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Contents

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Word Count: 8183.................................................................................................................................1
Vikas Kumar Viswash...........................................................................................................................1
Date: 09/12/2009..................................................................................................................................1
Acknowledgment..................................................................................................................................4
Executive Summary..............................................................................................................................5

How internet help developing a Business

A project report submitted in part requirement for the MSc


Word Count: 8183
in Management.

University of Glasgow

Vikas Kumar Viswash Date:


09/12/2009

CHAPTER 1: Introduction....................................................................................................................6
1.1 The Internet: A technology changing the boundary of the firm.....................................................................6
1.2 What is e-business? .......................................................................................................................................7
1.3 The effect of Internet on business..................................................................................................................7
1.4 Dissertation Objective....................................................................................................................................7
1.5 Project Structure.............................................................................................................................................7
CHAPTER 2: Literature Review...........................................................................................................9
2.1 The Internet and its impact on International Marketing.................................................................................9
2.1.1 The Internet.............................................................................................................................................................9
How Internet help to develop a Business

2.1.2 Internet commerce..................................................................................................................................................9


2.1.3 The Internet and International Marketing................................................................................................................9
2.1.4 Characteristics ......................................................................................................................................................10
.....................................................................................................................................................................................11
2.2 The Internet and the e-value chain...............................................................................................................11
2.2.1 Netchising or Virtual value chain..........................................................................................................................11
2.2.2 International value chain.......................................................................................................................................11
2.2.3 International information chain.............................................................................................................................12
2.3 International Marketing Strategy and e-business.........................................................................................13
2.3.1 Internet issue and foreign market entry.................................................................................................................13
CHAPTER 3: Electronic Marketplace.................................................................................................15
3.1 “Internet” a virtual market...........................................................................................................................15
3.2 Physical vs. Virtual Value Chain .................................................................................................................15
3.3 Relationship marketing................................................................................................................................18
CHAPTER 4: Marketing on the Internet..............................................................................................20
4.1 Internet and Global Business Strategy.........................................................................................................20
4.1.1 Drivers of Internet Adoption in International Marketing.......................................................................................20
4.1.2 Impact of Internet on International Marketing Variables.......................................................................................22
4.2 Advertising on internet.................................................................................................................................23
4.3 Interactive advertising..................................................................................................................................23
4.4 Marketing with push technology..................................................................................................................25
4.5 Corporate identity in cyberspace..................................................................................................................25
CHAPTER 5: Analysis and Methodology...........................................................................................27
5.1 Competitive Advantage via Internet.............................................................................................................27
5.1.1 Porter’s three generic strategies for competitive advantage...................................................................................27
5.1.2 Stuck in the middle ..............................................................................................................................................28
5.2 E-business marketing Models and International Competitiveness..............................................................29
5.2.1 Rayport and Sviokla Model..................................................................................................................................29
5.2.2 Dutta and Segev’s Marketspace Model.................................................................................................................31
5.3 SWOT Analysis of Internet .........................................................................................................................33
5.3.1 Strength:................................................................................................................................................................33
5.3.2 Weakness .............................................................................................................................................................34
5.3.3 Opportunity ..........................................................................................................................................................35
5.3.4 Threat ...................................................................................................................................................................36
5.4 Safety tips.....................................................................................................................................................37
CHAPTER 6: Case study: eBay...........................................................................................................38
6.1 Introduction .................................................................................................................................................38
6.2 Acquisition of PayPal and Skype.................................................................................................................38
6.2.1 PayPal...................................................................................................................................................................38
6.2.2 Skype....................................................................................................................................................................39
6.3 SWOT Analysis of eBay..............................................................................................................................39
CHAPTER 7: Conclusion....................................................................................................................41
7.1 Introduction..................................................................................................................................................41
7.2 Replacement of old management technique................................................................................................41

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7.3 Increased competition .................................................................................................................................41


7.4 New opportunities .......................................................................................................................................42
7.5 New threats...................................................................................................................................................43
7.6 International marketing via Internet.............................................................................................................43
7.6.1 Potential benefits ..................................................................................................................................................43
7.6.2 Barriers ................................................................................................................................................................44
References & Bibliography: ..............................................................................................................45
APEENDICS:.....................................................................................................................................47
TABLE 1: .........................................................................................................................................................47
TABLE 2:..........................................................................................................................................................47

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Acknowledgment

I would like to sincerely thank to all those, without their help it would be impossible to
complete this dissertation. I would like to thank:

• Mr Robert Marshal, our dissertation guide, who guides me throughout the completion
of dissertation and shared his vast knowledge to improve our writing and understand
ability.

• Our librarian Ms Moira Sinclair, who helped me finding relevant books, journals and
database from the vast collection of University of Glasgow library.

• www.scribd.com and those who share scholarly articles and research work online; and
help their bit to spread knowledge across the globe.

• Yahoo Finance, who shared financial details of top organisations and helped me find
relevant data.

• All those scholars who have worked on different aspects of this topic and share their
knowledge.

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Executive Summary

The internet has major impact on the development of businesses. Now a company need not to
invest heavily to become a global company. They just need to have an infrastructure and a
product with global appeal. The consumers can reach them via internet.

The marketspace created by internet give opportunity to the firms to penetrate global market.
This marketspace is now the main focus of firm as it grows with high rate and the
infrastructure (i.e. bandwidth etc) is improving. They can now explore this marketspace by
innovative and creative way of marketing and product/service offering.

The internet has made increased the market size and hence sales volume; but at the same time
it made the competition even tougher than ever before. Now consumers are better informed
and want better value for their money. Apart from this the linkage between other partners of
business has become stronger and complicated giving a better business proposition. All this
raised the standard of product and services and consumers expectations.

