eCommerce-Selling New Value Creating Business Cases in an Uncertain Environment Session Objectives • • • Review the key components of an eCommerce business case Discuss steps needed to build a persuasive analysis Examine a case that demonstrates the complexities of eCommerce business case development A business case generally consists of three components Business Model A business strategy specifying the primary approach and rationale for pursuing an eCommerce opportunity Financial Model The financial analysis of a proposed business model consisting of baseline projections, revenue and expense estimates and valuations Data and Assumptions The data, analysis and assumptions which support the financial model Several common eCommerce business models exist and new ones emerge continually Content Provider Portal Shopping/ Commerce Auction Site ISP/ Web Host Security Services Advertising Community Consulting Software Provider eCommerce financial models rely upon the same components as traditional businesses Baseline Projections Revenue Estimates Business Model and Logic Expense Estimates Valuations The data and assumptions that drive eCommerce financial models are the crux of the business case • • • • • • • • • Online Population Households Making Online Purchases Percentage of Online Purchasers Visiting MakeMeRich.com Baseline Percentage Purchasing from MakeMeRich.com Average Purchase Amount Other Revenues Revenue Development Costs General and Advertising Expenses Operating Costs Expense Valuation Income Statement Balance Sheet Cash Position Net Present Value Internal Rate of Return Earnings Multiple Revenue Multiple Payback Period Session Objectives • • • Review the key components of an eCommerce business case Discuss steps needed to build a persuasive analysis Examine a case that demonstrates the complexities of eCommerce business case development Sample Business Case Approaches : Quick & Dirty Stand-alone Web Venture eCommerce initiative for existing businesses ePremium - assessing market valuation impact The “quick and dirty” approach can be used to qualify multiple opportunities or model competitors Approach 1: Quick & Dirty Revenue Revenue 10mm NPV 10mm NPV 10mm Costs NPV xx x Revenue Revenue 150mm NPV Costs Capital Costs Capital Capital  Costs Capital For a stand-alone web venture, we develop a model of all sources of revenue and expense Approach 2: Web Venture Return/Cash Flow User Sponsorship/ Advertising  Access Fee Media Placement Services  Banner Rates (e.g Double Click)  Click Throughs  Leads Branded Advertiser/ Sponsor Rewards  Purchases Transaction Services  Bounty  Revenue Sharing  Bounty  Help Line Fee  Interchange Customer Care Commerce Transactive Content  Advertising Spending eCommerce revenue estimates are generated by analyzing four primary sources of income  Transactions     Fees (Annual/Periodic)  Sources of Revenue Sponsorships Other Commissions on sale of own/other’s products • Bounties • Percentage of transaction (bp) Referral fees Transaction processing fees Wallet-related revenue Value-added content subscriptions • Equity research • Portfolio management Services • Advice • Customer profiling • Alerts • Value-added network (ISP) • Other premium services    Advertising Slotting fees Preferred provider certification  Sale of aggregated user information that does not compromise customer privacy Estimating eCommerce advertising revenue is a complex task Advertising and Sponsorship Revenue Assumptions Universal Advertising Assumptions Average page views/user per month Total banner ads per page 35 Non-targeted Advertising Percent of total ad space CPM Inventory sold 80% $30 20% Highly-targeted Advertising Percent of total ad space CPM Inventory sold 20% $45 30% Sponsorship Assumptions Sponsorship spaces per page CPM Inventory sold $25 50% eCommerce expense estimates are highly dependent upon the client’s business model Marketing and Sales Product/Service Development Sources of Expenses    Subscriber/merchant acquisition Promotional branding Relationship management  Content, tools,application • “Normal content” • Expert/celebrity Aggregation • Web scraping • Site scraping  Customer Care    Technical support Customer support Billing Technology Infrastructure     Hardware Software Hosting Integration G&A     Salaries Occupancy Equipment Other Rough estimates of eCommerce site development costs can be useful for high-level business cases Future Cost of an eCommerce Site (Circa 2000) $5 million to $20+million $1 million to $5 million $300,000 to $1 million Get on the Map Run with the Pack Market Differentiator Source: Gartner Group, “Electronic Commerce and Extanet Applications,” May 7, 1999 ... components Business Model A business strategy specifying the primary approach and rationale for pursuing an eCommerce opportunity Financial Model The financial analysis of a proposed business model... Care Commerce Transactive Content  Advertising Spending eCommerce initiatives for existing businesses focus on cost reduction and revenue enhancement Approach 3: Existing Business Health Services:... eCommerce financial models are the crux of the business case • • • • • • • • • Online Population Households Making Online Purchases Percentage of Online Purchasers Visiting MakeMeRich.com Baseline Percentage