e-Business Strategy:Business webs for the theatre industry

4.3 Business webs for the theatre industry

A straightforward approach would be for the Playhouse to adopt the e-shop business model to provide an additional ticket sales and marketing channel, i.e., e-commerce. Although it is important that the operational benefits of the e-shop are not overly downplayed (the success of the business model of a budget airline, such as EasyJet, derives in part from the reduction in transaction costs of Internet-only ticket booking), the e-shop often represents the line of least resistance. It is the 'obvious' option, but is easy to copy, and in isolation is unlikely to confer any significant or enduring competitive advantage.

Tapscott et al. (2000) identify generic business webs that enable organizations to create value in ways that could only be achieved through leveraging the power of the Internet (figure 4.2).

The two dimensions of figure 4.2 relate to economic control and value integration. Hierarchical business webs have leaders who control the pricing and the flow of transactions. Amazon.com selects the products it will offer and sets a price for the books and CDs it sells. By contrast, the online auction house e-Bay accepts any item for sale (within reason – nuclear warheads are not allowed) and facilitates the discovery of the price for that item. So, eBay does not set prices: it provides a mechanism for buyers and sellers to discover a price. Where a business web integrates the activities of multiple members of the value chain then the value integration is high.

For example, at the University of Bath there is project investigating the feasibility of producing a motor-car in three days from the time the custome places their order at the dealer to the customer taking delivery of their new car (Howard et al., 2001). Typical best practice in the industry in 2001 is around 40 days. Weeding out inefficiencies in the supply chain will not be sufficient to reduce the current 40 day lead time to 3 days. In order to achieve a three-day car it is necessary to integrate the activities of dealers, manufacturers, first tier suppliers, second tier suppliers, and logistics companies through a business web. The value integration will be high and the benefits for the customer substantial in terms of product customization and convenience. For some business webs value integration is low, as is the case where a business web focuses on giving customers a broad product selection through providing accessing to a wide range of third party suppliers.

Using these two dimensions, four stereotypical business webs are defined: the agora, the aggregation, the alliance, and the value chain (figure 4.2). In practice, organizations will display characteristics of more than one type of business web. For example, Amazon.com works with fixed prices but it also has auction facilities and community aspects through reader reviews of books. However, the four business webs provide a useful framework for thinking about how the Playhouse might exploit the Internet to move beyond the e-shop. It is also a useful framework for thinking about the threats to any individual business that might arise from the emergence of business webs in that business's industry.

4.3.1 Aggregation

The Aggregation business web (b-web) enables a flow of goods and services between producers, creating value for both (figure 4.3). An exemplar of the aggregator is the Egg financial services site, which offers savings, mortgage, credit card, and insurance products (Seybold, 2001). The UK based financial services company Prudential started Egg in 1998. At its inception Egg followed the e-shop model, offering online access to Prudential savings products, with further products such as a credit card being added over time. When Egg began to offer third party products it moved from the e-shop model into an aggregation b-web. Egg now offers motor insurance, drawing from a panel of insurance underwriters. Customers enter their details online (personal details, driving history, vehicle particulars) and are matched with a suitable insurance product. Egg do not provide access to motor insurance products and by acting as an intermediary they add value for both the end customer and for the third party suppliers of insurance products. The third party producers gain by having access to the Egg customer base, while customers benefit from a comprehensive service that includes selection, organization, matching, price, convenience, and fulfilment.

Selection entails providing the consumer with a wide range of products. Egg clearly does this through access to its mortgage supermarket where many mortgage providers' products can be accessed. It is not enough to provide a wide range of products, since this can be overwhelming. To help users find the right product for them the offerings should be organized in a way that is appropriate to the consumer. For example, with a mortgage product there might be categories such as 'first time buyer' and 'empty nester'. Amatching process will help the user find suitable products that fit their individual profile. For a mortgage this could include age, number of dependants, income, mortgage term, and degree of risk aversion (e.g., a mortgage denominated in the Japanese Yen might not be for everyone).

The aggregator should assist the consumer in finding the best price, but can go beyond this into customization, for example they might reward loyal customers by giving them a discount on buildings insurance if they already hold a mortgage account. A key requirement for aggregations is convenience; Egg credit card holders can print off their statements from the web and make payments online at any time of the day or night, avoiding trips to the bank or writing out and posting cheques. The ultimate in convenience is doing nothing – if your fridge knows that you are running low on milk then it can email the local supermarket to order some more. The final stage is fulfilment, which is where many Internet businesses fall down. For intangible goods, such as insurance, it is relatively easy to process the transaction and to post out a certificate (improved security and digital certificates will eventually mean that postage is not needed). For tangible items, particularly where the ratio of value to weight is low, such as groceries, fulfilment can make Internet sales uneconomic. Webvan was set up to provide a US-wide infrastructure for the online ordering and distribution of groceries. Unfortunately, Webvan underestimated the cost and difficulty of their enterprise and from a valuation of $9bn in 1999 were reduced to filing for bankruptcy protection in July 2001.

What role might an aggregator play in the theatre industry? An aggregator could aggregate multiple theatres, offering consumers access to many productions, thereby providing a wide selection, with appropriate organization (e.g., families, corporate entertainment, art-house), matching to individual tastes, and a loyalty scheme to reward regular theatre-goers. More interestingly, the Playhouse might aggregate local restaurants and hotels to provide the theatre-goer with the convenience of a self-selected package that includes a theatre performance, supper, and accommodation. Third parties, such as tourist information offices and hotels, could be enrolled as affiliates and paid a commission for selling tickets and services.

