Chapter Three

Digitizing the Business:

e-Business Patterns
Table of Contents
e-Business Patterns:
The Structural Foundation

e-Channel

Click-and-Brick

e-Portal

e-Market Maker

Pure-E “Digital Products”

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e-Business Patterns: Structural Foundation

In dynamic market environment, manager’s

challenge is how to tell forest from trees
– Are we investing in the right business opportunity?
– Are these opportunities ever going to be useful?
– Are we using the right business model to attack
these opportunities?

The Scoop: New, Web-enabled firms eating into

large, old-economy companies’ businesses

So: Managers of old-economy companies need

right support tools to make strategic moves,
allocate scarce resources, and manage risk
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e-Business Patterns: Structural Foundation
But: Choosing target strategy complex
– To move online, large brick-and-mortar
corporations either swallow a startup or go at it
alone. Which is the right approach?

Implication: With focus shifting from physical to

digital assets, managers must monitor
macroeconomic and customer trends
– To trigger new e-business structural designs
– Resulting new business models form the basis for
next gen corporate strategic planning

Sadly: Many companies still not taking the

digital world seriously

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e-Business Patterns: Structural Foundation
Bottom line: We are still in early stages of the e-
Business revolution
– There have been and will be moments of extreme optimism;
also moments of extreme pessimism
– What is certain is that it is creating opportunities for
companies willing to adapt
– For others, it represents a destabilizing threat to the status
quo of business-as-usual
– When all is said and done, we’ll find big corporate winners
join ranks of premiere companies in the world

Aim of this chapter

– Help identify winners
– Discuss characteristics leading to their success
– Analyze discernible patterns for better understanding

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Going Digital
First step in identifying an e-business leader
– Look at companies asking the innovative questions that are
transforming the rules of today’s business game

When innovative companies change the types of

strategic questions that they ask themselves, the result
is business revolution
– In 1970s, the Japanese posed new questions and changed
rules of the Auto industry
• Not gas-guzzlers, how do we create fuel-efficient cars?
• Not cars that break down, how can we create a high-
quality car with few manufacturing defects?
• Not piles of “just-in-case” inventory, how can we create a
“just-in-time” inventory process?

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Going Digital
In mid 1980s, it was Wal-Mart
– Not what business are we in, what business should we be
in?
– Wal-Mart turned from retailer into supply chain expert
– Offered right product mix at right store

In mid 1990s, it was new entrants who rose to challenge

almost every leading company
– Questions about customer and business model, not
processes, thus challenging sentiment of early 1990s among
leading companies
– AOL vs. CompuServe and Prodigy
– Dell vs. Compaq and IBM
– EMC vs. IBM and StorageTek
– Sun Microsystems vs. HP and Silicon Graphics

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Going Digital

In the 2000s, the questions for today’s business

leader will be on the speed with which his/her
firm implements e-business solutions powered
by recent innovations
– How fully digital can we make our customers’
experience?
– Our supply chain?
– Our internal operations and processes?
– Intuit transformed from a stand-alone PC-based
business model into an online financial services
portal when the Internet emerged to threaten it’s
business

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Going Digital
Startups continue to shape the direction of
today’s business by taking advantage of recent
technological innovations

E-Business can change the way companies

interact with customers, communicates, sells,
purchases, manufactures, and develops
products

Asking a new question not only produces new

answers but also reinvents the game

Result: a cost advantage that’s not 10 percent

better than competitor’s but rather many fold.

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Analyzing the Environment

• What is the new opportunity based on certain

e-Business Patterns customer and market trends?
The structural • What are the macro-economic drivers of the
business change?
foundation sets the
• Which digital technologies are going to dominant
new rules of the game your industry?

• What models are better suited to take advantage of new

e-Business Models business opportunities?
• What business processes need to change?
The strategic • How do you move from existing model to an e-model
framework allows you reflecting your firm’s organizational readiness?
to compete in the game • What are the challenges management must face when
executing the new business model?

• Who are your target customers?

e-Business Designs • What is your value proposition?
A specific strategy for • How do you make money?
• How to finance the company?
what you need to do in
• How do you get and retain customers?
the marketplace • How to attract and retain talented people?

