustomer’
Costs vary according tovolume of transactions
High fixed costs and risks, but low fees
‘Overwhelming theCustomer’
Differentiation
Differentiation
Focus‘Consulting and
Agencies’
Low Cost
‘ElectronicMarkets’
‘UniversalService’
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uDisruptive technologies
A disruptive technology brings in a rather different value proposition. Disruptive technologies under perform established products in mainstream markets and has features that only a few customers value. The product or service emerging from a disruptive technology is usually cheaper, simpler, smaller and frequently easy to use.
Service Package
Del
iver
y C
han
nel
CustomizedService
StandardService
MassTransaction
AgencySupportSystems
MediatorService
MarketNetwork
‘Exploiting theCustomer’
Costs vary according tovolume of transactions
High fixed costs and risks, but low fees
‘Overwhelming theCustomer’
Differentiation
Differentiation
Focus‘Consulting and
Agencies’
Low Cost
‘ElectronicMarkets’
‘UniversalService’
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uDisruptive Technology Examples
Service PackageCustomized
ServiceStandardService
MassTransaction
Del
iver
y C
ha n
nel
AgencySupportSystems
MediatorService
MarketNetwork
‘Exploiting theCustomer’
Costs vary according tovolume of transactions
High fixed costs and risks, but low fees
‘Overwhelming theCustomer’
Focus
Low Cost
‘ElectronicMarkets’
‘Consulting andAgencies’
‘UniversalService’
The core of WorldDoc's technology is the revolutionary
Personal Evaluation System (PES™) which answers patients' questions
The emergence of online investment and trading may prove to be the technology that disrupts a major portion of (if not the entire) U.S. financial services industry. Full-service brokerage firms have realized enormous benefits from the increasing equity investments by American households and the long-running bull market. Discount brokerages, however, have made significant attacks on the market share of the full-service firms.
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uDisruptive Technology Examples
Service PackageCustomized
ServiceStandardService
MassTransaction
Del
iver
y C
ha n
nel
AgencySupportSystems
MediatorService
MarketNetwork
‘Exploiting theCustomer’
Costs vary according tovolume of transactions
High fixed costs and risks, but low fees
‘Overwhelming theCustomer’
Focus
Low Cost
‘ElectronicMarkets’
‘Consulting andAgencies’
‘UniversalService’
Although this is rare, but recent trends towards customer relationship management tend to move us
in this direction. Good examples come from the airlines, especially the way they deal with high end
customers.
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uDisruptive Technology Examples
Service PackageCustomized
ServiceStandardService
MassTransaction
Del
iver
y C
ha n
nel
AgencySupportSystems
MediatorService
MarketNetwork
‘Exploiting theCustomer’
Costs vary according tovolume of transactions
High fixed costs and risks, but low fees
‘Overwhelming theCustomer’
Focus
Low Cost
‘ElectronicMarkets’
‘Consulting andAgencies’
‘UniversalService’
Priceline.com – especially
with respect to domestic
airline travel
?
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uDisruptive technologies cont/-
A disruptive technologies is one that results in a ‘bad’ product or service performance (e.g. advent of transistors relative to vacuum tubes; emergence of health maintenance organizations as opposed to conventional health insurers)
Such technologies are disruptive since they fall short of improving the performance of products and services along the lines that have historically been valued by most customers in majority of the markets.
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uConventional Technology S-Curve
Examples:
First Technology: incremental improvements to the original ferrite-head/oxide disk technology enabled manufacturers to grind the heads to smaller, more precise dimensions.
Second Technology: thin-film photolithography displaced ferrite-heads in most disk drives between 1979 and 1990.
Third Technology: magneto-resistive heads.
Fun
ctio
nalit
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ost
Time
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uEmerging Technologies and Markets
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Technological discontinuities: Jumping the S- Curve
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Impact of sustaining and disruptive technologies
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uDisruptive technology S-Curve
Application (Market) “B”
Technology 2
Application (Market) “A”
Technology 1
Technology 2
Per
form
ance
as
in a
pplic
atio
n “A
”
Time or Engineering Effort
Application (Market) “A”
Technology 1
Technology 2
Per
form
ance
as
in a
pplic
atio
n “A
”
Time or Engineering Effort
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Internet Commerce is a disruptive technology
Certain Internet based solutions are disruptive technologies within a given market (e.g. e-commerce solutions relating to selling books are disruptive technologies within the market of selling books).
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uManaging disruptive technology principles
Companies that utilize disruptive technologies or have a product or a service that is disruptive, should remember that their success depends on both the customers and investors for resources.
Since small markets don't solve the growth needs of large companies, the launch and sustainability of a disruptive product or service needs to be positioned accordingly.
Since disruptive technology products and services are novel, it is hard to analyze their respective markets, which do not exist.
Ability to create a business model, product or a service does not necessarily mean that there is a demand for such a product or service, i.e. technology supply may not equal market demand.
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uCompanies depend on customers and investors for resources
If a company has invested more than necessary into a disruptive technology and the customers seem to like it, but it has a negative cash flow and has a bad debt load, there is a strong likelihood that the investors (or venture capitalists) would not be as enthusiastic as they would have been.
In the B2B arena nearly $800 million was invested into 77 e-exchanges in early 2000 and another $500 million in mid 2000 but the customers have not been too responsive.
E.g. Industrialvortex.com attempted to aggregate products from numerous suppliers, they faced stiff resistance since the suppliers felt that such an e-marketplace would give buyers an easy access to cheap
suppliers
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u Small markets don't solve the growth needs of large companies.
Companies that successfully leverage the disruptive technologies to their advantage, gain significant first mover advantages. However once these companies get entrenched in their specific market, then find it difficult to enter newer small markets, which could potentially be very profitable.
Amazon vs Barnesandnoble.com and Barnes & Noble
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Markets that don't exist can't be analyzed
Since research about future success can only be carried out for technological impacts that have already taken place, it is difficult, if not impossible, to analyze a market for disruptive technology. Such analysis can only be carried out for sustaining technologies.
It has been rather difficult for Amazon to adequately forecast demand for newer products. And on $676 million in sales for the fourth quarter (1999), Amazon had to write down $38 million on inventories, particularly for electronics and toys.
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uTechnology supply may not equal market demand
Since the pace of technological improvement usually far exceeds the performance improvement rate than mainstream customers can absorb, the companies whose technological features match customer demands today may overshoot mainstream market needs tomorrow.
Consider developing conventional photographic films. The first mover advantage clearly went to AOL and Kodak. The service was carefully positioned to address the needs of those who wanted to have the ability to share digital photographs with friends and family. Hence the emphasis was on functionality.
Then came Ememories (sluggish) and Ofoto (low reliability) who started offering free processing along with the ability to share digital photographs. Such advancement was clearly surpassing what the current market could absorb. The customer expectation hovered around functionality and reliability aspects.
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uConclusion
In the end success will be defined by the ability of the respective firms to differentiate between sustaining and disruptive technologies and their ability to manage the resource allocation problem, competence in matching the market to the technology and systematically identify and position their capabilities.