Chapter 9

Online Retail and Services

 What’s New in Online Retail,
2013–2014
◼ Mobile commerce nearly doubles
◼ Rapid growth in social commerce
◼ Online retail still the fastest growing retail channel
◼ Buying online a normal, mainstream experience
◼ Selection of goods increases, includes luxury goods
◼ Informational shopping for big-ticket items expands
◼ Specialty retail sites show rapid growth
◼ Integration of multiple retailing channels
 The Online Retail Sector
◼ Most important theme in online retailing is
effort to integrate online and offline
operations
◼ $16 trillion U.S. economy
◼ U.S. retail market
❖ $11.4 trillion
❖ 71% of total gross domestic product (GDP)
 The Retail Industry
◼ 7 segments (clothing, durable goods, etc.)
❖ For each, uses of Internet may differ
◼ Information vs. direct purchasing

◼ General merchandisers vs. specialty

retailers
◼ Mail order/telephone order (MOTO)
sector most similar to online retail sector
❖ Sophisticated order entry, delivery, inventory
control systems
 Composition of the U.S. Retail Industry

Figure 9.1, Page 566 SOURCE: Based on data from U.S. Census Bureau, 2012.
 E-commerce Retail: The Vision
❖ Reduced search and transaction costs; customers able
to find lowest prices
❖ Lowered market entry costs, lower operating costs,
higher efficiency
❖ Traditional physical store merchants forced out of
business
❖ Some industries would be disintermediated

◼ Few of these assumptions were correct—structure

of retail marketplace has not been revolutionized
◼ Internet has created new venues for multi-channel
firms and supported a few pure-play merchants
 The Online Retail Sector Today
◼ Smallest segment of retail industry (5–6%)
◼ Growing at faster rate than offline segments
◼ Revenues have resumed growth
◼ Around 73% of Internet users bought online
in 2013
◼ Primary beneficiaries:
❖ Established offline retailers with online
presence (e.g., Staples)
❖ First mover dot-com companies (e.g., Amazon)
 The Growth of Online Retail in the United States

Figure 9.2, p. 569 SOURCES: Based on data from eMarketer, Inc.,.

 Multi-Channel Integration
◼ Integrating Web operations with traditional
physical store operations
❖ Provide integrated shopping experience
❖ Leverage value of physical store

◼ Types of integration
❖ Online order, in-store pickup
❖ Web promotions to drive customers to stores
❖ Gift cards usable in any channel

◼ Increasing importance of mobile devices,

social commerce, and tablets
 Analyzing the Viability of
Online Firms
◼ Economic viability:
❖ Ability of firms to survive as profitable business
firms during specified period (i.e., 1–3 years)
◼ Two business analysis approaches:
❖ Strategic analysis
◼ Focuses on both industry as a whole and firm itself

❖ Financial analysis
◼ How firm is performing
 Strategic Analysis Factors
◼ Key industry strategic factors
❖ Barriers to entry
❖ Power of suppliers
❖ Power of customers
❖ Existence of substitute products
❖ Industry value chain
❖ Nature of intra-industry competition

◼ Firm-specific factors
❖ Firm value chain
❖ Core competencies
❖ Synergies
❖ Technology
❖ Social and legal challenges
 Financial Analysis Factors
◼ Statements of Operations
❖ Revenues
❖ Cost of sales
❖ Gross margin
❖ Operating expenses
❖ Operating margin
❖ Net margin
◼ Pro forma earnings—EBITDA

