Strategic & Tactical Tools for Ebusiness

Domain name: IP address expressed in natural language

Domain name system: system for expressing numeric IP addresses in natural language

Client / Server computing: A model of computing in which client computers are connected in a network together with one or more servers

Benefit: easy to expand capacity by adding servers or clients

INSTALLED BASE: implies diverse IT capabilities and their user, operations and design communities

SHARED: across multiple communities in many and often unexpected ways

OPENESS: unbounded; components can be added and integrated in unexpected  ways;

HETEROGENEOUS: their OPENNESS invites social and technical diversity;

EVOLVABLE: they are OPEN (to change);

Layer 1: Network Layer --> responsible for placing packets on and receiving them from the network medium (e.g. fiber cables, wifi)

Layer 2: Internet Layer --> IP, responsible for addressing, packaging, and routing messages on the Internet

Layer 3: Transport Layer --> TCP, responsible for providing communication with other protocols within TCP/IP suite

Layer 4: Application Layer --> includes protocols used to provide user services or exchange data

Model of computing in which computer processing, storage, software, and other services are provided as a shared pool of virtualized resources over the Internet (e.g. AWS, GSuite)

Anothet def: a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (for example, networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service-provider interaction

Characteristics:

- On-demand self service --> Consumers can obtain computing capabilities on their own

- Ubiquitous network access --> can be accessed using standard network and Internet devices, including mobile platforms.

- Measured service --> Charges for cloud resources are based on the amount of resources actually used.

- Rapid elasticity --> resources can be rapidly provisioned, increased, or decreased

- Local independent resource pooling --> resources are pooled to serve multiple users.

SaaS: Software as a Service --> Consumer use software hosted on the vendor on the vendors cloud infrastructure (e.g. Salesforce, Dixa)

PaaS: Platform as a Service --> Customers use infrastructure and programming tools supported by the CSP to develop their own applications (e.g. IBM)

IaaS: Infrastructure as a Service --> Customers use processing, storage, networking, and other computing resources from third-party providers to run their information systems (e.g AWS) 

Deployement types
Public, private, community, hybrid

1. client/server computing is highly extensible

2. Internet architecture is built in layers so that each layer can change (innovate) without disturbing developments in other layers.

Net neutrality refers to the idea that ISPs, including cable Internet and wireless carriers, should treat all data on the  Internet in the same manner, and not discriminate or price differentially by content, protocol, platform, hardware, or  application.

All Internet traffic should be treated equally (or  “neutrally”) by ISPs regardless of the size, source,  nature of the content.

But this doesn't mean that ISP can offer different speed for download etc for different prices

Different parties have different interests. 

ISP: Argue that they would benefit, as they could use these profits to further develop their infrastructure also in remote areas. But could deny access to network altogether or charge higher prices, its a ISP's choice without net neutrality

Companies: Argue that they would get a competitive advantage by paying more as they can afford, but this premium is also transferred to end users

Governments: less competition because only rich businesses can afford to pay for faster service. Could lead to monopolies etc., therefore with net neutrality it fosters innovation

Citizens: higher prices, less choice if smaller business have to close

Advantages:

• Not dependent on physical location
• Users not necessarily dependent on IT staff.
• Based on standard network and Internet devices.
• Resources serve multiple users with computing virtually assigned according to need.
• Resources are on-demand. (scale up possible)
• Charges are based on the amount of resources actually used (reuced cost)
• Large investmentsin IT infrastructure are not necessarily needed.
• Firms can shift additional processing requirements to cloud computing during peakbusiness periods
• It allows a more flexibleIT infrastructure.

Disadvantages:

• Responsibility for data storage and control is transferred away from the organization to a third party.
• Increase dependencyon a third party making everything work.
• Security risks and chances of data compromises are increased.
• Risk diminishing system reliability
• Huge investments in proprietary systems supporting unique business processes may be at risk.

Claim that no one can govern as its beyond the law. But Internet runs over private and public telecomm facilities that are by themself governed by the law. 

