The Portable MBA in Finance and Accounting, 3rd Edition

Activity-Based Costing 131

Value System.ETN/ W is an intermediary providing services to the Web mer-

chant and its fulfillment, payment, and shipping partners. Although ETN/ W

charges the merchant for the service, who ultimately pays for the service could

be left to negotiation amongst the parties (see Exhibit 4.2).

This exercise did open some interesting discussion regarding our narrowly

defined CVP. We recalled Metcalf ’s Law: The value of a network is equal to the

square of the number of nodes. Clearly, as our network expands, fulfillers such

as Ingram, a $2 billion wholesaler of books, PCs, and home electronics, would

see value in joining because it could provide fulfillment services to a number of

the network’s Web merchants. Likewise, UPS and FedEx would want to join

ETN/ W to offer their services if there was enough commerce going over the

network. We did not have time to fully develop this thought, but discussion of

an expanded scope for our CVP and potential pricing schemes is on the agenda

for an upcoming meeting. This process might really be worth your fee.

Strategy.ETN/ W will be the global cost leader in transaction processing for e-

commerce providers. Exactly what is it that ETN/ W offers that others cannot

copy? A sustainable strategy is based on doing things differently or doing dif-

ferent things, not simply doing the same thing as other competitors only better.

As noted above, it would be difficult for any of the hardware companies and

ASPs to copy our model, since their culture and internal systems are so geared

to selling hardware or software rather than servicing customers. Hewlett

Packard coined the term solution provideralmost thirty years ago but still

struggles in making the requisite transition. We all feel that ETN/ W can suc-

cessfully compete with hardware providers and ASPs. The problem is the low

barriers to entry: If all it takes is building an infrastructure with hardware and

software technology that are readily available, what is to stop others from imi-

tating our model? The only advantage we see is to be the first mover; once

someone joins our network, why join another? We understand the urgency of

building the network as quickly as possible to be recognized as the industry

standard for transaction processing.

EXHIBIT 4.2 ETN/ W value system.

Customer ETN/W

Visa, AmExp,

MasterCard

Fulfiller

FedEx,

UPS

Transaction flow

Physical flow

Web-

merchant