The Five Phases Of Online Business Evolution - Article August 2001 - Zoomdot - Web Design, E-Commerce Development, and Online Marketing For The Online Economy

It has been well recognized that large online business initiatives are usually more risky than those projects that are evolutionary or iterative. Huge projects are prone to both cost and schedule overruns, and up to half of large software projects risk cancellation before completion, according to research done by Capers Jones [i]. What has been missing is a way for a company to look at their overall online business strategy, and apply some of the same principles that have been successful in managing individual project lifecycles. What is needed is a roadmap for understanding where a company is today, and where it needs to be going in the future. Zoomdot uses such a roadmap by defining five phases of online business evolution.

Sit back and relax, because we are going to step way back so we can get some perspective and observe the entire evolutionary cycle of online business. The timelines we are going to look at are HUGE…around 3 million cups of coffee, or probably about 2 to 3 years for the average company.

Let’s examine an imaginary company called SunScreenz, that makes and sells those screens that you put in your car to protect the dashboard from sun damage. When we first observe them, they have no web site – Phase 1. They sell to auto parts stores and thru infomercials and an 800 number. At peak times of year, like at the beginning of summer, their phone lines are jammed with people trying to order. The rest of the year, however, they are not that busy.

SunScreenz evolves to Phase 2 – Online marketing. They create a web site that very clearly shows the benefits of protecting your car from sun damage using their products. Also on the site they publish their phone number in a very visible place so if somebody is ready to order they can easily do so. They advance further by establishing a permission marketing relationship with individuals who have just purchased a new automobile, using regular promotional emails to keep in touch, particularly during the off-season.

When the volume of orders grows, SunScreenz evolves to Phase 3 – Online Commerce by setting up their web site to take orders online that are paid for by credit card. Their system speeds up the processing of orders, and helps ship out more orders without increasing their staff.

As the team of designers that work on new styles of car sun protectors grows, Sunscreenz evolves to Stage 4 –Online Collaboration when they create a system which allows the design team to share ideas and track progress on new styles using the web.

Finally, they strike a deal with BigCarManufacturer (an equally imaginary auto manufacturer) to provide car screens with each new car sold. To handle this new level of business, they evolve to Stage 5 – Online Integration by setting up automated processes that integrate with the BigCarManufacturer sales system. Every car that is sold in California, a sunscreen is automatically ordered and SunScreenz ships it out directly to the new car buyer, and then bills it to BigCarManufacturer’s accounting system.

So how does this work exactly? Let’s take a look at each of the five phases in more detail, as well as explain how to apply the Microsoft .NET platform to each phase.

Some people might call this "Phase 0", but after all of the confusion over the millennium (surprise! 2001 was the first year of the next millennium) we decided to start with 1. Either way you count it, it still refers to the same thing: a company with no web site at all.

This diagram introduces the actors in our scenario. In the center is the "Core Business" whatever that may be for a company. Starting from the top right, we have four circles each representing the four different groups with whom a company must communicate: the "Future Customers" who will hopefully become "Current Customers", the "Employees" of the company, and the "Vendors & Partners" who sell to or otherwise do business with the company. In this diagram, there is no way to communicate the core business to any of these groups online, since there is no web site.

We did some of our own research earlier this year, and were very surprised to find that around 20% of the 100 fastest growing private companies (from the LA Business Journal), still have no web site [ii]. Given the value of even fairly simple online marketing presence, it’s a quick return on investment to get to the next phase.

There are three primary channels for online marketing: online advertising, search engines, and email marketing. The result of using these channels correctly is, of course, increased traffic to the company’s web site. The web site’s primary purpose is "Conversion" or getting prospective customers to become current customers. There should be enough information on the site to allow these prospects to decide to do business with the company. According to marketing guru Seth Godin, the entire purpose of an online marketing web site is to allow the company to begin a permission marketing relationship [iii]. How "glitzy" it is, is not so important as how well and quickly a site visitor can figure out what exactly it is that the company does, and locate the specific information that brought them to the site in the first place. This is the minimum level of online presence that a company should have in this day and age.

o Begin and sustain a permission marketing relationship with both prospects and customers.

