Strategic Management of e-business:

Transcription

1 Strategic Management of e-business: The Economics of e-business TYPES of COMPETITION 1. PURE COMPETITION 2. MONOPOLISTIC COMP. # OF FIRMS MANY, SMALL MANY, LARGE &SMALL PRODUCT Characteristics SIMIAR DIFFERENT PRICE CONTROL SUPPLY & DEMAND SOME ENTRY To Industry EASY FAIRLY EASY Jason Chou-Hong Chen ( 陳周宏 ), Ph.D. Professor of MIS Graduate School of Business Gonzaga University Spokane, WA USA chen@jepson.gonzaga.edu 3. OLIGOPOLY 4. MONOPOLY FEW ONE SIMILAR OR DIFF. NO SUBS- TITUTE A LOT REGU- LATED HARD NO WAY! 1 2 The Economics of e-business The benefits that e-business offer to businesses and customers are: more information lower production and distribution costs lower costs for buying and selling more precise targeting of customers benefits from virtual communities Transaction cost reductions Six types of transaction cost: search cost, information costs, bargaining costs, decision costs, policing costs and enforcement costs 3 4 B2B sites create values in two ways Aggregation brining a group of sellers and buyers together under one virtual roof reduce T.C. by providing one-stop shopping Matching (static) brining buyers and sellers together to negotiate prices dynamically and in real time Targeting customers and market segmentation Not only is it possible to more accurately identify and reach specific customer groups, but it is also possible to do this much more cheaply using e-business technologies (cost) 5 6 1

2 Price discrimination (Revenue Management) Economists distinguish between three types of price discrimination third-degree price discrimination: based on group identification (e.g., student or senior citizen) second-degree price discrimination: consumers voluntary choices first-degree (or perfect) price discrimination: based on consumer s willingness to pay. Impact: a) desirable: increases the efficiency of the economy and is frequently promoted by government; b) opposition from the public Virtual communities (Network externality effects) Benefits: 1) existing communities provide a ready access point for firms that wish to market to specific groups; 2) many new e-business have actively encouraged communities to form around their site; 3) accelerate the uptake of a particular product or service since they act as a reference group which customers use when deciding what to purchase. 7 8 Metcalfe s law Innovation diffusion curve 9 4 Utility No. of users %Population adopting Time Figure Figure Other issues Law of increasing returns Building critical mass (early liquidity) First-mover advantage Loss-leaders Sustainability of competitive advantage Output Diminishing returns 11 Fig. 5.1 (p.166) Input 12 2

3 Output Increasing Returns Other issues Law of increasing returns Building critical mass (early liquidity) First-mover advantage Loss-leaders Sustainability of competitive advantage Fig (p.166) Input Issues in E-Markets: Liquidity, Quality, and Success Factors Early liquidity: Achieving a critical mass of buyers and sellers as fast as possible, before a start-up company s cash disappears Quality uncertainty: The uncertainty of online buyers about the quality of noncommodity type products that they have never seen, especially from an unknown vendor Microproduct: A small digital product costing a few cents Profits relative to competitions (%) Relationship between profits and time of market introduction Time of market introduction relative to competition (months) 15 Figure 7.1 (p.227) 16 Keen s Six-Stage Competitive Advantage Model Stimulus for action The new technology adoption curve Readiness Intensification Impact First major move Competitor catch-up moves Customer acceptance First-mover expansion moves Level of Activity Which stage is the current e-business? Commoditization Time

4 1 Winner takes all Winner Digital Products and Services Market share Characteristics of DPS Ease of manipulation Durability Sharing Loser Product differentiation Bundling and subscription Durable goods monopoly Fig (P167) Time 19 2 Digital products and services (cont.) Cost structure of digital products high fixed costs, low variable costs and high sunk cost have implications for competitive strategies. is particularly susceptible to vast economies of scale, the more you produce, the lower the average cost of production (software) fixed cost the sunk cost (software can t be recoverable from DPS) SCM do little to reduce initial cost. Therefore, with DPS the best way to reduce average cost is to increase sales volume. Intermediation and Syndication in E-Commerce Roles and value of intermediaries in e-markets Search costs Lack of privacy Incomplete information Contract risk Pricing inefficiencies Why needs intermediaries? (Five important limitations of direct interaction) Intermediation and Syndication in E-Commerce Intermediaries (brokers) provide value-added activities and services to buyers and sellers Intermediaries in the physical world are wholesalers and retailers Infomediaries: Infomediaries and Information Flow Model Information Flow Sellers Infomediary Services Matching Search/complexity Privacy Informational Infrastructural Content Community Infomediaries Infomediary Services Matching Search/complexity Privacy Informational Infrastructural Content Community Buyers electronic intermediaries that control information flow in cyberspace, often aggregating information and selling it to others 23 Exhibit 2.2 Flow of Products/Services Revenue from Sellers Advertising Transactions Membership/Subscription fee Revenue from Buyers Membership/Subscription fee Transactions Fee for Services 24 4