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Focusing on the Whole Picture

Begins as a Channel, But Extends to

Total Transformation of Business

E-Portal
e-Channel (B2C)
Pure E
E-Market-Makers
Click and Brick (B2B)

• Basic efficiency, • Traditional business • Customer Expects

effectiveness transferred to the “E” everywhere
enhancements Net • Fundamental re-
as the selling • Rise of new design
becomes E-enabled intermediaries of business
• Selling • New forms of supply • New structures to
goods/services chain integration allow market making,
• Payment/settlement • Consolidation/ trading and virtual
enhancements transformation of warehousing
intermediary
industry

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Table of Contents
e-Business Patterns:
The Structural Foundation

e-Channel

Click-and-Brick

e-Portal

e-Market Maker

Pure-E “Digital Products”

© e-Business Strategies, Inc. - 12 - www.ebstrategy.com

Table of Contents
Transaction
Enhancement

e-Channel
e-Channel Compression

e-Channel
Expansion

e-Channel
Innovation

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Transaction Enhancement
Augments or replaces the old transaction method
– Home Depot

In most cases, does not alter other aspects of the

process

Consumer Manufacturer

Electronic Transaction

Sometimes, more technically savvy companies may gain

business from other firms, thereby altering the identify
of players in the channel
– Dell
– Gap

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E-Channel Compression

Eliminates redundant steps in the channel

– When value added by channel is less than cost of
the channel
– Cisco partner/reseller “always on” e-channels
– Southwest eliminated the ticketing agent “link” by
moving information sharing and transaction
processing online
– Online stock trading
– Amazon.com

Consumer

X
Electronic Transaction with Disintermediation
Manufacturer

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E-Channel Expansion
• Lengthens the legacy channel

• Counterintuitive? Inefficiencies in the marketplace can

make this approach a necessity

• Infomediaries
– Carpoint in automotive market
– Intuit in financial services

• Vstore.com

Consumer Manufacturer

Electronic Transaction, Metamediation

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E-Channel Innovation
Pioneering new channels to satisfy and to
anticipate unmet and potential customer desires
– E-Stamp

Given the high stakes, companies everywhere

want to make it easier and more enjoyable for
customers to do business with them
– In every industry, customer base is fragmented
into multiple segments, each with its own behavior
and needs
– Diversity of customer tastes and needs has led to
a revolution in where, when and how customers
buy the products and services they seek
– Winner will take all!

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Table of Contents
e-Business Patterns:
The Structural Foundation

e-Channel

Click-and-Brick

e-Portal

e-Market Maker

Pure-E “Digital Products”

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The Click-and-Brick Pattern
Brick and mortar + Click and
order = Click and Brick
Brick & Mortar Click
The C&B pattern allows an • Localized • Infomediation
existing offline business to inventory • Speed
• In-store • Direct, one-to-
profit from partnering with an shopping one experience
experience • Personalized
emerging online presence. • Immediacy (try, content
• Automation
– Charles Schwab buy, take home)
• Service (returns, (assistants,
repairs, alerts)
exchanges)
Established retailers are
creating new C&B patterns.
– Land’s End

A new variation in C&B Click & Brick

strategy
– Amazon.com and Toys “R”
Us

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Why the Click-and-Brick Pattern
Physical stores offer convenience and personal service
– Order online but return at store for an exchange

Established retailer’s clout should procure higher-quality

merchandise for its Web sites than a start up
– Exceptions: commodity items, ex. books

Efficient branding of Web sites through store fronts

– Established retailers’ storefronts are living, 3-D billboards

Traditional retailers have serious cost advantages

– Spend half as much to acquire each new customer as do
Web-only retailers

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Webvan

Discuss with Ravi the purpose and nature of

this case, now that Webvan is out of this
business

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Management Challenges

• Lack of merchandise selection on site

• Lack of communication and mgmt

collaboration between the Web site and store
staffs and separate channels for fulfilling
orders and resolving customer and process
problems

• Hiring second-tier talent to staff the Web sites

• Continuing to invest millions of dollars on

Web commerce initiatives w/o generating a
positive ROI (return on investment)

© e-Business Strategies, Inc. - 22 - www.ebstrategy.com

Table of Contents
e-Business Patterns:
The Structural Foundation

e-Channel

Click-and-Brick

e-Portal

e-Market Maker

Pure-E “Digital Products”

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The e-Portal Pattern
Portals are “Killer” apps of e-business

An intermediary or middleman offering an aggregated

set of services for a specific well-defined group of users
– Yahoo! Organizes collections of news, search and
communication services for consumers
– E-Bay, E-Loan, and E*Trade for business activities related to
auctioning, loan financing, and stock trading, respectively

