What is e-Commerce:

e-Commerce refers to the exchange of goods and services over the Internet. All major retail
brands have an online presence, and many brands have no associated bricks and mortar
presence. However, e-Commerce also applies to business to business transactions, for
example, between manufacturers and suppliers or distributors.

In the online retail space, there are a number of models that retailers can adopt. Traditionally,
the Web presence has been kept distinct from the bricks and mortar presence, so transactions
were limited to buying online and delivering the goods or services. The online presence is
also important for researching a product that a customer can purchase later in the store.
Recently, there has been a trend towards multi-channel retail, allowing new models such as
purchasing online and picking up in store.

e-Commerce systems are also relevant for the services industry. For example, online banking
and brokerage services allow customers to retrieve bank statements online, transfer funds,
pay credit card bills, apply for and receive approval for a new mortgage, buy and sell
securities, and get financial guidance and information.

Firstly, let’s take a look at electronic commerce (e-commerce). Ecommerce

refers to business transactions and communications that are
carried out through computers - over networks and the internet. This
includes buying and selling goods and services, funds transfers and other
commercial communications. It creates a new way of buying and selling –
one that uses technology to make the transaction.
E-commerce can take place in different situations:
◗ Between businesses and consumers (B2C), as when you purchase
from a shop’s website.You, the consumer can now do everything over
the internet from banking online to shopping for computers, books,
clothes, games, holidays, concert tickets etc!
◗ From one business to another (B2B), as when one company buys its
supplies from another company online. E-business has transformed
how the business world operates from the supply side to the selling
side and all the banking and commercial transactions in between. This
affects everything from small family-run enterprises to international
stock exchanges.
◗ From consumer to consumer (C2C), for example, when you buy
something from your friend and pay for it by transferring money from
your bank account online to your friend’s. Many websites such as ebay.
com enable consumers to buy and sell second-hand items to and
from each other.
E-commerce offers many benefits to businesses and consumers in their
purchasing activities. It changes the purchasing process from being a physical

transaction to being a virtual transaction where no paper is involved.

Organizational benefits
 Global reach: can easily and quickly locate the best suppliers, more customers
 : can easily and quickly locate the best suppliers, mor
 and more suitable business partners. i.e. buy cheaper and sell more.and more suitable
business partners. i.e. buy ch
 Cost reduction: EC decreases the cost of creating, processing, distribution,
 : EC decreases the cost of creating, processing, distribution,
 storing and retrieving paper-based information.
 Supply chain improvement: supply chain inefficiencies can be minimized e.g..
 : supply chain inefficiencies can be minimized e.g..
 Inventory and deliver delays
 Inventory and deliver delays
 •Extended hours:24/7/365
 Extended hours:24/7/36
 Customization: pull-type production (build-to-order)
 : pull-type production (build-to-ord
 New business models: tendering (reverse auction), name-your-own-price model,
 : tendering (reverse auction), name-your-own-price model,
 affiliate marketing, viral marketing etc.
 affiliate marketing, viral marketing etc
 Vendors’ specialization: EC enables high degree of specialization
 : EC enables high degree of specializa
 Lower communication cost: EC lowers telecommunications cost.
 EC lowers telecommunications cost.
 •
 Efficient procurement: EC can reduce administrative cost, purchasing prices, and
 : EC can reduce administrative cost, purchasing prind
 reducing cycle time.
 reducing cycle tim
 Improved customer relations: EC enable close customer relations
 : EC enable close customer relations
 Up-to-date company material: EC enables company information to be updated
 : EC enables company information to be updated
 by the minute
 by the
 No city business permits and

 Consumer benefit
 Ubiquity: EC allows shopping 24/7/365 from
almost any location.
 location.
 More products and services: EC gives more
choices.
 : EC gives more choices.
 Cheaper products and services: EC providers
price variety
 : EC providers price variety
 for goods and services
 for goods and serv
 Instant delivery: e.g. digitized product
 : e.g. digitized product
 •Information availability:
 Information availability: relevant and detailed
information in seconds
 in seconds
 •Participate in auctions:
 Participate in auctions: virtual auctions
 virtual auctions
 •Electronic communities
 Electronic communities: consumers can
interact with other
 : consumers can interact with other
 consumers
 consumers
 •Get it you way
 Get it you way: customization and
personalization of
 : customization and personalization of
 products and services
 products and services
 •No sales tax
 No sales tax: most online sales are tax free
 : most online sales
 Societal bene
 Telecommuting: more people
work and at home
A t hom
 Higher standard of living:
competitive prices
 : competitive prices
 allow lower income earners to shop
more
 allow lower income earners to shop
more
 •Hope for the poor
 Hope for the poor: great
opportunity for the
 : great opportunity for the
 poor to sell, buy and learn new
skills
 poor to sell, buy and learn new
skills
 •Availability of public services
 Availability of public services:
health care,
 : health care,
 education, and distribution of
government
 education, and distribution of
government
 social services can be done at a
reduce cost to cost to
  a large number of people.
a large number of people.

