Chapter 11 Online Service Industries

Chapter 11 Online Service Industries Learning Objectives Describe the major features of the online service sector Discuss the trends taking place in the online financial services industry Identify the key features of the online banking and brokerage, insurance, and real estate industries Explain why online travel services can be considered the most successful B2C segment Describe the major trends in the online travel services industry today Explain why career services online may be the ideal Web business Identify current trends in the online career service industry 2

What are Services? Service occupations 服務性職業 : Occupations concerned with performing tasks in and around households, business firms and institutions Service industries 服務業 : Establishments providing services to consumers, businesses, governments and other organizations Major service industry group: finance, insurance, real estate, travel, professional services (e.g., legal, accounting), business services (e.g., consulting, advertising and marketing, information processing), health services, and educational services Finance, insurance, and real estate (FIRE) is largest segment of services industry 3 Categorizing Service Industries Within service industry groups, can be further categorized into: Transaction broker 交易仲介者 / 經紀人 : Acting as intermediary to facilitate a transaction Hands-on service provider 實質服務提供者 : Performing specific hands-on activities for consumers Services industry features: Knowledge- and information-intense 知識和資訊密集 : Making them uniquely suited to e-commerce applications Personalization and customization 個人化及客製化 : Amount required differs depending on type of service, although all services entail some personalization or customization 4

Online Financial Services Online financial services sector is a shining example of an e- commerce success story, but the success is somewhat different than what had been predicted during the early days of e-commerce While the innovative, pure-online firms have been instrumental in transforming the brokerage industry, the impacts of e-commerce have been less powerful in banking, insurance, and real estate Pure online financial services firms in general are not yet consistently profitable Multi-channel established financial services firms are showing fastest growth and strongest prospects of long-term survival 5 Traditional Providers of Financial Services Financial services industry provides four generic kinds of services: Table 11.1 Traditional Providers of Financial Services Financial Service Storage of and access to fund 資金儲存及運用 Protection of assets 資產保障 Means to grow assets 資產增值工具 Movement of funds 資金移轉 Institutional Provider Banking, lending Insurance Investment firms, brokerage Banks, credit card firms 6

Financial Service Industry Trends: Two important global trends Industry consolidation 產業合併 Banking, finance, brokerage, and insurance industries were legally separated by Glass-Steagall Act of 1934; the act also prevented banks from operating nationwide Financial Reform Act of 1998 amended Glass-Steagall Act and allows banks, brokerages and insurance firms to merge and to develop nationwide banks Movement toward integrated financial services 趨向整合性財金服務 Financial supermarket model: Provides a variety of financial products and services at a single physical center or branch bank 7 Industry Consolidation and Integrated Financial Services Figure 11.1 銀行經紀整合性的財金服務保險 8

The Financial Supermarket Model: Integrated Online Financial Services Figure 11.2 支票帳戶存款帳戶信貸貸款 ATM 服務抵押貸款保險箱置物箱銀行經紀理財規劃經紀及自營帳戶整合資訊及建議 ( 諮詢顧問 ) 貸款及保證金交易基金管理單一客戶帳號保險付帳車險房屋險壽險商業不動產保險退休規畫退休金管理數位錢包電子帳單付帳信用卡服務帳戶整合 9 Online Financial Consumer Behavior Consumers are attracted to online financial sites because of desire to save time and access information rather than save money Most online consumers use financial services sites firms for mundane financial management (Tab 11.2) The greatest deterrent to increased usage of online financial services is fears about security and confidentiality of financial information Table 11.2 Financial Activity Online Consumers Financial Activities Checked bank accounts 檢查銀行帳戶 Moved/withdrew bank funds 轉帳 / 提款 Applied for a credit card 申請信用卡 Traded stock 買賣股票 Applied for a mortgage 申請抵押貸款 Percentage who engaged in activity in previous 12 months 51% 27% 12% 10% 6% 10

Online Banking Online banking was pioneered in U.S. by NetBank and Wingspan in 1996 and 1997, respectively; Security First Network Bank (SFNB) was founded in October 1995 the first pure Internet bank Established brand name national banks have taken a substantial lead in market share (Tab 11.3) Over 50 million people (44% of all Internet users) and around 40 million households (50% of all online households) use online banking 13 million people conduct some kind of online banking activity, such as accessing a checking, deposit, loan, or credit card account; transferring funds; viewing e-mail statements or alerts; or using online bill payment Movement toward online banking is global, with Western Europe leading the way (Tab 11.4) 11 Consumer Banks Ranked by Customer Usage of Online Servicing Capabilities Table 11.3 Bank Consumer Banks Ranked by Customer Usage of Online Servicing Capabilities Index Bank of America/Fleet Wachovia Chase/Bank One Wells Fargo Citibank U.S. Bank Washington Mutual SunTrust 146 127 107 99 95 83 75 73 12

