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E-Commerce
Knowledge Sharing
August 1999, Bain Beijing Office1e-commerce
• Internet Development
• E-Commerce Introduction
• Business Impact
• Impediments for E-Commerce
• Bain eConsulting Experience
Agenda
2e-commerce
Years to Reach 50 Million Users:
Radio =38
TV =13
Cable =10
WWW =5
User adoption of the World Wide Web has dramatically outpaced
the growth of other communications media, setting the stage for
revolutionary changes.
. Internet Adoption
3e-commerce
Years to Reach 50 Million Users:
Radio =38
TV =13
Cable =10
WWW =5
User adoption of the World Wide Web has dramatically outpaced
the growth of other communications media, setting the stage for
revolutionary changes.
. Internet Adoption
4e-commerce
Internet User Growth
*Rest of world includes all . countries in 1996-97 and 1999-2003
Source: Computer Industry Almanac; Internet Industry Almanac; Bain analysis
On-line usage is skyrocketing, with future growth being
fueled by global penetration.
PRELIMINARY
.
Europe
78M
179M163M
148M
135M
103M
55M
35M
CAGR
(1996-1998)(1999E-2003E)
CAGR
57% 27%
50% 15%
Asia
Rest of World*
Worldwide
.
5e-commerce
Internet Penetration
Source: Jupiter’s 1998 Online Shopping Report, Simba’s Electronic Marketplace 2002, Forrester’s 1998 Telecom Strategies
Internet penetration in both consumer and business
markets is significant.
CAGR
(1997-2002E)
1%
4%
13%
44%
PRELIMINARY
Online as %
of Computer
Households:
52% 77%
Shopping as
% of Online
Households:
17% 59%
>1,000 employees
100-1,000 employees
<100 employees
P
er
ce
nt
o
f U
.S
. B
us
in
es
s
(1
99
8)
Consumer Business
6e-commerce
• Internet Development
• E-Commerce Introduction
• Business Impact
• Impediments for E-Commerce
• Bain eConsulting Experience
Agenda
7e-commerce
Industry Value Chain
Business participation occurs in five distinct
market segments.
User
Access
Internet
Infrastructure
`Intermediaries
ApplicationsEnablers
• Access devices
• Internet service providers
• Network access equipment
• Technology and software
enablers
• Service enablers, .:
- professional services
- data management
- affiliate programs
• Support enablers, .:
- payment systems/transaction
clearing
- distribution
- web services
• Portals
• Web agents (., BOT)
• Commerce service providers
• Virtual trading communities
• Content
• Commerce
• Communication
• Community
• Hardware/transmission equipment
• Backbone transport
8e-commerce
Industry Value Chain
Business participation occurs in five distinct
market segments.
User
Access
Internet
Infrastructure
`Intermediaries ApplicationsEnablers
• Access devices
• Internet service providers
• Network access equipment
• Technology and software enablers
• Service enablers, .:
- professional services
- data management
- affiliate programs
• Support enablers, .:
- payment systems/transaction
clearing
- distribution
- web services
• Portals
• Web agents
• Commerce service providers
• Virtual trading communities
• Content
• Commerce
• Communication
• Community
• Hardware/transmission equipment
• Backbone transport
• Nortel Networks
• Dell
• 3Com
• American on line
Company examples
• Nortel Networks
• Lucent
• Cisco
Company examples
• Microsoft
• IBM
• Oracle
• Yahoo
• American on line
• Amazon
• Dell
9e-commerce
Industry Value Chain
Internet
Infrastructure
User
Access `Intermediaries
ApplicationsEnablers
• Content
• Commerce
• Communication
• Community
This is E-Commerce!!!
10e-commerce
E-Commerce Growth By Segment
(United States)
Source: IDC; Jupiter; Forrester; Analyst Reports; Bain analysis; eMarketer
PRELIMINARY
However, the vast majority of growth will be driven
by applications.
11e-commerce
Segment Comparison
Internet traffic drives the perception that E-Commerce is a
consumer phenomenon, but the larger revenue opportunities
lie in business to business commerce.
P
er
ce
nt
o
f T
ot
al
P
er
ce
nt
o
f T
ot
al
CAGR
(1998-03E)
%
%
Internet Traffic E-Commerce Revenue
12e-commerce
Web Business Models
TradingBuyingSelling
Using the New Medium
Creating the New
Medium
ContextConnection Content Community Commerce
Web business models can be sorted according to
the benefit they are delivering the user.
User
Benefit:
Current
revenue
sources:
• Connection
to the
Internet
• Finding
what you
want on the
web
• User fees
• Phone
company
kickbacks
• Hosting
charges
• Advertising
• Hosting
• List rental
• Co-
marketing
Current
Major
Players:
• AOL
• UUNet
• @Work
• @Home
• AOL
• Yahoo
• Netscape
• Excite
• Informa-
tion,
entertain-
ment, etc.