E- commerce business model:

Bricks and clicks:

is a business strategy or business model in e-commerce by which a

company attempts to integrate both online and physical presences. It is also
known as Click-and-mortar or clicks-and-bricks.

For example, an electronics store may allow the user to order online, but pick
up their order immediately at a local store. Conversely, a furniture store may
have displays at a local store from which a customer can order an item
electronically for delivery.

The bricks and clicks strategy has typically been used by traditional retailers
who have extensive logistical and supply chains. Part of the reason for its
success is that it is far easier for a traditional retailer to establish an online
presence than it is for a start-up company to employ a successful pure
dot.com strategy, or an online retailer to establish a traditional presence.
This strategy has contradicted analysts who believed that the internet would
render traditional retailers obsolete through disintermediation.

Advantages of the model

Click and mortar firms have the advantage in areas of existing business
models and products. In these cases it is better to retain ties to your physical
 company. This is because they are able to leverage their competencies and
assets, including:

 1) Leveraging their core competency. Successful firms tend to have

one or two core competencies that they can do better than their competitors.
It may be anything from new product development to customer service.
When a bricks and mortar firm goes online it is able to use this core
competency more intensively and extensively.
 2) Leveraging existing supplier networks. Existing firms have
established relationships of trust with suppliers. This usually ensures problem
free delivery and an assured supply. It can also entail price discounts and
other preferential treatment.
 3) Levering existing distribution channels. As with supplier networks,
existing distribution channels can ensure problem free delivery, price
discounts, and preferential treatments.
 4) Leveraging brand equity. Often existing firms have invested large
sums of money in brand advertising over the years. This equity can be
leveraged on-line by using recognized brand names. An example is Disney.
 5) Leveraging stability. Existing firms that have been in business for
many years appear more stable. People trust them more than pure on-line
firms. This is particularly true in financial services.
 6) Leveraging existing customer base. Because existing firms already
have a base of sales, they can more easily obtain economies of scale in
promotion, purchasing and production; in distribution and promotion;
reduced overhead allocation per unit; and shorter break even times.
 7) Leveraging a lower cost of capital. Established firms will have a
lower cost of capital. Bond issues may be available to existing firms that are
not available to dot coms. The underwriting cost of a dot com IPO is higher
than an equivalent brick and click equity offering.
 8) Leveraging learning curve advantages. Every industry has a set of
best practices that are more or less known to established firms. New dot
coms will be at a disadvantage unless they can redefine the industries best
practices and leap frog existing firms.

Pure dot.coms, on the other hand, have the advantage in areas of new e-
business models that stress cost efficiency. They are not burdened with brick
and mortar costs and can offer products at very low marginal cost. However,
they do tend to spend substantially more on customer acquisition.

Porters 5 forces model:

Porter's Five Forces
Assessing the Balance of Power in a Business Situation

The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in
a business situation. This is useful, because it helps you understand both the strength of your
current competitive position, and the strength of a position you're considering moving into.

With a clear understanding of where power lies, you can take fair advantage of a situation of
strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an
important part of your planning toolkit.

Conventionally, the tool is used to identify whether new products, services or businesses have
the potential to be profitable. However it can be very illuminating when used to understand
the balance of power in other situations too.

Five Forces Analysis assumes that there are five important forces that determine competitive
power in a business situation. These are:

1. Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This
is driven by the number of suppliers of each key input, the uniqueness of their product
or service, their strength and control over you, the cost of switching from one to
another, and so on. The fewer the supplier choices you have, and the more you need
suppliers' help, the more powerful your suppliers are.

Bargaining power of suppliers exists in the following situations:

o Where the switching costs are high (switching from one Internet
provider to another);
o High power of brands (McDonalds, British Airways, Tesco);
o Possibility of forward integration of suppliers (Brewers buying bars);
o division of customers (not in clusters) with a limited bargaining power
(Gas/Petrol stations in remote places).

2. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down.
Again, this is driven by the number of buyers, the importance of each individual buyer
to your business, the cost to them of switching from your products and services to
those of someone else, and so on. If you deal with few, powerful buyers, then they are
often able to dictate terms to you.

 This force is relatively high where there a few, large players in the
market, as it is the case with retailers an grocery stores;
 Present where there is a large number of undifferentiated, small
suppliers, such as small farming businesses supplying large grocery
companies;
  Low cost of switching between suppliers, such as from one fleet
supplier of trucks to another.

3. Competitive Rivalry: What is important here is the number and capability of your
competitors. If you have many competitors, and they offer equally attractive products
and services, then you'll most likely have little power in the situation, because
suppliers and buyers will go elsewhere if they don't get a good deal from you. On the
other hand, if no-one else can do what you do, then you can often have tremendous
strength.
4. Threat of Substitution: This is affected by the ability of your customers to find a
different way of doing what you do – for example, if you supply a unique software
product that automates an important process, people may substitute by doing the
process manually or by outsourcing it. If substitution is easy and substitution is viable,
then this weakens your power.