The internet has allowed the firms to gain competitive advantage through reducing their costs
in value chain operations; allowing them to offer fast and efficient service; customizing
product to suit customer by interacting directly with customer; and helping move them
operation to cost effective place.

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CHAPTER 1: Introduction
1.1 The Internet: A technology changing the boundary of the firm
The internet is a network of computers who can share data and communicate between them.
Its reach is almost every place in this world (see table 1). Any other technology has never
changed a business as fast as internet has done. There are many stories of how a business
been transformed on internet. EBay, the biggest e-shop was created by his founder to trade
niche goods but now, one can buy or sell almost everything in this world to virtually
everywhere. You can transform your business if you are nicely connected to your customers,
suppliers and other trade partners. Internet is the best possible connector in a business who is
at your service for virtually nothing. There is whole world at your disposal and you don’t
need to open a shop everywhere. Only thing you need is internet connection with some
computer system. If you are able to offer a better deal you are in business otherwise,
irrespective of how big or small you are, you are going to run out of business. The impact of
internet includes:

1. Less importance of economies of scale.


2. Fewer barriers to internationalization.
3. Lower marketing communication costs.
4. Greater price standardization.
5. Less information floating time.
6. Easy and fast communication between buyer and sellers.
7. Changes in intermediary relationships.

The internet lowers transaction costs in three ways:


1. Search costs: The amount of information available to the buyer and the seller can be
increased with the help of internet and that can be accessed conveniently and timely.
2. Contracting costs: The internet helps to establish better communication and monitor
the performance of partners in business relationship. It is easier to negotiate and
compare prices via internet.
3. Co-ordination costs: The cost of sharing information is reduced due to internet and is
helpful in integrating business operations.

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1.2 What is e-business?


(Kotler and Keller, 2006) e-business describes the use of electronic means and platform to

conduct a company’s business. E-business is short form of electronic business, where internet

and related technology is used for normal business operations. Here internet is used to

increase productivity, reduce costs and thus to increase turnover.

1.3 The effect of Internet on business


Internet has changed the business immensely. It has made the world come closer and trade
economically and efficiently. It has created a virtual market where everything is available, not
physically but virtually. The greatest effect internet has done on business is that it made trade
price sensitive and more logical. A customer now is able to do the research work or
comparisons before buying a product or services. Not only customer but it has benefited firm
as well. Now firm is able to reach distant customer easily and cheaply. They can create
awareness about their product and can interact directly with customer to know their
preference, problem and potential solution. There is lot more to come and has impact on
almost every sector of business. In further chapters we will discuss about these impacts in
detail.

1.4 Dissertation Objective


The objective of writing this dissertation is as follows:

1. To analyse the role of internet in development of business.

2. To highlight the way a firm can effectively use internet technology to gain
competitive advantage over their competitors.

1.5 Project Structure


This dissertation is divided in seven chapters with each chapter dealing with a specific topic
dealing how internet helps in developing a business. First chapter ‘Introduction’ contains the

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basic detail about the internet and their business application. Chapter 2 with heading literature
review discusses about the internet and its impact on international marketing, the internet and
the e-value chain and international marketing strategy and e-business. Here, the things
discussed are the essence of the academic work of known writers. Chapter three discusses
about the virtual market (marketspace) and their different aspects (like how this market can
be exploited, what the possible pitfall are and where opportunities lies). Chapter four is about
marketing on internet. Here some of the important discussions are on interactive marketing,
push marketing and advertising via internet. There is also discussion about global business
strategy and driver that need to be adopted for international marketing via internet. In chapter
five, the academic analysis of internet as a tool for development of business is done. Here
porter’s generic competitive advantage model, Rayport and Sviokla model of marketspace
and Dutta and Segev’s marketspace model has been discussed in brief. Further a SWOT
analysis of inter is done with some suggestions. In chapter sis a very brief case study of eBay
is done. Chapter seven is about the managerial implication of the changing scenario due to
internet and in marketplace.

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CHAPTER 2: Literature Review


2.1 The Internet and its impact on International Marketing
2.1.1 The Internet

(Fletcher et al, 2005) The internet is a global network of interlinked computers operating on a
standard protocol that allows information exchange. (Carolyn Siegel, 2004) It is the world’s
largest network of interconnected distributed computer networks. Thus we can infer that any
system which is able to share information to other system through a globally accepted
protocol is part of internet and this whole interconnection may be called as internet.

2.1.2 Internet commerce

(Kotler and Keller, 2006) e-commerce means that the company or site offers to transact or
facilitate the selling of products and services online. The internet user in the world is growing
fast and so is the market scope for the marketers. According to Internet World Stat, 23.8% of
total world population are active internet user. Thus, a vast population of more than 1.5
billion is ready to buy and sell on internet given a better deal. It can be only imagined the
vastness and growth of market that within 8 year (2000 – 2008) the world internet users grew
by 342% and out of those users, 85% have purchased something on internet (Source, Nielsen,
Feb 2008).

2.1.3 The Internet and International Marketing

(Carolyn Siegel, 2004) Marketing is a collection of activities that bring buyers and sellers
together to make exchanges that satisfy and give value to all parties. (Carolyn Siegel, 2004)
Internet marketing or e-marketing (electronic marketing) is marketing on internet with the
help of emails, World Wide Web or other means. It also includes production and selling of
internet related products. According to Fletcher et al, 2005, the introduction of electronic
business has changed the fundamental principles of international marketing. He pointed out
certain things that internet has changed are:

1. Size of firm is no longer a barrier to internationalization.

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2. No need of overseas intermediaries as it became easier to locate customer and deal


directly with them.

