Online Academic Book Store - Case Study Example

Feasibility study of Online Academic Book store Introduction: The current paper identifies the feasibility of the ebusiness model in the context of ebusiness model adaptability for academic books. The study intends to identify the rationale of the business plan under the certain essential factors of ebusiness model and the risk patterns to solve and the key financial aspects that are keen for the success of the business. Background: The revenues in the online book business are $2.8 billion in the year 2004. And the market continues to enjoy a steady rise in revenue as consumers grow more comfortable with electronic commerce and as the number of Internet users in the US continues to climb. Since 1998, the Internet has increasingly emerged as a viable alternative to buying books at physical retail store locations. By the year 2004, the ratio of books sold at physical retail outlet and that through online stores has become 8-to-1. This shows the prevailing growth of the ebusiness for the books. And in case of Academic books the revolution has already taken place, during the past five years. Textbooks in the UK used to be published in parallel, split editions - a relatively expensive hardback for university libraries, and a much cheaper, cross-subsidized paperback for student purchase. Now, however, libraries buy paperbacks, the cross-subsidies have ceased, and the hardback undergraduate textbook has virtually disappeared. The cost of paperbacks has now risen. Need for ebusiness of academic books: Publishing and book selling is no more a traditional business. With the advent of Internet the industry has gone global. Customers of modern era demand much from the industry. Customers want to browse the large scope of information, including bibliographical information on the net and wants to select and purchase their favorite books online. The competition is now on in the websites with huge number of online bookstores trying to catch the attention of Internet savvy customers. Publishers also finds it very difficult to catalogue the huge amount of data through the traditional means and the online solution will help them out of the difficult situation through easy search adoptions. By going online a company's publication will be accessible for more number of people and the business will definitely shoot up. And the problem with the traditional publishers is they produce high-demand textbooks for large numbers and to get low demand books out of season will be a time consuming task. Also in several areas of academic publishing, where texts are especially expensive to produce for example, modern languages, mathematics and medicine a very few number of publishers are producing and the demand would not be met in such cases. 1.Product innovation: The product component of the eBusiness model framework describes the value a firm wants to offer its customers. The current scope of the ebusiness model has sufficient value to its targeted customer segment by offering the product academic books. To deliver this Value proposition, the online firm should posses a certain set of in-house and /or outsourced capabilities. Value Proposition. This element refers to the value the firm offers to a specific target et customer segment. Through mass customization and through rule based one to one personalization or collaborative filtering, firms can propose value tailored to the profile of every single customer. The proposed features like Shipping calculator, Mini Cart Option on All Pages, Different layouts for cart & checkout pages, Address book function for easy checkout, Seamless check-out process, Built in shipping and tax calculation, Multiple shipping and payment options, On screen shopping list are highly dynamic in navigating the customer to the perfection of ebusiness. Target: A firm genenerally creates value for a specific customer segment. A firm can market either to businesses and/or individuals, commonly referred to as business-to-business (B2B) and business to customer (B2C). The target customers for the proposed ebusiness of academic books will be Publishers, university librarians, authors, readers and students. Capabilities: To deliver the value proposition to different customers, a firm must ensure that it posse the range of capabilities to offer the proposed value. In the current case the ebusiness of academic books posses the value capabilities like back end supply chain networks and partner associations and allied networks and the technically capable storefront. Ebusiness model value model for this report includes online books are those of all types and formats-including eBooks, audio books, and textbooks-that are purchased through an online source, including the sale of books over the Internet, including hardcover books, paperback books. The collaboration with other websites makes it to draw the potential customers through referrals, which in turn can add value to the existing business. Store Design and Layout with Attractive fully customizable template designs, Unlimited main/sub-categories, Create up to 4 levels of