 Product-for-product substitution (email for mail, fax); is based on the substitution of

need;

 Generic substitution (Video suppliers compete with travel companies);

 Substitution that relates to something that people can do without (cigarettes, alcohol).

5. Threat of New Entry: Power is also affected by the ability of people to enter your
market. If it costs little in time or money to enter your market and compete
effectively, if there are few economies of scale in place, or if you have little protection
for your key technologies, then new competitors can quickly enter your market and
6. weaken your position. If you have strong and durable barriers to entry, then you can
preserve a favorable position and take fair advantage of it.

 Economies of scale: for example, benefits associated with bulk

purchasing;
 Cost of entry: for example, investment into technology;
 Distribution channels: for example, ease of access for competitors;
 Cost advantages not related to the size of the company: for example,
contacts and expertise;
 Government legislations: for example, introduction of new laws might
weaken company’s competitive position;
 Differentiation: for example, a certain brand that cannot be copied
(The Champagne)
These forces can be neatly brought together in a diagram like the one below:
3 examples:
You can see this play out in a number of retail-situations. Apple, which
is strictly focussed on design and marketing, outsources the
manufacturing of most of its products, but is fairly vertically orientated
towards the customer-side, doing most of its business in its retail-
locations and online stores. Because of this concentration of power in the
middle and proximity to the customer, it also has more power over its
suppliers, able to make strong demands, and it's also better equipped to
compete with horizontal players like HP or Sony, who are not as
vertically integrated towards the consumer. The added benefit of a close
customer-presence is also that you can use this as an opportunity to
create customer-focussed products, something a lot of non-verticallly
integrated players are not so good at.

Another fascinating company is Amazon, who spotted an opportunity to

surpass brick & mortar stores, by becoming a distributor with a web-
based store-front. Traditionally, the book-industry was organised as
follows. A book gets printed, it then gets distributed, it then lands in a
store, and then the customer buys it. Amazon integrated three of these
functions: distribution, store, and customers (four, if you include ebooks
into the formula). The end-result was that the customer became
empowered: he could review books, even sell books second-hand. Which
disempowered other stores where this was not possible, and publishers,
who were before able to simply push out best-sellers downstream.
Publishers are still powerful of course, essentially acting as a gatekeeper
to writers, but this will change as soon as online publishing can be
consumed comfortably.

A final example is Ikea, which is surprisingly similar to Amazon. It also

started as a distributor, back in the day when a store-front was a
newspaper-advert and phone-line. Ikea saved money, by working closely
together with manufacturers in Poland, even building and buying
machinery for them. The end-result were standardised designs, at low
costs, and produced on a massive scale. It became close to the
customer, by using its warehouses as store-fronts, and enabling
customers to buy via catalogue and later via the web-site. Its
competition was the traditional furniture store, conservative and
producing designs that were both expensive and focussed on exclusivity
(which translates to small-scale production). Because of this perceived
strength, they were arrogant enough to not worry so much about prices
on the vertical axis, both from their suppliers and for their customers. All
of which could be exploited by some frugal and out-of-the-box thinking
(a combo which fits surprisingly well together).

These are all three examples of durable goods. If you get into food
however, even restaurants, the formula changes. But that is a story for
another day.

Limitations of Porter’s Five Force Model:

Porter’s model is a strategic tool used to identify whether new products, services or businesses have the

potential to be profitable. However it can also be very illuminating when used to understand the balance

of power in other situations.

Porter argues that five forces determine the profitability of an industry. At the heart of industry are rivals

and their competitive strategies linked to, for example, pricing or advertising; but, he contends, it is

important to look beyond one’s immediate competitors as there are other determinates of profitability.

Specifically, there might be competition from substitute products or services. These alternatives may be

perceived as substitutes by buyers even though they are part of a different industry. An example would

be plastic bottles, glass bottles, and cans for packaging soft drinks. There may also be the potential

threat of new entrants, although some competitors will see this as an opportunity to strengthen their

position in the market by ensuring, as far as they can, customer loyalty. Finally, it is important to

appreciate that companies purchase from suppliers and sell to buyers. If they are powerful they are in a

position to bargain profits away through reduced margins, by forcing either cost increases or price

decreases. This relates to the strategic option of vertical integration, when the company acquires, or

merges with, a supplier or customer and thereby gains greater control over the chain of activities which

leads from basic materials through to final consumption (Luffman and et al., 1996; Wheelen and Hunger,

1998).

It is important to be aware that this model has further limitations in today's market environment; as it

assumes relatively static market structures. Based originally on the economic situation in the eighties with
its strong competition and relatively stable market structures, it is not able to take into account new

business models and the dynamism of the industries, such as technological innovations and dynamic

market entrants from start-ups that will completely change business models within short times. For

instance, the computer and software industry is often considered as being highly competitive. The

industry structure is constantly being revolutionized by innovation that indicates Five Forces model being

of limited value since it represents no more than snapshots of a moving picture. Therefore, it is not

advisable to develop a strategy solely on the basis of Porter’s models (Kippenberger, 1998; Haberberg

and Rieple, 2001), but to examine it in addition to other strategic frameworks of SWOT and PEST

analysis.