3. No longer is traditional way of internationalization (moving from familiar to less


familiar country) applicable as information became easily available and the
communication medium is interactive.

The internet (as a low cost medium) allows small and medium firms to become global
marketer at their early stage. This is due to the fact that internet can help establishing
better communication among overseas customers, suppliers, agents and distributors.
We will discuss more about drivers of internet business model, impact of internet on
international marketing in chapter 5.

2.1.4 Characteristics

According to Richard Fletcher et al, 2005, the internet is both communication and a
marketing intelligence tool. As a communication tool it helps to build and maintain effective
communication with overseas suppliers, distributors and customers. The internet has good
information processing capability which acts as link between firm and external environment
(discussed later). This ability of internet used as marketing intelligence tool. The internet is
used as marketing channel and has following characteristics:

1. Ability to store vast amount of data (information) inexpensively at virtually different


location.

2. Interactivity and ability to provide information on demand.

3. Relatively low entry and establishment costs for sellers.

4. Serve as distribution medium for goods like software, e-books etc.

5. Powerful and cheap tool for searching, organizing and processing information.

6. The ability to provide better insight of a product than that of other form of printed
catalogue.

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2.2 The Internet and the e-value chain

2.2.1 Netchising or Virtual value chain

According to Beck and Morrison (2000), the physical value chain activity while globalization
has not seen good results. This is due to the fact that a firm uses their resources in overseas
activity at the expense of opportunities of domestic market. Not only that, there are other
problem faced by an organisation like coordination of physical operations across the globe,
the cultural differences, the cost of expatriates and vulnerability to environmental risk that
can damage reputation of the firm. Most of these problems can be effectively solved by
‘netchising’, a term coined by Beck and Morrison (2000). Netchising is the practice of
handing over overseas operations to partners (generally overseas) by outsourcing,
subcontracting or franchising. Netchising has following advantages:

1. Efficiency: generally overseas partners are more efficient and are specialized in
carrying out the outsourced activities than the outsourcing firm.

2. Convenience: exchange of information becomes easy. Now, orders can be directly


placed to the firm without any local agent and a firm can also share information to the
customers directly.

3. Reduction in Transaction cost: It reduces the cost of carrying business operations


which ultimately benefit the profitability of firm.

2.2.2 International value chain

According to Plumley (2000), international e-business value chain is the combination of e-


commerce platform and secure transaction support (see figure 2.1). The e-commerce platform
builds on the countries business rules and language where as secure transaction support
builds on currency clearing and legal requirement. According to Gartner Group, internet
affects the supply chain (see figure 2.2). It shows that a customer can buy and pay for the

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product or services easily and at the same time a supplier can also communicate directly with
customer and with their own other internal departments.

2.2.3 International information chain

According to Karmarkar (2000), internet value chain is closely linked with international
information chain. The language and cultural differences is the main hurdle in the path of
globalization of a firm. When a firm deals with information product (like music, e-books or

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software) then it becomes easier to go global. In certain cases when product or services are
not much attached to language or cultural factors (for ex. Technical publishing and industrial
sevices), then also it is easy to become global. In production of information product and
services low labour cost is the key as relative cost of hardware and software has come down.
Now, firms look for low cost labour market (like India, China) to develop information
products. Outsourcing of information services (customer care service such as call centres)
and software development cell are some examples. Thus we can say that in information value
chain, the physical infrastructure doesn’t play a vital role.

2.3 International Marketing Strategy and e-business

2.3.1 Internet issue and foreign market entry

According to Oxley and Yeung (2000), the e-commerce readiness of a market is determined
by three factors:

1. The rule of law: A customer is not able to see the original product while purchasing
online. Therefore, they need to be assured that if they purchase a product or service
online; they will get them as they were told or shown online in given time limit.
According to survey by e-consultancy in 2008, 84% buyers look for the sign that a
website is secure before making a purchase. Thus, a market (country) must be able to
provide an environment where property rights are well defines, courts are efficient in
resolving disputes and consumer credits and consumer protection regulations are well
established and enforced (i.e. strong tradition of the rule of law).

2. The transactional integrity of online business: It is difficult to track a e-business


trader by their e-mail address or website. Also, the entry and exit barrier in e-business
is low and this is used as a weapon by dishonest e-traders. They can execute fraud and
again be able to do it with a new name (as they can entre again in market with new
identity). When dispute arises, it is hard to practise legal action in a different country
and can be costly.

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3. The availability of infrastructure: migration from traditional market to online


market is not possible until customers have access to personal computer and internet
connection at reasonable price. Apart from these facilities, they do have the facility of
credit card or online payment system. Thus, internet related infrastructure and
financial infrastructure are essential

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CHAPTER 3: Electronic Marketplace


3.1 “Internet” a virtual market
According to Garrison, (1996), the internet acts as a catalyst for sociological change. It has
changed the nature of market, the way of business operation and the mode of communication
with customers and other business partners. It has created a marketspace which has affected
the traditional marketplace and consumer preferences by providing greater facilities to them.
Internet has become the largest market available to mankind where almost everything is been
sell or bought. This marketspace doesn’t exist in physical terms but can get everything
available in physical market.