sub-categories, Variety of page layouts, Easy text customization, Convert your store to other languages, Add on additional pages, Upload additional files and images, Thumbnail, large and blow-up image views, Built-in WYSIWYG HTML editor brings value addition to the operations. The store administration capabilities like - Browser-based control panel, User-friendly graphical interface, Tour & HELP button to assist you, All-in-one order viewing mode, Automated packing slip printing, Order update, Automated confirmation e-mails, Route administrator e-mails to different individuals, Easy download of products, Supplier/Drop shipper module, Password restriction for suppliers/drop shippers will give value proposition to the business Customer Relationship: Customer Relationship is the other aspect in the business model along with product. The notion of branding has as also evolved from product and company marketing to include relationship capital ( Tapscott, Lowi, Ticoll, 2000) which emphasizes the interaction between the firm and the customer. Getting a feel for the customer: The proposed ebusiness has certain tools to pamper their customers, tracks their tastes and uses this information to create a unique customer experience. This cultivates a relationship that lead to customers liking and trusting them. This kind of service surpasses the most brilliant technology in use today. The store features and offers proposed through the storefront gives a personal touch to the customer. Hamel (2000) calls this as personal feedback. The customer relation ship modules includes Affiliate program module, Easy newsletter, broadcasting system, Customizable auto generated e-mails, Run targeted e-mail campaign, Set quantity discounts, Issue individual gift certificates or in batches, Issue discount coupons, Website survey, Advertisement tracking module, Preferential pricing for loyal customers. Serving the Customer: Serving the customer includes fulfillment, support and customer relationship management (CRM). A firm must ask itself how it wants to deliver additional value to its customers and what support and service level it wants to provide. Fulfillment and support refer to the way the firm "goes to market" and how it actually 'reaches' customers (Hamel, 2000). A firm must define its channel strategy and understand that the Internet has a great potential to complement rather than cannibalize its business (Potter, 2001). By offering the Order Tracking system to the customer on the web site, the proposed ebusiness model of the academic bookstore fulfills what exactly the customer would be looking from the online storefront after giving an order for book 3. Infrastructure management: The infrastructure component describes the value system configuration (Gordijin, Akkerans, van 2000) that is necessary to deliver the value proposition. The infrastructure relates to in-house and partners, resources, assets, and activities and a network. The proposed firm has the plan for infrastructure management with tangible assets like- people, technical equipment and cash reserves and the intangible assets like- patents, copyrights, reputation, brands and trade policies. The Shipping and Tax Calculations include Set up to unlimited shipping methods, Automatic UPS ship rates calculation, Automatic USPS ship rates calculation, Supports international shipping, Ship by price, quantity or weight, Set minimum/maximum shipping charges, Offer free shipping, Tax calculation (country, state or county), Tax exemption for specific customers The proposed firm does also has the plan for activity and process through value-chained network. As the firm wants to partner with the branded academic book publishers and distributors, the firm can build the necessary inventory and infrastructure to go live by the projected timeline. Merchandising activities like- Cross-sell products, Bulk pricing module for multiple-unit purchases, Wholesale selling feature, Mass wholesale price update, Currency converter, One click Featured, On Sale & Front Page products, Inventory control module, Unlimited product options, Automatic price recalculation for product options, Product personalization, Show audio/video presentation, Products can appear in multiple categories, Temporarily de-activate products, Sell downloadable products will automatically gives the desired performance of the activities to the ebusiness. 