e-commerce presence

Many companies, including global players, are proud of their webpresence. It is not uncommon that impressive amounts of money areinvested for top design and smashing dashboard presentations on theweb. But, presenting only a digital brochure results in limitedadded value; it creates only insubstantial traffic and therefore noreal business. Vertical portals, on the other hand, are in theprocess of mastering unique partnership strategies that are leadingtowards a “one-stop” customer experience. New commerce, marketingand distribution methods that are inherent to the new breed ofpartnership are leading a number of vertical players down the pathof digital business leadership.

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The digital revolution has opened many networks that allowcustomers to access a wide range of product and serviceinformation. This threatens emerging “more of the same” sites anddemands increased customer value and service as the Internet allowscustomers to easily navigate to competition that may well cater tothe basics and more. This aspect of competition has of coursealways existed in business. The difference is that now competitionis only a click away.

The Internet has stimulated unique new marketing anddistribution channels, where customers are empowered to “pull” awayproducts and services instead of the market “pushing” them. In herstudy of current Internet market leaders, ‘Customers.com’, PatriciaSeybold has identified that customer focus is a factor that hasbecome more critical than ever. In many cases, choosing the rightpartners facilitates the quickest and most efficient road tocustomer-centric success.

build a community or virtual marketplace

Consumers are eager to go to a virtual market for a one-stopexperience. For the modern customer, it is necessary to shop in arecognizable community with complementary shops, supported by bestof breed IT systems and modern communication tools. To maximizerevenue, an Internet vendor must have a clear picture of thecommunity he or she wants to reach and, beyond that, a clear visionabout commerce, IT and communication partners.

Global players in this digital age who want to keep control overthe virtual marketplace must behave as consortium leaders. Thismeans actively building strategic alliances and ad hoc cooperationwith both large corporations and small start-ups as partners incommerce. Creating new income sources out of these connections,such as e-advertising, e-sponsoring, new services, and revenuesharing is a big target. Cost reduction and outsourcing ofdevalued, even obsolete, assets is an almost unavoidableconsequence.

the vertical portal as winner in the digital battle

The vertical, industry-related portal that focuses on limitedvirtual market places is paving the future road of success.
Countless vertical players, like Amazon, Etoys and Etrade, haveemerged with strategies that are driven by customer-centric needs.This approach is the reason for their rapidly increasing marketshare. Corporate portals with only company products do notprovide the needed “total experience” because they cannot meet theneed for variety and entertainment of a community. Horizontalportals like AOL, Lycos, Excite and Yahoo are, on the otherhand, not able to compete in the long run on all necessary servicelevels because they are not specialized enough.

Vertical portals are increasingly creating their own “niche”communities made up of extensive, targeted partnerships. Recentstudies, highlighted by CNET, reflect the decreasing long-termsuccess rates of horizontal portals as lead-creating marketers.They provide an ideal entry-place for users, but, long-term,Internet users are becoming less dependent on these portals due toemerging targeted vertical portals that provide in-houseinformation and services. These are attracting and retaining alarge portion of the increasingly savvy Internet user basethemselves.

However, vertical portals owe a lot of their success to thelessons of their horizontal counterparts. They have seen that whencustomer “traffic” is created, (e.g., through chat rooms, brandnames and co-branding/partnering, free non-subscriptioninformation, best of breed technology to facilitate communicationor back office organization) a network of “unique users” is built.AOL and Yahoo will certainly survive because they already have atleast 20 million unique users. The expectation is that this numberwill be at least 200 million in a few years. However, the questionof will these “horizontals” eventually lose market share to theoverwhelming number of vertical portals? remains.

The numbers of unique users, not P/E ratios, are the main reasonfor their tremendously high stock value. Currently, marketcapitalization is about direct marketing and not about financialconsiderations and investors must understand this (figure 1).

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Figure 1

learning from e-commerce

When a vertical or horizontal portal organization has asufficient number of unique users, their brand alone is asufficient marketing tool. Consider retailers like Carrefour in thereal world that sell, in addition to products, space off of theirshelves. Business partners must and will pay relatively high ratesof their revenues to use these important market channels. Thatis exactly what is currently happening to mainstream horizontalportals and where mainstream vertical portals are heading .Already 500 retailers are being subcontracted by AOL and Quickenhas linked with over 100 different financial service providers for,among other, content related purposes. Numerous sponsorships suchas Discover Brokerages stock portfolio and Reuters News are nowoffered to these portals.

The lessons for vertical players include that partnership leadsto co-branding, hyper linking of activities (sometimes out ofentirely different industries) and revenue sharing. Historicalbarriers will diminish and guerilla marketing by new entrants withlower costs will bypass reputed companies who stick to their corebusiness.

the importance of IT

The importance of strategic technological partnerships cannot beover-emphasized. Front office technology includes ease ofnavigation, site presentation, but also the more futuristic issuessuch as speech technology and electronic money. Back officetechnology includes e.g. data warehousing, response times, siteavailability, security and fulfillment. Both add crucial value tothe customer. Incorrect IT decisions may jeopardize service levelsand result in sky-high costs. The right choice of technology istherefore a key factor for success.

Top-level front and back office technology is a critical factorin building customer trust and loyalty. Recent media reports aboutthe reaction of consumers to outages at the popular sites ofE*trade and Ebay show us just how fragile customer loyalty(temporarily at the very least) can be when technical reliabilityis at stake. The current wave of rapid digital business growthrelies almost exclusively on the stability and capability of the ITstructure.