No one questions that the banner ad has fallen in effectiveness, but we have to take a look at the entire story. Proper targeting of ads can make a big difference in term of click-thrus. On the other hand, email based marketing has proven extremely effective and more cost-efficient as well. A recent study by the Direct Marketing Association of America shows an average click thru of around 5 percent on email, with up to 5 times higher the average in some cases with the use of rich media like Flash, or streaming video. [iv] Given that over 50% of web users use a search engine when they are looking for a desired product or service [v], the need to include both paid and non-paid search engine registration as a key part of the online marketing mix.

Zoomdot uses the technology of the Microsoft .NET platform to accomplish Online Marketing. Windows 2000 is the foundation for website development, and combined with SQL Server 2000 to provide a powerful database, the solution can handle the sudden spikes in traffic that a successful marketing effort can sometimes bring. When Zoomdot client WildID was lucky enough to get onto the MSN homepage as the main headline [vi], they had over 100,000 site visitors in a single day. That kind of good luck has crippled many web sites, but WildID’s servers were able to handle that traffic and more.

Phase 3 – Online Commerce

Online commerce means selling products or delivering services. This should also include the associated pre- or post-sale support, not just the actual taking of orders. Different companies have different ways of selling to their customers, and they can take advantage of serving their customers online in different ways. Selling "widgets on the web" is only one model. Pure information services like eBay are also Online Commerce, though clearly of a different type.

The technical foundation of the .NET platform for Online Commerce is Commerce Server 2000, which includes some pre-built functionality to get a robust solution up and running quickly, like the well-known "shopping cart" or "product or service catalog" features. Commerce Server 2000 also provides some more advanced features such as personalization where content is individually tailored for each site visitor, or data mining and reporting of just about every piece of information collected by the system. We also include Exchange 2000 in the toolkit for Online Commerce to provide automated customer service or support tracking among other capabilities.

Phase 4 – Online Collaboration

Online Collaboration is creating a "Digital Nervous System" for the organization. The primary goal is to improve a company’s agility, or skill at responding to changing business conditions. It’s about giving employees access to shared documents and other resources regardless of location. Team Communities, instant messaging, and videoconferencing can bring together team members regardless of location, and should be integrated or merged with the same systems that provide customer service.

Exchange 2000 is an important .NET technology for creating Online Collaboration. One of the most interesting things that it can do is use custom rules to handle the processing of information. For example, if someone makes a change to an important business plan spreadsheet, the CFO is automatically sent an email telling her that a change has been made to that document.

Another important technology for Online Collaboration is SharePoint Portal Server. SharePoint Portal Server combines the ability to quickly create corporate Web portals with search functions, document management features like publishing and version control, and collaboration options.

Phase 5 – Online Integration

Online Integration is the highest stage of online evolution. Dell, for example, is one of the very few companies to have actually reached it. If "Online Collaboration" is creating a "Digital Nervous System" within your own company, Online Integration is about creating symbiotic relationships with other companies. As Michael Dell put it, "Make your vendors and partners part of your company, and make your company part of your customer’s company" [vii]. When you buy a computer from Dell, the monitor is actually made by Fujitsu and put into a box with the Dell name on it. They don’t even open those boxes anymore before they are shipped out to the customer, since it causes more defects then it solves. [viii]

The most important .NET technology for Online Integration is definitely BizTalk Server 2000. BizTalk Server 2000 is what allows you to create integrated business processes with your trading partners or even within your own organization. Let’s use Dell as an example. When the customer makes a purchase the monitors could be shipped directly from their supplier to the end customer in response. It would save a lot of time and money rather than shipping from the supplier to Dell, and then from Dell to the customer. Another major savings is the data entry. The supplier can automatically bill Dell back for the monitor, and Dell can enter the invoice into their system automatically.

It’s this kind of automation that allows Dell to build systems on demand rather than the traditional "build a product, warehouse it, and ship it out to customers as they make purchases" model.

