Internet Marketing and Big Data Exploitation

I. Chaston

• Publisher: Palgrave Macmillan
• Year: 2015
• ISBN:
  9781137488961
• Topic: Commerce
• Subtopic: Marketing
• Index: Marketing

Understanding new strategic approaches is provided by examining how the online world is being exploited by organisations in sectors of a modern economy such retailing, healthcare and the public sector in terms of creating new forms of competitive advantage as a consequence of the advent of mobile technology and online social networks.

1

The Online World

Business models

The birth of an entirely new industry is usually the result of a visionary idea for a new product, service or industrial process. Evolving the idea into a viable commercial proposition will often involve solving significant scientific or technological problems. Zott and Amit (2007) noted that in the early years of a new industry there is only limited understanding of what market opportunities exist and how these might be exploited. Over time, as summarised in Figure 1.1, interaction between identified opportunities, the nature of the technology and organisational capability leads to the emergence of one or more new business models.

Figure 1.1 Business model emergence

Chesbrough (2007) proposed a business model which defines all of the activities associated with acquiring raw materials, executing internal processes to add value and the provision of output which is perceived as beneficial by customers. Tsai et al. (2011) suggested the elements which constitute a business model include:

1. A viable technology.

2. A value added proposition more able to satisfy customer needs.

3. A viable revenue flow.

4. Appropriate organisational structure.

5. Adequate resources.

6. An external environment supportive of the organisation’s existence.

A key element in a successful business model is the existence of a strategy which defines the nature of the competitive advantage capable of delivering an organisation’s performance objectives. Often, during the early years of a newly emerging industry, the entrepreneurs involved are unable to evolve strategy that defines the purpose of their commercial activities. This is because entrepreneurial visionary founders may be uncertain of the direction which the new industry will take. Clarity may only emerge over time as the result of an organisation learning from experience.

Kessler et al. (2012) proposed that new industries have a tendency to undergo change, especially in the early years following initial creation. This occurs as entrepreneurs gain experience, leading to the identification of new opportunities, advances in technology opening up new possibilities and acquisition of additional internal capabilities. The combined influence of these factors typically leads to the emergence of new or revised business models. The existence of a new industry may also begin to influence the nature of products, services or operational processes in other industrial sectors. This can result in the creation of revised or new business models by entrepreneurs working in these other sectors.

By the time first-mover organisations begin to consider developing a new or revised business model, it is very probable that the intensity of competition will have increased. Hence it can be expected that organisations will need to define new or revised strategies for enhancing, extending or even fundamentally redefining their business operations in the face of increasingly competitive market conditions. This is the scenario, for example, which has emerged in the world of online retailing as firms of all sizes entered the sector, fighting to create and sustain a viable cyber world business proposition (Quader, 2006).

Disruption

Where large firms have lost sales to a new market entrant, Christensen (1997) proposed that this outcome may be the result of ‘disruptive innovation’. A key attribute of disruption is the development of a new unique business model, usually by an entrepreneur not well known within the industry, which appeals to the needs of customer groups in whom the dominant sector incumbents have exhibited little or no interest. An example of this type of disruption is Southwest Airlines, the highly successful American budget carrier. The company took market share from the larger airlines by offering lower cost air travel, which appealed to price orientated consumers, but was of limited interest to the business traveller market.

Christensen and Raynor (2011) proposed that there are two types of disruption. The first, ‘Low-end’ disruption, targets customers who do not need the higher level of product or service performance perceived as important by mainstream customers. Over time, as the low-end disruptor gains experience and acquires new competences and upgrades the benefit proposition – as was the case with economy airlines South West Airlines in the USA and Ryanair in Europe – the product or service offering may become increasingly appealing to mainstream market customers.

‘High-end/new-market’ disruption occurs when a new-market entrant targets customers who previously could not be served profitably by incumbent firms. An example of this scenario is the entrepreneur Steve Jobs’ launch of the first Personal Computer by Apple at a time when the major computer firms such as IBM were focusing upon the supply of mainframe and microcomputers in Business-to-Business (B2B) markets.

Raynor (2011) posited successful disruption involves an ‘enabling technology’ to support the new business model, which will permit greater appeal of the product or service to a much larger group of customers. This occurs because an entrepreneurial organisation realises an opportunity exists to capture market share from less innovative competitors. He exemplified this concept using the case of Southwest Airlines, when the company started flying the Boeing 737-500 aircraft which reduced operating costs. This permitted the company to add routes of greater average length; thereby allowing the airline to become more attractive to business market travellers.

Ganguly et al. (2010) suggested emergence of a disruptive technology is usually a sequential process. Initially the technology may underperform relative to the available mainstream technology and by delivering less value to existing customers, the new technology is usually ignored by mainstream market suppliers. The new technology is frequently cheaper and simpler, thereby permitting the new-market technology and further refinements in the business model to subsequently allow entry into more mainstream markets.