Nevertheless, that does not mean that Porters theories became invalid. What needs to be done is to

adopt the model with the knowledge of its limitations and to use it as part of a larger framework of

management tools, techniques and theories. This approach, however, is advisable for the application of

every business model (Recklies, 2001).

Porters 5 forces in brief:

Entry Barriers

 Economies of scale
 Proprietary product differences
 Brand identity
 Switching costs
 capital requirements
 Access to distribution
 Absolute cost advantages
 Proprietary learning curve
 Access to necessary inputs
 Proprietary low-cost product design
 Government policy
 Expected retaliation

Determinants of Supplier Power

 Differentiation of inputs
 Switching costs of suppliers and firms in the industry
 Presence of substitute inputs
 Supplier concentration
 Importance of volume to supplier
 Cost relative to total purchases in the industry
 Impact of inputs on cost or differentiation
 Threat of forward integration relative to threat of backward integration by firms in the
industry
Determinants of Buyer Power

Bargaining Leverage

 Buyer concentration versus firm concentration

 Buyer volume
 Buyer switching costs relative to firm switching costs
 Buyer information
 Ability to backward integrate
 Substitute products
 Pull-through

Price Sensitivity

 Price / total purchases

 Product differences
 Brand identity
 Impact on quality / performance
 Buyers profits
 Decision makers' incentives

Rivalry Determinants

 Industry growth
 Fixed (or storage) costs/value added
 Intermittent over capacity
 Product differences
 Brand identity
 Switching costs
 Concentration and balance
 Informational over complexity
 Diversity of competitors
 Corporate stakes
 Exit barriers

Determinants of Substitution Threats

 Relative price performance of substitutes

 Switching costs

The Impact of the Internet on Business

Current Uses of the Internet
The Internet has a wide variety of uses. It provides an excellent means for disseminating information
and communicating with other people in all regions of the world. While the greatest use of the
Internet has been sharing information, other sources of use are rapidly developing. For instance,
chat rooms, a space where people can go to discuss an assortment of issues, and Internet
Commerce, which connects buyers and sellers online. The following are other examples of current
Internet uses:
1. Technical Papers
Originally, the Internet was only used by the government and universities. Research scientists used
the Internet to communicate with other scientists at different labs and to access powerful computer
systems at distant computing facilities. Scientists also shared the results of their work in technical
papers stored locally on their computer system in ftp sites. Researchers from other facilities used the
Internet to access the ftp directory and obtain these technical papers. Examples of research sites are
NASA and NASA AMES.

2. Share Company Information

Commercial companies are now using the Web for many purposes. One of the first ways that
commercial companies used the Web was to share information with their employees. Sterling
Software's Web page informs employees about such things as training schedules and C++ Guidelines.
There is also some information which is company private and access is restricted to company
employees only. Another company example is Sun Microsystems which similarily contains general
information about the Sun Microsystems company.

3. Product Information
One of the ways businesses share information is to present their product information on a Web
page. Some examples are: Cray Research, Sun Microsystems, Hewlet Packard, and GM's Pontiac Site.
The Web provides an easy and efficient way for companies to distribute product information to their
current and potential customers.

4. Advertising
Along these lines, companies are beginning to actually advertise online. Some examples of different
ways to advertise online are Netscape's Ad Page. Netscape has a list of advertising companies. They
also use a banner for advertisements on their Yahoo Web Page. Starware similarly uses banner
advertisement. These advertisements are created in the established advertising model where the
advertising is positioned between rather than within editorial items. Another type of advertising
focuses on entertaining the customers and keeping them at the companies' site for a longer time
period. Some of the more interesting of these are:

 MCI with a soap opera/ detective story.

 Ragu Soap Opera, Italian art, prizes, etc.
 Stoli Puzzles, submit drink receipes, prizes, etc.
 Miller Genuine Draft Discussions on various topics such as music scene in Austin.

The advantages of each method of advertising will be discussed in more detail in the
section on strategic risks and target markets.

5. Business & Commerce on the Net

Commercial use restrictions of the Internet were lifted in 1991. This has caused an explosion
of commercial use. More information about business on the Internet can be found at the
Commerce Net. This site has information such as the projected growth of advertising on the
Internet and online services. Commercial Services on the Net has a list of various businesses
on the Internet. They are many unusual businesses listed here such that you begin to
wonder if they are legitimate businesses. This topic is discussed in more detail in the section
on risks and consumer confidence. Business and Commerce provides consumer product
information. The Federal Trade Commission is also quite concerned about legal business on
the Internet.