Conclusion

Zoomdot has put the phases in this order, because we believe that the highest value that can be brought to the customer relationship should be done sooner in the online business lifecycle. The benefits of achieving or maintaining a competitive advantage outweigh the benefits of reducing costs, as long as it is accompanied by profitability.

The five phases can be used for a variety of purposes. It is a tool for analyzing your own company’s current position, as well as for examining the competition. It can also be used as a roadmap for prioritizing and planning growth.

To paraphrase a little, "a journey of a thousand miles begins with 5 steps". Remember, an evolutionary approach works best, not just for individual projects, but also when planning the future of your online organization.

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[i] Jones, Capers, Applied Software Measurement: Assuring Productivity and Quality. McGraw-Hill, 1991.

[ii] Zoomdot, "Los Angeles Web Proliferation Study 2001", 2001

[iii] Godin, Seth, Permission Marketing, Simon & Schuster, 1999, p. 160

[iv] Isaacson, Ben. Interview. "Email: Rich Media To The Rescue", Media, June 2001, p. 12

[v] Nielsen, Jakob, Designing Web Usability, New Riders Publishing, 2000, p. 224

[vi] WildID, "Top 10 Places Your Email Can Be Intercepted", MSNBC.com, January 2001, < http://www.msnbc.com/modules/email_privacy>

[vii] Dell, Michael, with Fredman, Catherine. Direct From Dell. HarperBusiness, 1999, p. 189

[viii] Dell, Michael, with Fredman, Catherine. Direct From Dell. HarperBusiness, 1999



