Online Business Networks
Abstract
In the wake of 21st century, many businesses have shifted their focus to online operations in a bid to secure local and international business opportunities. While some focus on building wider-scope of clienteles, there those who feel that such online business networks would only succeed under well managed value aspect in the e-business. For such ventures to remain competitive in the global niche there is dire need to employ strategies that would effectively handle hinges associated with four mutually dependent dimensions namely lock-ins, efficiencies, novelty, and complementary. If all online business has to keenly exploit the business opportunity that our internet provides, then the management ought to employ diversified strategic management theories in ensuring value creation on such online businesses. Lack of close-geographical boundaries in the virtual markets has made it tricky for modern business operators to effectively monitor value-creation procedures in the global fronts. Nevertheless, this can be achieved as advanced by this document under integrated approach where theories such as transaction costs economics, Schumpeterian innovation, strategic network theory and resource-based view theories can boost online bid to effectively utilize technology in delivering their best to defined target market (Amit & Zott, 2001).
Introduction
Modern online networks are attracting industry and academic researchers’ attention owing to their perceived intrigued reach and affordances. By definition, an online network is an interconnected infrastructure that allows individual or business to effectively interact and perhaps share information via internet. The interlinked end-users enjoy the facility by accessing data, viable information of any interest and use such information to derive at the required decisions. Even though the technology nature of these networks is fairly consistent, the perceived culture that tends to define the network sites is varied. For example, online networks may be business based (like eBay.com, PayPal, Amazon.com, among others), whilst others may be socially oriented (like MySpace.com or even Facebook.com). A well interlinked network via internet creates online-information networks. The most notable feature about online information networks is the perceived capacity to monitor and disseminate important information to end-users under customized approach. Information networks will always allow all logged-in users to access secured information, whilst restricting unregistered users for security reasons. Where some of the secured information of any individual may be tapped with by a hacker, it’s under discretion of Information Network security teams to instigate tight security measures to enhance such network credibility.
Discussion: Article summary
The article aims at attaining two key themes in an attempt to indicate how value-creation in online or e- business can be achieved across cultures. First, the author tends to concentrate on unique features mainly associated with virtual markets; aspect key researchers have deliberately skived. It’s worth noting that, all online business operates in the virtual market where “reach” criterion plays an imperative role in governing business success. “Reach” defines the perceived high numbers of products and people/ clienteles’ accessibility. According to the author, information ‘richness” is a vital consideration that allows individuals or even businesses share detailed and in-depth-sought information, which is easily accumulated, availed, and possibly exchanged or shared between market participants (Amit & Zott, 2001). While conventional theories have challenged the author’s position in relation to virtual market, it’s evidently clear that the prevailing e-networks’ open standards has instigated the regeneration or mass emergence of virtual communities thus disregarding the renowned traditional value-chains in our organizations. The emergence has brought about the new aspect of re-intermediation that has deliberately allowed online business operators keep contact with sellers in potential or existing markets.
The second theme advanced by the author relates to value creation in modern online businesses where suggestions are made to have key players employ integrated approach in managing their defined virtual markets. Under value creation, the author has indicated how Amazon.com has employed basic traditional and modern integrated approach in creating value. The major areas analyzed by the author includes the value chain in relation to Amazon.com operations, Schumpeter innovation, strategic network theory, resource-based view approach and transaction cost economics, as key areas which qualifies Amazon.com to be an online business network
Reasons why Amazon.com qualifies as an online business network
Virtual Market
Online business networks are characterized by open network that creates a community of sellers as well as buyers on a single network. This network is then coordinated in order to allow free-flow of business information. The coordination may feature business-to-business, or business-to-customer applications. Coordinated market activities has made it possible to have well governed virtual market where group-wares of affiliates Software are employed under customized technique in solving user related business problems in a single network. Affiliate firms’ programs or Software has enabled modern businesses to enhance their capacity in developing and retaining virtual market. As a business network, Amazon.com has an array of unprecedented reach capacity attributed to close-lack of impending geographical boundaries associated with traditional business chains. The author has effectively underpinned the key aspect business processes, and how these arrangements made possible through virtual markets has placed firms such as Amazon.com in the lead. For example, virtual market has enabled Amazon.com to effectively transmit and possibly relay product or services information to diverse clienteles’ base. An indispensible feature of any online business network is premised on the facility’s capacity to effectively coordinate market operations. For example, Amazon.com does renovate its official-web site in order to effectively coordinate its business portfolios by relaying necessary information to all clients (Amit & Zott, 2001).
