The Internet not only makes it possible for customers to find what they want – it even lets customers create what they want. Fiat tested new design concepts with more than 3,000 customers online. The effort generated ideas that Fiat used to improve its product line. Numerous loyal users and programmers created and continually refined the Linux operating system, thereby enabling companies like Red Hat Software to derive commercial benefits. The Zagat Survey, now online, is a popular restaurant guide whose business model consists simply of scoring restaurants according to reviews by Zagat's own customers.
Online communities are another example of the customers co-creating the value. Dobedo has captured over 200,000 dedicated teenage followers by sending the them the first part of Dobedo's story and encouraging them to continue the story online. Because the teenagers create the content themselves, it always remains current. Meanwhile, other businesses enable customers to co-create individually. Getty Images' Art.com lets customers match posters or prints with mats and frames of their choice. iPrint, an online self-service print shop, claims to have achieved a 25–50% saving on printing costs for consumers, by allowing them to design and order their own products. Seven Cycles, a small, premium priced, custom-build bicycle manufacturer, enables its wired and quality-conscious customers to select materials and recommend design configurations.
Integrating customer value creation culminates in weaving together a variety of products, services, and information to build an 'Intentions Value Network'. For example, Microsoft's HomeAdvisor integrates content and services from American Finance & Investment, Principle Residential, RE/Max, SchoolMatch, and RentNet to offer customers who intend to move to a new community everything they need. Essential.com offers one-stop shopping for all the essential services needed to run a home or business. Planet Rx, a Web site for health and well-being, SkyMall, a provider of one-stop access to Web travel sources, and Garden.com, a vendor of high-quality garden supplies and advice, all subscribe to a similar, integrating model.
We have now addressed the five key interactions through which businesses create value for customers: buying, using, transferring/selling, cocreating and integrating. A focus on these interactions is the first step to creating a differentiated, value-creating Internet business. An examination of any industry will reveal imperfections in how customers are served during each interaction. These imperfections are business opportunities. Capitalising on these opportunities, however, requires a thorough understanding of how the Internet is changing channels to the customer.
Electronic commerce is creating new intermediaries and making the dominant channels of the past obsolete. From the medieval guilds to the New York Stock Exchange, the survival and prosperity of intermediaries has depended on control of information. In an era where the Internet has made information all but uncontrollable, creative destruction is inevitable. For example, the old-fashioned travel agent prospered because he or she had information that customers could not easily find themselves. But travellers no longer need an agent to find cheap airline tickets and vacation packages or to book trips. They can get this information easily, online, from such vendors as Travelocity, Preview Travel, and Microsoft's Expedia. And the service that costs a travel agent $40, on average, costs electronic commerce less than a dollar, on average. The I-Way also lets car buyers take a detour around traditional auto dealerships. Pete Ellis, CEO of Auto-by-Tel, is a former auto dealer whose network of 16 dealerships was forced into bankruptcy in 1994. Sweet revenge – Auto-by-Tel is one of the pioneers of the new online auto distribution channel, along with Microsoft's CarPoint, AutoWeb.com and OneSwoop.com.
These services pre-empt the prime time sales show put on by oldfashioned dealers – the time during which sales people sized up customers and decided (among other things) just how much margin they could be talked into paying and how many pricey extras could be loaded into the deal before the bewildered customer drove that lemon off the lot. Customers don't have to sit still for the old high-pressure job anymore. Now, the online services let them evaluate and price cars in the privacy of their homes. The services do refer customers to dealers – but only to handle the final paperwork and take delivery of the car. The selling is all but over by then.
These online auto sites helped an estimated four million people in the US select and buy a car last year.4 That translates to a market share of 25% of all cars sold there. Incidentally, they aren't satisfied with just selling cars. They have also branched out into insurance and servicing support, creating powerful new intermediaries that cross the range of automobile related offerings.
Similar things are happening in the business to business sector. Most chemical companies were caught flat-footed as the Internet disrupted channel relationships that had been in place for over 80 years. Such new electronic channels as Chemdex, ChemConnect, Polymerland, and Chem- Match have reduced the buyer costs associated with procurement by 5–10%, realised purchase prices by 20–30%, and even significantly reduced the cost of delivery. Electronic markets not only cut costs, they also make supply and demand more transparent, allowing suppliers to manage inventories more efficiently. But this increased transparency comes at a cost of control, as the new online markets shift information and power from the supplier to the customer.
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