Copyright © 2002 Pearson Education, Inc.
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CHAPTER 11
Online Service Industries
Created by, David Zolzer, Northwestern State University—Louisiana
Copyright © 2002 Pearson Education, Inc.
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Learning Objectives

Describe the major features of the online
service sector
 Discuss the trends taking place in online
the financial services industry
 Identify the key features of the online
banking and brokerage, insurance, and
real estate industries
Copyright © 2002 Pearson Education, Inc.
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Learning Objectives

Explain why online travel services can be
considered the most successful B2C
segment
 Describe the major trends in the online
travel services industry today
 Explain career services online may be the
ideal Web business
 Identify current trends in the online career
services industry
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The Service Sector

The largest and most rapidly expanding
pare of the economies in advanced
industrial nations
 Employ 37% of the labor and account for
$1.8 trillion in GDP
 Adding finance, insurance, and real estate
services (FIRE), about 44% of labor force
works in service delivery and accounts for
around $3.5 trillion or 40% of the entire
U.S. economy
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The Relative Size of the Service
Sector: Employees
Page 586, Figure 11.1
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The Relative Size of the Service
Sector: GDP
Page 586, Figure 11.2
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What Are Services?

Service occupations are occupations
“concerned with performing tasks” in and
around households, business firms, and
institutions
 Service industries are those “domestic
establishments providing services to
consumers, businesses, governments,
and other organizations”
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The Major Service Industry
Groups
Page 587, Figure 11.3
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Categorizing Service Industries

Major service industry groups are finance,
insurance, real estate, business services,
and health services
 These groups are categorized as:
 transaction brokering -- acting as an
intermediary to facilitate a transaction
 providing a “hands-on” service
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Categorizing Service Industries

Most important feature of service
industries is that they are knowledge and
information intense
 To add value, they process a great deal of
information and employ a highly skilled,
educated work force
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Categorizing Service Industries

Suited to e-commerce services and the
strength of the Internet
 These firms have the ability to:
 collect, store, and disseminate high
value information;
 provide reliable, fast communications;
and
 personalize and customize service or
components of service
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Growth of Online Investable
Assets
Page 590, Figure 11.4
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Online Investing and Banking
Page 591, Figure 11.5
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Number of Individuals Banking
Online
Page 591, Table 11.1
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Online Consumers’ Financial
Activities
Page 592, Table 11.2
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Financial Service Industry
Trends

Provides four generic kinds of services:
 storage and access to funds
 protections of assets
 means to grow assets
 movement of funds
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Traditional Providers of
Financial Services
Page 592, Table 11.3
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Financial Service Industry
Trends

Two important global trends in financial
services that have a direct consequences
for online financial services firms are
changing the institutional structure of
financial services
 Industry consolidation
 Movement toward integrated financial
services
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Financial Service Industry
Consolidation

Glass-Steagall Act or 1934 prohibited
banks, insurance firms, and brokerages
from have significant financial interests in
one another
 Financial Reform Act of 1998 amended
Glass-Steagall and permitted banks,
brokerages, and insurance firms to merge
and to develop nationwide banks
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Industry Consolidation and
Integrated Financial Services
Page 593, Figure 11.6
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Financial Supermarket

Provides a variety of financial products
and services at a single physical center or
branch bank
 Internet has created the technical
foundation for an online financial
supermarket to operate
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The Financial Supermarket
Model
Page 594, Figure 11.7
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Financial Service Industry
Trends




Management of financial assets online is growing
rapidly
By 2005, it is projected that more than half of all
households in the United States will be investing
online
Online banking is also expect to double by 2005
Online stock trading is expected to grow from 15
million households today to 34 million
households in 2005
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Financial Service Industry
Trends

In the insurance and real estate industries,
consumers still generally use the Internet
for research and use conventional
transaction broker to complete the
purchase
 The move toward industry consolidation
and the provision of integrated financial
services are two important trends for
online financial services firms
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Online Banking and Brokerage

Pioneered by NetBank and Wingspan
 Traditional banks had developed earlier
versions of telephone banking, but did not
use online services until 1998
 Established name brand national banks
and brokerage firms have taken a
substantial lead in market share.
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The Leading Financial Services
Firms
Page 596, Table 11.4
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Multichannel vs. Pure Online
Financial Services

Multichannel firms that have both physical
branches and solid online offerings are
growing faster and assuming market
leadership over pure online firms that
cannot provide customers with many
services that still require hands-on
interaction
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Customer Acquisition,
Conversion, and Retention

