130 Understanding the Numbers
Carol found that the infrastructure build-out would not be cheap. She es-
timated that it would cost approximately $8 million in the startup mode and
require about a dozen people. She estimated that this would give them the ca-
pacity to process about 120,000 transactions per day, which would be about 10
average-sized customers in a peak demand period such as Christmas or Valen-
tines Day.
Eric found that the software system would be cheaper. He also found
some additional interesting information. Many ASPs such as Yantra, Oracle,
and Cybersource offered to work with them in an alliance if they could adver-
tise their applications, say, like the “Intel inside” model in the PC industry. He
estimated that to build a totally integrated software platform would cost
around $600,000 to $800,000.
In this manner ETN/ W (Electronic Transaction Network) was started.
Angel investors and alliance partners contributed $20 million, and the doors
were open for business 18 months ago. Within a year they had nine customers
and added another three in the following six months. Various pricing schemes
were tried, but ETN/ W seemed to be gravitating toward a market-based,
purely per-transaction charge between $0.10 and $0.15. Although transaction
volume had not met the projected 120,000-per-day level, they were currently
in the process of identifying potential new customers.
ETN/ W CVP
The group provided Denise the following from one of their marketing
brochures:
Web merchants should spend the majority of their time on their primary mis-
sion, creating value through innovative marketing and sales to customers and
clients.^2 You should avoid spending both scarce managerial talent and investor
capital on any activity that could best be performed by third-party partners
such as ETN/ W. Do investors see the value in your using their investment dol-
lars and your creative energy to build transaction-processing systems that are
suboptimal in scale and soon obsolete? In you spending your scarce time to hire
and train high-cost personnel to manage and run these inefficient systems? The
answer is clearly no.
Join our network and get all these services seamlessly provided with state-
of-the-art applications run by highly trained IT professionals. We will convert a
difficult-to-manage fixed infrastructure cost into a totally scaleable variable
cost that you pay only on a per-transaction basis. With us as your partner, you
can spend your creative energies on tasks of value to your investors.ETN/ W Value System & Strategy
This part of preparing for their meeting with Denise was an interesting task for
the threesome, one that they had not previously performed. After referring to
some of their old MBA notes, they prepared the following: