A.
Sources that add value to e-business
Value creation in e-business goes far beyond the value than
can be realized through the configuration of the value chain,
exploitation of organization-specific core competencies or
formation of strategic patterns among firms. It refers to
the sum of the values appropriated by each party involved
in an e-business transaction. The four primary value drivers
or factors that enhance the total value created by an e-business
are efficiency, lock-in, complementarity and novelty. And
these sources of values are interdependent.
1. Efficiency
Transaction efficiency is one of the main value drivers
in e-business. It increases when the costs per transaction
decrease.
Efficiency:
* Speed
* Scale economies
* Symmetric information
* Lower search costs
* Wide selection range |
Therefore,
more the transaction efficiency gains enabled by an e-business,
lower are the costs and, hence, more valuable it will be.
Efficiency
enhancement can be realized by:
# Reducing information asymmetrics
between buyers and sellers through supply of up-to-date
and comprehensive information
# Making approach convenient and
easy by ensuring speed with which information can be transmitted
# Reducing consumer’s search and
bargaining costs
# Enabling faster and more informed decision
making by leveraging the cheap interconnectivity of virtual
markets
# Providing for greater selection at lower
costs by reducing distribution costs, streamlining inventory
management and simplifying transactions
# Allowing individual customers to benefit
from scale economics through demand aggregation and bulk
purchasing, streamlining the supply chain and speeding up
transaction processing and order fulfillment
Autobytel.com, for instance, supplies potential auto-buyers
with detailed and comprehensive comparative shopping information
on different models. Potential buyers are helped to make
well-informed decisions. And, in the process, buying gets
substantially simplified and accelerated and bargaining
costs are reduced. This enhances the overall efficiency
gain enabled by Autobytel.com.
2. Lock-in
The value creating potential of an e—business is enhanced
by the extent to which customers are motivated to engage
in repeat transactions. It is also increased
Lock-in
* Loyalty programs
* Dominant design
* Trust
* Customization |
by the
extent to which their strategic partners have incentives
to maintain and improve their relationships with customers.
These value-creating attributes of an e-business can be
achieved through lock-in. Organizations have adopted several
ways to retain customers.
Some have adopted loyalty programs rewarding repeat customers
with special bonuses. barnesandnoble.com’s rewards
program in collaboration with Master card is one such instance.
Some firms develop dominant design proprietary standards
for business processes, products and services. For example
Amazon’s patented shopping cart. A number of firms
try to nurture a trustful relationship with customer. Consodata,
a European direct mailing firm, for instance, demonstrates
this ideal by promoting in-house systems to protect data
from misuse by accommodating regular stringent inspections.
If relationships can be well nurtured, customers can be
made to remain loyal to the site.
3. Complementarities
Complementarities are present whenever a number of products/services
together provide more value than the total value of having
each of the product/service separately. Complementarities
can be expected to increase value by enabling revenue increases.
E-businesses leverage the potential for value creation by
offering bundles of complementary products and services
to their customers. For example, e-bookers,
Complementarities
* Between products and services (vertical vs. horizontal)
* Between on-line &
off-line assets
* Between activities
* Between technologies |
an online
travel site, allows its customer’s access to weather
information, currency exchange, immunization clinics etc.
These services add to the value of its core services (reservation
of airline tickets and selling vacation packages). The complementarity
between online and offline businesses is the essence of
“click-and-mortar” offering. It is provided by
company like barnesandnoble.com and its bricks-and-mortar
counterpart Barnes and Nobles that creates value by offering
its customers the opportunity to browse and order online
and to receive books in its brick-and-mortar stores. Thus,
these complementary products/services may be vertical complementarties
(for example, after-sales services) or horizontal complementarities
(for example, one-stop shopping), And often they are directly
related to a core transaction of the firm.
4. Novelty
Value creation potential of innovation is often fully exploited
by the e-business firms. While introduction of new products/services,
new methods of production, distribution or marketing have
been traditional sources of value creation through innovation,
some firms also innovate their ways of doing business. For
instance, eBay was the first company to introduce customer-to-customer
auctions on a large scale. The site even facilitated successful
trading of low-value items between individual customers.
Novelty
* New transaction structures
* New transactional contents
* New participants |
Priceline.com
introduced reverse markets where individual buyers tell
about their needs and their budgets to the sellers through
the site. All of these organizations introduced new ways
of conducting and aligning commercial transactions and created
value by capturing latent consumer desires, by connecting
the previously unconnected parties and by doing away with
the inefficiencies in the buying and selling processes through
adopting innovative transaction methods.