Percentage of Respondents in Various Countries That Bank Online At Least 50% of the Time Table 11.4 Country Percentage of Respondents in Various Countries That Bank Online At Least 50% of the Time Percentage Netherlands 荷蘭 Germany 德國 Denmark 丹麥 Canada 加拿大 Australia 澳大利亞 Poland 波蘭 United Kingdom 英國 Brazil 巴西 United States 美國 77% 74% 73% 60% 59% 58% 51% 41% 38% 13 Online Brokerage Early online brokerage innovators such as pure online firms E*Trade and Ameritrade have been displaced from their leadership positions in terms of online accounts by established firms discount broker pioneer Charles Schwab and financial industry giant Fidelity Following the market crash of technology and dot.com stocks in Spring 2000, trading at pure online firms fell precipitously ( 陡峭 ; 急促 ), while established brands remained fairly steady 2004 survey of Online financial activities over the previous 12 months among U.S. adult Internet users: 10% traded stocks 2005 survey: 6% of U.S. online households bought or traded stocks, bonds, or other securities 14

Top Online Brokerages Table 11.5 Top Online Brokerages, March 2005 Firm Schwab.com Ameritrade E*Trade Financial Network Tdwaterhouse.com Fidelity Investments Scottrade sites Sharebuilder.com Troweprice.com Nasdaq.com Harrisdirect.com (acquired by E*Trade in August 2005) Market share 26% 20% 16% 14% 12% 12% N/A N/A N/A N/A Number of unique visitors 造訪人次 1.10 mil. 1.40 mil. 1.05 mil. 630,000 3.59 mil. 755,000 1.88 mil. 435,000 404,000 234,000 15 Multi-channel vs. Pure Online Financial Service Firms Online consumers prefer to visit financial services sites that have physical outlets ( 店面 ) or branches In general, multi-channel firms are growing faster than pure online firms, and are assuming market leadership Internet-only banks and brokerages lack physical client acquisition channels and therefore they must rely on their Web sites and advertising to acquire customers Multi-channel firms have lower customer acquisition, conversion, and retention costs Users of pure online firms utilize sites more intensively for a wide variety of services that used to be performed at branches. However, they are less loyal 16

Financial Portals Financial portals 財金入口網站 : Sites that provide consumer with comparison shopping services, independent financial advice and financial planning In general, do not offer financial services; generate revenue from advertising, referral fees, and subscription fees Examples: Yahoo! Finance, Quicken.com, MSN Money, AOL s Money and Finance channel 17 Account Aggregators Account aggregation 帳戶整合 : Process of pulling together all of a customer s financial (and even non-financial) data at a single personalized Web site including brokerage, banking, insurance, loans, frequent flyer miles, personalized news, and much more Yodlee, a leading provider of account aggregation technology; used by American Express, Bank of America, Wachovia, JPMorgan Chase, Schwab, Fidelity, Merrill Lynch, Morgan Stanley, AOL, MSN, Yahoo, others Raises issues about privacy and control of personal data, security, etc. 18

Online Mortgage and Lending Services Early entrants hoped to radically simplify and transform the traditional mortgage value chain process, speed up the loan closing process, and share the economies with consumers by offering lower rates Many of early-entry, pure online firms failed (e.g., Mortgage.com) due to difficulties of developing brand and simplifying mortgage generation process Four basic types of online mortgage vendor: Established online banks, brokerages, and lending organizations 已成立的線上銀行經紀和貸款機構 Pure online mortgage bankers/brokers 純線上抵押貸款銀行業者 / 經紀商 Mortgage brokers 抵押貸款經紀商 Mortgage service companies 抵押貸款服務公司 19 Online Insurance Services Online term life insurance 定期人壽保險 : One product groups in which Internet actually lowered search costs, increased price comparison and resulted in lower prices to consumers Study showed that Internet usage led to an 8%-15% decline in term life insurance prices industry-wide (both offline and online) (Brown and Goolsbee, 2000) Term life insurance is a commodity product, however, in other insurance product lines, Web has offered insurance companies new opportunities for product and service differentiation and price discrimination 20

Online Insurance Services Major types of insurance industry Automobile Life Health Property and casualty Online insurance industry has been very successful in attracting visitors looking to obtain prices and terms of insurance policies, but less successful at getting customers to buy polities online, although this is changing, particularly in the areas of automobile insurance and term life insurance policies, which are less complex 2005 study: the Web has become the primary information resource for auto insurance consumers, and 60% of those surveyed were willing to purchase automobile insurance online 21 Insurance Industry: Segments Table 11.8 Insurance Industry: Segments Insurance Type Automobile 汽車 Life 人壽 Health 健康 Liability 責任 Fire 火災 Homeowners 住宅 Commercial peril 商業風險 Workers compensation 勞工補償 Marine 海上 Accident 意外 Other 其它 Total 總計 Premium Revenue (Billions) $164.0 134.5 108.7 41.4 11.9 40.0 15.1 36.5 9.4 14.1 44.8 620.4 22