Portals occur when new players succeed in positioning

themselves between customers and suppliers
– Customer focused, enter chain to address specific customer
dissatisfaction with current way of doing business
– Either add value-added services to market channel or
decrease transaction costs of customer/supplier relationship

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Table of Contents

Eyeball Aggregators
Or Superportals

e-Portal Auction Portals

Megatransaction
Portals

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Eyeball Aggregators or Superportals
Attract and direct consumer
traffic with free content and
service offerings
– Deliver customers to
retailers for a fee
(advertisement based or %
of transaction) Media Network

Retailers leery of Commerce Portal

superportals
– Disintermediation, especially Communications
Portal
of repeat buyers
Sticky Content
(GeoCities Acquisition)
Yet the mass buying power of
superportals considerable
– Forcing online retailers to Content Portal
bid for a superportal’s
business Search Engine

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Auction Portals
• Enable buyers and sellers to engage in transactions
across geographic and demographic boundaries

• More than just marketplaces

– Unique community of collectors and hobbyists

• Similarity with traditional auctions

– Highest bidder wins

• What is different
– Online auction does not have the physical merchandise

• eBay

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Megatransaction Portals
Category killers
– Lock up portal real estate and create a critical mass of
customers
– Travelocity in online travel and Hoovers for financial news

Online travel services portals

– Killing traditional agencies
• Reduced agent commissions; Consumers’ acceptance of
paperless transactions; Ease of use of completing online
transactions
– Expect to see consolidation and integration in online travel
• Expedia offers airline tickets, hotel rooms, air/hotel
packages
– Travel services portals to consolidate along two segments
• Full-service and off-price discount
– Keys to success
• Automation of the look-to-book process
• Channel synchronization
© e-Business Strategies, Inc. - 28 - www.ebstrategy.com
Table of Contents
e-Business Patterns:
The Structural Foundation

e-Channel

Click-and-Brick

e-Portal

e-Market Maker

Pure-E “Digital Products”

© e-Business Strategies, Inc. - 29 - www.ebstrategy.com

The e-Market Maker Pattern

Online intermediary, connects disparate buyers

and sellers within a common vertical industry
– Eliminates channel inefficiencies; aggregates
offerings from many sellers or matches buyers and
sellers
– Buyers: lower purchasing costs; reach new
suppliers
– Suppliers: lower sales cost; reach new customers

Revenue models:
– % of transaction, subscription, mark-up

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The e-Market Maker Pattern

Major role for e-Market makers in industries

with these characteristics:
– Large market size
– Fragmented supply chain
– Unrecognized vendor or product differentiation
– High information-search costs
– High product-comparison costs
– High workflow costs

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The Pure E-Digital Products Pattern
New innovations in s/w, h/w and communications
placing digital content at center of business
– software, music, video, news
– digital goods produced, delivered, consumed and licensed
electronically
– delivery of digital goods already changing; delivery as a
service

Growth of digital products due to

– proliferation of Internet devices
– cheap and abundant availability of bandwidth
– inexpensive PCs, more free PC programs
– industry standardization of APIs
– XML permitting interface between data and speech and other
systems

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The Pure E-Digital Products Pattern

3 types of entrepreneurial activity characterize

digital-goods market
– high-quality end user technologies, services and
products
– s/w and h/w platforms
– distribution infrastructure

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High-Quality, High Speed Content to
Consumers: Digital Music
Internet altered how music
will be distributed
– “Collapse of the middle”
pattern
– Artists bypassing major
labels to reach audience
directly
– Business as usual will soon
mean no business at all for
many of the industry’s
middlemen
– New companies and peer-
to-peer technologies
emerging to meet needs of
the digital music download
business: MP3.com,
Napster, Gnutella, Pointera

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New Platforms for Digital-Media Delivery

Market for delivery of Internet services through

handheld devices new and evolving rapidly
– PDAs and mobile phones

WAP standard emerging for delivery of Internet-

based services to mass-market wireless phones

WML for Internet apps and content for wireless

phones

Next gen mobile delivery systems include voice

browsers and speech-recognition systems
– TellMe and HearMe

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New Infrastructure Services for Digital
Content Delivery

New infrastructure services required to support

faster content distribution
– Content delivery or congestion mgmt services
• Digital Island and Akamai Techologies
– Caching services
• Inktomi and CacheFlow
– Outsourcing services
• Exodus or Level 3

Supported by different business models

– Content delivery vendors paid by Web site owners
but

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E-Business
Strategies, Inc.
www.ebstrategy.com
[email protected]
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