e-Strategy Pure and Simple
Chapter Three
Killer.com: Page 3

Traditional Value Added

Historically, companies in the intangible service industries have added value through a person. Banks help you borrow by consulting a bank manager who gives verbal advice. Insurance companies have used brokers to give advice to their customers and add value. Stockbrokers have done the same through an army of salespeople. In other words, the added value is almost totally dependent on the quality of advice transmitted through a person.

The manufacturers of "hard" goods, on the other hand, have attempted to add value in the product itself by adding more and more physical features. Most of the added value, therefore, resides in the product itself and only a small part is based on complementary information.

The new economy is characterized by a value chain that can be fully integrated into the Internet and its supporting cast of technologies such as servers, routers, mobile computing, wireless communication, ever increasing bandwidth, data mining software and so forth. Thus, the reason why "intangible" service companies will suffer the greatest impact from the Internet. Their entire process of adding value is being threatened.

Companies making "tangible" products have a better chance of minimizing the impact of the Internet on their businesses since the mostly likely areas to be attacked by a killer.com will be the sales & marketing parts of their business model. These two areas are the most vulnerable to the Internet because they have the most dependency on information-laden processes.

Barnes & Noble's traditional business model, created to deploy its strategy, was based on a network of very large stores - so-called "bricks and mortar". In this model, information regarding a customer's profile and reading habits is not collected and therefore cannot be recycled to create other services that add value to these customers in other ways that eventually ends in that customer buying more books.

When a person walks into one of their stores, that person's reading preferences are unknown to Barnes & Noble. At amazon.com, on the other hand, that information plus ample more, is well known to that company and held in databases for future use. To date, amazon.com has such information on 17 million of its customers. These databases allow amazon.com to know exactly the current interests of their customers but also, their future interests.

Simply having each customer's e-mail address allows amazon.com to do 1:1 selling of new book releases that contain subject matter that they know is of interest to each specific customer. This allows amazon.com to notify each customer when a new book on that topic will be available and asks him or her if they are interested. In this manner, they add value to their customers by supplying them information that Barnes & Noble cannot provide. This capability gives amazon.com a tremendous advantage.