◼ Balance sheet
❖ Assets, current assets
❖ Liabilities, current liabilities, long-term debt
❖ Working capital
 E-tailing Business Models
◼ Virtual merchant
❖ Amazon
◼ Bricks-and-clicks
❖ Walmart, JCPenney, Sears
◼ Catalog merchant
❖ Lands’ End, L.L. Bean, Victoria’s Secret
◼ Manufacturer-direct
❖ Apple, Dell, Sony
E-commerce in Action: [Link]
◼ Vision:
❖ Earth’s biggest selection, most customer-centric
◼ Business model:
❖ Retail, Third-Party Merchants, and Amazon Web Services
(merchant and developer services)
◼ Financial analysis:
❖ Continued explosive revenue growth, profitable
◼ Strategic analysis/business strategy:
❖ Maximize sales volume, lower costs and cut prices, acquisitions,
mobile shopping, Kindle
◼ Strategic analysis/competition:
❖ Online and offline general merchandisers, Web services
E-commerce in Action: [Link]
◼ Strategic analysis/technology:
❖ Largest, most sophisticated collection of online retailing
technologies available
◼ Strategic analysis/social, legal:
❖ Sales tax, patent lawsuits

◼ Future prospects:
❖ In 2013, Amazon registered more than $31 billion in
sales, compared to $26 billion in 2012 for same period
❖ Increased spending on new technology initiatives
◼ Smartphone and Kindle TV set-top box
◼ Video content
◼ New product categories and territories
Common Themes in Online Retailing
◼ Online retail fastest growing channel on revenue
basis
◼ Profits for startup ventures have been difficult to
achieve
◼ Disintermediation has not occurred
◼ Established merchants need to create integrated
shopping experience to succeed online
◼ Growth of online specialty merchants ( e.g., Blue
Nile)
◼ Extraordinary growth of social, local, and mobile
e-commerce
 Using the Web to Shop ’Til You Drop
◼ What do comparison shopping sites offer
consumers?
◼ Why are comparison shopping sites more
successful with hard goods than soft goods?
◼ How is the use of mobile devices impacting
comparison shopping sites?
◼ How may Google Shopping impact shopping
comparison sites?
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
◼ Includes doctors, lawyers, accountants, business
consultants, and so on
❖ Employs 4 out of 5 U.S. workers
❖ 75% of economic activity
 Service Industries
◼ Major service industry groups:
❖ Finance
❖ Insurance
❖ Real estate
❖ Travel
❖ Professional services—legal, accounting
❖ Business services—consulting, advertising, marketing,
and so on
❖ Health services
❖ Educational services
 Service Industries
◼ Two categories
❖ Transaction brokers
❖ Hands-on service providers
◼ Features:
❖ Knowledge- and information-intense
◼ Makes them uniquely suited to e-commerce
applications
❖ Personalization and customization
◼ Level differs depending on type of service
 Online Financial Services
◼ E-commerce has transformed banking and
financial services
❖ Major institutions deploy online services

◼ Online financial consumer behavior

❖ Most online consumers use financial services sites
◼ Check balances
◼ Pay bills
❖ Experienced users move on to more complex financial
services
❖ Number of people using mobile devices for financial
services is surging
 Online Banking and Brokerage
◼ Online banking pioneered by NetBank and
Wingspan; no longer in existence
◼ Established brand-name national banks have
taken substantial lead in market share
◼ Two-thirds of U.S. Internet users use online
banking
◼ Early innovators in online brokerage
(E*Trade) have been displaced by established
brokerages (Fidelity, Schwab)
 Multi-channel vs.
Pure Online Financial Service Firms
◼ Online consumers prefer multi-channel firms
with physical presence
◼ Multi-channel firms
❖ Growing faster than pure online firms
❖ 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 shopping services, independent financial advice,
financial planning
❖ Revenues from advertising, referrals, subscriptions
❖ Example: Yahoo! Finance, [Link], MSN Money
◼ Account aggregation
❖ Pulls together all of a customer’s financial data at a
personalized Web site
❖ Privacy concerns: control of personal data, security, and so
on
❖ Example: Yodlee
 Online Mortgage and
Lending Services
◼ Early entrants hoped to simplify and speed
up mortgage value chain
◼ Three kinds of online mortgage vendor today
❖ Established online banks, brokerages, and lending organizations
❖ Traditional mortgage vendors
❖ Pure online mortgage firms