Bandwidth limitations:
Insufficient capacity for the last mile ->  congestionduring peak hours and difficulties regarding the handling of huge video and audio files → thus talk of network neutrality

Quality of service limitations:
neven flow of information packets result in latency (delays in messages). Today: “Best-effort” quality of service -> no guarantee about when and if data will be delivered

Network architecture limitations:
1000 clients in same neighborhood request a music file from server, server has to send 1000 times the file. 1000x effort -> slowing down network performance. Contrary, TV broadcasts the program once to millions of households

Wired internet:
copper cable old, Fiber-optic expensive. Wires restrict mobility of users -> change incoming: WiFi hotspots and cellular phone technology

Advanced networking consortium of more than 450 member institutions working in partnership to facilitate the development, deployment, and use of revolutionary Internet technologies

Environment in which new internet tech can be tested (e.g. a us-wide 100 Gbps network, reachin underserved areas of the US. Institutions such aus museums, libraries and schools are connected and can provide the local ctizens new services they could not access before (e.g. distance learning, telemedicine…)

Increased bandwidth and expanded wireless network -> faster and easier access

- Fiber-optic networks -> more reliable, better transmission, creation of new business models and opportunities

- Wireless Internet -> increase mobile shopping

- Major benefits of tomorrow’s Internet:

§  Latency solutions:

- Today: packet-switching does not differentiate between high priority packages (e.g. video file) and lower priority (self-sent e-mail)

- Future: differentiated quality of service (diffserv) = new technology that prioritizes packets based on the type of data being transmitted

§  Guaranteed Service Levels and Lower Error rates:

- Today: No right to move data around the Internet -> only best effort. Internet is democratic and speed is the same for everyone

- Future: Possible to buy right to move data a guaranteed speed for higher fees

§  Declining costs: Better geographical coverage -> competition in the industry -> broadband and wireless access costs will decrease

A set of applications and  technologies that enable user-generated content. Content that is manipulable and interactive with users --> co-creation of value

e.g. social networks, blogs, wikis

Features:

Interactivity:

Participation: write content, tag, label content

Creativity: innovation in terms of content creation (YT influencer)

Community: specialized content for distinct communities

- Services, not packaged software

• Instead of buying software, using software on the web (often for free)

- Users as co-developers (user-created content)

- Data get richer as more people use them

- Harness collective intelligence

• Collecive human intelligence, extensed to croudsourcing -> linux

- Software above the level of a single  device

- Lightweight user interfaces, development model, and business model

Definition according to Osterwalder et al (2010) :

• A business model describes the rationale of how an  organization creates, delivers and captures value.

Definition according to Laudon & Travers:

• Business model is a set of planned activities designed to result in a profit in a  marketplace
• E-Commerce Business Model: Uses / Leverages unique qualities of Internet, Web and Mobile

Combined:

• Business model is an description and explanation of how a business makes money

Value proposition—how a company’s product or service fulfills the needs of customers. Typical e-commerce value propositions include personalization, customization, convenience, and reduction of product search and price delivery costs.

Revenue model—how the company plans to make money from its operations. Major e-commerce revenue models include the advertising model, subscription model, transaction fee model, sales model, and affiliate model.

 Market opportunity—the revenue potential within a company’s intended marketspace.

Competitive environment—the direct and indirect competitors doing business in the same marketspace, including how many there are and how profitable they are.

Competitive advantage—the factors that differentiate the business from its competition, enabling it to provide a superior product at a lower cost. E.g. Superior product or bring the product to market at a lower price than competitors

• Asymmetry, first mover advantage, complementary resources (marketing, financial assets, reputation)

 Market strategy—the plan a company develops that outlines how it will enter a market and attract customers.

Organizational development—the process of defining all the functions within a business and the skills necessary to perform each job, as well as the process of recruiting and hiring strong employees.

Management team—the group of individuals retained to guide the company’s growth and expansion.

E-tailer: Online version of traditional retailer: 

• virtual merchant, bricks & clicks (web shops of existing brick-and-mortar stores), manufacturer direct
• Low entry barriers -> Much competition, difficult to differentiate and to become profitable
• Main revenue model: Sales

Community Provider: Provide online environment (social network)  where people with similar interests can transact, share content, and  communicate

• Facebook; LinkedIn; Twitter etc
• Main revenue model: Hybrid (Advertising, subscription, affiliate referral)
• Good for targeted marketing/advertising (special audiences)
• Often rely on word-to-mouth and offline relationships between the members

Content Provider: Digital content on the web

• newspapers, films, music, games, books etc
• Main revenue model: Advertising, subscription, sales
• Key to success: Be content owner (having the copyright), distributors of content have to pay fees

Portal: Search plus an integrated package of content and services: 

• Yahoo, AOL, MSN, Facebook(?), Chinese Platforms???
• Horizontal vs Vertical vs Search
• Main revenue model: Advertising, subscription, transaction

Transaction Broker: Process online transactions for consumers. E.g  stockbroking & travel 

• E*Trade, Booking.com,
• Main revenue model: Transaction fees
• Privacy, trust, customer experience are important factors to attract new customers
• Every transaction that occurs -> fee for broker -> important to encourage to make a lot of transactions

Market Creator: builds a digital environment where buyers and sellers can meet, display products, search for products, and establish a price for products:

