The Internet Encyclopedia (Volume 3)

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Kleindi WL040/Bidgoli-Vol III-Ch-43 August 13, 2003 17:28 Char Count= 0

534 VALUECHAINANALYSIS

Value

Creation

Database

search engine

allows easy

access to

products.

Dynamic

pricing allows

for bidding to

determine

market price.

Listing of

Sellers

Internet links

facilitate

posting of

product

information.

World,s largest

listings of

products draws

customers.

Outbound

Logistics

Distribution is

facilitated or the

responsibility of

seller.

Escrow systems

attempt to limit

fraud.

Marketing

& Sales

First mover

advantages and

advertising

have created

brand name

advantages.

Forums allow

for community

development.

Service

Database

supported

reports on

sellers and

buyers.

Primary

Activities

Margin

Through

Stronger

Customer

Relationships

Figure 11: eBay’s value chain.

E-marketplaces

Online marketplaces offer a centralized location for the

trading of information, goods, services, or other com-

modities. E-marketplaces serve both consumer and busi-

ness markets. These do not handle any physical product,

instead acting only as facilitators of exchange between

parties. The largest of these is eBay. In 1995 Pierre

Omidyar designed a Web site called Web Auction to al-

low his girlfriend to sell Pez dispensers. Demand for the

service was so strong that Omidyar began charging sell-

ers. By 1998 eBay was valued at $7 billion dollars and by

1999 eBay accounted for the largest volume of consumer

sales on the Internet. Figure 10 outlines eBay’s business

model.

In this model, the seller posts information on the prod-

uct to be sold. Buyers then post bids, and after a given

time the winning bidder is notified. Payments and ship-

ping can be handled outside of eBay’s system, or they may

be facilitated by eBay. eBay also maintains databases on

sellers and buyers in an attempt to limit fraud.

An analysis of eBay’s value chain in Figure 11 gives

insight into how to create value in e-marketplace business

models.

Whereas Dell’s business model competes against tradi-

tional business models, eBay was able to pioneer a new

business model. As with many e-marketplaces, eBay’s ma-

jor competitive advantage lies in having the large listing of

items for sale combined with the brand name recognition

gained from being a first mover in the online consumer

auction industry.

Customers find value by finding the products they wish

to purchase. This is enhanced through the use of database

search systems. Pricing is set dynamically through the

auction system. Although outbound logistics is often set-

tled outside of the e-marketplace, eBay allows escrow sys-

tems in an attempt to limit fraud.

eBay has developed a strong brand name. The use of

forums and online communities helps to maintain brand

name advantages. eBay also uses its database to develop

reports on sellers and buyers.

SMALL AND MEDIUM-SIZED

ENTERPRISES (SMES)

Small and medium-sized enterprises (SMEs) differ from

large firms in that they do not have the capital and hu-

man resources of their larger competitors. To compete,

SMEs have traditionally used niche strategies to gain dis-

tinctive advantages over their larger competitors. A niche

strategy requires that the SME find a competitive arena

Table 3Value Strategies for SMEs

IT Manager

Value Strategy Responses Advantages

Improve customer service Over 80% Online systems allow channel members and consumers to gain

access to product and inventory information.

Electronic commerce Over 60% This allows SMEs access to larger markets without the cost of

setting up new distribution systems. It also allows the SME to

target narrow markets faster then larger competitors. Lower

overhead costs can be carried over to lower prices to

customers.

Customer-relationship

management applications

Over 50% Online connections between the SME and its customers increase

the speed of response and allow for close to instant

communication. Linked extranets allow SMEs to act as virtual

partners with other businesses.

Increase business-to-commerce

connections (extranets)

Over 40% SMEs can act as e-commerce intermediaries linking larger

businesses with very small suppliers. Online access to

inventory and supplies helps control costs.