Summary of Chapter 11

 What’s New in Online Retail

  1. Retail mobile e-commerce is exploding
  2. Rapid growth in social networks encouraging social e-commerce
  3. Local e-commerce skyrockets to around $4.4 billion
  4. Online retail still the fastest-growing retail channel
  5. Selection of goods increases includes luxury goods
  6. Speciality retail sites show rapid growth
The Online Retail Sector
  1. The most important theme in online retailing is an effort to integrate online and offline operations
  2. U.S. retail market = Personal consumption of goods and services accounts for $13.3 trillion (about 69%) of total gross domestic product (G D P)

The Retail Industry

- Divided into 7 segments (clothing, durable goods, etc.) and for each, the uses of the Internet may differ whether to get information or making direct purchasing
-Mail order/telephone order (M O T O) sector = Most similar to the online retail sector but more sophisticated order entry, delivery, inventory control systems
Composition of the U.S. Retail Industry


The Vision E-Commerce Retail
  1. Reduced search and transaction costs; customers able to find the lowest prices product
  2. Lowered market entry costs, lower operating costs, higher efficiency
  3. Traditional physical store merchants forced out of business
  4. Some industries would be disintermediated
- Few of these assumptions were correct—the structure of the retail marketplace has not been revolutionized
- The Internet has created new venues for omnichannel firms and supported a few pure-play merchants

The Online Retail Sector Today 

- The smallest segment of the retail industry (9%)
- Growing at a faster rate than offline segments
- Apparel and accessories generate the highest percentage of revenue
- 78% of Internet users bought online in 2017
- Primary beneficiaries:
  1. Established offline retailers with an online presence (e.g., Staples)
  2. Pure-play online retailers (e.g., Amazon)
- Advantage and Challenge in Online Retail


- Omni-channel integration
  1. Integrating web operations with physical store operations to leverage value of the physical store
  2. Types of integration: 


- Social e-commerce growth
- Location-based marketing of local goods and services
- Rapidly growing mobile platform

Online Retail Revenues by Category (2016)

Analyzing the Viability of Online Firms

- Economic viability = The ability of firms to survive as profitable business firms during a specified period (i.e., 1–3 years)

- Two business analysis approaches:
  1. Strategic analysis
  2. Focuses on both industry as a whole and firm itself
- Financial analysis = Analysis about how the firm is performing

Strategic Analysis Factors 

Key industry strategic factors
  1. Barriers to entry
  2. Power of suppliers
  3. Power of customers
  4. Existence of substitute products
  5. Industry value chain
  6. Nature of intra-industry competition
Firm-specific factors
  1. Firm value chain
  2. Core competencies
  3. Synergies
  4. Technology
  5. Social and legal challenges
Financial Analysis Factors 

Statements of Operations
  1. Revenues
  2. Cost of sales
  3. Gross margin
  4. Operating expenses
  5. Operating margin
  6. Net margin = Pro forma earnings—E B I T D A
Balance sheet
  1. Asset
  2. Current assets
  3. Liabilities
  4. Current liabilities
  5. Long-term debt
  6. Working capital
E-Commerce in Action: Amazon.Com 

- Vision = Earth’s biggest selection, lowest prices, most customer-centric
- Business model = Retail, Third-Party Merchants, and Amazon Web Services
- Financial analysis = Continued explosive revenue growth, profitable
- Strategic analysis/business strategy = Maximize sales volume, lower costs and prices, acquisitions, mobile shopping, new products and services
- Strategic analysis/competition = Online and offline general and catalogue merchandisers, Web services
- Strategic analysis/technology = The largest, most sophisticated collection of online retailing technologies available
- Strategic analysis/social, legal = Sales tax, patent lawsuits
- Future prospects:
  1. Amazon has turned corner to sustainable profitability
  2. Landmark $879 profit in 2016 Q2
  3. Increased profits from Amazon Web Services
  4. Amazon Prime
  5. Continues to invest in future products and services
E-Tailing Business Models

- Virtual merchant = Single-channel Web firms that generate almost all their revenue
from online sales such as Amazon, Newegg, Overstock, Wayfair, Blue Nile

- Omni-channel merchants (bricks-and-clicks) = Have a network
of physical stores as their primary retail channel, but have also introduced online
offerings such as Walmart, Macy’s, J C Penney, Staples, Target

- Catalogue merchant = Established companies that have a national offline catalog operation, but who have also developed online capabilities.such as Lands’ End, L.L. Bean, C D W Corp, Cabela’s

- Manufacturer-direct = Either single- or multi-channel manufacturers that sell
directly online to consumers without the intervention of retailers such as Apple, Dell, Sony, Digital native verticals: Warby Parker, Everlane

Common Themes in Online Retailing
  1. The online retail is the fastest-growing channel in retail commerce = Profits for startup ventures have been difficult to achieve
  2. Disintermediation has not occurred
  3. Established merchants need to create integrated shopping experience to succeed online
  4. Growth of online speciality merchants (e.g., Blue Nile)
  5. The extraordinary growth of social, local, and mobile e-commerce
  6. Increasing the use of big data analytics by retailers
The Service Sector: Offline and Online

