Ec Channel Flux 06

7/31/2019 Ec Channel Flux 06

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MD253 / MK252Electronic Commerce

Feb. 15, 2006

Channel flux:

channel pressure, digital musicnetwork effects, CEIs, and auction

systems


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Issues Covered

Channel Pressure Power & partners, pressure & innovation limits

New Channels & Media Industry Disruption

Network Effects the secret sauce of tech markets

New Intermediaries

examples, impact, threats, market creation Auction Models

markets of first choice and last resort


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Channel Conflict

customer

supplier

customerTraditional

Retailers (small)Distributors

customerInternet

Retailers

customerTraditionalRetailers (big box)


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We recognize that a vendor has the right to

sell through whatever distribution channels

it desires. However, we too have the right to

be selective in regard to the vendors we

select and we trust that you can understand

that a company may be hesitant to do

business with its competitors.

HomeDepot memo to suppliers


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http://reviews.cnet.com/4520-11740_7-6416465-8.html?tag=ss


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Major Labels in Crisis

3 Years: 26% Sales Drop

Online piracy

CD piracy

Shrinking retail space

Competition from othermedia

Music Quality


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Traditional Client/Server vs.BitTorrent

More Computers RequireMore Bandwidth

Customers DistributeContent


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Innovation effect Lowers competition with

established standard Increases innovation within

standard

buyers

sellers

Users (Windows,PS2)

Developers

(programs, game titles)

members

Understanding Network Effects(a.k.a. Network Externalities, Metcalfes Law)

When present, product or services

become more valuable as itsinstalled base expands.

Why? Users crave Exchange opportunities Stability

Extrinsic BenefitsCharacteristics: Early competition,

bandwagons, monopolistictendencies

Best products dont always win.


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Channel Extending Intermediaries

supplier customer

CEI

supplier

supplier

supplier

customer

customer

customer

Search for opportunities to add value: e.g. high customersearch costs, switching costs, low customer satisfaction

Wield new power by consolidating traditional buyers &customers. Become the first-line interface with consumers.


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Auction Formats

Liquidation Auctions:(e.g. Priceline)

suppliers customersauction

Market Efficiency Auctions: (e.g. eBay)

Seek lowest priceon widelyavailable goodsand services

auction

disincentives to use auction shrinksupply over time

Seek first tomaximize existing

channels & reduce

inventory

suppliers customersSeek access tounique / rareproducts orservices

incentives to use auction increasesupply over time

Auction format isfavored over the

inefficiency ofexisting channels


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Leading Global Retailers


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Shop, Buy/Transact, Communicate

Search, Be Entertained


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Dependent on paid & naturalsearch


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IPO Inefficiencies

Company Date

Shares

Underwritten

Initial Offer

Price

First Day Close

Share Price Difference

Percent

Undervalued

JetBlue 4/12/2002 5,500,000 $27 $45.00 99,000,000$ 67%PayPal 2/15/2002 5,400,000 $13 $20.01 37,854,000$ 54%

NetScreen Technologies 12/11/2001 10,000,000 $16 $23.72 77,200,000$ 48%Magma Design Automation 11/19/2001 4,850,000 $13 $18.99 29,051,500$ 46%Global Power Equipment 5/17/2001 7,350,000 $20 $31.45 84,157,500$ 57%Simplex Solutions 5/1/2001 4,000,000 $12 $21.20 36,800,000$ 77%

The Firm small Investor

small Investor

small Investor

$45/share

Underwritingsyndicate

pays a

7% fee $27/share

Institutions

& largeinvestors

ompany ate haresUnderwritten

UnderwritingShare Price

irst ay loseShare Price

i erence ercentUndervalued


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Underwritten Share Price Share Price Undervalued

JetBlue 4/12/2002 5,500,000 $27 $45 $ 99,000,000 67%

PayPal 2/15/2002 5,400,000 $13 $20 $ 37,854,000 54%

NetScreen Technologies 12/11/2001 10,000,000 $16 $24 $ 77,200,000 48%

Magma Design Automation 11/19/2001 4,850,000 $13 $19 $ 29,051,500 46%

Global Power Equipment 5/17/2001 7,350,000 $20 $31 $ 84,157,500 57%Simplex Solutions 5/1/2001 4,000,000 $12 $21 $ 36,800,000 77%

Transmeta 11/7/2000 13,000,000 $21 $45 $ 315,250,000 115%

CoSine 9/26/2000 10,000,000 $23 $63 $ 400,600,000 174%

Active Power 8/8/2020 8,000,000 $17 $53 $ 286,000,000 210%

StorageNetworks 6/30/2000 9,000,000 $27 $90 $ 569,250,000 234%

VA Linux 12/9/1999 4,400,000 $30 239 1/4 $ 920,700,000 698%

Red Hat 8/11/1999 6,000,000 $14 $52 $ 228,375,000 272%

mp3.com 7/20/1999 12,300,000 $28 $63 $ 434,343,750 126%

Efficient Networks 7/15/1999 4,000,000 $15 $53 $ 152,000,000 253%

Tibco Software 7/14/1999 7,300,000 $15 $40 $ 182,500,000 167%

China.com 7/13/1999 4,200,000 $20 $67 $ 197,862,000 236%

CommTouch 7/13/1999 3,000,000 $16 $24 $ 24,000,000 50%

eToys 5/19/1999 8,300,000 $20 $77 $ 473,100,000 285%

iVillage 3/18/1999 3,500,000 $24 $56 $ 112,000,000 133%

AutoWeb 3/23/1999 5,000,000 $14 $28 $ 71,250,000 102%

Auto-by-Tel 3/24/1999 3,500,000 $23 $40 $ 60,375,000 75%

Prodigy 2/11/1999 8,000,000 $15 $28 $ 105,040,000 88%

VerticalNet 2/11/1999 3,500,000 $16 $45 $ 102,830,000 184%

Healtheon 2/11/1999 5,000,000 $8 $31 $ 116,900,000 292%

Pacific Internet 2/5/1999 3,000,000 $17 $48 $ 93,000,000 182%

Ec Channel Flux 06

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