WWW users are clearly upscale, professional, and well educated compared with the
population as a whole. For example, from CommerceNet's Survey (CommerceNet is a
not for-profit 501c(6) mutual benefit corporation which is conducting the first large-
scale market trial of technologies and business processes to support electronic
commerce via the Internet) as of 10/30/95 :

 25% of WWW users earn household income of more than $80,000 whereas only
10% of the total US and Canadian population has that level of income.
 50% of WWW users consider themselves to be in professional or managerial
occupations. In contrast, 27% of the total US and Canadian population categorize
themselves to have such positions.
 64% of WWW users have at least college degrees while the US and Canadian
national level is 29%.

CommerceNet's study also found that there is a sizable base of Internet Users in the
US and Canada. With 24 million Internet users (16 years of age or older) and 18
million WWW users (16 years of age or older), WWW users are a key target for
business applications. Approximately 2.5 million people have made purchases using
the WWW. The Internet is, however, heavily skewed to males in terms of both usage
and users. Access through work is also an important factor for both the Internet and
online services such as America Online and CompuServe. For an example of the size
of the market, the total Internet usage exceeds online services and is approximately
equivalent to playback of rented videotapes.

6. Magazines
Magazines are starting to realize that they can attract customers online. Examples of
magazines now published online are Outside, Economist, and Business Week. These
magazines are still published in hard copy, but they are now also available online. Many of
these publications are available free sometimes because of the time delay (i.e. publications
online are past issues) or usually to draw in subscribers for a free initial trial period. Some of
these publications may remain free online if advertisers pay for the publications with their
advertisement banners.

7. Newspapers
Some newspapers are beginning to publish online. The San Jose Mercury News is a full
newspaper online, while the Seattle Times offers just classified ads and educational
information. The Dow Jones Wall Street Journal publishes its front page online with
highlighted links from the front page to complete stories. The Journal also provides links to
briefing books, which provide financial information on the company, stock performance, and
recent articles and press releases. For an example of a briefing book see, Netscape Briefing
Book. This is all free by the Wall Street Journal during the trial period which should last until
mid 1996.
8. Employment Ads
Companies are also beginning to list their employment ads online to attract talented people
who they might not have been able to reach by the more tradition method of advertising in
local papers. Sun Microsystems provides a list of job openings on the Internet. Interested
parties can submit a resume or call to schedule an interview, which saves time for everyone
involved. Universities can also help their students find jobs more easily by using job listings
on the Internet. The University of Washington has a job listing site. Local papers can also
make it easier for job searchers by creating a database search feature. The job searchers can
select the type of jobs that they are interested in and the search will return a list of all the
matching job openings. San Jose Mercury News is a good example of this approach.

9. Stock Quotes
There are several time delayed (15 minutes) ways to track stock performance, and they are
all are free. The first to provide this service was PAWWS Financial Network, and now CNN
also lets you track stocks. These are commercial companies which provide stock quotes for
free but charge for other services. A non-commercial site, MIT's Stock & Mutual Fund Charts,
updates information daily and provides a history file for a select number of stocks and
mutual funds. Information in these history files can be graphically displayed so that it is
easier to see a stock's performance over time.

10. Country Investment Information

Thinking about investing in a particular country? Information on countries can be found
online. For example, check out the graphical information (GDP, inflation, direct foreign
investment, etc.) on Indonesia.

11. Order Pizza

You can order a pizza online. This Web site is actually a joke, but you can easily imagine
people working late at their offices and ordering out for food online.

12. Software Distribution

A very effective and efficient use of the Web is to order software online. This reduces the
packaging and shipping costs. Also documentation can now be provided online. A good
example is Netscape Navigator. Another example is Macromedia's Shockwave. What is
Shockwave for Director? The description online is as following:
"Shockwave for Director is the product name for the Macromedia Director-on-the-Internet
project. Shockwave for Director includes two distinct pieces of functionality:
(1) Shockwave Plug-In for Web browsers like Netscape Navigator 2.0 which allows movies to
be played seamlessly within the same window as the browser page.
(2) Afterburner is a post-processor for Director movie source files. Multimedia developers
use it to prepare content for Internet distribution. Afterburner compresses movies and
makes them ready for uploading to an HTTP server, from which they'll be accessed by
Internet users."

So by reading about the product online, you can decide if it sounds interesting. You
can then immediately get the software by downloading it from Macromedia's
computer to yours. Next, you install it on your system and you're all set. You didn't
even have to leave your terminal, and there was no shipping cost to you or the
company.

13. Traffic Information

Ever wonder what the rush hour traffic was like before you head home and get stuck in it?
Many different cities are putting traffic information online. In Seattle, a graphical traffic
report is available.

14. Tourism
Plan a trip to Australia or New Zealand with information gathered off the Internet. These and
other countries are on the Internet. So you can plan your vacation from your computer.

15. Movie Previews

Who needs Siskel and Ebert, when you can be your own movie critic? Buena Vista Movie
Clips provides movie clips from many of their new releases. For a sample movie clip preview
"Unstrung Heroes".