3.2 Physical vs. Virtual Value Chain


Value chain is nothing but a set of value adding activity for the product or services. Rayport
and Sviokla, 1996, argued about a new value chain termed as ‘virtual value chain’ where
product or services exist as a piece of information and can be delivered through information
based channel of communication. This virtual value chain is different from physical or
traditional value chain where one can see or touch products. He said the virtual world as
‘marketspace’ while the physical world as ‘marketplace’. According to Fletchar et al 2005,
the virtual value chain is a realm where products and services exist as digital information
delivered through information based channel. He also differentiates virtual value chain and
physical value chain on the basis of information used. The virtual value system uses
information as the source of value while in physical value chain it is used as a supporting
element of value adding process. Thus we can say that now a day a firm has to compete in
two business environment, one is traditional and other is virtual business environment. The
distinction between the two can be understood by this example. “when consumers use
answering machines to leave a message, they are using an object that is both made and sold in
the physical world, however when they buy electronic answering services from the phone
company they are using the marketspace — a virtual realm where products and services are

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digital information and are delivered through information-based channels.” (Rayport and
Sviokla, 1996)

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Figure 2: The Virtual Value Chain in relation to The Physical Value Chain (source: Hollensen,
2001).

Adoption of Value Adding Activities: Company adopts value adding information activities
in the following three stages:

1. Visibility: Here large scale information systems are used to coordinate activities in the
physical value chain.

2. Mirroring Capability: It is the capability of substituting physical activities with virtual


and thus creating a parallel virtual value chain in the marketspace (see figure 2).

3. New Customer Relationship: This is the flow of information to customer to deliver


value in new ways. This parallel physical and virtual value chain operation allow
firms to deliver value to their customer in both marketspace and marketplace. These
operations create marketspace based relationship with customers.

The virtual value chain consists of five steps, say, gathering, organising, selecting,
synthesizing and distributing information. These value adding activity allow company to
identify customers desires more effectively and fulfil them more efficiently. This happens, for

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example, when a car manufacturer shifts its R&D from the physical to the virtual value chain.
By doing so, they involve customers of different locations in the new product development
process. The physical value chain is linear (a sequence of activities with defined input and
outputs), whereas the virtual value chain is non-linear (a matrix of potential inputs and
outputs that can be accessed and distribute by a wide variety of channels).

3.3 Relationship marketing


It is a way of marketing where marketers or firm try to attract, maintain and enhance
relationship with customers and other business partners. Internet (or website) acts as the best
medium to communicate with people related to business. Firms now focus on relationship
marketing to gather information from customers, to develop customized product or services
for a focussed customer group.

The internet helps firms to improve relationship with their customers and suppliers; and help
them to work effectively. Now a firm doesn’t need a middleman or a agent as they can sell
directly to the customer via internet. Thus the distance with customer is decreasing and a firm
need a smaller supply chain which can increase their profitability. The lesser distance also
allows firms to establish a close relationship with customer and provide those customized
products or services as per their need.

The firms (like eBay, Google etc) involved in innovative business have always realized the
power of customer relationship. They bank on the ability to process large relationship
database. With the help of this relationship database they formulate their strategy and develop
innovative way of marketing. The relationship marketing not only benefit the firm but also
the customers. The customers are benefitted because firm can develop customized and
focussed marketing message.

Mattsson, (1996), has described a relationship as combination of three main components,


which affect the parties involved in a business. Those components are legal(L),
behavioural(P), and atmospheric (E). These three factor determines the success and failure of
a relationship marketing in a particular market. Thus it is possible to have a successful buyer-
seller relationship in domestic market totally failure in overseas market. Finally we can say

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that relationship marketing includes the management of a firm and thus it must be included in
the business plan

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CHAPTER 4: Marketing on the Internet

4.1 Internet and Global Business Strategy


(Kotler and Keller, 2006) e-marketing describes company offers to inform buyers,
communicate, promote and sell its products and services over the internet.

4.1.1 Drivers of Internet Adoption in International Marketing

Once a firm establishes a internet portal (website), they automatically become a MNC (Multi
National Company). Quelch and Kelvin (1996) describe two evolutionary paths of a website:

1. Information to Transaction Model (figure 4.1) adopted by existing MNCs where


they offer information to address the needs of existing customers.

2. Transaction to Information Model (figure 4.2) adopted by internet start-up


companies where they begin with transaction and use the medium to build brand
image and secure repeat orders.

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The basic purpose of these models is either to reduce cost or to increase revenue.
According to Quelch and Kelvin (1996), these drivers fall into four quadrant as given in
figure 4.3.

1. Internal customers focus/ cost reduction (quadrant 1): This is applicable to the
companies who use website as a tool to communicate with their customers. Their

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main focus is to provide customer services for domestic market. They just happen to
attract international traffic.

2. Internal customer focus/ revenue generation (quadrant 2): This is applicable to the
companies who use website not only to communicate with their domestic customers
but also offer transactions online. This enables a firm to reach those international
customers who might be inaccessible via other media.

3. External customer focus/ cost reduction (quadrant 2): This is applicable to the
companies whose main aim is to attract international audience through their website.
This happens to benefit all customers because of the international scope of operations.

4. External customer focus/ revenue generation (quadrant 3): This is applicable to the
firms who not only focus on attracting international audience but also offer
transactions worldwide. Here transaction involves connecting buyers and sellers.
Company target providing services to existing customers and attract new customers
from global market.

4.1.2 Impact of Internet on International Marketing Variables

The modification in marketing mix variables is necessary while using internet for
international marketing. The impacts of internet on application of marketing mix while going
to international market are as follows:

1. Pricing: Due to internet customers are more aware of prices in different countries and
thus there is increase in price standardization across borders and price differential
become narrow. One advantage of this is that price can be customized easily with
customers need and their profile (segment).

2. Distribution Channels: Internet has dramatically reduced the number of intermediaries


earlier needed for worldwide distribution channels. As now, less capital is needed for
inventory and thus the role of intermediaries has been changed. The new roles of

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intermediaries include collection, spreading, interpretation and distribution of


information rather than traditionally handling and distribution of products.

3. Creation of new Market: Internet offers new opportunities for firms to create market
by helping buyers and sellers to locate and negotiate trade terms with each other (ex.
eBay etc). There is also a market developed for executing transaction between traders
(ex. PayPal etc).

