Support Material: Hackers, Hits and Chats
Keyterms: banner advertising, broadband, cannibalization, disintermediated, extranets, legacy business, online advertising, privacy, pure play business, search engine marketing, supply chain
Organizations online: Who are they and What are they doing?
How this section is organized:
- Business to Business
- Internet-enabler Businesses
- Advertising / Marketing
- by industry
- impact online has had with offline: pioneer, enabler, supporter, disruptive;
- types of functions carried out online: transactions; customer service etc.
Business to Business: EnablerA major portion of internet commerce is business-to-business. Before looking at how different industries have adopted the internet for their interface with customers it is important to look at the major impacts of business to business. One such impact is the increasing ability to move jobs to a lower cost provider, especially in the IT and customer service fields. The internet allows for the ease of these support services to be shifted to more cost effective locations.
Gross business to business transactions exceed retail transaction by a considerable margin. The internet allows for increased connectivity throughout the supply chain via extranets. In some cases this makes the supply chains shorter, but in more cases it makes the supply chains more efficient. Companies can increasingly share relevant data with each other that makes for a more efficient channel.
Source: Offshoring of IT Jobs Expected to Accelerate
Internet-enabler Businesses: pioneerMany companies are positioned to either exploit the internet only in a large way or are significant players in helping organize the web. The six major players in this category are Google, Yahoo!, Microsoft (the only one of the six that existed before the emergence of the web), Amazon, AOL and eBay. Google, Yahoo! Microsoft and AOL help organize the web from a search and community standpoint, Amazon and eBay are big players in the retail sector, but both also include search as part of their business. While these business distinctions exist today, each is looking closely at each others' business areas for opportunities. For example Amazon is developing the A9 search engine; Google is developing Google Bases that targets e-commerce, it recently announced features that can see it competing with eBay. (its Froogle shopping site is already quite popular).
Market capitalizations of the big six (data from etrade, february 26 06):
Compare with traditional companies:
- Microsoft: 287.2 b
- Google: 146.2 b
- eBay: 47.1 b
- Yahoo: 42.8 b
- Amazon: 17 b
- Coca Cola: 109.5 b
- DuPont: 48.3 b
- Ford: 15.2 b
- GM: 19.7 b
Industries that have been impacted significantly with the growth of the internet and specifically with the 'big six' companies cited above include: advertising and retail.
Source: Buying on Google Base
Advertising / Marketing: disruptiveOnline advertising, which is becoming much more targeted with the development of the search engine pay-per-click programs of Google and Yahoo! has made the internet a more compelling an advertising proposition than previously thought (with banner advertising). 80% of advertisers now include the internet as part of their advertising mix. Approximately 5% of an advertising budget is targeted for online advertising, this is set to double over the next five years. Features that are attractive include:
- the accountability of the medium
- the targeted capabilities of the medium
- the ability to change the campaign in real time based on current data
The web is cited now in most traditional advertisements as a source for more information. Two recent examples include a car company which asked consumers to go to its site on the web and rather than post its URL, it suggested its company name as the keyword in Google as the best way to find the site. Another recent example includes the launch of a new TV show which includes a pilot of that show available on iTunes for download.
Source: Online Seizes More of the Advertising Mix; Internet Advertising to Double in Five Years
Software: enabler, disruptiveThe software has had a double-edged impact as a result of the emergence of the web. It has been an enabler of the development of the web (i.e. web browsers: Internet Explorer and Firefox). Sofware companies have also been able to use the web to market their non-web related products. Thus the web enables easy downloads for additional versions of software, customer support of software as well as initial purchases of software.
The downside of the ease of use of the internet is the considerable cost to the industry via piracy. Software piracy accounted for about a htird of the industry revenues in 1994 ($29 billion). This is a number that continues to grow, it is a major problem in certain regions of the world.
Source: In Short: Study Pegs Cost Of Software Piracy, https://www.cs.tcd.ie/Tony.ODonnell/publications/piracy.pdf
Automotive: disruptiveConsumers rely heavily on the internet for automotive research. As many as 35% of first time buyers consider the internet as the most important medium for gathering information. Approximately 80% of those purchasing cars will do research on the internet before visiting a car showroom. Sites that provide 'independent' content include Edmunds, Car and Driver and Kelley Blue Book. The former being an internet-only enterprise, the latter two legacy businesses with a strong internet presence.
The emergence of the internet as a tool for car buyers to do research has impacted the information assymetry that used to exist between the buyer and seller. Car showrooms are now more aware that consumers are armed with knowledge prior to a visit, this has changed the balance of the negotiations for the final price and has led to more basic price offerings.
Source: From Clicks to Keys, Gearing Up for Greater Spending
Trade: supporterAs local search develops we will see a greater use of the web for local tradespeople. The Yellow Pages remains their number one source of leads. This will likely change as consumers increasingly access the web via broadband at home and search capabilities increase.
We can review the state of local search capabilities by looking for a plumber in Newark: Microsoft, Yahoo! and Google.
Entertainment: disruptiveThis sector relies on the development of broadband to offer rich media experiences. We have noted the increases in broadband adoption and this has spawned development in the entertainment sector. The web is beginning to become a viable delivery channel for music. iTunes has made a significant play in this area for Apple. Streaming media is beginning to occur for entertainment which most recently included NBC Streaming the Gold Medal Hockey Game. Online gaming is also popular. The web can also be used to interact with consumers who are watching TV. Whether it is to use the web as a voting vehicle or to augment the TV show experience in other ways.