As the author indicates, successful virtual market employs possible technological based techniques to avert any cases of information brokers who may jeopardize business ideal mission in targeting global markets. Web-redesigning and out-look improvements assist any online business to feature high revenue mark on ranking. In addition, online businesses ought to ensure a wide-range or variety of product or service offer. On realization of this idea, Amazon.com has effectively engaged an inclusive web-page that virtually allows one shop for a variety of products ranging under the “Shop all-Department” features. Under this feature, consumers can easily use guided search protocols in accessing or even for taking-a tour on products in offer. For example, the common featured departments include Automotive& industrial, kindle, books, Electronics, Digital downloads, Grocery, Beauty and Health, and sports& Outdoors, among others. In addition, successful virtual markets are associated with online business operators’ capacity in ensuring easier access to various products or the improved technology that makes it possible to offer complementary products. In this case, Amazon.com is not exceptional since the firm’s websites is characterized by high-technological designs that allows in offering complementary products under designated product department or category (Amit & Zott, 2001).
ICT Applications
It’s indispensible for any online business to employ out-dated ICT applications in coordinating its business operations. ICT applications allow the business to efficiently scrutinize essential activities in the business emanating from external operations, and business-relationships with various groups or individuals. According to the author point of view, ICT is a crucial resource-based aspect which if utilized sufficiently, as allowed by knowledge management procedures, enhances firm’s innovative competency levels. The author portrays an idea that, many online businesses fails owing to their incapacity to remain resource-based in terms of technology use, and continuous improvements on out-date technological capacities. In businesses where information changes drastically, there likelihood that not all firms will match the trend and as such, chosen-few will marshal their technological capacity in engaging the competition. Enraging competition technology-wise requires such online business networks to employ that form of technology that easily hard to copy or inimitable, in an attempt to avert any cases of hackers taking advantage of system flaws or loopholes (Viswanathan, 2005).
It’s interesting to note the direction taken by the author in illustrating how an online business ought to be resource-based. The author frames Resource-based View (i.e. RBV) as the business capacity to create value by efficiently marshalling as well as combining various resources for competitive reasons. Amazon.com seems to have attained this hallmark as indicated by the firm’s capacity in utilizing its human capital in enhancing its technological resources. For example, it’s under creative workmanship that Amazon.com has continuously improved Customer Interactive features by offering facilities such as log in or registration to new users/customers. Additionally, the firm has succeeded in combining technological resources in building the celebrated “Your Amazon Browser” which allows any internet user to enjoy advanced “internet explorer features” even when not interested with online shopping. Undoubtedly the firm has employed all its resources by including creative “features & services” facility which caters for sellers’ needs in reaching out to global niche. Online business network’s resources as well as capabilities are only valuable if they tend to drastically reduce the business costs structures, whilst increasing its profitability levels. This is a key aspect of RBV for existing online businesses (Amit & Zott, 2001).
Reasons why Amazon.com has been a successful online Business Network
Use of Channel Differentiators: Technology Enabled
For years, eBay.com has been a close-range competitor to Amazon.com as the two firm’s products offering greatly appear similar. Under the portfolio of books the two firms has been offering this product, which basically has identical features. As such, an effective online business operator ought to employ the idea of technology enabled facility to assist in channel differentiation. On this consideration, Amazon.com has relentlessly ensured that necessary technological features on identical products such as books are effectively complemented by a collection of value-added features in order to possibly influence consumer choice. For Amazon.com to be successful it has taken-decades of craftsmanship and creativity in ensuring that products selling under identical physical attributes as the competitor’s undergo information-matrix alteration. Alternatively, the firm may institute new-site designs or distinctively unique user-interfaces which may provide the consumer with customized and personalized shopping experience.