• Interaction
with others
sharing
same
interest
• Easier
access to
things
people want
to buy
• Access to
buyers and
easier
selling
relations
• Marketplace
to buy and
sell with
other visitors
• Advertising
• User fees
• Advertising • Sales • Buying
advantage
• Commis-
sions
• AOL
• OneSource
• CNN
• BBC
• AOL
• Yahoo
• Chemdex
• VerticalNet
•
• Cisco
• Dell
• Schwab
• Travelcity
• GE TPN
•
• eBay
•
• Phone Market
• Free-
-commerce
• Internet Development
• E-Commerce Introduction
• Business Impact
• Impediments for E-Commerce
• Bain eConsulting Experience
Agenda
14e-commerce
The Internet is a major discontinuity that will redefine the
strategic landscape in every industry.
• Product
customization/quality
• Geographic proximity
• Mechanical
innovation
• Transportation
infrastructure
• Scale economies
• Mass marketing
• Ubiquitous reach to all
stakeholders
• Dramatically lower cost
interactions
• Complete, symmetric,
“free” information
• Well ordered, multi-tiered
distribution
• Efficient, optimized physical
touch relationships
• Truly unique user experience
- deeper customer
relationships
- broader reach
• Complete restructuring of
industry supply chains
• Lower cost and enhanced
productivity
Craft Based Economy
Industrial
Revolution
Mass Production
Internet /
Information
Revolution
S
u
p
p
l
i
e
rs
D
I
s
t
r
I
b
u
t
o
r
s
M
a
n
u
f
a
c
t
u
r
i
n
g
R
e
s
e
l
l
e
r
s
C
u
s
t
o
m
e
r
s
Internet Impact
Internet Revolution
15e-commerce
Internet Impact
Impact Overview
These result in dramatic changes across company relationships
with customers, suppliers, employees and other stakeholders.
Customer
Relationship
Management
Supply
Chain Integration
Internal Business
Management
16e-commerce
Impact Overview
Customer Relationship Management
Evolution
Description:
Example:
• Multi-tiered distribution model
• Mass marketing
• Limited inventory
• Few value-added services
Traditional Model
Producer
• “Bricks and mortar” bookstore
Distributor
Retailer
Consumer
E-Commerce Model
• Streamlined distribution model
• Targeted marketing
• Scale inventory and selection
• Robust range of value-added
services
•
Producer Producer Producer
Community Retailer Value-Added Services
Consumer
E-Tailer
17e-commerce
Customer Relationship Management
Evolution
(Benefits of E-Commerce Model)
is a compelling example of an E-Commerce customer
relationship model.
• Efficient purchase process
- quick log-in
- search by title, subject, author
- read reviews, recommendations
- one-click ordering
- receive books by mail
• Superior selection and availability
• Adjacent product offerings
- ., music, video, others
• Value-added services
- reviews
- proactive, tailored recommendations
Benefits to Customers Benefits to Firm
• Substantially lower costs
- infrastructure
- inventory
- personnel
• Deep customer relationship
- one-to-one marketing
- potential for higher loyalty
- purchases across other product lines
- more frequent purchases
• Broader customer base
- geographic reach
- expanded pool of profitable customers
18e-commerce
Source: Fortune Magazine; Bain Estimates; Jupiter Communications 1998
Revenue growth of new entrants like Amazon is
fueled by offering greater selection and a
superior shopping experience.
Product Selection
Impact Overview
Revenue Enhancement
Customer Interaction Cost
Search
Process:
• Information desk
lines
• Immediate
• Books sorted by
section
• Books sorted by title, subject,
author, keyword, proactive
suggestion
• Scanning • Querying
19e-commerce
Impact Overview
Cost Reduction
* Assumes 15% inventory carrying costs
** Assumes fully loaded employee cost of $30K
Source: OneSource, Business Week, Hummer Winblad, Onesource
Online retailers have a substantial cost
advantage over traditional retailers.
%Estimated Savings:
Lower infrastructure costs
(Rental Expense/Sales)
P
er
ce
nt
ag
e
of
R
ev
en
ue
%*
Better inventory management
(Days Inventory)
D
ay
s
In
ve
nt
or
y
20e-commerce
Impact Overview
Supply Chain Integration Evolution
Description: • Multiple buyer-seller interfaces in
bidding process
• Individual company scale in
buying/selling
• Catalog-based selection and
purchasing
- outdated inventory listings
- manual process
Traditional Model
Examples: • Traditional industrial model
Supplier Supplier Supplier
BuyerBuyer Buyer
• Single bidding interface
• Scale benefits shared across
participants
• Virtual marketplace connecting
suppliers and customers
• Up-to-date online inventory listings
• Online order-taking process
• TPN (GE)
• Chemdex
E-Commerce Model
Supplier Supplier Supplier
BuyerBuyer Buyer
Virtual Community/Industry Consortium
21e-commerce
Impact Overview
Supply Chain Integration Evolution
(Chemdex Example)Chemdex is a powerful example of an E-Commerce customer relationship model.