Source: Building Feature Film Buzz Online; Mobile Gamers go Direct to Carriers for Content; Entertainment Leads Content Spending Growth
Banking Industry: supporterThere are a number of internet only banks, but the majority of internet banking will occur with traditional banks which embrace the internet.
Online banking is the fastest growing internet activity over the last five years (travel-related services is the second fastest growing internet activity). More than 50 million americans use some form of online banking. Popular activities include checking bank balances, transferring money across accounts and paying loan installments.
Source: Customers Move to Web to Manage Credit Card Accounts, Ameritrade Tops List of Best Online Brokerages, Online Banking Increased 47 Percent Since 2002, Phishing Attacks Surge in Last Six Months, Income, Tenure, Age Spurs Online Banking, Online Fraud Losses Hit $437M
Stock Brokers: disruptiveInternet-only (pure play) stockbrokers such as E-Trade made a significant early impact as they entered the marketplace. Since this time more traditional brokers (legacy businesses) such as Charles Schwab have reacted to the threat and developed thier own internet channels. Developing these channels has been a challenge, specifically avoiding the cannibalization of their traditonal (and more lucrative) channels. At this point, the leading online brokers are: Ameritrade, Fidelity, Scottrade, Charles Schwab, E-Trade, TD Waterhouse.
Mergers and Acquisitions is occuring in this space, TD Waterhouse is to join Ameritrade, Harrisdirect has recently become a part of E-Trade.
Retail: disruptiveOnline retailing accounted for $143.2 b in 2005, an increase of about 20% for the year. 65% of internet users have purchased something online. Amazon has led the march as a pure play online retailer innovating online retailing, eBay has also helped blaze the trail. More recently traditional retailers have reacted to the new medium and become major players, being able to integrate their offline stores with their online presence (whether it is for returns, pick-ups or other services that add convenience via integration). Walmart.com and Target.com have higher current rates of growth than both Amazon and eBay.
Source: Wal-Mart's dot gets hot, Online Retail Sales Grew in 2005, Holiday Season Dragged Online Customer Satisfaction Down, How Secure Are Shopping Data?, Retailers, Clean Up Your Online Stores
Travel: disruptiveA significant portion of travelers now use the internet to plan and purchase trips, including airline tickets (about 50% of ticket sales are online) and hotel rooms. This portion is also increasing. The reason for the increasing numbers includes cheaper prices, better search options and overall choices for planning. Sites that are used to plan travel include Hotwire.com, Orbitz, Expedia and Travelocity.
There is a tension between the choice of visiting specific company sites (hotels, airlines) to make the final purchase, or the more general travel sites (Expedia, Orbitz). The latter are used moreso for the initial search.
Traditional travel agents have been disintermediated from the channel, unless they have shifted their business focus to special packages, or created a significant internet presence to compliment their legacy business.
Source: Online Is Destination for Travel Booking, Online Is Destination For Air Travel Purchases, Best Rate Guarantees Lures Travelers from Aggregator Sites, Online Travel Companies Edge Airline Web Sites
HealthcareMore consumers are turning the the web to seek out health-related information. This used to be the role of the docter. Drug companies are able to provide more detailed information about their products. Sites online include: WebMD, MayoClinic.com and drkoop.com
Online Pharmacies Continue to Grow, Pharmaceuticals Target Direct-to-Consumer Marketing in '05, Foreign Pharmacies Attract U.S. Surfers, Web Swallows Chunk of Prescription Sales
Porn Industry: pioneerAs noted earlier, sex is the number one search term on google. Sex.com set a record as the most expensive domain name recently at $14m. It would be inappropriate not to discuss the porn industry when discussing different industry's use of the web.
Not only is porn popular, but it was truly a pioneer in terms of how to exploit the web for e-commerce. Porn has a tradition for being very early with new media, whether it was photography, video tapes or the internet. The internet was an obvious channel as it created a potential level of anonymity not provided with face-to-face purchases. Along the way the industry has innovated in areas such as streaming media, developed internet business models that other e-commerce enterprises have been able to emulate and developed tools for privacy and security that subsequently were adopted elsewhere.
$2.5 b of $57 b industry is internet-related. There are approximately 4 million porn sites, and 68 million daily searches for porn (i.e. Google and its cohorts make money from porn).
Government: enablerGovernment is embracing the web as a means of facilitating transactions. Politicians are also using the web to reach out to their constituents, whether this is using a blog for a political campaign, or editing entries in Wikipedia.
Political Blogs A Presidential Election Force, Michigan Tops in E-Gov't
Ideologies: disruptiveMuch has been said about the "information war" that is taking place with competing ideologies positing their cases to their masses via various communications media. In a recent speech by Donald Rumsfeld, he clearly suggests the US is losing this war. Rumsfeld is quoted:
Our federal government is only beginning to adapt our operations for the 21st Century. For the most part, the U.S. Government still functions as a “five and dime” store in an E-Bay world.
Today we are engaged in the first war in history -- unconventional and irregular as it is -- in an era of:
How Al Qaeda uses the Internet, How Al Qaeda Uses the Internet, Al Qaeda suspect reveals communication strategy
- Instant messaging;
- Digital cameras;
- A global Internet with no inhibitions;
- Cell phones;
- Hand held video cameras;
- Talk radio;
- 24 hours news broadcasts; and
- Satellite television.