• eBay, Amazon etc
• Main revenue model: Transaction fees
• Seller and buyer are their own agents (market creator is not executing the transaction, unlike as a transaction broker)
• Gets a commission fee on every transaction -> middleman

Service Provider: Making money by selling online services

• e.g. RocketLawyer
• Variety of revenue models (Sale of services, subscription, advertising, freemium…) 
• VP: valuable, convenient, time-saving, low-cost alternatives to traditional service providers or unique experience
• Service-based economy and society -> potential of services > products
• Increasing demand for convenient services
• Trust and confidence are critical 

E-Distributor:

• Company that supplies products and services directly to individual businesses
• Recommendable to offer a wide product range as one-stop shopping is preferable
• Make money from sale of goods

E-Procurement:

• Create and sell access to digital markets
• Fees for market making services, supply chain management, and fulfillment services

Exchange

• Independent digital marketplace where many suppliers sell to a few commercial purchasers

Industry Consortium

• Industry-owned vertical marketplaces for specific industries (e.g. automobile, aerospace)

Private industrial networks

• Digital network designed to coordinate the flow of communications among business partners (e.g. company and its long-term trusted suppliers)

The activities and organisation engages with in order to generate money. 

Revenue side:

• Value proposition: describe the features of a produt or service that attracts the customers
• Customer segment:
• Channels: through which the product or service are made available to customers
• Customer relationship: Customer communicaton, CRM etc
• Revenue streams: what creates renevue

cost side -> activities that are needed in order to enable the revenue side

• Key partnerships: looking at what activities are best outsourced or done within the organisation
• Key activities / key resources: resources that are needed in order to maintain a competitive advantage

Industry structure determined by Porter's 5 forces

• Rivalry among existing competitors ⇒  threat of substitute products, barriers to entry into the industry, bargaining power of suppliers, bargaining power of buyers

Change in industry structure:

• Middlemen such as Expedia entered the travel market and leveraged e-commerce successfully. Reaction of airlines: platform for direct consumer sales (e-Commerce lowered barriers of entry
• New forms of distribution by new entrants have shaken up many industries though (e.g. Wikipedia = free, Encyclopedia = 100s of euros)
• E-commerce increased price competition in nearly all markets due to more competition and greater price transparency
• Merchants automatically compete on bigger markets as international internet users can connect to their websites
• But also more possibilities of branding and differentiation which allows to retain high prices

Changes in industry/ firm value chain (set of set of activities performed in a firm/ an industry that transforms raw inputs into final products and services):

• Every player is in a position where it can maximize its profits by lowering costs or increasing prices
• E.g. Manufacturers can create B2B exchange
• E-commerce enables firms to differentiate their products and to increase operational efficiency (e.g. outsourcing, differentiate services and products)

Business strategy = a set of plans for achieving superior long-term returns on the capital invested in a company

5 generic business strategies:

• Product / Service differentiation
  • Tactics to differentiate: create experience expectations about use of products or service, adding unique features, personalization of experiences, customize products on customer demand, possibility to order from anywhere/anytime (ubiquity) to anywhere in the world (global reach)
• Cost Competition
  • Cost reduction most likely happens due to the discovery of a unique set of business processes or resources that other firms cannot obtain → Competitive advantage
  • Leverage E-commerce to cut costs, but competitors usually have access to same technologies
• Scope
  • Competing in all markets worldwide, rather than just national or local (Ubiquity, universal technical standards)
• Focus / niche strategy
  • E-Commerce allows to create very specific, interactive and perfectly targeted ads to potential customers of that segment (leveraging information density, richness and interactivity)
• customer intimacy
  • Develop strong ties with customers in order to increase switching costs (leveraging information density, richness, interactivity, and social media

Disruptive Technologies: Technologies that fundamentally change the way business is done

Digital Disruption: Business model is fundamentally changed due to a change in digital technologies (information systems)

Sustaining technologies: Technologies used improve a business model -> incremental improvement of products and services

Stage 1: Innovative companies use the technology to build a new product/service that is less capable, of poorer quality but less expensive than an incumbent offering -> finds a niche market, not served by incumbent

Stage 2: Disruptors improve their products using more innovative technologies than traditional players. Disruptors move fast, expand their market and eventually capture market share from incumbents

Stage 3: New products and business models become superior to incumbent’s offerings

Stage 4: Incumbents lose so much market share that they might go out of business, are merged with other companies…

Monetizing under utilized resources

• Amazon selling its spare server capacity as Cloud  Computing Services

“Servitization”

• Selling the product as a service – Roll’s Royce Jet Engines

Ownership to rental

• Shifting from ownership of an asset to rental of  an experience - Spotify

Offline to online

• Substituting physical with “virtual” digital  encounters – Netflix

Mass customization and co-  creation

• Enabling consumers to bespoke and co-create  product experience – Mobile Phones (apps)

Experience Innovation

• Moving from selling a commodity - Starbucks(!)

o   Continuous digitalization of all business aspects -> company can create value by optimizing business processes, collaborating with partners in the value chain… → more data to optimize based on

o   Increase in digital natives → larger customer base

o   Voice of customer becomes more important (e.g. review systems, social media)

• Difficult to assess in offline stores, easy in online

Content (What is consumed?)