5 The Value Chain: Process View of the Firm Virtual value Chain Physical Value Chain Competitive Inbound Logistics Production Process Outbound Logistics Marketing Sales Information Capture (Value) Advantage Virtual Value Chain N 25 Figure 7.2 (p.186) 26 The Value System: Interconnecting relationships between organizations The three Ds model. Digital convergence Upstream value Firm value Downstream value Disaggregation N 27 Figure 6.2 (p.187) 28 Transaction Cost Theory Supplier Intermediary Customer The disintermediation hypothesis rests on two key assumptions: e-commerce will reduce all transaction costs to zero (i.e., become insignificant) transactions are atomic (i.e., unitary and not further decomposable into small units) Why go through a middleman? Figure 6.3 Ch.6; p

6 P hypothesis T2 I= intermediary P= producer C= customer T1,T2,T3= transactions I T1 T3 C Figure 6.5 (p.19) 31 Types of Transactions Different classes of transactions are affected in different ways: Supplemented direct market Supplemented intermediaries (Network-based transactions) Cybermediaries 32 T1 <T2 +T3 Post-Internet Other Possibilities T1<T2+T3 Supplemented direct market Pre-Internet T1>T2+T3 Richness (Bandwidth, Customization, Interactivity) Disaggretgation/Reaggregation: Richness versus Reach T1 >T2 +T3 Cybermediaries Supplemented intermediaries Figure 6.6 (p.191) 33 Figure 6.8 (p.194) Reach (Connectivity) 34 Deconstruction of the newspaper industry Old newspaper industry value chain Journalists Editors Printers Distributors Readers Columnists New newspaper industry value chain Editors Journalists Internet Readers Columnists Digital Convergence Whereas disintermediation and disaggregation involve changes within an industry value chain, the third effect involves linking of value chains across industries. The technological convergence has led in some instances to breaking down (and blurring boundaries ) of the traditional industry boundaries and convergence between the industries involved. Figure 6.9 (p.196)

7 Types of Convergence: The Development of an e-business Strategy addresses Six Interpreted Issues Convergence in substitutes occurs when different firms develop products with features that are similar to features of other products Convergence in complements occurs when products work better in combination than separately For convenience we can divide this into three segments: content production, distribution and content retrieval and processing Organizational set-up Fig. 1.1 (P184) 1. Vision 2. Quantifiable objectives 6. Business model 3. Value creation 4. Target market 38 Future Trend Instead of defining the business mission in terms of product or position in a value chain, the question in the future may be what function does the firm serve or what core competencies does the firm possess and what other products and services can be firm provide? If this trend continues, instead of the linear value chains we see in most industries in future in many industries we may see multiple and interlinked value chains or firms offering a variety of content over multiple media. 39 Banking Music IT equipment Fishmongering Impact of e-business on global industries Source materials And Inbound logistics Alternative source of music supply arise because of the ability of the artist to go direct to the music listener ( increasing TC) Procurement system move onto the Web and open up existing EDI structures (increasing TC and GI) System allow for pre-ordering and forecasting, directing fishermen to the right stock (increasing LR and TC) Production Distribution aspects of production decreased, creating local EOS, but as a second order effect from channel delivery and marketing Direct-to-home delivery creates little need to produce through traditional means (increasing TC) Tailored production based on Web-based ordering (increasing GI) Wastage is reduced and more stable price and quality control exists (increasing TC) Channel distribution and outbound logistics Marketing and services Online banking and related services decreases branch reliance and provide direct delivery pf service. LR is increased because of more specialized one-on-one delivery (which is tailored by the customer for themselves). TC is increased because of the ability to more accurately transact with large and larger group of customers who are self-revealing Completely new modes of distribution reduce the cost of delivery (increasing TC) and provide for tailored offerings (thereby increasing LR and TC) Ordering system can be integrated with operating and marketing (increasing TC and GI) Direct marketing and tailored serving middlemen provides less direct value (increasing both GI and TC) Because specific fisherman focus on only the fish necessary, sorting and distribution are co-ordinates (increasing TC) Figure 6.13 (p.24) 4 Summary Internet and other e-business technologies have altered the behavior of existing markets or created new markets by: Providing better market information Lowering production and distribution costs Lowering transaction costs for buying and selling Allowing more precise targeting of customers Allowing the creation of virtual communities 41 7