4. New Product Diffusion: The traditional ‘test as you go’ practice where shifting
products from one country to another is now outdated. Now, new product
announcement or launch generates immediate demand (as information travel faster on
internet) and that requires immediate availability of goods.

5. Customization: Due to internet, getting demographic and purchasing profile of


customer became easy. This allows firms to customize products for local adaption as
per local market demand.

4.2 Advertising on internet


Internet is a low cost advertising medium having reach to global audience. Advertising on
internet includes banner advertising on website, email, blogs and links to search engines. As
traditional media of advertising is quite expensive and at the same time internet infrastructure
is improving day by day and able to prove support to video and graphics on web. With this
improvement a firm can successfully launch an online advertisement campaign.

4.3 Interactive advertising


According to Haeckel, “Marketing interactivity is a person-to-person or person-to-technology
exchange designed to effect a change in the knowledge or behaviour of at least one person.”
He also point out that interactivity is function of certain dimensions, which is given as:

I = ƒ(N, C, F, SI, CI, T, CT, SY, M) Where,

I = impact of interaction,

M = Type of media involved

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(Other factors not discussed as not relevant to current topic).

Now, as a technology, internet is the strongest media for interactive


marketing. The reason for that is

1. Internet is used by almost a quarter of the total world population.

2. It is not limited to a particular geographic reason.

3. The growth of user is fast.

4. Cheapest and fastest way of interacting with majority of population


(both for customer and marketers).

Haeckel also pointed out that there is going to be much more business
and marketing use through internet. He made a graph which shows how
we find usage of a new technology with time (see graph below) and thus
we can say there is more in store than what we are seeing and using
presently. Even interactive marketing may see turnaround with this
technology.

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4.4 Marketing with push technology


(Wetzel, 2008) defined push marketing as, “customers are provided information by receiving

or viewing advertisements digitally, such as: e-mail, SMS, RSS, phone calls, etc., as

subscribers of the latest product and service information provided by the company”. The

internet is the cheapest and most effective media that is used for push marketing.

Advantages of Push Marketing via Internet

1. Tracking of Customer Preference: It is easier to track user preference with the help

of push technology (internet) and customize according to their preferences. A good


example of this is Google AdSense that tracks the users visited website or keywords
in mail and according to those criteria it shows advertisement (related link).

2. Increase Accessibility: With the help of push marketing a firm can increase customer

accessibility by the firms marketing and advertisement of the products. Subscribers


get pushed by built in developed software called PointCast that enable users to receive
automatic content updates via their internet connection and web presence as the
channel to get information when their computers are not in use.

4.5 Corporate identity in cyberspace


Firms are now using web to extend and reinforce their companies brand image in a cost
efficient manner. This serves as a complementary media device that re-establishes a firm in
consumers mind. By providing valuable information to users a firm can expand their brand
image. The regular updating of information may attract customers to visit website regularly,
which will reinforce firm’s image and provide them a chance to create a new and extended
cyber image.

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CHAPTER 5: Analysis and Methodology


5.1 Competitive Advantage via Internet

5.1.1 Porter’s three generic strategies for competitive advantage


According to Porter (1985), a firm can earn high return if they are able to position themselves
well enough, irrespective of the structure of the industry and profitability of the industry. He
pointed out the fundamental basis for above average performance is ‘sustainable competitive
advantage’ in long run. For that sustainable competitive advantage he gave three generic
competitive strategies.

1. Cost Leadership: According to porter (1985), a firm is having cost advantage over
his competitors if the cumulative cost of performing value activity is less than the
competitors. He further discussed that a firm’s cost position is a function of; (a) the
composition of their value chain to their competitors, (b) their relative position in cost
drivers. Now, we see that how internet helps them to achieve them cost leadership by
affecting the above two functions.

2. Differentiation: Porter (1985) describes another strategy for competitive advantage is


to differentiate their product with competitor’s products. This means raising the
quality with ignoring the cost for the sake of quality. Now internet can help them to
do that by interacting directly with customer and customizing products according to
target group. Many firms now use blog site to interact with customers and promoting
their new or customized product.

3. Focus: Porter describe this as customizing products or services to suit a focused or


small segment of consumer group. The internet helps firms to focus on different
aspects of the products and customer group. Internet even allow firm to receive
specification from each and every customers and according to them they can produce
customized products or services.

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As discussed in chapter 3, the relation of physical and virtual value chain (Hollensen, 2001),
we find there is virtual value chain corresponding to each physical value chain. By applying
this value chain a firm can become cost leader as it depends on two factors discussed above.
A firm can shift to virtual value chain to gain cost advantage over their competitor’s physical
value chain. For example Federal Express (FedEx), a shipment company allows consumer to
track their parcels. This tracking system via internet is very efficient and economical. The
FedEx has now reduced more than a million query calls per month by providing online
shipment tracking system. This is one of the way of reducing cost and step towards cost
leader position and at the same time it differentiate FedEx from their competitors. But this is
not enough as sooner or later others will follow same practice and FedEx lose the competitive
edge. The real edge lies on the innovative and creative way of finding or changing physical
value chain to virtual value chain. So now apart from technology, innovative idea of using
technology is the key for success of a firm.

