Information Systems
Management
Webinar n°3
e-/digital business
Dr. Lapo Mola
[email protected]
Associate Faculty
EMBA
August 2015
References:
• Sambamurthy, V., Zmud, R.W.,(2012) Guiding the Digital Transformation of
Organizations, Legerity Digital Press (Chapters 8 and 9)
+
• Rossignoli, C., Ricciardi, F., Mola, L., & Zardini, A. (2014). Interorganizational
Networks Of E-intermediaries: An Exploratory Study. 22nd European
Conference on Information Systems (ECIS), Tel Aviv June 5-13.
• Rossignoli, C., Carugati, A., & Mola, L. (2009). The strategic mediator: a
paradoxical role for a collaborative e-marketplace. Electronic Markets, 19(1),
55-66.
• Afuah, A., & Tucci, C. L. (2000). Internet business models and strategies: Text
and cases. McGraw-Hill Higher Education.
• Malone, T. W., Yates, J., & Benjamin, R. I. (1987). Electronic markets and
electronic hierarchies. Communications of the ACM, 30(6), 484-497.
2
Digital Markets and Platform-Mediated Digital Markets
Digital Markets
• Forums where firms leverage the power of information
technologies to provide their customers digital product/service
offerings.
• Characterized by a digitized value stream (significant IT
infrastructure connecting value chain)
• Can be hybrid (physical products/digitized value stream) or pure
digital markets (digital product/digitized value stream).
• Typically affected by network effects
Digital transformation
Books
Music
Digital transformation
Traditional
In a traditional market, an organization builds relationships with both
suppliers and customers;
BUT
these suppliers and customers have limited, if any, relationships with
each other.
The Nature of Digital Products and Services
Consumerization of IT;
• Personal consumption of digital goods (products/services);
• Switching from
predominant exchange of physical goods and services
to
predominant exchange of digital goods and services.
Costs structure
Digital
•
High initial costs
Traditional
•
– Creation of the goods
– Buiding reputation
•
•
–
–
–
Low variable costs
– (eg: replication costs=
0)
Moderate to high initial
costs
•
Low to moderate fixed
costs
Moderate to high variable
costs
–
–
•
Labor
Material
Moderate to high fixed costs
–
–
–
Dealing
Few supply-side constraints
with growth limiting growth in demand
Design;
Testing;
Marketing
Plants
Manufacturing technologies
Labor
Growth requires scaling up of
physical facilities and resources
The Nature of Digital Markets
Digital markets are defined as the forums where
firms leverage the power of IT to provide customers
with digital product/service offerings.
•Firms use IT for
•
•
•
•
•
•
Product design and development
Pricing
Marketing
Sales
Distribution and delivery
Managing the customer relationship
Types of Digital Markets
Hybrid digital markets
•Customers are provided with physical product/service offerings
for which much of the value stream (an end-to-end business
process) has been digitized. Eg:
Pure digital markets
•where the product itself is a digital product or digital service
with the enveloping value streams being digital, as well. Eg:
?
many firms are increasingly competing through both of these
types of digital markets
Digital markets distinct properties
• Long-tail effects
• Network effects
• Two-sided network effects
Long-Tail Effects
Long-tail effects:
•Ability to offer broader variety of products thus tapping into smaller demand from
greater number of customers (i.e., aggregate demand). Digital markets are more
able to compete for long-tail customers compared to physical markets.
Pareto rule:
» 80 – 20 : 20% of the products generate 80% of product sales
» It simply is not economical, for the most part, to cater to the
remaining 80% of products
•Digital retailers are discovering that it is possible to profitably serve the needs of
customers whose tastes represent the more specialized products populating the
long-tail of the demand spectrum
Network effects
Network Effects:
•The value or demand for a product or service grows as an exponential
function of the number of current adopters of that product/service
and/or the number of complementary products/services available for
that product/service
•Economists refer to this notion as the concept of a network
externality
•Two implications:
As more consumers adopt a product or service through positive
network effects, a product or service can gain a critical mass of
adopters and become dominant in its market space
Second, digital markets often possess ‘winner-take-all’ benefits. As
markets tip over to favor a limited set of product/service producers,
these favored firms enjoy significantly higher market shares than
would have been (see Google for Search engines and Microsoft for
office automation).
The Value of the network
Metcalfe rule:
•Metcalfe's law states that the value of a telecommunications network is proportional to
the square of the number of connected users of the system
( n2 )
•Therefore the value of the network for each member is
:
n(n-1) = n-n
2
So…
1 PC; 1 Skype, 1 Telephone
2 PCs; 2 Skype, 2 Telephones
3 PCs; 2 Skype, 3 Telephones
n PCs; n Skype, n Telephones
16
Network effects and critical mass
Critical Mass:
• The momentum produced by positive networks is unlikely to be
reversed by entry into the market by an appealing new
product/service
• Sufficient number of customers such that positive externalities and
switching costs tip a market in favor of a winner (think barrier to
erosion).