• Lower costs
- marketing
8leverage marketing through
Chemdex presence
- distribution
8catalogs
- overall cost reduced by 15% of
revenue
• Increased sales
- decrease buyer transaction costs will
increase demand
Benefits to Suppliers Benefits to Customers
• Increased convenience due to online
product inventory
- more accurate (updated daily)
- consolidated (130 suppliers
participating)
- space-saving (frees up shelf space in
customers’ offices)
- comprehensive (five times more
products than biggest paper catalog)
• Lower costs
- more efficient ordering/purchasing
process
8transaction cost reduced from
$100 to $10 or $20
22e-commerce
Impact Overview
Supply Chain Integration Evolution
(Company Extranets)
Description: • Multi-tiered distribution model
• Multiple purchase order triggers
• Block ordering (manual)
• Limited data sharing
Traditional Model
Supplier Supplier Supplier
Producer
Example: • Traditional Food Manufacturer
Distributor/
Wholesaler
Retailer
Consumer
Purchase
.
.
.
.
E-Commerce Model
• Integrated purchasing/Production Model
• Single purchase order trigger
• Automatic just-in-time ordering
• Detailed Data Sharing
Supplier Supplier Supplier
• Dreyer’s Grand Ice Cream
Producer
Retailer
Consumer
23e-commerce
Impact Overview
Internal Business Management Evolution
Description: • Hierarchical, functionally-oriented
communication
- barriers to sharing information cross-
functionally
- slow to share information vertically
• Multiple systems throughout
organization
- redundant
- incompatible
• Linear cross-functional work processes
- serially processed
- multiple handoffs
- iterative
Traditional Model E-Commerce Model
• Fully-networked, flat information
exchange
• Fully compatible information systems
• Universal access to information
• Collaborative work environment
24e-commerce
• Internet Development
• E-Commerce Introduction
• Business Impact
• Impediments for E-Commerce
• Bain eConsulting Experience
Agenda
25e-commerce
Strategic Operational Organizational
There are a number of potential impediments to
successfully implementing an Internet strategy that
need to be aggressively managed.
Key Success Factors
Impediments
• Integration of physical and
electronic business processes
• Integration of legacy systems
with new online systems
• Access to and management of
required technology
• Consistent operational
excellence
• Right organizational structure
to optimize business in
physical and electronic world
- integrated organization
may slow E-Commerce
development
- separate E-Commerce
organization may not
leverage core assets
effectively
• Traditional business model
metrics may be
inadequate/inappropriate
• Building capability to develop
and retain required E-
Commerce skills
• Channel conflict
• Brand management in multiple
mediums
- ability to deliver consistent
value proposition
• Product pricing strategy
- customization options
- bundling
• Ability to create / sustain
differentiation online
• Ability to develop required
strategic relationships
• Winning against new breed
competitors
26e-commerce
Key Success Factors
Imperatives
Our experience highlights the following characteristics
of winning companies:
• Take action early
- set direction
- launch experiments
• Establish framework within which
decisions can be taken
• Organize for success
- recruit talent
- secure funding
• Form partnerships
- critically assess capability gaps
27e-commerce
• Internet Development
• E-Commerce Introduction
• Business Impact
• Impediments for E-Commerce
• Bain eConsulting Experience
Agenda
28e-commerce
Industry Experience
Bain has worked with companies across Internet market segments
in a variety of industries.
Access
= Bain Experience
Infrastructure Enablers Intermediaries Applications
High Tech
Telecommunications
Retail
Financial Services
Consumer Products
Industrial Products
Media
Logistics
Manufacturing
Industries:
Venture Capital
Internet Market Segment:
29e-commerce
Bain E-Commerce Clients
• AOL
• Arrow Electronics
• Beedo AB
• DACOM
• Datacast
• DEX
• Fiat
• Great Universal
Stores
• Hewlett Packard
• Lattice
• Metacreations
• Microfocus
• Citibank
• Commonwealth Bank
• Dell
• Fleming
• Gruppo Finivest
• Groupe Bull
• Hewlett Packard
• Rosewood Capital
• UPS
• American Express
• Leo Burnett
• Cable & Wireless
• Disney
• Equant
• Estee Lauder
• Ford
• Gap
• Hilton
• Nordstrom
• Unilever
• Virgin
• Vodafone/Airtouch
• Nike
Recent Clients Current Clients
Recent Client
Discussions
• Motorola
• Nortel
• Optus
• Private Equity
Practice
• Silicon
Graphics
• Tandy
• Telecom Italia
• US West
• VIP Calling
• Visteon
30e-commerce