A key feature which may have assisted Amazon.com to sail through this turbulence is the “one-click ordering” facility, shipping as well as handling or well managed online-customer service. Most pertinently, Amazon.com has employed technology to avert possible trade-offs associated with common features among channels, by highlighting various aspects of the clienteles or consumers’ buying experiences (Amit & Zott, 2001). In order to achieve this Amazon.com has been identifying with consumer’s features preferences in order to avert any cases of disutility or misfit costs. For example, Amazon.com management has worked hard to ensure that ensure that only consumers’ who prefer live support, personalized and consumer tracking technologies, are availed such technologies as similar facilities would be regarded as intrusive to those consumers who do not identify with such tastes. When Amazon.com is deliberately lowering the perceived misfit costs, efforts are undertaken to ensure that only technologies like user profiling, or extensive customization of website, are executed in order to see misfit costs go down. From the author’s opinion, it’s better to institute RBV where resources are geared towards reducing any misfit costs to the firm’s advantage.
As drawn from the article, strategic networks approach in online businesses plays a key role in ensuring that technology based channel differentiation adds value to the firm. The suggestion raised by the proponents indicates three ideas. First, strategic networks under any established online business networks or even e-business helps any firm to effectively create wealth owing to advantages associated with networks of customers, sellers/suppliers, or any other partner in the wider virtual market space. Strategic networks have been evidenced by the established mergers or partnership between Amazon.com and Internet Explore providers, in offering “You Amazon Browser” facility. In this case there those technological risks that Amazon.com is able to contain from this partnership arrangement. Secondly, as evidenced from Amazon.com marketing strategies, the firm is able to enjoy some economies of scale thus creating value to the business advantage (Viswanathan, 2005).
From the article, the author identifies the case of Princeline.com where the firm has created wealth through network density capacities by establishing steady inter-organizational ties with other ventures such as airlines and credit firms. From this aspect, Amazon.com has included key features that facilities online-payments, a risky aspect that the author anchors to the firm’s exemplary capability in ensuring averting consumers’ scams. Finally, as noted by the author, various resources have to be used in order to effectively differentiate channels used in either offering the product or making payments (Nambisan, 2003). For instance, Amazon.com employs secured payment approaches as made possible by strategic partnership with the paying firms. Individual accounts are encrypted to secure consumers or user’s profile data, which might leak to hackers. Securing this information follows firm’s security measures, and as noted by the author such an approach increase transaction efficiency.
Network externalities and favorable switching costs
Online business-network externalities create value, and enhance firm’s ability to retain online-shoppers. Firms enjoy network externalities where consumers who possibly enjoy products or services from those firms refer close-relatives or even friends to buy from the online facility. This has been facilitated under the popular social networks, where may get to know about Amazon.com. The success story of Amazon.com has thus reaped the benefits of network externalities in two aspects. First, the business has effectively employed IT to build a formidable “whish listing” feature which enables new users to quickly search and perhaps take an adventure on what the firm presents under various portfolios. For example, “Amazon remembers” is a paramount feature that ensures that the consumers’ transactions are stored under the firm’s database for referral purposes. The members are required to log in, and access their information. This experience alone creates interactivity between the firm and particular users who may refer their associates to buy certain product. This facility enables the firm to manage consumer’s influx more effectively by ensuring that all information that relates to the user is availed when needed.
In addition, the consumers end up enjoying more benefits owing to the firm’s strategies on consumer switch-offs. Switching-off relates to the arte by which consumers may decide to settle for a competitor’s product or online facility. Under Amazon.com strategies, the web outlook has been modified to contain valuable web services as made possible by various sponsors. Borrowing from the author, online business may create value by enacting policies that controls customer turnover by possibly increasing switching costs to prevent any repeated situations where brand loyal clienteles leave the firm (Bapna et al, 2004). For example, new users find facility such as “pricing strategies” favorable as it allows such consumers to select a well priced product that is bestselling in the virtual market. Following the pedagogy of Schumpeter on business innovation, Amazon.com has consistently been employing innovative technologies through exclusive online marketing campaigns. For example, novel combinations on business technological innovations has built formidable framework under which the firm has effectively been enjoying technological advancement through partnerships and collaboration with other market players. The featured customer reviews, allows new consumers get to understand the key reasons as to why purchasing a given product would benefit the consumer. This has been an effective business-to-customer (i.e. B2C), that has helped Amazaon.com retain consumers all-years.
Functionalities Reasons in forming Business networks
There various common functionalities consideration that makes various business networks. First, the perceived high costs in marketing or running business operations make economically viable to form networks with businesses in the same-line of operation. Business can only create value, if all the undertakings are profitable and as such the same business is able to sustain growth. In order to effectively grow marketing procedures are essential. Creativity associated with marketing personnel can be shared where business form online business network, thus reducing the costs associated with individual-business market efforts (Kangas, 2003).