5.1.2 Stuck in the middle

Porter (1985) points out a situation, where a firm try to achieve both generic strategy (cost
leadership and differentiation) but fails to achieve any of them. He calls this situation as stuck
in the middle. According to him, a firm stuck in the middle will compete at disadvantage as

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others competitors (cost leader, differentiators) will be better positioned to compete in any
segment. In case of Google AdSense, Google is offering a differentiated advertising tool at
very low cost (usually one get this via auction, where price is driven by customer not
producer) is offering a differentiated (highly unique and effective) advertisement. Here both
cost leadership and differentiation is achieved by Google with the help of technology.
Johnson et al (1998) discuss about the core competency of a firm may be difficult to imitate
because they are complex. The google is doing the same thing by making the internal
structure complex, which is hard to imitate by competitors. Thus, they can put themselves in
a position where for an advertisement position (ex. Out of five position or space, advertisers
bid for first position then second and so on), firms bid among themselves.

Thus, it is possible to achieve a position where a firm can achieve cost leadership and
differentiation without compromising one for the other with the help of technology (say
internet) and their own creativity (say way of using internet).

5.2 E-business marketing Models and International Competitiveness

5.2.1 Rayport and Sviokla Model

According to Rayport and Sviokla (1995), the internet has changed the nature of trade.
Internet has made both physical location of inventory and the actual place (marketplace) of
trade irrelevant. They argued that traditional marketplace (the physical market) transaction
has been replaced by marketsplace (virtual market or e-market) transaction. They concluded
that brand equity is created in marketplace through content (i.e. the product offering), context
(the communication programmes) and infrastructure (i.e. the pricing and value chain activity
related to distribution). While in marketspace (internet marketing); content, context and
infrastructure has been transformed to innovate new ways of creating value. The changes are:

1. Content: Now, everything possible is delivered electronically whether it is product,


service or information. Even though operating system (Microsoft window) are
available online. They time to time update your system online without your request.
But here is a challenge for a firm on deciding what information and service should be

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provided. How much access should be given to customers to the firm’s database? The
success of a firm will depend on the nature of the firm and the answer to these
questions.

2. Context: now, information is accessed through mobile phone or computers. Whatever


information you want, from your bank account details to horoscope, all available
electronically. The challenge here to identify who and where the potential customers
are connected electronically. If there is any compatibility between computers and
other mode of access information.

3. Infrastructure: The internet provides the backbone for connection and delivery of
value. Here the main question arises is about the reach, capability and potential of
value creation via internet.

Although this framework defines impact of e-business marketing but there is lot more to
be done in terms of content, context and infrastructure. For a international market, the
product (content) need to be customized as per local demand. This means, information
delivered (context) should also be customized (i.e. need to be given in local language) and
finally infrastructure is about transaction. Since there is no common currency in the world
and it is also not easy to transact one currency to other and moreover suspicion remains in
customers mind for foreign firms (especially for small firms).

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5.2.2 Dutta and Segev’s Marketspace Model

Dutta and Segav (1998) has done a lot of research on market space and found that it has two
dimension; technological capability and business strategy. The technological capability is
further divided in two dimensions given below;

1. Interactivity: according to Dutta and Segav (1998), internet is able to establish a


interactive relationship between a firm and customers. Due to this there is a paradigm
shift in customer services and product design.

2. Connectivity: As internet can be accessed globally, so it creates a global marketspace.


The growth in connectivity increases coordination and communication between a firm
and consumers.

These two aspects are transforming business model of organisation when applied to
marketing mix of that firm. In this model one more element ‘customer relationship’ has
been added.

1. Transformation of product: This transformation is due to customization of products


for a customer or a segment of customers. This is done with the help of active
participation of customers in the specification and design of the products.

2. Transformation of promotion: This transformation is a result of the use of online


promotions (like sales and discount), online advertising, participation of customers
in online promotion (like blogs), customization of online promotion and links with
search engines or other related websites.

3. Transformation of pricing: This transformation is a result of online availability of


pricing information, pricing negotiation, and/or charging for the actual product
consumed not for the whole product (ex. Internet service provider charges only for
the amount of download not for staying online).

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4. Transformation of place: This transformation is due to facility of online ordering,


real time processing of orders, online distribution of product and secured online
payment facility.

5. Transformation of customer relationship: this transformation is a result of online


communication with customers. They are also offering online customer service,
online customized service and processing of online feedback from customers. Figure
5.4 illustrate the new customer relationship.

It was found that that internet transform the marketing mix variable to different degrees.
According to their research the transformation in customer relationship is 62%, product
39%, placement 38% promotion 29% and price 12% due to use of internet. His research
revealed that the firm using internet for customer relationship (such as using website to
provide customer services) has done well compare to their competitors. The online
customer service include providing product guides online, creating blog to share
experience after using a product or service and providing online chat services.

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5.3 SWOT Analysis of Internet


5.3.1 Strength:

• Expand Reachable Market: Internet allows you to reach to the markets which were
previously unreachable to you without too much expenditure on it. Your potential and
existing customers can now access you at any point of time without much fuss,
irrespective of their location (home, office, park, café, any where).

• Information Distribution: You can now provide information about your product and
services to the audience without hassle. One can have a look of your store without
physically reaching the store.

• Value Added Service: It is now easy to provide value added customer services
online, such as providing technical publications, examples of product use, instructions
and other value added bits of information.

• User Information Request: Customer can easily access information of a firm and
their product or services via internet. They are now able to place a order and

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communicate with the firm for a customized product. A firm can get valuable
information about their customer profile by exchanging information.

• Easy Location of Data: Users can easily access the information in the site by using a
search engine. Firms also provide links as a form of advertisement to popular sites
and search engines.

• Consistent Marketing: Utilize your existing communication, marketing and outreach


strategies on the internet to establish a consistent communications approach.
Integrating current or existing marketing assets like logos and customer artwork, can
help save on web development costs.

• Utilize Existing Networks: Very effective and cheap way to reach your potential
customers through links from related site or search engines or internet catalogs. The
changes and addition to the site can be notified via e-mail to the customer.