16. Chat Rooms on AOL

Chat rooms are a more interactive technology. America Online provides areas where people
can "log on" and converse with others with similar interests in real time. This is the first
popular use of interactivity by the general public. The other uses up until recently have been
more static, one-way distribution of information. Interactivity is the future of the Internet
(See the next section).

Forecast of How the Internet & WWW Might Be Used

in the Future
There are many ways that the Internet could be used in the next 3 to 5 years. The main
aspect that they all have in common is the increased use of interactivity on the Internet. This
means that the Internet will shift from being a one-way distribution of information to a two-
way information stream. Scientists will continue to lead the way in this area by watching the
results from scientific experiments and exchanging ideas through live audio and video feeds.
Due to budget cuts, this collaboration should be expected to increase even more to stretch
what budget they do have. (For more information on this, check out Business Week article
on science and technology "Welcome To The World Wide Lab" 10/30/95.)

1. Interactive Computer Games

One of the first areas where interactivity will increase on the Internet are computer games.
People will no longer have to take turns playing solitary or crowd around one machine.
Instead they will join a computer network game and compete against players located at
distant sites. An example of this is Starwave's Fantasy Sports Game. This game is still a more
traditional approach of updating statistics on the computer and players looking at their
status. A more active game is Marathon Man, which portrays players on the screen reacting
to various situations. In the future, many of these games will also include virtual reality.

2. Real Estate
Buying a home online will become possible. While very few people would want to buy a
home without seeing it in person, having house listings online will help reduce the time it
takes to purchase a home. People can narrow down which houses that they are actually
interested in viewing by seeing their description and picture online. An example is this list of
house descriptions by region of the country. This will be improved when database search
capabilities are added. People can select the features that they are interested in and then
search the database. In response, they will receive a list of houses that meet their criteria.
Also, having several different images of the House as well as a short video clip of a walk
through of the house, will help buyers make their selection quicker. This area is growing
quickly. For example, the following sites of interest to the West Coast were added online
since the writing of this paper: Windermere Real Estate, Fractals, and Listinglink.

3. Process Mortgages online

After a house is chosen, potential buyers can apply for a mortgage online. No longer will
buyers be restricted to local lending institutions, since many lenders will be able to compete
online for business. Visit an example of an online mortgage computation. In the future, each
lender will have a Web page which will process the mortgage application. One of the main
reasons this has not been implemented is security, which is discussed further under the
strategic risks and security section.

4. Buying stocks
Stocks will soon be able to be purchased over the Internet without the assistance of a
broker. Charles Schwab has a prototype that is being tested currently in Florida. Once the
security issues are ironed out, this application will also be active.

5. Ordering products.
Ordering products online is an important application. As mentioned above, the Pizza Page
showed how easy it could be done. Other companies are setting up Web pages to actually
do this. An example is TSI Soccer. Customers can actually order online if they choose to do
so. They can even send their credit card number over the network. Since this is non-secure,
most people probably still call the company to order any item.

6. Live Video
Viewing live video clips will become more common in the future. CNN has files of video clips
of news stories at video vault which can be downloaded and viewed on a home computer.
Seeing actual live video feed is dependent on network speed, and most home users do not
have fast enough connections to make this a practical application yet. This is discussed in
more detail under the section strategic risk and speed of network access. Once the speed of
network connection increases, more people will be interested in live video clips.

7. "Chat" Internet Telephone

While AOL users are currently accessing "Chat Rooms" to communicate with other people on
the Internet, they are restricted to text-based communication or possibly an icon as their
identity online. CUCME from Carneige Mellon provides a means for people to actually see
other people online. However, network speed is once again a limiting factor. If a user is not
directly connected to the Internet (most connections are via modem), then the image is
extremely slow. This application will become more popular with increased network
connections.
8. Video Conferencing
On the other hand, businesses will begin using video to communicate with others. Andersen
Consulting is setting up training online. There should also be some applications that
businesses can choose to help set up video conferencing. IBM bought LOTUS Notes for this
reason last summer. IBM needs to make it a more flexible solution by interacting LOTUS
Notes with the Internet. They currently are in the process of doing this. Netscape also offers
a solution based on the software company Collabora that they purchased last fall. These
possible solutions should encourage businesses to use video conferencing and online
training. Additional information on Video Conferencing is also available.

Strategic Risks Associated with Business Uses of the

Internet
1. Targeting right market segments.
It is important for advertisers to spend their advertisement dollars wisely. They can achieve
this by using appropriate methods of advertising and targeting the right market segments.
Two different types of advertising are entertainment ads and traditional advertising.
Entertainment ads focus on entertaining a customer whereas traditional advertising is more
direct and usually positioned between rather than within editorial items. When the
entertainment ads work well, they can be quite successful in drawing customers to their site;
however, it is very easy for this type of ad to flop resulting in no one returning to visit the
advertisement site after they see it once. Traditional advertising has better readership. It can
also be used well in targeting the right market segments. For instance, the ESPN Sports page
would be a good site to place ads by Gatorade and Nike. Sports minded people that might be
interested in these products would be likely to access these pages. A good reference for
researching this topic further is at Advertising Age.

