bcE-CommerceKnowledgeSharingAugust1999,BainBeijingOffice1e-commerceInternetDevelopmentE-CommerceIntroductionBusinessImpactImpedimentsforE-CommerceBaineConsultingExperienceAgenda2e-commerceUseradoptionoftheWorldWideWebhasdramaticallyoutpaced

thegrowthofothercommunicationsmedia,settingthestagefor

revolutionarychanges.U.S.InternetAdoption3e-commerceUseradoptionoftheWorldWideWebhasdramaticallyoutpaced

thegrowthofothercommunicationsmedia,settingthestagefor

revolutionarychanges.U.S.InternetAdoption4e-commerceInternetUserGrowth

*Restofworldincludesallnon-U.S.countriesin1996-97and1999-2003Source:ComputerIndustryAlmanac;InternetIndustryAlmanac;BainanalysisOn-lineusageisskyrocketing,withfuturegrowthbeingfueledbyglobalpenetration.PRELIMINARY

U.S.

Europe78M179M163M148M135M103M55M35MCAGR(1996-1998)(1999E-2003E)CAGR57%27%50%15%

Asia

RestofWorld*WorldwideU.S.5e-commerceInternetPenetrationSource:Jupiter’s1998OnlineShoppingReport,Simba’sElectronicMarketplace2002,Forrester’s1998TelecomStrategiesInternetpenetrationinbothconsumerandbusinessmarketsissignificant.CAGR(1997-2002E)1%4%13%44%PRELIMINARYOnlineas%ofComputerHouseholds:52%77%Shoppingas%ofOnlineHouseholds:17%59%>1,000employees100-1,000employees<100employeesPercentofU.S.Business(1998)ConsumerBusiness6e-commerceInternetDevelopmentE-CommerceIntroductionBusinessImpactImpedimentsforE-CommerceBaineConsultingExperienceAgenda7e-commerceIndustryValueChainBusinessparticipationoccursinfivedistinct

marketsegments.UserAccessInternetInfrastructure`IntermediariesApplicationsEnablersAccessdevicesInternetserviceprovidersNetworkaccessequipmentTechnologyandsoftwareenablersServiceenablers,e.g.:professionalservicesdatamanagementaffiliateprogramsSupportenablers,e.g.:paymentsystems/transactionclearingdistributionwebservicesPortalsWebagents(e.g.,BOT)CommerceserviceprovidersVirtualtradingcommunitiesContentCommerceCommunicationCommunityHardware/transmissionequipmentBackbonetransport8e-commerceIndustryValueChainBusinessparticipationoccursinfivedistinct

marketsegments.UserAccessInternetInfrastructure`IntermediariesApplicationsEnablersAccessdevicesInternetserviceprovidersNetworkaccessequipmentTechnologyandsoftwareenablersServiceenablers,e.g.:professionalservicesdatamanagementaffiliateprogramsSupportenablers,e.g.:paymentsystems/transactionclearingdistributionwebservicesPortalsWebagentsCommerceserviceprovidersVirtualtradingcommunitiesContentCommerceCommunicationCommunityHardware/transmissionequipmentBackbonetransportNortelNetworksDell3ComAmericanonlineCompanyexamplesNortelNetworksLucentCiscoCompanyexamplesMicrosoftIBMOracleYahooAmericanonlineAmazonDell9e-commerceIndustryValueChainInternetInfrastructureUserAccess`IntermediariesApplicationsEnablersContentCommerceCommunicationCommunityThisisE-Commerce!!!10e-commerceE-CommerceGrowthBySegment

(UnitedStates)Source:IDC;Jupiter;Forrester;AnalystReports;Bainanalysis;eMarketerPRELIMINARYHowever,thevastmajorityofgrowthwillbedriven