		Home Page > Who We Are > Articles > The Five Phases Of Online Business Evolution The Five Phases Of Online Business Evolution (August 2001) Click here for PDF version Introduction It has been well recognized that large online business initiatives are usually more risky than those projects that are evolutionary or iterative. Huge projects are prone to both cost and schedule overruns, and up to half of large software projects risk cancellation before completion, according to research done by Capers Jones [i]. What has been missing is a way for a company to look at their overall online business strategy, and apply some of the same principles that have been successful in managing individual project lifecycles. What is needed is a roadmap for understanding where a company is today, and where it needs to be going in the future. Zoomdot uses such a roadmap by defining five phases of online business evolution. Sit back and relax, because we are going to step way back so we can get some perspective and observe the entire evolutionary cycle of online business. The timelines we are going to look at are HUGE…around 3 million cups of coffee, or probably about 2 to 3 years for the average company. Let’s examine an imaginary company called SunScreenz, that makes and sells those screens that you put in your car to protect the dashboard from sun damage. When we first observe them, they have no web site – Phase 1. They sell to auto parts stores and thru infomercials and an 800 number. At peak times of year, like at the beginning of summer, their phone lines are jammed with people trying to order. The rest of the year, however, they are not that busy. SunScreenz evolves to Phase 2 – Online marketing. They create a web site that very clearly shows the benefits of protecting your car from sun damage using their products. Also on the site they publish their phone number in a very visible place so if somebody is ready to order they can easily do so. They advance further by establishing a permission marketing relationship with individuals who have just purchased a new automobile, using regular promotional emails to keep in touch, particularly during the off-season. When the volume of orders grows, SunScreenz evolves to Phase 3 – Online Commerce by setting up their web site to take orders online that are paid for by credit card. Their system speeds up the processing of orders, and helps ship out more orders without increasing their staff. As the team of designers that work on new styles of car sun protectors grows, Sunscreenz evolves to Stage 4 –Online Collaboration when they create a system which allows the design team to share ideas and track progress on new styles using the web. Finally, they strike a deal with BigCarManufacturer (an equally imaginary auto manufacturer) to provide car screens with each new car sold. To handle this new level of business, they evolve to Stage 5 – Online Integration by setting up automated processes that integrate with the BigCarManufacturer sales system. Every car that is sold in California, a sunscreen is automatically ordered and SunScreenz ships it out directly to the new car buyer, and then bills it to BigCarManufacturer’s accounting system. So how does this work exactly? Let’s take a look at each of the five phases in more detail, as well as explain how to apply the Microsoft .NET platform to each phase. Phase 1 – No Web Site Some people might call this "Phase 0", but after all of the confusion over the millennium (surprise! 2001 was the first year of the next millennium) we decided to start with 1. Either way you count it, it still refers to the same thing: a company with no web site at all. *Figure 1 – Phase 1 (Not Online)* This diagram introduces the actors in our scenario. In the center is the "Core Business" whatever that may be for a company. Starting from the top right, we have four circles each representing the four different groups with whom a company must communicate: the "Future Customers" who will hopefully become "Current Customers", the "Employees" of the company, and the "Vendors & Partners" who sell to or otherwise do business with the company. In this diagram, there is no way to communicate the core business to any of these groups online, since there is no web site. We did some of our own research earlier this year, and were very surprised to find that around 20% of the 100 fastest growing private companies (from the LA Business Journal), still have no web site [ii]. Given the value of even fairly simple online marketing presence, it’s a quick return on investment to get to the next phase. Phase 2 – Online Marketing There are three primary channels for online marketing: online advertising, search engines, and email marketing. The result of using these channels correctly is, of course, increased traffic to the company’s web site. The web site’s primary purpose is "Conversion" or getting prospective customers to become current customers. There should be enough information on the site to allow these prospects to decide to do business with the company. According to marketing guru Seth Godin, the entire purpose of an online marketing web site is to allow the company to begin a permission marketing relationship [iii]. How "glitzy" it is, is not so important as how well and quickly a site visitor can figure out what exactly it is that the company does, and locate the specific information that brought them to the site in the first place. This is the minimum level of online presence that a company should have in this day and age. The main objectives of Online Marketing are: o Create brand awareness o Increase sales through existing channels o Begin and sustain a permission marketing relationship with both prospects and customers. *Figure 2 – Online Marketing* No one questions that the banner ad has fallen in effectiveness, but we have to take a look at the entire story. Proper targeting of ads can make a big difference in term of click-thrus. On the other hand, email based marketing has proven extremely effective and more cost-efficient as well. A recent study by the Direct Marketing Association of America shows an average click thru of around 5 percent on email, with up to 5 times higher the average in some cases with the use of rich media like Flash, or streaming video. [iv] Given that over 50% of web users use a search engine when they are looking for a desired product or service [v], the need to include both paid and non-paid search engine registration as a key part of the online marketing mix. Zoomdot uses the technology of the Microsoft .NET platform to accomplish Online Marketing. Windows 2000 is the foundation for website development, and combined with SQL Server 2000 to provide a