Building critical mass
• A good’s value for a potential customer can be significantly
influenced by collecting and sharing through the platform
comments from customers who had a good experience
• Offer incentives to customer to get them to help grow the network
(e.g., cheaper in-network calls on your cell phone calling plan)
• Invest in and promote standards (helps promote product as
standard – potentially growing number of users – and grows
complementary market)
IT and Value Chain
Unit
price
Producer
Wholesaler
Retailer
Consumer
$52.7
0%
Producer
Wholesaler
Retailer
Consumer
$41.4
28%
Producer
Wholesaler
Retailer
Consumer
$20.5
62%
Increase in added value / unit price in the value chain
Producer
Wholesaler
Retailer
Added value
$20.5
$11.3
$20.9
Sales price
$20.5
$31.8
$52.7
(Benjamin & Wigand, 1997)
IT and Value Chain
P
Producer
P+1
Wholesaler
P+2
P+3
Unit
price
Retailer
Consumer
P+3
Consumer
P+2
P+1
Producer
Producer
Wholesaler
Wholesaler
Retailer
Retailer
Consumer
P+1
A.Cordella - 2003
IT and Value Chain
P+1
Producer
Consumer
Wholesaler
Retailer
Consumer
A.Cordella - 2003
IT and Value Chain
P
Producer
P+1
Wholesaler
P+2
P+3
Unit
price
Retailer
Consumer
P+3
Consumer
P+3
P+2
Producer
Producer
Wholesaler
Wholesaler
Retailer
Retailer
Consumer
P+3
A.Cordella - 2003
IT and Value Chain
P+3
Producer
Wholesaler
Retailer
Producer
Consumer
A.Cordella - 2003
IT and Value Chain
P+1
Producer
Consumer
Wholesaler
Retailer
Consumer
P+3
Producer
Wholesaler
Retailer
Producer
Consumer
A.Cordella - 2003
Mamaging off line and on line channel
P
Producer
P+1
Wholesaler
P+2
P+3
Unit
price
Retailer
Consumer
P+3
P+3
Producer
24
Wholesaler
Retailer
Producer
Consumer
E-business and strategy
Determinants of performance
Business Model
• Components and linkages
Change
• Dynamics
Performance
• Properties
• Underpinnings
Environment
• Competitive
• Macro
25
Properties of the Internet
• Mediating technology
• Universality
• Network externalities
• Distribution channel
• Time moderator
• Information asymmetry
shrinker
• Infinite virtual capacity
• Low cost common standard
• Creative destroyer
• Transaction cost reducer
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5-Cs
Coordination
Commerce
Community
Content
Communication
Business Model
Performance
Environment
Business model components
•
•
•
•
•
•
•
•
Customer value
Scope
Pricing
Sources of revenue
Connected activities
Capabilities
Implementation
Sustainability
Afuah and Tucci model
27
Customer Value Proposition
Customer Value Proposition
Profit Model
Profit Model
Critical Processes
Critical Resources
Critical Processes
Critical Processes
Business Model component
Component of
business model
Question for all business mo dels
Questions specific to Internet
business models
Is the firm offering its customers
something distinctive or lower cost than
its competitors?
What is it about the Internet that
allows your firm to offer its
customers something distinctive?
Can it allow you to solve a new
set of problems for customers?
2. Scope
To which customers (demographic and
geographic) is the firm offering this
value? What is the range of
products/services offered that embody
this value?
What is the scope of cus tomers
that the Internet allows your firm
to reach? Does the Internet alter
the product or service mix that
embodies the firm's products?
3. Pricing
How does the firm price the value?
What is it about the Internet that
makes pricing different?
4. Revenue
Where do the dollars come from? Who
pays for what value and when? Wha t
are the margins in each market and
what drives them? What drives value in
each source.
Are revenue sources different with
the Internet?
1. Customer
value
source
28
What is new?
Afuah and Tucci model
Business model components
5. Connected
activities
Which set of activities does the firm have to
perform to offer this value and when? How
connected (in cross section and time) are these
activities?
How many new activities must be
performed as a result of the Internet? How
much better can the Internet help you in
performing existing activities?
6. Implementation
What organizational structure, systems, people
and environment does the firm need to carry out
these activities? What is the fit between them?
What does the Internet do to the strategy,
structure, systems, people and
environment of your firm?
7. Capabilities
What are the firm's capabilities and capabilities What new capabilities do you need? What
gaps that need to be filled? How does a firm fill is the impact of the Internet on existing
these capabilities gaps? Is there something
capabilities?
distinctive about these capabilities that allows
the firm to offer the value better than other firms
and that makes them difficult to imitate? What
are the sources of these capabilities?
8. Sustainability
What is it about the firm that makes it difficult
for other firms to imitate it? How does the firm
sustain its competitive advantage?
Does the Internet make sustainability
easier or more difficult? How can your
firm take advantage of it?
Afuah and Tucci model
29
Dynamics of the Internet
Locate
profit site
• Determine strengths and
weaknesses of business
model
• Build business model
Defend
competitive
advantage
MATURE or
STABLE
Sales
EMERGING or
FLUID
GROWTH or
TRANSITIONAL
Time
• Where in the
Internet internet value
actions: network do
you want to
be?
30
• Build capabilities
• Build network
• Invest in
infrastructure
• Win customers
• Build brand name
• Team-up/Run
Yoox.com
Multi
brand
2
Multi
brand
1
Strong ties
Loose ties
Strong ties
Multi
brand
3
Mono
brand
1
Mono
brand
3
Loose ties
Mkt
function
Comm.
function
Mono
brand
2
Focal Firm
Yoox
+
Joint Venture
“E-Lite”
Comm.
function
Technol.
function
Mono
brand
4
Strong ties
Multi
brand
4
Strong ties
Loose ties
31
Loose ties
32
Assignment
The two fist assignments were based on structured case studies that
were designed to help students in making sense of the theoretical
models discussed during
• Read the Case : “the trident model for Customer-centric Enterprise
information Systems at Comfort Transportation”, Singapore (from
lesson 1)
• Collect Information about UBER
• Compare the two Organizations (Comfort Taxi and UBER)
underlining:
• Similarities and differences of the two business
model
• The role plaid by IT in the two cases
33