byapplications.11e-commerceSegmentComparisonInternettrafficdrivestheperceptionthatE-Commerceisaconsumerphenomenon,butthelargerrevenueopportunitieslieinbusinesstobusinesscommerce.PercentofTotalPercentofTotalCAGR(1998-03E)97.7%49.6%InternetTrafficE-CommerceRevenue12e-commerceWebBusinessModelsTradingBuyingSellingUsingtheNewMediumCreatingtheNewMediumContextConnectionContentCommunityCommerceWebbusinessmodelscanbesortedaccordingtothebenefittheyaredeliveringtheuser.UserBenefit:Currentrevenuesources:ConnectiontotheInternetFindingwhatyouwantonthewebUserfeesPhonecompanykickbacksHostingchargesAdvertisingHostingListrentalCo-marketingCurrentMajorPlayers:AOLUUNet@Work@HomeAOLYahooNetscapeExciteInforma-tion,entertain-ment,etc.InteractionwithotherssharingsameinterestEasieraccesstothingspeoplewanttobuyAccesstobuyersandeasiersellingrelationsMarketplacetobuyandsellwithothervisitorsAdvertisingUserfeesAdvertisingSalesBuyingadvantageCommis-sionsAOLOneSourceCNNBBCAOLYahooChemdexVerticalNetACiscoDellSchwabTravelcityGETPNPeBayAPhoneMarketF13e-commerceInternetDevelopmentE-CommerceIntroductionBusinessImpactImpedimentsforE-CommerceBaineConsultingExperienceAgenda14e-commerceTheInternetisamajordiscontinuitythatwillredefinethestrategiclandscapeineveryindustry.Productcustomization/qualityGeographicproximityMechanicalinnovationTransportationinfrastructureScaleeconomiesMassmarketingUbiquitousreachtoallstakeholdersDramaticallylowercostinteractionsComplete,symmetric,“free”informationWellordered,multi-tiereddistributionEfficient,optimizedphysicaltouchrelationshipsTrulyuniqueuserexperiencedeepercustomerrelationshipsbroaderreachCompleterestructuringofindustrysupplychainsLowercostandenhancedproductivityCraftBasedEconomyIndustrialRevolutionMassProductionInternet/InformationRevolutionS

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i

ersDIstrIbutorsManufacturingResellersCustomers

InternetImpact

InternetRevolution15e-commerceInternetImpact

ImpactOverviewTheseresultindramaticchangesacrosscompanyrelationshipswithcustomers,suppliers,employeesandotherstakeholders.CustomerRelationshipManagementSupply

ChainIntegrationInternalBusinessManagement16e-commerceImpactOverview

CustomerRelationshipManagementEvolutionDescription:Example:Multi-tiereddistributionmodelMassmarketingLimitedinventoryFewvalue-addedservicesTraditionalModelProducer“Bricksandmortar”bookstoreDistributorRetailerConsumerE-CommerceModelStreamlineddistributionmodelTargetedmarketingScaleinventoryandselectionRobustrangeofvalue-addedservicesAProducerProducerProducerCommunityRetailerValue-AddedServicesConsumerE-Tailer17e-commerceCustomerRelationshipManagementEvolution

(BenefitsofE-CommerceModel)AisacompellingexampleofanE-Commercecustomerrelationshipmodel.Efficientpurchaseprocessquicklog-insearchbytitle,subject,authorreadreviews,recommendationsone-clickorderingreceivebooksbymailSuperiorselectionandavailabilityAdjacentproductofferingse.g.,music,video,othersValue-addedservicesreviewsproactive,tailoredrecommendationsBenefitstoCustomersBenefitstoFirmSubstantiallylowercostsinfrastructureinventorypersonnelDeepcustomerrelationshipone-to-onemarketingpotentialforhigherloyaltypurchasesacrossotherproductlinesmorefrequentpurchasesBroadercustomerbasegeographicreachexpandedpoolofprofitablecustomers18e-commerceSource:FortuneMagazine;BainEstimates;JupiterCommunications1998RevenuegrowthofnewentrantslikeAmazonisfueledbyofferinggreaterselectionandasuperiorshoppingexperience.ProductSelectionImpactOverview

RevenueEnhancementCustomerInteractionCostSearchProcess:InformationdesklinesImmediateBookssortedbysectionBookssortedbytitle,subject,author,keyword,proactivesuggestionScanningQuerying19e-commerceImpactOverview

CostReduction*Assumes15%inventorycarryingcosts**Assumesfullyloadedemployeecostof$30KSource:OneSource,BusinessWeek,HummerWinblad,OnesourceOnlineretailershaveasubstantialcostadvantageovertraditionalretailers.7.8%EstimatedSavings:Lowerinfrastructurecosts(RentalExpense/Sales)PercentageofRevenue5.4%*Betterinventorymanagement(DaysInventory)DaysInventory20e-commerceImpactOverview

SupplyChainIntegrationEvolutionDescription:Multiplebuyer-sellerinterfacesinbiddingprocessIndividualcompanyscaleinbuying/sellingCatalog-basedselectionandpurchasingoutdatedinventorylistingsmanualprocessTraditionalModelExamples:TraditionalindustrialmodelSupplierSupplierSupplierBuyerBuyerBuyerSinglebiddinginterfaceScalebenefitssharedacrossparticipantsVirtualmarketplaceconnectingsuppliersandcustomersUp-to-dateonlineinventorylistingsOnlineorder-takingprocessTPN(GE)ChemdexE-CommerceModelSupplierSupplierSupplierBuyerBuyerBuyerVirtualCommunity/IndustryConsortium21e-commerceImpactOverview