powerful database, the solution can handle the sudden spikes in traffic that a successful marketing effort can sometimes bring. When Zoomdot client WildID was lucky enough to get onto the MSN homepage as the main headline [vi], they had over 100,000 site visitors in a single day. That kind of good luck has crippled many web sites, but WildID’s servers were able to handle that traffic and more. Phase 3 – Online Commerce Online commerce means selling products or delivering services. This should also include the associated pre- or post-sale support, not just the actual taking of orders. Different companies have different ways of selling to their customers, and they can take advantage of serving their customers online in different ways. Selling "widgets on the web" is only one model. Pure information services like eBay are also Online Commerce, though clearly of a different type. The main objectives of Online Commerce are: o Establish new sales channels o Increase sales to existing customers o Increase customer satisfaction through interaction. *Figure 3 – Online Commerce* The technical foundation of the .NET platform for Online Commerce is Commerce Server 2000, which includes some pre-built functionality to get a robust solution up and running quickly, like the well-known "shopping cart" or "product or service catalog" features. Commerce Server 2000 also provides some more advanced features such as personalization where content is individually tailored for each site visitor, or data mining and reporting of just about every piece of information collected by the system. We also include Exchange 2000 in the toolkit for Online Commerce to provide automated customer service or support tracking among other capabilities. Phase 4 – Online Collaboration Online Collaboration is creating a "Digital Nervous System" for the organization. The primary goal is to improve a company’s agility, or skill at responding to changing business conditions. It’s about giving employees access to shared documents and other resources regardless of location. Team Communities, instant messaging, and videoconferencing can bring together team members regardless of location, and should be integrated or merged with the same systems that provide customer service. The main objectives of Online Collaboration are: o Improve the "organizational IQ" o Increase company speed and flexibility o Reduce knowledge lost thru employee turnover. *Figure 4 – Online Collaboration* Exchange 2000 is an important .NET technology for creating Online Collaboration. One of the most interesting things that it can do is use custom rules to handle the processing of information. For example, if someone makes a change to an important business plan spreadsheet, the CFO is automatically sent an email telling her that a change has been made to that document. Another important technology for Online Collaboration is SharePoint Portal Server. SharePoint Portal Server combines the ability to quickly create corporate Web portals with search functions, document management features like publishing and version control, and collaboration options. Phase 5 – Online Integration Online Integration is the highest stage of online evolution. Dell, for example, is one of the very few companies to have actually reached it. If "Online Collaboration" is creating a "Digital Nervous System" within your own company, Online Integration is about creating symbiotic relationships with other companies. As Michael Dell put it, "Make your vendors and partners part of your company, and make your company part of your customer’s company" [vii]. When you buy a computer from Dell, the monitor is actually made by Fujitsu and put into a box with the Dell name on it. They don’t even open those boxes anymore before they are shipped out to the customer, since it causes more defects then it solves. [viii] The main objectives of Online Integration are: o Reducing inventories o Reducing cost per transaction o Outsourcing to reduce costs of goods/services sold *Figure 5 – Online Integration* The most important .NET technology for Online Integration is definitely BizTalk Server 2000. BizTalk Server 2000 is what allows you to create integrated business processes with your trading partners or even within your own organization. Let’s use Dell as an example. When the customer makes a purchase the monitors could be shipped directly from their supplier to the end customer in response. It would save a lot of time and money rather than shipping from the supplier to Dell, and then from Dell to the customer. Another major savings is the data entry. The supplier can automatically bill Dell back for the monitor, and Dell can enter the invoice into their system automatically. It’s this kind of automation that allows Dell to build systems on demand rather than the traditional "build a product, warehouse it, and ship it out to customers as they make purchases" model. Conclusion Zoomdot has put the phases in this order, because we believe that the highest value that can be brought to the customer relationship should be done sooner in the online business lifecycle. The benefits of achieving or maintaining a competitive advantage outweigh the benefits of reducing costs, as long as it is accompanied by profitability. The five phases can be used for a variety of purposes. It is a tool for analyzing your own company’s current position, as well as for examining the competition. It can also be used as a roadmap for prioritizing and planning growth. To paraphrase a little, "a journey of a thousand miles begins with 5 steps". Remember, an evolutionary approach works best, not just for individual projects, but also when planning the future of your online organization. (c)2001 Zoomdot All Rights Reserved Did you find this information useful? Sign up here for the FREE Zoomdot electronic newsletter! [i] Jones, Capers, Applied Software Measurement: Assuring Productivity and Quality. McGraw-Hill, 1991. [ii] Zoomdot, "Los Angeles Web Proliferation Study 2001", 2001 [iii] Godin, Seth, Permission Marketing, Simon & Schuster, 1999, p. 160 [iv] Isaacson, Ben. Interview. "Email: Rich Media To The Rescue", Media, June 2001, p. 12 [v] Nielsen, Jakob, Designing Web Usability, New Riders Publishing, 2000, p. 224 [vi] WildID, "Top 10 Places Your Email Can Be Intercepted", MSNBC.com, January 2001, < http://www.msnbc.com/modules/email_privacy> [vii] Dell, Michael, with Fredman, Catherine. Direct From Dell. HarperBusiness, 1999, p. 189 [viii] Dell, Michael, with Fredman, Catherine. Direct From Dell. HarperBusiness, 1999

The Five Phases Of Online Business Evolution (August 2001)

Phase 3 – Online Commerce

Phase 4 – Online Collaboration

Phase 5 – Online Integration

Conclusion