• Save Mailing Costs: Once you are on internet, your lots of paper work and mailing
costs vanished.

• Changing Content Is Easy: It is easy and cost effective to change contents after the
design and architecture of a web site has be established and produced.

• Project and Work Sharing: now distance is not an obstacle to assist your boss or
subordinate as you can share your work and help them through internet. Software like
TeamViewer4 (will be discussed later) allows you to control others system through
your system via internet.

5.3.2 Weakness

• Existing infrastructure is unsuited to future requirements of mass market interactive


multimedia communication.

• Many users do not trust the security of internet.

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• E-mail which is the cheapest and fastest medium to send and receive information is
often used to spread viruses, which can destroy data of system.

• Cookies, which are used by website to track your movement on that site, can also be
used to track your movement to other sites, where you give your details while
purchasing via credit card. This information can be used for malicious purpose.

• Internet is overloaded with information, much of it useless to most people.

5.3.3 Opportunity

• The internet become faster and is able to provide large bandwidth which can support
worldwide communication via video, audio and multimedia services.

• Demand for internet services and application will increase, justifying improvements
in software and infrastructure.

• Internet users will demand faster and more powerful computers.

• Demand for simplified computer system may develop, so that non PC literate
consumer can gain internet access.

• Traditional PC software will be improved to take advantage of internet opportunities.

• Demand for internet servers and other communication hardware will continue to rise.

• Increased home computer use may create demand for home-service computer
maintenance.

• Commercial advertising will discover new approaches to communicating with


customers.

• Enhanced universal education opportunities for the whole population.

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5.3.4 Threat

• Spam: It is basically unwanted e-mails and popup, usually in the form of advertising
for a product or service. They not only waste your time but also uses up considerable
bandwidth on internet.

• Malware: These are software made with wrong intention of damaging your system or
to get information such as viruses, worms, Trojans, spyware, adware, etc.

• Computer viruses (includes Virus hoaxes, Computer worms, Trojans): It is a


programme made with wrong intention of destroying a system or data stored in the
system.

• Phishing: According to Financial Services Authority (FSA), the phishing has risen
by 8000% by 2005 to 2008. According to an estimate by APACS, £45.7 million will
be lost to phishing scams in 2006, compared to £4.5 million in 2003/2004. It is the
practice where fraudsters acting as a legitimate organisations such as banks, online
payment services etc., send misleading e-mails requesting personal and financial
details (which includes credit cards, bank accounts, social security numbers, security
codes, names & addresses, login names & passwords and phone number etc.) from
unsuspecting recipients. They further use these information to transfer money into
their own account from someone else account.

• Adware and Spyware: It is a software application, in which advertising is displayed


while the programme is running, which often run without knowledge of users. These
are in the form of banners or pop-ups that appear on the computer monitor. They
reduce computer performance and disturb user. Some adware used for collecting
information about users, they are called Spyware.

• Identity theft: Fraudsters are not only interested in your credit card details but also
information about your credit reports, passwords and PIN, social insurance numbers,
driving license numbers, mortgage details, addresses and phone numbers. Computer
criminals realized the power of information and they eye robbing databanks. This

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crime is growing rapidly and if they use remote computers they are hard to catch.
According to internet statistics compendium, 2008, U.S. alone loses $53 billion per
year.

5.4 Safety tips


• Installing a fire-wall can reduce the risk of hackers gaining access to your computer. It
also protects the system from Internet-borne threats such as spyware.

• Install anti-virus software to eliminate any infected data received.

• Install anti-spyware software to eliminate any spyware which will get through.

• Be cautious about giving your personal data online.

• While sending sensitive data, encrypt (encode) it, so that only desired recipients can
decode it and access it.

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CHAPTER 6: Case study: eBay

6.1 Introduction
No one ever thought of the idea that a complete strangers bidding for a thing which is held by
a stranger at some unknown place. This idea with the help of internet technology created a
magic for Pierre Omidyar, the founder of eBay. Although he never attended any auction in his
life, yet he decided to do that for people who want to sell his used stuff at a minimum price
decided by him. And if more people are interested, he decided to let them bid for it. When he
started this website called AuctionWeb in 1995, it was free and thus started attracting visitors.
By the end of 1995, there were more than ten thousand bids hosted by AuctionWeb. After that
he decided to charge some percentage of final sales prices from the sellers. The revenue
continued to grow every month. This small idea of Pierre Omidyar of connecting buyer and
sellers now become a promising business and currently eBay (as it is now called) is the
largest e-commerce site with 81 million average monthly unique visitors to eBay. More than
$100 billion worth of used items sold on eBay making it world’s largest engine for selling
used goods. EBay has invested heavily in the market to diversity itself by acquisition of
Skype and PayPal.

6.2 Acquisition of PayPal and Skype

6.2.1 PayPal

PayPal is an e-commerce business who provides facility to transfer money and make
payments through the Internet. It is nothing but electronic version of traditional way of
sending money (like money order, cheque etc). EBay has bought PayPal on October 2002 in a
strategic move to gain market share in online fund transfer and to control transactions on
eBay. As eBay has more than 81 million unique visitors and most of them buy and sell
through PayPal. According to eBay annual report, 2008, PayPal manages more than 175
million accounts in 190 markets and over 60 billion volume transacted in 2008. PayPal
support transactions in 19 currencies worldwide and allows customers to send, receive, and
hold funds electronically.

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6.2.2 Skype

EBay purchased Skype in October 2005 in a strategic move to diversify them. Skype is a
software application which helps users to make VoIP calls (i.e. voice calls over the Internet)
either free or at very low price. Skype has currently more than 405 million users in over 220
countries and is leader in VoIP call providers. It allows user to make and receive video or
audio calls through internet and now its application can be accessed on mobile phone as well.