Predicting the market opportunity offered by a disruptive business model based upon a new technology is somewhat problematic. Ganguly et al. (2010) suggested a number of variables (or ‘metrics’) can provide some indication of the scale of the new opportunity. One is the size of the customer group which will be the source of early sales. Another is the stage of development which has been reached by existing technology. This metric is critical because once a technology has entered the maturity phase, there is often very little room for further improvements. This renders the existing mature technology vulnerable to competition, cannibalisation or being displaced by the emerging technology. Vulnerability will be further heightened where the key reason for adoption of a new technology is the belief that existing technology is unsuitable for performing functions which are beginning to be demanded by major customers. A third metric is the rate at which customers are likely to switch from an existing to a new technology.

A POTENTIAL FUTURE DISRUPTION

Case Aims: To illustrate how research in progress could have an immeasurable impact in relation to disrupting existing business models.

Biogerontechnology is comprised of a mix of potentially disruptive technologies which offer the benefits of providing entrepreneurial ways of improving healthcare and increasing the human life span by treating many of the costly and disabling conditions that humans experience in later life (Evans et al., 2009). There are a number of different technologies currently being researched. One approach is to extend lifespan by lifestyle modification and the development of drugs capable of altering metabolic processes. Another opportunity is the use of stem cells to support tissue repair and organ replacement. A third area is gene therapy, which involves the use of modified DNA to develop intra-cellular treatment solutions.

A significant proportion of the current research is being undertaken by researchers in the public sector and in small private start-up operations. Major questions still exist over which of these technologies are likely to be commercially viable and thereby provide a source of market disruption. Should success occur, this will have a major influence on the future provision of healthcare, which in turn will impact organisations such as the major pharmaceutical firms and providers of care for the elderly.

Governments are struggling with finding ways of reducing public sector spending when the costs of providing healthcare services for the elderly are rising at an exponential rate. Should biogerontechnology deliver extended lifespans and compress morbidity, this could dramatically reduce expenditure on costly life-stage treatment of physical frailty and mental disability.

The Internet

The origins of the Internet can be traced back to the American Defense Advanced Research Projects Agency (DARPA) seeking ways of electronically exchanging data between organisations via the telephone. In the early years, the Internet was used by the scientific community for activities such as remote computing, file transfer and electronic mail. By the early 1990s, there was a dramatic growth in the number of organisations engaged in such activities. This necessitated an expansion in the infrastructure and data exchange capacity of the Internet and a number of commercial organisations entered the market, offering new capacity and support services (Weis, 2010).

Angeles and Nath (2001) noted that the Internet, by providing an accessible platform utilising a standard language protocol, permitted entrepreneurially orientated organisations to expand and upgrade data exchange activities. Internet-based data exchange led to major organisations such as the airlines recognising the benefits of offering their customers the facility of selecting and purchasing services online. There was also recognition of the potential the Internet offered retailers to move online. One of the earliest demonstrations of the new opportunity for this business model was provided by the launch of the online book store, Amazon, by the highly entrepreneurial Jeff Bezos.

Although online retailing received significant attention in both the academic press and the commercial media in the 1990s, Varano and Dunn (1999) noted the scale of Internet usage to support transactions was significantly much larger in B2B markets. Companies such as Cisco, a leading manufacturer of switching and control devices in the US, moved from terrestrial to online sales and distribution. In some sectors, third-party portals were created to offer suppliers and sellers access to a greater number of transaction opportunities. Some of these portals permitted users to participate in online auctions, with the portal generating revenue by charging a commission on sales. The model was soon recognised as applicable in consumer markets, leading to the launch of auction portals such as eBay.

The Internet offers users instant access to vast quantities of information. The problem facing organisations wishing to generate a profit from information provision is the unwillingness of customers to pay a fee to access such services (Bleyen and Van Hove, 2010). In most mass markets, users have remained resistant to having to pay to access information, encouraged in large part by search engines such as Google and Yahoo, which continue to offer Internet users free access to a wealth of information. These companies have sustained a viable free access model by selling advertising space.

EXPLOITING INFORMATION

Case Aims: To illustrate how information can provide the basis for identifying new business opportunities.

Koli (2007) suggested there are two dimensions in the exploitation of information; namely utilising acquired information to identify new business opportunities, and the use of online information services to enhance service quality. He exemplified the nature of these two dimensions by reviewing organisational processes within the American parcel delivery service, UPS. Tracking and analysis of internal data concerning the logistics of service provision provided the company with the ability to calculate costs for each of the company’s business activities. This revealed that it was cheaper to outsource the delivery of packages on rural routes to their competitor, the United States Postal Service (USPS). Nevertheless UPS still wanted to offer a seamless delivery service. Hence, although USPS handles the actual delivery, UPS still tracks an item whilst in the hands of the Postal Service.

Another opportunity identified by analysis of information revealed that UPS could deliver packages faster when the customer used the Internet to input shipment data directly into the company’s computer-based order entry system. By getting customers to undertake data entry, this reduced shipping times by at least 24 hours.

UPS can use the information on the company’s computer system to offer an automated online product recall or re-routing services. This is feasible because the final destination of a delivery o...