Internet and Business Model Innovation

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Bertram Malone
7 years ago
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1 Internet and Business Model Innovation Lingfang (Ivy) Li Fudan University Oct 15, 2014

2 Number of Internet Users & Internet Penetration Rate in China #Internet users Internet penetration rate Source: CNNIC,

3 The Size of China Online Shopping Market In 2013, the Chinese online retail sales has reached 1.88 trillion RMB, which makes China the largest online shopping market in the world Compound Annual Growth Rate (Billion USD) 350 中国 % 美国 12% 日本 21% 英国 10% e Source: China s Ministry of Commerce, iresearch, Yiguan Consulting, U.S. Census Bureau. Forrester Research, METI, Ali Research

4 Source: McKinsey report China s digital transformation: The Internet s impact on productivity and growth. July, 2014.

5 Internet and Business Model Target Customer Strategic Partner Value Proposition Channels Internet Core Business and Capability Revenue Model and Cost Structure

6 1. Strategic Partner building industry chain ecosystem Example: Alibaba Members of the Ecosystem Market Seller Buyer Source:Alibaba IPO roadshow PPT (accessed from

Alibaba s Ecosystem Strategy E-business E-business Based Industry Chain Integration online business, logistics, payment to support the ecosystem Finance Data Logistics Data

7 Alibaba s Ecosystem Strategy E-business E-business Based Industry Chain Integration online business, logistics, payment to support the ecosystem Finance Data Logistics Data Based Virtual Society Applying data analytics to identify customers demand, not limited to traditional ebusiness, but to all aspects of daily life Education Pic Source: Tai Media

8 2. Target Customer Data analytics makes it more intelligent to target customer Easy access to getting products and services (lower searching cost, transaction cost, etc.) E.g. the O2O application: Taxi software Taxi Software

9 Taxi Software My location Where I am going to? (text or voice message) Reservation

10 3. Value Proposition Corporate value is enriched. More ways to bring values to customers. Corporate resource allocation paradigm is changing: offline to online, logistics, etc. Example Haier: Internet-oriented transformation SF-Express Haike Offline Community Store

Haier s Online Transformation From Products to Services: the living solution provider Haier is the world s largest white-goods manufacturer, and

11 Haier s Online Transformation From Products to Services: the living solution provider Haier is the world s largest white-goods manufacturer, and its revenue reached 180 billion RMB in Haier has over 70,000 employees in 17 countries and runs its business in over 180 countries and areas

12 Haier s Online Transformation The C2B Model, manufacture to satisfy customers preordered demand Launch the B2C platform to access to consumers directly: Hair Online Shopping Mall Build RRS Logistics Customized services based on big data analytics

SF-Express: Haike Offline Community Store SF-express was established in 1993. As of July 2014, S.F. Express has nearly

13 SF-Express: Haike Offline Community Store SF-express was established in As of July 2014, S.F. Express has nearly 290,000 employees, 12,000 vehicles, 15 aircrafts and 9,100 service centers in mainland China and overseas countries / regions.

SF-Express Haike Offline Community Store In 2014, the SF-Express opened its offline community store: Haike, to expand its business to offline retailing and try to solve the last mile problem.

14 SF-Express Haike Offline Community Store In 2014, the SF-Express opened its offline community store: Haike, to expand its business to offline retailing and try to solve the last mile problem. Complementary to online shopping experience: pre-order products, offline experience online products. Other services: Financial services (ATM) Convenience Services (laundry, paying utility bills, etc.). Self-pickup/ send package

15 4. Revenue Model and Cost Structure The change of cost structure: high input in R&D, low input in production and distribution Product is not the only revenue source: Advertisement service, Data service, and other value-added service Example Joyme Furnishing WeChat: profit from free software

Joyme Furnishing: Margin increased from 5% to 20% 1997 2011 2012.