Customer acquisition costs are
significantly higher for Internet-only banks
and brokerages that must invest heavily in
marketing versus their established brand
name clicks and mortar competitors,
which can simply convert existing branch
customers to online customer at a much
lower cost
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Customer Acquisition,
Conversion, and Retention



Multichannel institutions draw nearly four times
the number of visitors, and significantly more of
those visitors open a secure channel, indicating
they are interested in transacting .
Visitors to pure online firms use the sites more
intensively and for a wider variety of services
Multichannel site users visit less frequently and
perform fewer transactions online.
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E-commerce in Action:
E*Trade.com

In 1996, E*Trade promised to revolutionize
the domestic brokerage business by
offering low, flat rate discount
commissions on stock trades, free online
price feeds, free stock quotations, online
order entry, more efficient order
execution, and better customer service
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E*Trade’s Balance Sheet
Page 600, Table 11.5
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E*Trade Growth Measures Post
2000
Page 602, Table 11.6
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Financial Portals

Projected boom in online investment and
banking has also attracted non-financial
institutions
 Financial portals provide comparison
shopping services and steer consumers to
online providers for independent financial
advice and financial planning
 Generate revenue from advertising,
referral fees, and subscription fees
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Financial Portals

Financial portals add to the online price
competition
 Thwart the ambitions of the large banking
institutions that would like to ensnare
consumers in a single branded financial
supermarket in which switching costs
from a single, all purpose account would
be considerable
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Account Aggregation

The process of pulling together all of a
customer’s financial (and even nonfinancial) data at a single personalized
Web site
 Established financial institutions originally
opposed as a threat to their customer
base
 Consumer demand for this convenience
has forced them to sign deals with major
account aggregation software providers
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Account Aggregation

Privacy issues are raised by this new
technology
 Consumer must release all of their login
and password information to the account
aggregator
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Online Mortgage and Lending
Services

Envisioned a market in which the
mortgage value chain would be simplified
and the loan closing process speeded up,
with the resulting cost savings passed on
to the customer
 Resulting high customer acquisition costs
and instituting these value chain changes
proved too difficult
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Online Mortgage and Lending
Services

Four basic types of mortgage lenders
 established online banks, brokerages,
and lending organizations
 pure online bankers/brokers
 mortgage brokers
 mortgage service companies
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Online Mortgages 1999-2004
Page 607, Table 11.7
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Online Insurance Services

Term life insurance stands out as one
product group supporting the Ecommerce I vision of lower costs,
increased price transparency, and the
resulting consumer savings
 The Web offers insurance companies new
opportunities for product and service
differentiation and price discrimination for
other insurance product lines
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The Insurance Industry:
Segments
Page 609, Table 11.8
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Online Insurance Services

Several Distinguishing Characteristics make it
difficult to completely transfer to the new online
channel
 policies that defy easy comparison and that
can only be explained by an experienced sales
agent
 traditional reliance on local insurance offices
and agents to sell complex products uniquely
suite to the circumstances of the insured
person and/or property
 marketplace that is coordinated by state
insurance commissions in each state with
differing regulations
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Online Insurance Services

Consumers will check the Web for prices
and terms, but will not by policies online
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Leading Online Insurance
Services
Page 611, Table 11.9
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Online Real Estate Services

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
Vision of E-commerce I (that the historically local,
complex, and agent-driven real estate industry
would be transformed into a disintermediated
marketplace where buyers and sellers could
transfer directly) has not been realized
What has transpired has been beneficial to
buyers, sellers, and real estate agents
About 50% of home buyers now consult real
estate sites on the Web, and this percentage is
expected to grow to 80% by 2005
Major impact is influencing purchases offline
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Online Real Estate Services

Primary service is a listing of available
homes with links to
 mortgage lenders
 credit reports
 sales price histories by neighborhood
 school district data
 crime reports
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Online Real Estate Services

Value chain has remained unchanged
 Home addresses are not available online
 Users are directed back to the local listing
agent for further information
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Online Real Estate Services

Buyers benefit because they can quickly
and easily access a wealth of valuable
information
 Sellers benefit because they receive free
online advertising for their property
 Real estate agents have reported that
Internet-informed customers ask to see
fewer properties
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Major Online Real Estate Sites
Page 612, Table 11.10
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Online Travel Services