Finally, nobody can ever be sure that technology will not beoutdated within 18 months of the first implementation.Even ascalable situation cannot avoid this but it helps. IT decisionsneed flexibility and awareness of a short life cycle. Moores law,based on experiences with INTEL, shows us that output could doubleevery 18 months while price remains constant. Technologist shouldbe flexible to the present and not take into account mainframesmeant to last for the next generations.

 

from intranet to extranet

Jeff Papows, CEO of Lotus, in his book, ‘Enterprise.com’,considers the following definitions about knowledge:

1. Data can be defined as simple unqualified facts;

2. Information tends to enrich data by giving it somecontext;

3. Knowledge is what information becomes when it is connected torelevant know how and know why; and

4. Work is the product of putting some combination of data,information, and knowledge into action.

With these definitions Papows elaborates four layers as adevelopmental process for a data-oriented organization: from theempowered individual via automated workgroups to integratedenterprise and finally into extended enterprise. In other words,from intranet to extranet in the last stage, or from a closed innercircle within the company to shared information with clients andpartners. Effective internet generated transactions through acompany website are only possible with such a solution framework.

Almost nobody has succeeded yet in implementing effective database marketing. Amazon.com might be one of the few exceptions. Inpractice almost no company is able to anticipate consumer behavior,not even when client cards or other smart cards are in use. It istoo costly to use existing databases and, privacy issues are stillbeing addressed. The current virtual systems are simply notadequate enough to create additional business. But, as mentionedearlier, the digital industry is in a state of continual change.Therefore, what still seems almost impossible today will probablybe considered normal business two or three years from now.

The myth is that we are already able to handle one-to-onemarketing today in the style of Don Peppers books The One to OneFieldbook: The Complete Toolkit for Implementing a 1 to1 MarketingProgram. The reality is that it will happen soon and the companyable to apply this technology will reap large revenues.

critical mass in the digital age

John Hagel III and Marc Singer outline in their book Net Worththe economics of what they call the infomedia (a combination of twowords: information and intermediary) business. They point out,obviously, that only two key variables drive the revenue growth,the number of clients and the revenue generated per client.According to them, an infomedia business will need at least 16million customers to be mature. E.g., Amazon.com took 27 months toacquire 1 million customers and then took only 6 months to acquirethe next 2 million. Figure II shows the normal successful infomediapattern according to Hagel and Singer.

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The first question for new players is therefore: Isa level of 16 million customers achievable? The second question is:Will these customers generate sufficient revenues, and if yes, willcustomer retention levels remain stable? As shown by recent marketsuccess stories, best-of-breed partnerships set the stage for thisneeded critical mass. But Hagel and Singer will only be partlyright. Within current developments, a period of ten years toachieve mature business will be considered far to long. Five yearsor less seems much more realistic.

why many will fail

Like many other internet companies, Amazon.com has realizedsubstantial financial losses and has only recently becomemarginally profitable (one cent per share). The reason for theselosses is that in many industries not only infomedia services butalso distribution costs are involved. The cost disadvantage forE-products compared with existing retail business is often stillimpressive. Offline, consumers pick their merchandise from theshelf at no cost (at least this is their impression). Internetbased home shopping requests both professional warehouse orderpicking and home delivery. Based on orders of $150, the additionalcosts for home delivery are about $5- 10 higher. Customer ordersplits increase this loss even further.

In summary, there are clearly three thresholds in E-business: 1)critical mass in number of clients; 2) revenues per clients; and 3)physical distribution costs. Many small companies are finding thatthey can not meet these conditions on their own and may facebankrupty or the need to sell their businesses. Critical mass iscrucial in the long run, and, in the digital world, just as inother business, small is often far from beautiful.

why is partnering so difficult

As websites of current success stories are examined, one quicklysees that the e-commerce leaders are, more often than not, linkedto each other in the form of advertising, sponsorship andco-branding, and everyone “seems to be doing it with everyone”. Thebenefits of being a part of such a vertical dashboard are notdifficult to see. Why then, are so few companies able to launchthis concept? The answer is that online selling, because itrequests new competencies in marketing, branding, IT, and physicaldistribution management, is very demanding. Most companies arealready satisfied when these new competencies alone aresuccessfully added to the existing business model.

Partnering requests a good concept for the extended company anda willingness to mobilize strategic alliances which by definitioncannot be fully controlled.
Partnerships in the digital world require a culture change fromCEOs and other top management representatives who often made theircareers in the paper and pencil decades. Such a change is still agap that is often too wide to bridge, and that is the basic reasonwhy so many companies cannot develop an effective internetstrategy.

<ahref=”http://management.hbp.net/scripts/artikellijst.asp?auid=50″>Debijdragen in [email protected]@gement van onze correspondent in SiliconValley oogsten veel waardering. Burt Rost van Tonningen heeftzijn bijdragen verwerkt en gebundeld in een integrale visie opE-commerce, E-organization en E-strategy met als titel:

“PREPARING FOR THE E-TORNADO:
Observations from a European in Silicon Valley”

In november 2000 heeft Holland BusinessPublications dit boek gepubliceerd. U kunt het <ahref=”http://www.hbp.net/preparing.html”>on-line bestellen.

Prior to joining Rost&Co. as a consultant, Ms Westphalworked for a startup software company in the Bay Area (USA) and SunMicrosystems.

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