- Service sector = Largest and most rapidly expanding part of economies of advanced industrial nations
- Concerned with performing tasks in and around households, business firms, and institutions and includes doctors, lawyers, accountants, business consultants, and so on

Service Industries

Major service industry groups:
  1. Finance
  2. Insurance
  3. Real estate
  4. Travel
  5. Professional services—legal, accounting
  6. Business services—consulting, advertising, marketing, and so on
  7. Health services
  8. Educational services
Online Financial Services

- E-commerce has transformed banking and financial services as a lot of major institutions deploy online services
- Online financial consumer behaviour:
  1. Most online consumers use financial services sites to check balances and to pay bills
  2. Experienced users move on to more complex financial services
Online Banking and Brokerage

- Established brand-name national banks have taken a substantial lead in market share
- Over 60% of U.S. adults use online banking
- Online banking provides significant savings for the bank
- Early innovators in online brokerage (E*Trade) have been displaced by established brokerages (Fidelity, Schwab)
- Online financial advisors

Multi-Channel versus. Pure Online Financial Service Firms

- Online consumers prefer multi-channel firms with a physical presence
- Multi-channel firms = Growing faster than pure online firms and lower online customer acquisition costs
- Pure online firms = Cannot provide all services that require face-to-face interaction

Financial Portals and Account Aggregators

Financial portals: 
- Comparison of shopping services, independent financial advice, financial planning
- Revenues from advertising, referrals, subscriptions
- Example: Yahoo! Finance, Quicken, M S N Money

Account aggregation
- Pulls together all of a customer’s financial data at a personalized website
- Privacy concerns: control of personal data, security, and so on
- Example: Yodlee

Online Mortgage and Lending Services

- The market is slowly growing; dominated by:
  1. Established online banks, brokerages, and lending organizations
  2. Traditional mortgage vendors
  3. Pure online mortgage firms
- The online mortgage industry has not transformed the process of obtaining a mortgage
- Example: Rocket Mortgage
- Online lending services = Convenient alternative to banks and credit unions. These loans can have annual percentage rates between 6% and 36% and the amount ranges from $1,000 to $100,000 such as Lightstream

Online Insurance Services

- Online term life insurance = One of the few online insurances with lowered search costs, increased price comparison, lower prices, and it is a commodity product
- Most insurance not purchased online
- Online industry geared more toward
  1. Product information, search
  2. Price discovery
  3. Online quotes
  4. Influencing the offline purchasing decision
Online Real Estate Services

- Early vision = Disintermediation of a complex industry
- However, the major impact is the influence of purchases offline: 
  1. Impossible to complete property transaction online
  2. Main services are online property listings, loan calculators, research and reference material, with mobile apps increasing
-Despite the revolution in available information, there has not been a revolution in the industry value chain

Online Travel Services

- One of the most successful B2C e-commerce segments as more travel is booked online than offline and online travel services revenues in 2017 is almost $190 billion
- For consumers = More convenient than traditional travel agents
- For suppliers = A singular focused customer pool that can be efficiently reached through onsite advertising
- Travel an ideal service/product for Internet
  1. Information-intensive product
  2. Electronic product—travel arrangements can be accomplished for the most part online
  3. Does not require inventory
  4. Does not require physical offices with multiple employees
  5. Suppliers are always looking for customers to fill excess capacity
  6. Does not require an expensive multi-channel presence
The Online Travel Market

- Four major sectors:
  1. Airline tickets = Greatest source of revenue
  2. Hotel reservations
  3. Car rentals
  4. Travel packages
- Corporate online-booking solutions (C O B S)

Online Travel Industry Dynamics

- Intense competition among online providers
- Price competition difficult
- Industry consolidation
- Industry impacted by meta-search engines as it helps commoditizes online travel
- Mobile applications are also transforming industry
- Social media content, reviews have an increasing influence on travel purchases

Online Career Services

- Two main players: CareerBuilder, Monster Indeed, Glassdoor, SimplyHired, LinkedIn
- Five traditional recruitment tools = Classified and print ads, career expos, on-campus recruitment, staffing firms, internal referral programs
- Online recruiting
  1. More efficient, cost-effective, reduces total time-to-hire
  2. Enables job hunters to more easily distribute resumes while conducting job searches
  3. Ideally suited for Web due to information-intense nature of process
The Ideal Web Business?

- Recruitment ideally suited for the Web = Information-intense process and initial match-up doesn’t require much personalization
- Saves time and money for both job hunters and employers
- One of the most important functions = Ability to establish market prices and terms (online national marketplace)

Online Recruitment Industry Trends

- Social recruiting = 87% recruiters use social recruiting, LinkedIn and Careerbuilders
- Mobile = Millennials and Gen X use primarily mobile devices
- Job search engines/aggregators:
- Data analytics and algorithms
- Hiring by algorithm = Sifting online applications for keywords

On-Demand Service Companies

- Platforms for users to share/lease assets and resources such as bikes, cars, homes, rooms with beds, etc and fees are collected from sellers and buyers
- Use of online reputation systems, peer review
- Successful firms are disrupters, lowering the cost of services such as Uber and Airbnb

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