Attract the largest single e-commerce
audience
 Largest slice of B2C revenues
 Most common channel used by
consumers to research travel options
 Most common way for people to search
for the best possible prices and book
reservation for airline tickets, rental cars,
hotel rooms, cruises and tours
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Total U.S. Online Travel Booking
Revenue
Page 616, Figure 11.8
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Online Travel Services:
Successes

Online travel sites offer consumers a onestop, convenient, leisure and business
travel experience
 Travelers can find content, community,
commerce, and customer service
 Bring consumers and suppliers together
in a low transaction cost environment
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Online Travel Services:
Successes

Offer more information and travel options
than traditional travel agents
 description of vacations and facilities
 chat groups and bulletin boards
 convenience of purchasing all travel
elements at one stop
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Online Travel Services:
Successes

Travel is an
 information-intensive product
 an electronic product in the sense that
travel requirements can be
accomplished for the most part online
 Travel does not require
 inventory
 suppliers are always looking for
customers to fill excess capacity
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Online Travel Services:
Successes

Travel services do not require an
expensive multichannel physical presence
 Airline reservations and car rentals are
best suited for the online market place
 Cruises, tours, and hotels to some extent
will not grow as quickly in the online
environment
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Online Travel Services:
Successes

In the past five years corporate travel
expenses have mushroomed leading
corporations to seek greater control over
employee travel plans
 Corporations are outsourcing their travel
offices entirely to vendors who can
provide Web-base solutions, high-quality
service, and lower costs
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Online Travel Services: Trends

The online travel services industry is
going through a period of consolidation as
stronger offline, establish agencies
purchase weaker and relatively
inexpensive online travel agencies in
order to build stronger multichannel travel
sites that combine physical presence,
television sales outlets, and online sites
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Online Travel Services: Trends

Suppliers -- such as airlines, hotels, and
auto rental firms -- are attempting to
eliminate intermediaries such as GDS and
travel agencies, and develop a direct
relationship with consumers
 Orbitz was formed by seven major airlines
to deal directly with corporations and
leisure travelers
 Major auto rental firms opened direct-tocustomer Web sites
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Online Travel Services: Trends

Successful online travel agencies are
attempting to turn themselves into
merchants by purchasing large blocks of
travel inventory and then reselling it to the
public, eliminating the global distributors
and earning much higher returns
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Projected Growth of Online
Travel Market
Page 618, Figure 11.9
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Projected Growth of Managed
and Leisure/Business Travel
Page 619, Figure 11.10
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Large Online Travel Sites
Page 650, Table 11.11
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The Travel Services Value Chain
Page 621, Figure 11.11
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E-commerce in Action:
Expedia.com

Online travel services company that
provides access to information on
scheduling, pricing and availability of
flights, hotel accommodations, and rental
cars
 Expedia is one of the top players in online
travel services, generating revenues of
$222 million for 2001
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Expedia.com Balance Sheet
Page 625, Table 11.12
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Online Career Services
Next to travel services, job hunting
services have been one of the
Internet’s most successful online
services
 Save money for both job hunters and
employers

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Online Career Services

Traditional recruitment tools have sever
limitations
 Online recruiting
 provides a more efficient and costeffective means of linking employers
and job hunters
 reduces total time-to-hire
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Online Career Services

Job hunters can
 easily build, update, and distribute their
resumes
 conduct job searches
 gather information on employers
 It is an information-intense business
process which the Internet can automate,
and thus reduce search time and costs for
all parties
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The Growth of Online
Recruitment
Page 628, Figure 11.12
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Popular Online Recruitment
Sites
Page 629, Table 11.13
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Many Ways to Find a Job
Page 631, Figure 11.13
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Survey Results
Page 631, Figure 11.14
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Online Career Services: Trends

Online recruitment has focused primarily
on general job recruitment
 Many general sites have begun listing
lower-level and middle-level management
jobs
 Offer larger revenue potential
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Online Career Services: Trends

Going through a period of rapid
consolidation led by TMP Worldwide, Inc -world leader in
 online executive recruiting
 executive moving and relocation
 e-resourcing
 temporary contracting
 recruitment advertising
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E-commerce in Action:
HotJobs.com

A New York based online recruiter, linking
employers, staffing firms, and job seekers
through its Web sit HotJobs.com
 More than 9,100 employers pay an average
of $870 per month to list job openings
 Has a database of close to 3 million job
seekers
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HotJobs.com’s Balance Sheet
Page 635, Table 11.14
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