6.3 SWOT Analysis of eBay


1. Strength

• It is the largest online auction forum with more than 100 billion value of pre-
owned item sold.

• Active users in millions (81 million unique monthly visitors).

• Recognizable brand name (eBay becomes synonym of online auction)

• Over 27000 different catalogues.

• Majority (82%) of top 100 US retailers are in shopping.com (eBay’s online


shopping portal)

• Strong customer relationship (both buyer and seller have to register on eBay
and they leave feedback for each other which helps to find genuine user).

2. Weakness

• Technological malfunction (there are times when both eBay and the payment
system PayPal have encountered shutdowns and outages).

• Illegal activity on site

• There are some fake auctions found.

3. Opportunity

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• Rapid growth in internet use

• Acquisition of PayPal and Skype

• Time honoured brand name.

• New and emerging market (like china and India) is an opportunity as the
consumer here becoming rich.

• Opportunity in current market (i.e. market penetration), as there are potential


customer yet to understand the benefits of eBay.

4. Threat

• Increase in online trading sites (like amazon.com, ubid.com, epier.com etc).

• Rapid growth of amazon.com

• Some charges are not in control (like delivery charges and credit card charges).

• Attack by illegal practice (online fraud, trading counterfeit goods etc) may earn
bad name for eBay.

5. Suggestion:

• Block fake auction

• Use digital signature

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CHAPTER 7: Conclusion
7.1 Introduction
Internet technology provides a huge market space for you to explore and exploit it. It is left to
your creativity and innovation that how you are going to use this technology for the
betterment of your organisation. If it poses threat of increased competition and well informed
consumer then at the same time it also save you from unnecessary cost overhead. It teaches
managers new marketing technique, innovation, creation and cooperation among other
business. There is limitless opportunity for new ventures with bright idea as we have seen the
case of eBay, Google and others. Finally, we can say that internet is benefiting both buyers
and sellers, and is able to make life better than ever. As a technology, the use and application
of internet will grow and one can only imagine about the next big thing which is going to
happen in next few decades.

7.2 Replacement of old management technique


Internet has made old management techniques outdated. You cannot rely on traditional
marketing mix of 4-P (Product, Price, Place and Promotion) as the definition of market is
changing itself. As internet provides you virtually the world at your desk as market, and thus
you need new strategy, new business model and creativity to cash on. They need to create
new marketing mix with insight into customer and suppliers that can be integrated with
internet capabilities.

7.3 Increased competition


Internet is a great source of information and the information gives a customer the power to
choose between alternatives. This power of customer increased the competition in this level
market where both large and small firms compete with each other. The market on internet is
highly price sensitive as the customer can compare your price with your competitor within
minutes. This power of customer forces marketers to find innovative and creative way to

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maintain their customer base (either by reducing price or increasing quality or value
perception) and to penetrate into competitor’s base. All this is creating a competitive
environment which was never been experienced before in real market.

This competitive environment brings new things in the market as cooperation between two or
more different organization to get competitive advantage over others. There is more
cooperation between the company, the suppliers and the distributors in order to get
competitive advantage and to maximize their profits. As Jack A. van der Veen et al, pointed
out in his book win-win situation in supply chain partnership that how by sharing information
both manufacturer and retailer maximize their profit. That is now become a reality, as every
party in business (manufacturer, retailer and supplier) are connected to a common goal of
maximizing their profit, by offering consumer best possible deal without expense of anyone
profit margin.

7.4 New opportunities


In chapter 5, we have already discussed about the surprise index of a technology. With time
and creativity and innovation, the utility of the technology grows to a unthinkable position.
We have seen a lots of internet usages (from interactive marketing to ad-sense) and there is
lot more to come in future. With rapid growth in internet user (1.17 billion till 2007, source:
internet world stat), the focus of firms moved to internet marketing and usage in different
field. There is no wonder that internet has become the most powerful tool for marketing and
selling available to businesses. In future the marketers are not only involved in marketing via
internet but also in its development. They will have to innovate new ways to exploit the
potential of internet. The success will depend on their level of understanding to correlate
between their customer and the potential of internet. The success of a firm will depend on:

1. Their quick reaction time.

2. Their strong relationship with customers, suppliers and distributors.

3. Their innovative products, services and operations.

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4. Exploiting new opportunities offered by internet.

7.5 New threats


With new opportunity, there are also new threats posed by internet. The internet gives a
customer a new power that enables them to conduct extensive research and cost comparison
between the firms, their products and services. Also, the threat of information overload will
reduce the ability of marketing with new push technology of the internet. Overuse of e-mails,
adware and other marketing methods will make customer insensitive toward them and
marketing with push technology will not be effective. Security while transaction via internet
is another issue that scare customers. The increase in cyber crime pulls back customers and
until the offer is really lucrative they are not willing to take chance. As 12% of British
internet users (or 3.5m people) fall victim to online fraud last year, with around half of them
losing out while shopping. [Source: internet statistics compendium, March 2007]. Firms are
left with a challenge to find totally secured transaction method and that to make a customer
believe it.

7.6 International marketing via Internet

7.6.1 Potential benefits

• Increased sales

• Increased profit

• Corporate Image

• Visibility to wider market

• Speed of business

• Ability to customize products or services

• Low resource market entry

• Interaction with customers

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• Global niche strategy

7.6.2 Barriers

• Increased competition

• Low penetration of internet

• Price transparency

• Cultural barrier

• Language barrier

• Legal complexity

• Market offering customization required

• Logistics of serving global market

• Costs of serving international market

• Need to create awareness of website

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APEENDICS:

TABLE 1:

TABLE 2:

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TABLE 3:

TABLE 4:

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