16 Joyme Furnishing: Margin increased from 5% to 20% OEM for Ikea, the highest revenue reached 200 million RMB Escape from OEM industry Doing business on Tmall, sales reached 1 million within 10 days, the highest daily sales reached 2 million RMB Estimated brand value: 200 Million RMB OEM for world famous brand Margin rate: only 5% Low bargaining power Online business with own brand Margin rate: 5% 20% Lower price:30-40% Increase in sales Trying the C2B model

Tencent WeChat: A New Way to connect New Lifestyle In 2011, Tencent launched smart phone based free instant message software: WeChat Support the delivery of text, picture,

17 Tencent WeChat: A New Way to connect New Lifestyle In 2011, Tencent launched smart phone based free instant message software: WeChat Support the delivery of text, picture, audio, and video A new marketing channel: companies access to consumers through pubic account directly The Number of WeChat Users (100 million)

18 WeChat s Revenue Model Attract users through the Free WeChat App, and develop valueadded services to increase customer loyalty and gain profits. Cellphone prepaid card Taxi software Red Envelope Financial products Shopping Entertainment Donation

19 5. Core Business and Capability New chances for traditional industries to go online The merge of traditional business and the Internet Example Internet Finance Innovation

Internet Finance Internet finance refers to those new financial services based on online payment, cloud computing, social networks, and search engines Traditional Model Traditional financial services

20 Internet Finance Internet finance refers to those new financial services based on online payment, cloud computing, social networks, and search engines Traditional Model Traditional financial services provided through Internet Online Banking Online Equity Trading Features Low Cost High Efficiency High Risk Platform Model e-business platform provide service P2P Model Broker service Financial product Loan Online service platform from large financial institutions Online P2P

21 6. Channels Internet changes sales channels The shift from 4P to 4C (consumer, cost, convenience, communication) Example e-business of Agriculture products JuTuDi SuiChang model

E-Business of Agricultural Products The number of agricultural products seller on Alibaba has reached 377,900, increased by 45% compared with 2012 Number of agricultural products sellers Sales of

22 E-Business of Agricultural Products The number of agricultural products seller on Alibaba has reached 377,900, increased by 45% compared with 2012 Number of agricultural products sellers Sales of agricultural products On Alibaba platform Seller on Taobao 377,900 B2B seller 16,000 The growth on 1688.com The number of sellers on Taobao.com from 2012 to 2013 The sales of agricultural products on Alibaba has increased % from 2012 to 2013 Source: Ali Research

Channels of Agricultural Products E-business Model Characteristics Examples Vertical Model Platform Model Logistics based Model O2O Model Focus on food and fresh products Self-owned logistics system,

23 Channels of Agricultural Products E-business Model Characteristics Examples Vertical Model Platform Model Logistics based Model O2O Model Focus on food and fresh products Self-owned logistics system, with limited capacity Target high-end consumers One-site shopping experience Third-party logistics, lacks of cold-chain logistics Target high-end consumers, as well as ordinary consumers Focus on fresh and global products and high quality service Self-owned logistics network, large scale of market coverage Target high-end and ordinary consumers Local offline experience Quick delivery

24 JuTuDi: A New Online Agriculture Model In Oct 2014, Alibaba launched the 2 nd phase of online agriculture project JuTuDi (Groupon farmland), to provide highly customized agricultural products to consumers.

Example: SuiChang Model Local Government Initiate a Pubic Service Platform Based on association + company model, the service platform has over 160

25 Example: SuiChang Model Local Government Initiate a Pubic Service Platform Based on association + company model, the service platform has over 160 full-time employees to help local people sell local products and also buy products. The total sales of association members have reached 200 million RMB.

26 Internet changes Business Model Target Customer Strategic Partner Value Proposition Channels Internet Core Business and Capability Revenue Model and Cost Structure

27 Q & A

Digital Market Landscape CHINA. Publicitas China Apr 2015

Digital Market Landscape CHINA Publicitas China Apr 2015 642 M Internet Users Penetration Rate: 47% The world s largest internet population, up 9% y-o-y; Source: We Are Social, Jan 2015 565 M Mobile Internet