4. Financial aspects: Financial aspects are the most crucial part in the ebusiness model. Financial aspects can be understood as costs required to get the infrastructure to create value and as revenues of sold value. The difference between revenues and costs determines the profitability of a company. Revenue: This element measures the ability of the firm to translate the value it offers to its customers into money and therefore generate incoming revenues streams. A firms revenues model can be based on subscription costs and fees from the customer, advertising and sponsoring revenues from the firms, commissions and transaction cuts from provided services, revenues sharing with other firms and by simply selling a product. Multiple revenue streams goes beyond simple product sales. These multiple streams will leverage the site traffic and generate additional income. Following are the benefits of the proposed multiple revenue streams of the ebusiness model of academic books: Product or service sales income. This is the main revenue stream of the web store. It's what the built of the e-business around and is the prime focus. It's the bread-and-butter of the business and is on top priority. Advertising income. Once the traffic is built up on site, the site would consider turning some of that traffic into revenue. Advertisers are always looking for ways to get their product or service message out to potential customers. They know that placing ads on web sites that cater to shoppers who might buy their product is a wise way to spend their advertising dollars. Banner advertising can generate $5 to $75 CPM (cost per thousand impressions). That means the site could earn from $.005 cents to $.075 cents each time an advertiser's banner ad is shown to the main site visitor. It might not sound like much at first, but if the site has thousands of site visitors viewing an ad, the dollars add up fast. Referral income: Another income source is to refer the site shoppers to another company's web site. These are basically the affiliate programs. The site can consider referring the shoppers to a non-competitive merchant in exchange for a paid click-through or a percentage of the sale. Income can vary from 5 cents to $1 per click-through or from 5-20% of sales. The proposed business plan for academic books considers an appropriate pricing strategy and pricing mechanism in order to maximize revenues. The plan is aiming at achieving the highest price the customer is willing to pay for the offered value. The proposed model has the plan to impact the trend with its new penetrating pricing policy. Cost: This element measures all the costs the firms incurs in order to create, market and delivers the value to its customers. IT sets a price tag on the resources, assets activities and partner network relationships and exchange that costs the company money. As the firm focuses on its core competencies and activities and relies on partner networks for other non-core competencies and activities there is an important potential for cost savings in the value creation process. The cost effective operations of the new proposed model in turn is shared with its customers in offering the services at less affordable price. Profit & Break Even analysis: The financial plan of the proposed business has a starting cash flow for the first month $10,000, with an initial inventory balance $ 5000 as one month inventory at hand. And then assuming that the ebusiness has done sales at 30% of sales cost of books sold with $ 3000 as starting payables. And the sales on credit are assumed as 75%. The monthly sales growth is assumed as 0.5%. If the first month sales were allowed to reach $ 15,000 a profit rate of 7% per first month can be seen with credit collection period at 60 days and Payment days at 30days The break even can be assumed at keeping the Average per-unit revenue at $100.00 and average Per unit cost at $10.00 and estimated monthly fixed cost at $ 15,000, the monthly breakeven in units can be realized at 167 and the Monthly breakeven in revenue can be realized at $16,667. As the proposed plan can sell more than 167 units or have sales more than $16,667 each month, it can make profits. The SWOT Analysis of ebusiness of Academic books: STRENGTHS Need for Information is very high in particular to academic industry Growing demand for e-books Selected customer range for targeting Communication Revolution pushing aside printed materials WEAKNESS A traditional industry Upgradation challenges with changing trends of Technology Database maintenance Cumbersome Inventory maintenance OPPORTUNITIES Creative website - an open door to global business. Business Intelligence - Read customer's mind before advertising. Business partnerships- Increased efficiency in Supply chain management systems Content Management- Information at your fingertips THREATS Monopoly in Online business held by a few giants. Colossal Competition from established players Following are the established and existing ebusiness bookstores which can give a hard competition to the proposed ebusiness- barnesandnoble.com, walmart.com, netstoreusa.com, powells.com, textbookx.com, alldirect.com, ecampus.com, planetgold.com, booksamillion.com, cornwalldiscountbooks.com, wordsworth.com, booksite.com, codysbooks.com, arthursbooks.com, samwellers.com RISKS: Consumers have accepted the e-commerce business model less readily than its proponents originally expected. Still there are some obvious risks that are linked to the direct growth of sales, which are as follows: Concerns about security. Many people will not use credit cards over the Internet due to concerns about theft and credit card fraud. Lack of instant gratification with most e-purchases (non-digital purchases). Much of a consumer's reward for purchasing a product lies in the instant gratification of using and displaying