Secondly, business form network in an attempt to share common facilities such as internet infrastructure, supply chain facilities, and any other facilitative scarce resources. When shared these facilities or infrastructures reduces business costs both in the short and long-run. By sharing infrastructures a firm is able to form workable business-partnerships that assist such firms in containing operations risks associated with modern technology. Shared infrastructures also go a long way in improving business efficiency levels. Efficiency issues may arise where a firm has to deliver various services in virtual market, and the involved transactions may be time-consuming thus reducing the business mission in delivering their best to the customers. But when operating under common online business network, the firm is able to coordinates and facilitates necessary transactions under short-time scales (Swaminathan, 2003).
Thirdly, borrowing from Amazon.com scenario, it’s profitable to form online business networks on the basis of creating value for consumers as well as firm’s interest. Intelligent associated with “internet explorer providers” has enabled Amazon.com to create value thus growing business to global heights. Networks has enabled firms to formulate a competitive strategy having their partners benefit in mind, and therefore any move by the competitor to target a market for a business under similar network, can be easily contained. Finally, business forms online networks in order to remain competitive by enjoying the benefit associated with network externalities. As indicated by the author, network externality adds value to the firm by assuring greater consumer base from referrals. Referred customers will definitely prefer products associated with similar supply chain. On this realization, the firm is able to seize greater market share amid completion.
Causes of online business failures
The author underpins diverse factors that may lead to online-business failures. As noted earlier, all these factors are related to business value-creation capabilities. First, for years online-businesses have been failing due to poor management on transaction costs. High cost structures tend to compromise annual revenues, and the resulting profitability levels thus reducing firm’s ability to finance R&D (i.e. Research &Development). Under online business procedures, transaction costs arise where any product or even service is transferred between two or more separable interface. From these procedures, a particular assembly operation terminates whilst another commences (Rajgopal, et al, 2003). Cost arises where transactional inefficiencies associated with asymmetric information and uncertainties increases online business governance risks by meeting extra costs in running the transaction procedures or in facilitating related payment procedures. Firms under this consideration are required to ensure transaction efficiency is attained in order to remain profitable.
By undertaking key procedures to ensure efficiency during online transactions, cost economies are guaranteed thus making it possible to appeal to public on-any product offered to the market. Some online businesses fail since they are unable to manage and ensure transaction cost economies by deliberatively attenuating uncertainties, or regulating information asymmetry. The exchange occurring between online businesses and perhaps the paying agent requires well laid infrastructure that facilitates lower costs associated with idiosyncratic exchanges. For any firm operating online portfolios, caution ought to be taken to ensure mutual trust and reputation between exchange firms occurs, thus making more possible to facilitate transactions if during hard-economic situations. Firm’s which concentrate on building effective transaction procedures, ends up being successful as compared to their counterparts with no interest in enhancing transaction infrastructure (Singh & Kundu, 2002).
Secondly, online business may fail where the management fails to employ integrated IT capacities in running the business operations. If online business fails to recognize the need to create value by seeking strategic networks or perhaps using virtual market-players experience, the ability to market firm’s product is limited to the perceived business capability alone. For example, partnership with Social Networks allows online businesses to create a definite network of consumers which may be targeted by offering a customized service or product that clearly identifies with the consumers’ interests. Firms which overtly remain closed in terms of technology advancement and the apparent capacity to cease opportunity in creating partnership/strategic networks end-up exiting virtual market early. Usually, online-business life is dependent on the technological capabilities to remain ahead of competition.
Thirdly, online business failures have been linked-to poor strategies in carrying-out essential transactions. For example, consumers will usually shun-away any online business venture that is repeatedly featured in our Medias for failure to deliver consumer products and process necessary receipts or documentations in-due time (Viswanathan, 2005). Not only such dying businesses suffer alone, but also take with them close allies, who possibly act business partners. For instance, firms who form partnership with various online businesses may suffer a blow whenever such firms are associated with any scam. Commonly, online businesses fail in the face of scam related dealings whether in the knowledge of the partnering venture or not.