SupplyChainIntegrationEvolution

(ChemdexExample)Chemdexisapowerfulexampleofan

E-Commercecustomerrelationshipmodel.LowercostsmarketingleveragemarketingthroughChemdexpresencedistributioncatalogsoverallcostreducedby15%ofrevenueIncreasedsalesdecreasebuyertransactioncostswillincreasedemandBenefitstoSuppliersBenefitstoCustomersIncreasedconvenienceduetoonlineproductinventorymoreaccurate(updateddaily)consolidated(130suppliersparticipating)space-saving(freesupshelfspaceincustomers’offices)comprehensive(fivetimesmoreproductsthanbiggestpapercatalog)Lowercostsmoreefficientordering/purchasingprocesstransactioncostreducedfrom$100to$10or$2022e-commerceImpactOverview

SupplyChainIntegrationEvolution

(CompanyExtranets)Description:Multi-tiereddistributionmodelMultiplepurchaseordertriggersBlockordering(manual)LimiteddatasharingTraditionalModelSupplierSupplierSupplierProducerExample:TraditionalFoodManufacturerDistributor/WholesalerRetailerConsumerPurchaseP.O.P.O.P.O.P.O.P.O.E-CommerceModelIntegratedpurchasing/ProductionModelSinglepurchaseordertriggerAutomaticjust-in-timeorderingDetailedDataSharingSupplierSupplierSupplierDreyer’sGrandIceCreamProducerRetailerConsumer23e-commerceImpactOverview

InternalBusinessManagementEvolutionDescription:Hierarchical,functionally-orientedcommunicationbarrierstosharinginformationcross-functionallyslowtoshareinformationverticallyMultiplesystemsthroughoutorganizationredundantincompatibleLinearcross-functionalworkprocessesseriallyprocessedmultiplehandoffsiterativeTraditionalModelE-CommerceModelFully-networked,flatinformationexchangeFullycompatibleinformationsystemsUniversalaccesstoinformationCollaborativeworkenvironment24e-commerceInternetDevelopmentE-CommerceIntroductionBusinessImpactImpedimentsforE-CommerceBaineConsultingExperienceAgenda25e-commerceStrategicOperationalOrganizationalThereareanumberofpotentialimpedimentstosuccessfullyimplementinganInternetstrategythatneedtobeaggressivelymanaged.KeySuccessFactors

ImpedimentsIntegrationofphysicalandelectronicbusinessprocessesIntegrationoflegacysystemswithnewonlinesystemsAccesstoandmanagementofrequiredtechnologyConsistentoperationalexcellenceRightorganizationalstructuretooptimizebusinessinphysicalandelectronicworldintegratedorganizationmayslowE-CommercedevelopmentseparateE-CommerceorganizationmaynotleveragecoreassetseffectivelyTraditionalbusinessmodelmetricsmaybeinadequate/inappropriateBuildingcapabilitytodevelopandretainrequiredE-CommerceskillsChannelconflictBrandmanagementinmultiplemediumsabilitytodeliverconsistentvaluepropositionProductpricingstrategycustomizationoptionsbundlingAbilitytocreate/sustaindifferentiationonlineAbilitytodeveloprequiredstrategicrelationshipsWinningagainstnewbreedcompetitors26e-commerceKeySuccessFactors

ImperativesOurexperiencehighlightsthefollowingcharacteristics

ofwinningcompanies:TakeactionearlysetdirectionlaunchexperimentsEstablishframeworkwithinwhichdecisionscanbetakenOrganizeforsuccessrecruittalentsecurefundingFormpartnershipscriticallyassesscapabilitygaps27e-commerceInternetDevelopmentE-CommerceIntroductionBusinessImpactImpedimentsforE-CommerceBaineConsultingExperienceAgenda28e-commerceIndustryExperienceBainhasworkedwithcompaniesacrossInternetmarketsegmentsinavarietyofindustries.Access=BainExperienceInfrastructureEnablersIntermediariesApplicationsHighTechTelecommunicationsRetailFinancialServicesConsumerProductsIndustrialProductsMediaLogisticsManufacturingIndustries:VentureCapitalInternetMarketSegment:29e-commerceBainE-CommerceClientsAOLArrowElectronicsBeedoABDACOMDatacastDEXFiatGreatUniversalStore