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Chapter Eight

Chapter Eight. The Internet and E-Commerce: Creating Value through E-Business Strategies. Learning Objectives. TRANSPARENCY-69. After studying this chapter, you should have a good understanding of:.

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Chapter Eight

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  1. Chapter Eight The Internet and E-Commerce:Creating Value through E-Business Strategies

  2. Learning Objectives TRANSPARENCY-69 After studying this chapter, you should have a good understanding of: • Why use of Internet technologies is more important to achieving competitive advantage than the technologies themselves. • How Internet technologies are affecting the five competitive forces. • How e-business capabilities are affecting industry profitability. • How firms can improve their competitive position vis-à-vis the five forces by effectively deploying e-business strategies. • Why e-business technologies are changing the way firms use overall low cost, differentiation, and focus strategies. • The pitfalls in each competitive strategy that may endanger a firms attempts to deploy Internet technologies or implement e-business strategies.

  3. Growth in Internet Activity (a) Number of U.S. Citizens Online 150 125 100 9% OF POPULATION 75 44% OF POPULATION 50 25 25 0 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00  Millions Data: Jupiter, Media Metrix Inc., Commerce Dept., Bureau of Labor Statistics (b) B2B E-Commerce: Historical and Projected Growth $4 3 2 1 0 ‘99 ‘00 ‘01 ‘02 ‘03  Trillions of Dollars Estimated TRANSPARENCY-70 Exhibit 8.1 Data: Forrester Research Inc.

  4. E-Commerce Spending March 2001 Category Estimated Online Monthly Revenue (millions of $) Travel services $1,032.4 Clothing/apparel 367.7 Auction 335.4 Computer hardware/peripherals 253.0 Books 204.4 Electronics 111.1 Computer software 100.9 Music 93.0 Health/beauty 82.0 Home and garden 77.1 Flowers, gifts, and cards 65.8 Video 40.7 Fitness/sports equipment 36.7 Toys 36.7 TRANSPARENCY-71 E-Commerce Spending by Category Exhibit 8.2 Source: Nielsen/Net Ratings & Harris Interactive

  5. TRANSPARENCY-72 Internet Use Worldwide Exhibit 8.3 Projected number of regular Internet users by year end 2000 Source: Adapted from Computer Industry Almanac in Business Week

  6. TRANSPARENCY-73 Disintermediation and Reintermediation Exhibit 8.4 TRADITIONAL INTERMEDIATION Manufacturer Wholesaler Retailer Consumers DISINTERMEDIATION PROCESS Manufacturer Wholesaler Retailer Consumers Manufacturer Consumers REINTERMEDIATION ElectronicIntermediaries Manufacturer Consumers

  7. TRANSPARENCY-74 How the Internet Influences Industry Structure Exhibit 8.5 (+) By making an overall industry more efficient, the Internet can expand sales in that industry. (-) Internet-based capabilities create new substitution threats. Threat of substitutes (-) Technology-based efficiencies can be captured, lowering the impact of scale economies. (-) Differences among competitors are difficult to detect and to keep proprietary. Buyers Bargaining power of channels Bargaining power of suppliers Rivalry among existing competitors Bargaining power of end users (-) More price-based competition intensifies rivalry. (-) Widens the geographic market, increasing the number of competitors. (+/-) Procurement using the Internet may raise bargaining power over suppliers, but it can also give suppliers access to more customers. (-) The Internet provides a channel for suppliers to reach end users, reducing the power of intermediaries. (-) Internet procurement and digital markets tend to reduce differentiating features. (-) Reduced barriers to entry and the proliferation of competitors downstream shifts power to suppliers. (+) Eliminates powerful channels or improves bargaining power over traditional channels. (-) Shifts bargaining power to consumers. (-) Reduces switching costs. Threat of new entrants (-) Reduces barriers to entry such as need for a sales force, access to channels, and physical assets. (-) Internet applications are difficult to keep proprietary from new entrants. (-) A flood of new entrants has come into many industries. Source: Adapted from: Porter, M.E. 2001. Strategy and the Internet. Harvard Business Review, March: 63-78.

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