Internet Commerce Success – what does it take? GP Dhillon, PhD Associate Professor of IS

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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


MediatorService

MarketNetwork



High fixed costs and risks, but low fees

‘Overwhelming theCustomer’

Differentiation

Differentiation

Focus‘Consulting and

Agencies’

Low Cost



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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


MediatorService

MarketNetwork





Differentiation

Differentiation

Focus‘Consulting and

Agencies’

Low Cost



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uDisruptive Technology Examples

Service PackageCustomized

ServiceStandardService

MassTransaction

Del

iver

y C

ha n

nel


MediatorService

MarketNetwork





Focus

Low Cost




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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MassTransaction

Del

iver

y C

ha n

nel


MediatorService

MarketNetwork





Focus

Low Cost




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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MassTransaction

Del

iver

y C

ha n

nel


MediatorService

MarketNetwork





Focus

Low Cost




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

y an

d C

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.

Internet Commerce Success – what does it take? GP Dhillon, PhD Associate Professor of IS

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Transcript of Internet Commerce Success – what does it take? GP Dhillon, PhD Associate Professor of IS