Public appeal tends to play a key role in creating long lasting virtual market in the global fronts (Holden, 2007). If competitors tend to capitalize their fellow-counterparts business scam dealings, there are high chances for the victimized firm to loose business globally. Various businesses have been reviewing their payment procedures, and registration procedures with new users/clienteles in a bid to create public confidence in their online trade operations. Business which fail to manage ill-motives from competitors, may find themselves in a non-reversible business situations where exiting the market stands as the only resort (Barua et al, 2004). If any business is linked with scam cases, consumer trust and potential investors’ interest is cut-short. Loosing investors tend to narrow down the capital scope on such firms, thus compromising their ability to expand. Online businesses serves a large clientele base, and if caution is not taken to ensure exponential growth after-breaking even, such businesses are likely to be faced-out owing to stiff technological capital requirements or outlay that goes along with IT advancements in online ventures.
Strengths and weakness derived from Article
The author effectively analyses the aspect of creating value among online-business networks by employing applicable theories. While some authors concentrate on using a mere longitudinal approach in analyzing results related with, the author has gone a mile further by including cumulative research findings to indicate how online business networks or e-business operates. The results findings were more credible since consideration were made on about 59-ebuiness firms in analyzing the online business operations. Another strength aspect is based on use of multiple open-ended questions that allowed for data reliability across all samples. Finally, the author move to involve cases as well as multiple investigations allowed for effective use of replication logic during information analysis. The only weakness was based on the author deliberate move to narrow down the study to firms, without considered new upcoming ventures which derives more than 10%Revenue outlay from e-business operations.
Possible Recommendations for improving on the article Flaws
I do agree with the author’s opinion as far as value creation in online business networks is concerned but still some flaws need be addressed for further efficiency. In order to make the article more presentable, the author ought to have included graphical presentation on the perceived trends in modern online business-networks, to pave way for modern understanding on the growth trends. Again, there was a dire need to include a wider scope in defining the operations of online business networks.
References
Amit, R & Zott, C. (Jun/July, 2001).Value Creation in E-Business. Strategic Management Journal. 22(6/7); 493-520. Retrieved on May 28, 2010 from: http://www.jstor.org/stable/pdfplus/3094318.pdf
Bapna, R., Goes., Gupta, A & Jin, Y. (Mar., 2004). User Heterogeneity and Its Impact on Electronic Auction Market Design: An Empirical Exploration. MIS Quarterly. 28 (1):21-43. Retrieved on May 28, 2010 from: http://www.jstor.org/stable/pdfplus/25148623.pdf
Barua, A.Konana,P., Whitnston, A & Yin, F. (Sep., 2003). An Empirical Investigation of Net-Enabled Business Value. MIS Quarterly. 27(3): 331-364. Retrieved on May 28, 2010 from: http://www.jstor.org/stable/pdfplus/25148656.pdf
Holden, G. (2007). Starting an Online Business for Dummies. New York, USA: For Dummies Publishers.
Kangas, K .(2003). Business strategies for information technology management. London, UK: Idea Group Inc (IGI) Publishers.
Nambisan, S. (Mar., 2003). Information Systems as a Reference Discipline for New Product Development. MIS Quarterly. 27(1):1-18. Retrieved on May 28, 2010 from: http://www.jstor.org/stable/pdfplus/30036517.pdf
Rajgopal, S & Venkatachalam, M & Kotha , S. (Mar., 2003), The Value Relevance of Network Advantages: The Case of E-Commerce Firms . Journal of Accounting Research. 41(1): 135-162. Retrieved from May 28, 2010 from: http://www.jstor.org/stable/pdfplus/3542248.pdf
Singh, N & Kundu, S. (2002). Explaining the Growth of E-Commerce Corporations (ECCs): An Extension and Application of the Eclectic Paradigm. Journal of International Business Studies. 33 (4): 679-697. Retrieved on May 28, 2010 from: http://www.jstor.org/stable/pdfplus/3069589.pdf
Swaminathan, J, M. (Oct., 2003). Tayur, S. Models for Supply Chains in E-Business. Management Science. 49(10): 1387-1406. Retrieved on May 28, 2010 from: http://www.jstor.org/stable/pdfplus/4134012.pdf
Viswanathan , S. (March, 2005). Competing across Technology-Differentiated Channels: The Impact of Network Externalities and Switching Costs. Journal of Management Science. 51(3):483-496. Retrieved on May 28, 2010 from: http://www.jstor.org/stable/pdfplus/20110344.pdf