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

1. Internet Commerce Success – what does it take? GP Dhillon, PhD Associate Professor of IS School of Business, VCU

2. Understanding where we are ….Developing systems to support the market - (a) service considerations Type of service contract Simple or limited domain Complex or domain contingent ‘Patronizing the customer’ Relationship based Customized services High production costs Type of customer contact Standardized services High transaction costs and risks of errors Mass transactions Transaction based ‘Abandoning the customer

3. Integrated systems centralized/decentralized Service network Stand alone systems Independent agent Channel organization Field and back office personnel Direct access / self service Understanding where we are ….Developing systems to support the market – (b) channel considerations Channel systems ‘Too heavy organization’ Agency support systems Out of pocket costs Type of channel Corporate mediator system Opportunity costs Market network ‘Substandard network’

4. Standard Service Mass Transaction Customized Service Agency Support Systems Mediator Service Market Network Understanding where we are ….Developing systems to support the market – (c) service-channel matrix Service Package ‘Exploiting the Customer’ Focus ‘Consulting and Agencies’ Costs vary according to volume of transactions Differentiation Delivery Channel ‘Universal Service’ Differentiation High fixed costs and risks, but low fees ‘Electronic Markets’ ‘Overwhelming the Customer’ Low Cost

5. Standard Service Mass Transaction Customized Service Agency Support Systems Service Package ‘Exploiting the Customer’ Focus Mediator Service ‘Consulting and Agencies’ Costs vary according to volume of transactions ‘Universal Service’ Differentiation Delivery Channel Market Network Differentiation High fixed costs and risks, but low fees ‘Electronic Markets’ ‘Overwhelming the Customer’ Low Cost Sustaining 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.

6. Standard Service Mass Transaction Customized Service Agency Support Systems Service Package ‘Exploiting the Customer’ Focus Mediator Service ‘Consulting and Agencies’ Costs vary according to volume of transactions Differentiation Delivery Channel ‘Universal Service’ Market Network Differentiation High fixed costs and risks, but low fees ‘Electronic Markets’ ‘Overwhelming the Customer’ Low Cost Disruptive 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.

7. Service Package The core of WorldDoc's technology is the revolutionary Personal Evaluation System (PES™) which answers patients' questions Standard Service Mass Transaction Customized Service Focus Agency Support Systems ‘Exploiting the Customer’ ‘Consulting and Agencies’ Costs vary according to volume of transactions Mediator Service Delivery Channel ‘Universal Service’ High fixed costs and risks, but low fees ‘Electronic Markets’ Market Network ‘Overwhelming the Customer’ Low Cost Disruptive Technology Examples 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.

8. Service Package Standard Service Mass Transaction Customized Service Focus Agency Support Systems ‘Exploiting the Customer’ ‘Consulting and Agencies’ Costs vary according to volume of transactions Mediator Service Delivery Channel ‘Universal Service’ High fixed costs and risks, but low fees ‘Electronic Markets’ Market Network ‘Overwhelming the Customer’ Low Cost Disruptive Technology Examples 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.

9. ? Service Package Standard Service Mass Transaction Customized Service Focus Agency Support Systems ‘Exploiting the Customer’ ‘Consulting and Agencies’ Costs vary according to volume of transactions Mediator Service Delivery Channel ‘Universal Service’ High fixed costs and risks, but low fees ‘Electronic Markets’ Market Network ‘Overwhelming the Customer’ Low Cost Disruptive Technology Examples Priceline.com – especially with respect to domestic airline travel

10. Disruptive 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.

11. Functionality and Cost Time Conventional 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.

12. Emerging Technologies and Markets

13. Technological discontinuities: Jumping the S- Curve

14. Impact of sustaining and disruptive technologies

15. Application (Market) “A” Application (Market) “A” Application (Market) “B” Technology 2 Technology 2 Performance as in application “A” Performance as in application “A” Technology 2 Technology 1 Technology 1 Time or Engineering Effort Time or Engineering Effort Disruptive technology S-Curve

16. 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).

17. Managing 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.

18. Companies 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

19. 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

20. 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.

21. Technology 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.

22. Conclusion • 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.