2. Security
One of the main factors holding back businesses' progress on the Internet, is the issue of
security. Customers do not feel confident sending their credit card numbers over the
Internet. Computer hackers can grab this information off the Internet if it is not encrypted.
Netscape and several other companies are working on encryption methods. Strong
encryption algorithms and public education in the use of the Internet should increase the
number of online transactions. After all, getting your credit card number stolen in every day
transactions is easier. In addition, securing private company information and enforcing
copyright issues still need to be resolved before the business community really takes
advantage of Internet transactions. There are, however, currently some methods within
Netscape for placing the information online yet restricting it to only certain people such as
company employees.

3. Consumer confidence
Consumer confidence is essential for conducting business online. Although related to
security, consumer confidence also deals with feeling confident about doing business online.
For instance, can consumers believe that a company is legitimate if it is on the Internet, or
could it be some kind of boiler room operation? Also, companies must be able to
substantiate their advertising claims if they are published online. These are some of the
issues that concern the Federal Trade Commission, as well as the future of Internet
commerce. After all, if consumer confidence is low, businesses will not succeed.

4. Speed of network access

The speed of network access is a risk for businesses. If businesses spend a lot of money for
fast network connections and design their sites with this in mind yet customers have lower
speed connections, this may result in less consumers accessing their site. Less consumers
accessing their site most likely results in lower profits which is in addition to the extra cost of
the faster network connection. On the other hand, if the company designed for slower
access yet customers have faster access, they could still lose out in profits. Currently, some
of the options that home users have to choose from are traditional modems, ISDN, and
Cable Modems. Traditional modems are cheaper but the current speed is a maximum of
28.8 Kbps. ISDN is faster at 56 Kbps, but more expensive. Cable modems are faster yet with a
speed of 4 Mbps. However, two-way interaction with a cable modem needs some more
testing to be sure that it works as well as ISDN.

5. Picking Wrong Industry Standards

Along these lines of picking industry standards, companies must also be sure that the Web
Browser that they develop for is the standard. Otherwise, some of the features that they are
using to highlight their site may not work. Currently the defacto standard is Netscape. There
also needs to be a standard language that adds high quality features such as animation, so
that software applications written for the Internet will run on all the different types of
architectures customers may have. Major computer industry players have backed JAVA by
Sun Microsystems. So while some areas are becoming standardized, companies must be
alert to industry changes to avoid becoming obsolete in hardware, software, and data
communications.

6. Internet Community & Philosophy

The Internet was originally developed with a philosophy for sharing information and
assisting others in their research. The original intent emphasised concern for others,
technological advances, and not for profit organizations.

With the lifting of commercial restrictions in 1991, businesses are now joining the
Internet community. As with any small town that has a sudden increase in population,
fast growth can cause problems. Old residents could create animosity if they feel that
the new residents are taking over their community and causing congestion and prices
to increase. Businesses need to be conscious of this phenomenon.

While businesses can expect help from Internet users, businesses will lose this help if
they only use it to make a quick profit. As in a large city, people will start to feel less
like helping others in need. Businesses will be more successful on the Internet if they
can emphasize how they can help add value to the Internet rather than focusing on
how to make a quick profit. For example, businesses can take advantage of the
opportunity to provide additional Internet services (e.g., services discussed in the
sections on current uses of the Internet and future uses) now that funding from the
government is being reduced.
 An example of a city that has grown rapidly, yet still considered very livable, is
Seattle. One of the reasons attributed to Seattle's successful growth is, that despite it
being a large city, there are numerous small communities within the city. These small
communities retain such benefits as concern for others within the framework of
services that a large city can provide. If businesses along with the Internet community
follow this model, the Internet will have a chance to keep its successful small town
atmosphere while adding increased services for more people.

Conclusion
The Internet is a dynamic environment. While there are many risks involved with change,
there can be many benefits. This paper has given some ideas on possible benefits and
possible risks. Now it is up to each business to decide if the potential benefits outweigh the
potential risks. Hopefully, we'll see you on the Web!

PORTERS FIVE FORCES AND INTERNET

COMPETITION:
According to Porter's Five Forces Model, in my opinion, competition has increased overall as
a result of the internet and e-Commerce. The internet and IT has made it possible to both
focus on the top and bottom lines and market share is expanded and costs are cut. Many
products and services exist just online, major companies have gone online to successfully
augment the brick and mortar corporations, and the playing field is all the way to edges of
cyberspace, wherever that is. We will further evaluate this stepping through all five forces.

Buyer power is higher when buyers have more choices. Businesses are forced to add
value to their products and services to get loyalty. Many loyalty programs include excellent
services that customers demand on-line. Customers want to solve their problems and many
times they are more successful on-line than on-phone. Also, we see internet savvy businesses
springing up offering more valuable goods and services at lower costs. Now with the advent
of eBay, many people are assuming roles as drop shippers. Individuals can have a thriving
business selling goods of larger companies without having to carry inventory.