• Information: Product information, price and use details
• Product: digital products such as e-book, software

Experience (How is it packaged?)

• Recommendations, interface, customer-facing digtalized business processes

Platform (How is it delivered?)

• Coherent set of digitized business processes, data and infrastructure. External (telecom networks, computers, logistics…) and internal (e.g. customer data, HR, Finance) components

Network externalities arise when one market participant affect others without compensation being paid

E.g. Facebook: intrinsic characteristics are not that important, but the network effect provides high value. Lots of users on fb and by joining oneself, one adds additional value for other users and makes it more attractive. This is the principle of positive feedback.

This causes a snowball effect. The more users fb has, the more attractive it gets. And the more attractive fb is, the more users sign up again. 

Positive feedback: the stronger gets stronger, the weaker gets weaker

But can also adversely affect --> negative feedback.

1. Brand selection

• Searching for new product, consultation of reviews, peers

2. Sampling

• physical sampling

3. Entrenchment

• purchase decision, and start of use, getting used of new features, software, etc. 

4. Lock-in

• because of entrenchment phase, getting locked in to specific supplier

Brand specific training

• Considerable additional time and effort would be needed to train staff to use another technology from another brand
• By introducing new upgrades/features, the vendor can maintain high switching costs (if features are worth learning them)
• Learning a new system, both direct costs and lost productivity; tends to  rise over time

Search costs

• learning about quality of alternatives

Specialized suppliers

• Highly specialized products for which it will be difficult to find other suppliers

• Funding of new supplier may rise over  time if capabilities are hard to find/ maintain

Contractual commitments

• Contract to buy from a specific seller (requirement = exclusive, minimum-order size = minimum quantity

• Compensatory or liquidated damages

Loyalty programs

• “artificial lock-in”
• Awarded for return purchases
• Any lost benefits from incumbent  supplier, plus possible need to rebuild cumulative use

Durable purchases

• Replacement of equipment; tends to decline as the durable ages

• Economic lifetime of durable equipment impacts lock-in duration

Standards war = battles for market dominance between incompatible technologies

Standard wars crucial in markets with network effects

The higher the costs of a standard war, the more likely parties will negotiate on a common standard

4 types of standard wars, classified by how compatible each player’s proposed new technology is with the current technology

• Evolution strategy: Compatible with the old technology, offering slightly better product performance -> minimum of switching/adoption costs
• Revolution strategy: Incompatible with the old technology but new features and significantly better performance -> customers willing to switch at high adopting costs

•Control of an installed base (most important one)

• Big corporates have a large (loyal) customer base or locked-in customers
• This can be used to block cooperative standard setting or force a standards war
• Can be used to block competitors from offering compatible products, forcing them to implement a risky revolution strategy
• In startups often services or products for free, to create an installed base. Logic: build early lead, to leverage positive feedback (for you and against competitors)

•Intellectual property rights

• Valuable technology patents and copyrights -> strong position
• Normally patents > copyrights, but software copyrights can block compatibility

•Ability to innovate

• Build new intellectual property in the future
• Good engineering skills -> compromise on standards and out-engineer competition

•Manufacturing abilities

• Scale economies or strong manufacturing competences -> low-cost production
• Helps to survive standard wars (lower costs) or capture market share (low price -> more sales of standardized products)
• Benefit from open standards

•Brand name and reputation

• Brand name is a big asset in network markets and give one instant credibility -> helps to win the market

•Presence in complementary products

• Product that is highly complementary -> push for standards
• Acceptance of your technology will drive sales of other products you produce
• E.g. Intel wanted to sell more CPUs -> pushed for other standards for PC components, including interfaces between motherboards and CPUs, chipsets

First mover advantage

• First movers learn lessons earlier -> pole position
• Network effect kicks in when positive feedback is achieved with every additional customer of the network

Definition: occurs where users receive value from the fact that everyone else uses the same tool or product, all of which increase in value as more people adopt them (e.g. Windows, Mac, Facebook)