◼ Online mortgage industry has not

transformed process of obtaining mortgage
❖ Complexity of process
 Online Insurance Services
◼ Online term life insurance:
❖ One of few online insurance with lowered search costs,
increased price comparison, lower prices
❖ Commodity

◼ Most insurance not purchased online

◼ Online industry geared more toward
❖ Product information, search
❖ Price discovery
❖ Online quotes
❖ Influencing the offline purchasing decision
 Online Real Estate Services
◼ Early vision: Disintermediation of a complex
industry
◼ However, major impact is influencing of purchases
offline
❖ Impossible to complete property transaction online
❖ Main services are online property listings, loan
calculators, research and reference material, with
mobile apps increasing
◼ Despite 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
❖ More travel is booked online than offline
❖ Online travel services revenues in 2013: $137 billion
◼ For consumers: More convenience than traditional
travel agents
◼ For suppliers: A singular, focused customer pool
that can be efficiently reached through onsite
advertising
 Online Travel Services (cont.)
◼ Travel an ideal service/product for Internet
❖ Information-intensive product
❖ Electronic product—travel arrangements can be
accomplished for the most part online
❖ Does not require inventory
❖ Does not require physical offices with multiple
employees
❖ Suppliers are always looking for customers to fill excess
capacity
❖ Does not require an expensive multi-channel presence
 Zipcar Shifts into High Gear
◼ What is the Zipcar business model? How
does it make money?
◼ How does Zipcar use the Internet?
◼ Will Zipcar work only in urban markets?
Can it expand to the suburbs?
◼ What impact do you think Avis’s
acquisition of Zipcar will have?
 Online Travel Services Revenues

Figure 9.3 , Page 599 SOURCE: Based on data from eMarketer, Inc., 2013d.
 The Online Travel Market
◼ Four major sectors:
❖ Airline tickets
◼ Greatest source of revenue
◼ Two-thirds of all online travel spending
❖ Hotel reservations
◼ 19% of travel spending in 2013
❖ Car rentals
◼ 9% of travel spending in 2013
❖ Travel packages
◼ 2% of travel spending in 2013

◼ Corporate online-booking solutions (COBS)

 Online Travel Industry Dynamics
◼ Intense competition among online providers
◼ Price competition difficult
◼ Industry consolidation
◼ Industry impacted by meta-search engines
❖ Commoditize online travel

◼ Mobile applications are also transforming

industry
◼ Social media content, reviews have an
increasing influence on travel purchases
 Phony Reviews
◼ Should there be repercussions to individuals
and/or businesses for posting false reviews
of products or services?
◼ Can phony reviews be recognized and
moderated?
◼ Do you rely more on some types of reviews
or comments on Web sites and blogs over
others?
 Online Career Services
◼ Top sites generate more than $1 billion annually
◼ Two main players: CareerBuilder, Monster
◼ Traditional recruitment tools:
❖ Classified, print ads, career expos, on-campus recruitment, staffing
firms, internal referral programs
◼ Online recruiting
❖ More efficient, cost-effective, reduces total time-to-hire
❖ Enables job hunters to more easily distribute resumes while
conducting job searches
❖ Ideally suited for Web due to information-intense nature of process
 It’s Just Information:
The Ideal Web Business?
◼ Recruitment ideally suited for the Web
❖ Information-intense process
❖ Initial match-up doesn’t require much personalization

◼ Saves time and money for both job hunters

and employers
◼ One of most important functions:
❖ Ability to establish market prices and terms (online
national marketplace)
 Online Recruitment Industry Trends
◼ Consolidation
◼ Diversification: Niche employment sites
◼ Localization:
❖ Local vs. national, Craigslist

◼ Job search engines/aggregators:

❖ “Scraping” listings

◼ Social networking:
❖ LinkedIn; Facebook apps

◼ Mobile Web sites and apps