A useful and visually powerful way of representing and imagining a b-web is to create a value map (figure 4.5). The value map shows the flows between the involved parties of:

• goods and services, revenues

• information and knowledge

• intangible benefits.

The value map shows the reach of the aggregator and how and where it can create value for a range of parties. Value maps can be created for all types of business web.

4.3.2 Agora

In Ancient Greece an agora was a public meeting where commercial activity was conducted. Tapscott et al. (2000) use the term to refer to a business web where buyers and sellers come together to negotiate and assign value to goods (figure 4.6). The fundamental point of the agora model is that it provides liquidity: assets can be converted into cash. The agora achieves this by providing a price-discovery mechanism that allows buyers and sellers to be matched and to carry out mutually beneficial exchanges. One of the bestknown examples of the agora is eBay, which is primarily a consumer to consumer auction site (although there are also full-time traders operating on eBay who are better classified as small businesses).

eBay is an example of a sell-side auction. There are also buy-side auctions, such as FreeMarkets, who work with businesses to meet their procurement needs (figure 4.7). FreeMarkets spend months setting up an auction, vetting suppliers to ensure they can meet quality requirements and checking that they are financially stable.

Once the suppliers have been short-listed the auction can take place. In less than an hour millions of dollars worth of contracts for the supply of components can be awarded, with suppliers from around the world bidding to offer the lowest price. Following the auction there is still work to be done by FreeMarkets, who will tie up the detail of the contracts. Through buy-side auctions FreeMarkets claim to be able to reduce procurement costs by around 12%.

The agora model is particularly appropriate for perishable goods, such as flight seats and theatre seats. In the theatre industry a business web could transform the pricing mechanism, moving from fixed prices to price discovery where ticket prices are allowed to vary directly with market demand. One affect of such an agora in the theatre industry would be to disintermediate the 'ticket tout' by offering and buying back tickets at prices based on demand – i.e., the creation of a market for theatre seats. Although a provincial theatre such as the Barchester Playhouse would probably not be in a position to become a market maker for theatre seats it could adopt dynamic pricing mechanisms to improve the yield of its performances. Airlines already do this, recognizing that it is better to sell flight seats and make a small margin than to run the flight with empty seats.

4.3.3 Value chain

A more complex and innovative business model is the value chain integrator (figure 4.8). In this business model the organization integrates multiple steps of the value chain and exploits the information flows between the stages.

We have already mentioned the Three Day Car initiative as an instance of how a business web would be needed to support the transformation of the motor industry. The Three Day Car requires a shift from suppliers building for stock and pushing cars through a supply chain to a situation where customer demand pulls cars through a supply network, i.e., build to order. There is much to be done in the motor industry – in the CSC (Computer Sciences Corporation) 2001 survey of critical issues in IS they estimated that savings of $100bn to $200bn could be made annually through an e-business driven reconfiguration of the industry.

Business webs are emerging in other industries, for example in the computer industry where companies such as Dell are building computers to order. Another computer industry example is Cisco (figure 4.9). Cisco builds the networking infrastructure that powers the web. Cisco designs the core technologies, such as routers and switches, coordinates business processes, manages relationships between partners, and does the marketing. But Cisco does not need to manufacture all of the products (Cisco owns two out of the 38 plants that manufacture its products), does not need to sell and distribute the products itself, or even perform all of the customer support (customers can do this for themselves in large part via online communities). In value chain integration all of the partners – chip manufacturers, component manufacturers, distributors, and system integrators – act like one firm to create value for the customer. Cisco provides the context in which information sharing and collaboration take place to achieve this value creation.

In the theatre industry value chain integration could bring together participants such as production companies, artistes, playwrights, promoters, agents, and theatres to create value for the ultimate customer, the theatre-goer. A theatre business web could provide a forum for matching artists with productions and the creation of performance schedules with theatres. Such integration might threaten the role of traditional intermediaries such as theatrical agents, who would need to reconsider how they add value to the theatrical production process in a business web context. However, the transformation of an industry is going to be a technologically, socially, and politically complex undertaking and the power of the current incumbents in the industry to resist change should not be under-estimated.

4.3.4 Alliance

The fourth business web stereotype is the alliance. An excellent example of the power of the alliance is the Open Source Software (OSS) movement where industrial strength software, such as the Linux operating system (see chapter 2) is produced through a community of prosumers. A prosumer is both producer and consumer: the organizations and individuals that contribute code to Linux are also using the software to run the computers that run their businesses. Contributors are not paid for their contributions and the resulting software can be downloaded from the Internet and used free of charge.

Another example of the alliance that has proven to be successful in 2001 is FriendsReunited (figure 4.11). FriendsReunited was set up by Julie and Steve Pankhurst to put people in touch with old school friends. A vast community with a common interest and a strong incentive to return was created entirely by 'word of mouse' – FriendsReunited did not use traditional advertising and marketing channels. Despite this, by October 2001 FriendsReunited had 2 million unique users per month – up from 191 thousand in June 2001. With a subscription £5 and some advertising revenue FriendsReunited has a significant income stream, achieved with minimal overheads.

In the context of the theatre industry, prosumption could take many forms. For example, the Internet would enable authors to engage in collaborative writing of a piece of theatre and the resultant work could then be made available for download and performance by any theatre company free of charge. Of course, whether this would work for artistic endeavour as well as it does for the creation of software such as the Linux is debatable. By looking at different types of virtual community it is possible to get a deeper insight into how this type of business web could support the Playhouse.