Supplier power is higher when buyers have fewer choices from whom to buy. As
mentioned earlier, drop shipping has increased the amount of suppliers available. All an
individual has to do is form and agreement to sell products for the company. The company
takes care of all the logistics. The same is true of associates programs that amazon.com and
google.com offer. Associates allow a webmaster to earn money by recommending products
from others. This increases supplier offerings.

Threat of substitute products or services is high when there are many product
alternatives. This is different than having many suppliers. Examples of alternatives are
exchanging brand names, substituting credit card capabilities, and looking at better values
from cheaper sources. The internet allows this with the "global economy". I can substitute my
product by purchasing from companies overseas where labor, services and products are
cheaper, but of comparable quality.
Threat of new entrants is high when it is easy for new competition to enter the
market. Well, what have we been talking about? Now, small operations can open shop with
less than $10.00 per month and make a lot of money. As inventive as people are, there are
always opportunities to do improve a product or service or just create and sell something
new. Recently, many new entrants have made even more money authoring Ebooks that tell
others how to do what they did. Rivalry among competitors is high when competition is more
intense within industries.

On-line book stores and catalog companies are an excellent example. Amazon.com and
Barnesandnoble.com are very competitive. However, there are many also smaller niche
affiliate bookstores that when combined take a great deal of market share. They offer even
more competition. However, both major bookstores have used IT to create value for their
customers. These values include associates programs, ease of payment and shipping and
many, many others.

The internet offers avenues of competition to existing companies and opportunities for start
ups. Now businesses can enter the market on-line with few barriers to entry. Porter's Five
Forces Model can help demonstrate the attractiveness of starting your on-line business. A
business person should use the model to identify competition, make a plan, and implement
the process.

PORTERS FIVE FORCES DISCUSSED:

1. Threat of substitute products

Threat of substitute products means how easily your customers can switch to your
competitors product. Threat of substitute is high when:

o There are many substitute products available

o Customer can easily find the product or service that you’re offering at the same or
less price
o Quality of the competitors’ product is better
o Substitute product is by a company earning high profits so can reduce prices to the
lowest level.

In the above mentioned situations, Customer can easily switch to substitute

products. So substitutes are a threat to your company. When there are actual and
potential substitute products available then segment is unattractive. Profits and prices
are effected by substitutes so, there is need to closely monitor price trends. In
substitute industries, if competition rises or technology modernizes then prices and
profits decline.

2. Threat of new entrants

A new entry of a competitor into your market also weakens your power. Threat of
new entry depends upon entry and exit barriers. Threat of new entry is high when:
 o Capital requirements to start the business are less
o Few economies of scale are in place
o Customers can easily switch (low switching cost)
o Your key technology is not hard to acquire or isn’t protected well
o Your product is not differentiated

There is variation in attractiveness of segment depending upon entry and exit barriers.
That segment is more attractive which has high entry barriers and low exit barriers.
Some new firms enter into industry and low performing companies leave the market
easily. When both entry and exit barriers are high then profit margin is also high but
companies face more risk because poor performance companies stay in and fight it
out. When these barriers are low then firms easily enter and exit the industry, profit is
low. The worst condition is when entry barriers are low and exit barriers are high then
in good times firms enter and it become very difficult to exit in bad times.

3. Industry Rivalry

Industry rivalry mean the intensity of competition among the existing competitors in
the market. Intensity of rivalry depends on the number of competitors and their
capabilities. Industry rivalry is high when:

o There are number of small or equal competitors and less when there’s a clear
market leader.
o Customers have low switching costs
o Industry is growing
o Exit barriers are high and rivals stay and compete
o Fixed cost are high resulting huge production and reduction in prices

These situations make the reasons for advertising wars, price wars, modifications,
ultimately costs increase and it is difficult to compete.

4. Bargaining power of suppliers

Bargaining Power of supplier means how strong is the position of a seller.  How
much your supplier have control over increasing the Price of supplies. Suppliers are
more powerful when

o Suppliers are concentrated and well organized

o a few substitutes available to supplies
o Their product is most effective or unique
o Switching cost, from one suppliers to another, is high
o You are not an important customer to Supplier

When suppliers have more control over supplies and its prices that segment is less
attractive. It is best way to make win-win relation with suppliers. It’s good idea to
have multi-sources of supply.
 5. Bargaining power of Buyers

Bargaining Power of Buyers means, How much control the buyers have to drive
down your products price, Can they work together in ordering large volumes. Buyers
have more bargaining power when:

o Few buyers chasing too many goods

o Buyer purchases in bulk quantities
o Product is not differentiated
o Buyer’s cost of switching to a competitors’ product is low
o Shopping cost is low
o Buyers are price sensitive
o Credible Threat of integration

Buyer’s bargaining power may be lowered down by offering differentiated product.

If you’re serving a few but huge quantity ordering buyers, then they have the power to
dictate you.