that product. This reward does not exist when one's purchase does not arrive for days or weeks. The problem of access to web commerce, mainly for poor households and for developing countries. Low penetration rates of Internet access in some sectors greatly reduce the potential for such ebusiness. The logistics part of the books with optimal inventory order is another key area, which other wise may result in delayed deliveries or higher storage costs. Payment handling through real-time credit cards, Offline credit card processing, accept payment in any currency, Accept checks, P.O and C.O.D. are the some other risks involved in the ebusiness process sometimes resulting in losses with currency converter and payment fraud. The above risks can be mitigated with a due care taken in payment processing by choosing a secured vendor and gateway processor. And by following the Economic order quantity (EOQ) methods the reduction in inventory lots and delayed deliveries can be practiced. Conclusion: Basing on the above criteria mentioned in the ebusiness model in the aspects of product- value, capability, Customer relationship, Infrastructure and Financial aspects are fulfilled by the ebusiness plan, and hence the plan can be said as a feasible solution to go about with the proposed aspects. References: Gordijn, J., J. Akkermans, J. van Vliet ( 2000). "What's in an Electronic Businese Model", Knowledge Engineering and Knowledge Management - Methods, Models, and Tools, LNAI 1937: 257-273. Hamel, G., (2 2000). Leading the revolution, Harvard Business Press. Potter, M (2001). "Strategy and the Internet", HArvard Business REview 79 (3):62-78. Report, US Online Books Market Research, Trends, Analysis, accessed on December 7, 2006, available from Tapscott, D., A. Lowi, D.Ticoll, (2000). Digital Capital - Harnessing the power of Business webs, HArvard Business School Press. Annexure-1-Cost sheet: Calculation of Cost Sheet Monthly Annual Start up costs Company registration 150 12 1800 Trade mark registration 150 12 12.5 Domain name registration 100 12 1200 Legal fees 200 12 2400 Accountin fees 200 12 2400 Others 200 12 2400 Total start up costs 1000 Office Rent/lease payments 400 12 4800 Office equipment 300 12 3600 Office furniture 100 12 1200 Office supplies 100 12 1200 Personnel Office operating expenses 500 12 6000 Telephone/fax 100 12 1200 Utilities(electricity/gas/water) Sundries(coffee,drinking water) Others 400 12 4800 Total office expenses 1900 Technical Hardware 1000 12 12000 Servers 300 12 3600 Storage 400 12 4800 Terminals 500 12 6000 Others 100 12 1200 Total technical expenses 2300 Shop/warehouse 800 12 9600 Rent/lease payments Utilities Equipment Fixtures & fittings Operating costs 10000 12 120000 Delivery Others Inventory at hand 5000 12 60000 Total shop/warehouse expenses 12 0 15800 Total funding required 21000 12 252000 Annexure-2- Profit and Loss Projection (12 Months) Profit and Loss Projection (12 Months) ebusiness of Academia books Fiscal Year Begins Jan-06 IND. % # % B/A # % # % # % # % # % # % # % # % # % # % # % YEARLY % Revenue (Sales) Sales revenue from books 15,000 100.0 16,000 100.0 17,000 100.0 18,000 100.0 19,000 100.0 20,000 100.0 21,000 100.0 22,000 100.0 23,000 100.0 24,000 100.0 25,000 100.0 26,000 100.0 246,000 100.0 Total Revenue (Sales) 15,000 100.0 16,000 100.0 17,000 100.0 18,000 100.0 19,000 100.0 20,000 100.0 21,000 100.0 22,000 100.0 23,000 100.0 24,000 100.0 25,000 100.0 26,000 100.0 246,000 100.0 Cost of Sales Cost of Sales of Books 4,500 30.0 4,800 30.0 4,900 28.8 5,200 28.9 5,600 29.5 5,900 29.5 6,400 30.5 6,900 31.4 7,700 33.5 8,000 33.3 8,200 32.8 8,200 31.5 76,300 31.0 Total Cost of Sales 4,500 30.0 4,800 30.0 4,900 28.8 5,200 28.9 5,600 29.5 5,900 29.5 6,400 30.5 6,900 31.4 7,700 33.5 8,000 33.3 8,200 32.8 8,200 31.5 76,300 31.0 Gross Profit 10,500 70.0 11,200 70.0 12,100 71.2 12,800 71.1 13,400 70.5 14,100 70.5 14,600 69.5 15,100 68.6 15,300 66.5 16,000 66.7 16,800 67.2 17,800 68.5 169,700 69.0 Total Expenses 9,450 53.0 9,540 59.6 10,000 58.8 12,000 66.7 11,500 60.5 12,200 61.0 13,000 61.9 13,500 61.4 14,000 60.9 14,500 60.4 14,700 58.8 14,500 55.8 148,890 60.5 Net Profit 1,050 7.0 1,660 10.4 2,100 12.4 800 4.4 1,900 10.0 1,900 9.5 1,600 7.6 1,600 7.3 1,300 5.7 1,500 6.3 2,100 8.4 3,300 12.7 20,810 8.5 Annexure-3: Sales Forecast Sales Forecast (12 Months) e-business for academic books Fiscal Year Begins Jan-06 12-month Sales Forecast Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Annual Totals Cat 1 units sold 150 160 170 180 190 200 210 220 230 240 250 260 2460 Sale price @ unit 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Cat 1 TOTAL 15,000 16,000 17,000 18,000 19,000 20,000 21,000 22,000 23,000 24,000 25,000 26,000 246,000 Annexure-4: Capital vs Expenses Capital vs Expenses Sources of Capital Owners' and other investments $ 7,000 Bank loans 14,000 Total Source of Funds $ 21,000 Startup Expenses Buildings/real estate $ 1,000 Capital equipment 1,100 Location/administration expenses 1,000 Opening inventory 1,000 Advertising/promotional expenses 900 Working capital 5,000 Total Startup Expenses $ 10,000 Read More