Leading Multi-product Online Insurance Services Table 11.9 Leading Multi-product Online Insurance Services Company 2005 Revenues (mil.) InsWeb.com $25.0 Insure.com $17.1 Insurance.com ND Quickquote.com ND Answerfinancial.com ND ND=Not Dsclosed 23 Online Real Estate Services Primary service offered by online real estate sites is a listing of available houses with detailed property descriptions Internet has been beneficial to buyers, sellers, and real estate agents: buyers can quickly and easily access a wealth of valuable information; sellers receive free online advertising for property; real estate agents have reported that Internet-informed customers ask to see fewer properties Since it is not possible to complete a property transaction online, the major impact of online sites is in influencing offline decisions Despite revolution in available information, there has not been a revolution in the real estate industry value chain. House addresses are not available online and users are directed to the local agent hired by the seller of house for further information 24

Online Travel Services Arguably, the single most successful B2C e-commerce segment attracts the largest e-commerce audience, and the largest slice of B2C revenues Internet is becoming most common channel used by consumers to research travel options, seek the best possible prices, and book reservations for airline tickers, hotel rooms, rental cars, cruises, and tours Online travel sites offer consumers a one-stop, convenient, leisure and business travel experience where travelers can find content, community, commerce, and customer service For suppliers, the online sites aggregate millions of consumers into a singular, focused customer pool that can be efficiently reached through onsite advertising and promotions 25 Online Travel Services Revenues Figure 11.5 SOURCE: Based on data from emarketer, Inc., 2005e, 2005f; authors estimates. 26

Travel as the Ideal Internet Product/Service An information-intensive product An electronic product in the sense that travel arrangements can be accomplished for the most part online Does not require inventory Suppliers are always looking for customers to fill excess capacity, and will be anxious to lower prices and willing to advertise on Web sites Do not require an expensive multi-channel presence strategy required of financial services 27 Online Travel Market Four major sectors Airline tickets 機票 Hotels 旅館 Car rentals 租車 Cruises/tours 郵輪旅遊行程 Airline reservations are the source of the greatest amount of revenue ($38.5 billion in 2005; $60.1 billion in 2009) Hotels and car rentals are expected to grow at an faster rate Cruise/tour reservations grow fairly slow since not as well suited for online environment 28

Projected Growth of Online Travel Market Sectors Figure 11.6 SOURCE: Based on data from emarketer, Inc., 2004; Forrester Research, 2004; Jupiter Media Metrix, 2001b, authors estimates. 29 Online Travel Industry Dynamics Because much of what travel agency sites offer is a commodity, and thus they face the same costs, competition among online providers is intense Competition among site tends to focus on scope of offerings, ease of use, payment options, and personalization Industry is going through a period of consolidation as stronger, offline established firms purchase weaker and relatively inexpensive online firms to build stronger multi-channel travel sites Suppliers (airlines, hotels, and auto rental firms) are attempting to eliminate the intermediaries (global distributors and retail travel agencies) using the Web as a means, and develop a direct relationship with consumers 30

Travel Services Value Chain Figure 11.8 網路直接通路機票旅館商務遊客汽車全球配銷商 ( 業者 ) 零售旅行社 ( 線上及非線上 ) 旅遊行程網路直接通路供應商休閒遊客 31 Online Career Services Next to travel services, one of Internet s most successful online services has been job services (recruitment sites) Online recruiting provides a more efficient and cost-effective method of linking employers and potential employees, while reducing total time-to-hire Enables job hunters to more easily build, update and distribute resumes while gathering information about prospective employers and conducting job searches Ideally suited for Web due to information-intense nature of hiring process 32

Why are Job Sites So Popular? Saves time and money for both job hunters and employers For employers: Expand geographic reach of search, lower cost and result in faster hiring decisions For job seekers: Make resumes more widely available, and provides a variety of related job-hunting services One of most important functions: Ability to establish market prices and terms (online national marketplace), as well as trends on the labor market 33 Online Recruitment Market and Trends Three major segments in recruitment business General job recruitment 一般工作招募 : The largest segment; focuses on placing a wide range of individuals at all skill and salary levels Executive search 主管工作招募 : The highest revenue potential; focuses on placing executives with annual salaries of $100,000 or more Specialized job placement services 專業工作介紹服務 : Often run by professional societies Four major trends in online recruiting Consolidation: The three largest job services sites together constitute 90% of market Diversification: Diversification of product line Localization: Developing local boards in large metropolitan areas that compete with local classified ads in newspapers Job search engines: Online job search engines that scrape listings from thousands of online job sites pose a new threat to established online career sites 34