ICS 691 News 2(4)

[Philip Johnson <johnson@hawaii.edu>]

ICS 691 News, Week 2, Issue 4

In this issue:
* Pizza Portal Evaluations, "Best of 691"
* Help with idea evaluation
* After you shred your business ideas, what do you do next?
* Domain name registration
* Products vs. Services
* Preparing for Friday ASP lecture

---
Pizza Portal Evaluations, "Best of 691"

I have finished reviewing your Pizza Portal evaluations.  Most were
reasonable, but a few showed a bit of extra effort and thought.  I've
decided to publish six of the best ones to the entire class, and
reward these folks with an extra credit point on this assignment for
their efforts.  I believe everyone can learn from seeing these and
hope you take the time to read through them. Enjoy!

* http://csdl.ics.hawaii.edu/~johnson/691s00/homework/A1-1.pdf
* http://csdl.ics.hawaii.edu/~johnson/691s00/homework/A1-2.pdf
* http://csdl.ics.hawaii.edu/~johnson/691s00/homework/A1-3.pdf
* http://csdl.ics.hawaii.edu/~johnson/691s00/homework/A1-4.pdf
* http://csdl.ics.hawaii.edu/~johnson/691s00/homework/A1-5.pdf
* http://csdl.ics.hawaii.edu/~johnson/691s00/homework/A1-6.pdf

--
Help with idea evaluation

A company sent me email this morning with brief descriptions of three
product/service ideas, and asked me to help them evaluate which one
to pursue. I was happy to make some brief comments on their ideas,
and will be happy to help other groups in a similar fashion.

However, there was a method to my madness of assigning you the Pizza
Portal evaluation as homework.  The point of this exercise was to
teach you a method for evaluating the feasibility of any business
idea, including the ones you come up with.  The most methodical way
to decide between two or three competing ideas is to subject them to
the 14 point evaluation criteria.  Several of the "Best of 691"
submissions above include a nice "template" approach to evaluation
that your companies could emulate to simplify this process.

---
After you shred your business ideas, what do you do next?

It was not difficult for most of you to find problems with the Pizza
Portal business plan. In most cases, I thought your criticisms were
on target, although in a few cases it appeared to me that some of you
either misunderstood the business plan or the evaluation criteria.  

What you will find as you start working on your own business plans
and applying the 14 point criteria is that it is darn near impossible
to produce a "perfect" business plan that rates highly along all
dimensions.  So do you just give up because you've proven that
creating a successful business is theoretically impossible?

Of course not.  What you have to realize is that definition of a
business is an *iterative* process.  In other words, after creating
an initial plan, you subject it to the evaluation process to probe
its weaknesses, and then you *refine* the plan to strengthen these
weaknesses.  

For example, many of you identified "Barriers to Entry" as a weakness
in the Pizza Portal business plan--it seems simple for another
company to go into business to provide the same service.  Since I
didn't assign it, none of you went to the next step to think about
(a) what barriers to entry have been erected in analogous situations
by successful companies, and (b) in what ways the Pizza Portal plan
could be refined to overcome this weakness?  An essential value
proposition of Pizza Portal is unbiased, high quality information
about pizza---it's like a "Consumer Reports" website for local
pizzerias.  Now, it would seem that Consumer Reports has a similar
low barrier to entry---why aren't there literally hundreds of
competitors to Consumer Reports (or if there are, why is it that all
of us immediately think of the "Consumer Reports" *brand* in this
circumstance as the sterling example of this service?)  Following
this line of reasoning, how could the Pizza Portal business plan be
improved to create a business with the same name recognition (and
thus competitive advantage) as Consumer Reports now enjoys? 

This is the same process that entrepreneurs go through as they work
with venture capitalists.  A major "value added" of a VC is their
ability to take an initial business plan submitted by an
entrepreneur, identify its weaknesses, and suggest ways to strengthen
them.  

So, as you develop your business ideas, use the 14 point evaluation
criteria as a kind of "stethoscope" on your plan which helps you find
the weak points. Once you've found them, the next step is to perform
"surgery" to fix them.  

In some cases, of course, you may decide that the "patient" is not
worth saving. This is where your gut feelings play an important
role---if you feel in your gut that the idea is a good one and worth
refining, then don't give up on it until you're sure you can't fix
the problems you've identified.   

---
Domain name registration

Some students write:
> This is the Business Group composed of Xinmin Wang, Liwei Kimura,
> and Jason Holt speaking.  We would like to have you help us
> register the sitename "campustruth.com" before this top secret
> information leaks out and our business plan is turned to naught.  

I checked with 'whois' and as this group correctly determined,
campustruth.com is not currently taken.  For this course, we won't
actually register domain names.  So, you are free to use it for the
remainder of the semester.  And no one else gets it :-)

---
Products vs. Services

A student writes:
> My group and I have been generating service oriented business ideas.
> This has raised some questions.  In the real-world, I think our
> service, if promoted well, will attract enough viewers to generate
> advertising revenues.  However, in the VCommerce cycle, viewers
> will have "virtual cash" to spend and will more likely be
> purchasing products than they will advertising banners.
> Will VCommerce compensate for this distinction?

There is a common, false impression that a quick and easy way to
Internet fortune is through sites that provide a "free" service and
make all their money from advertising.  Actually, as we will discover
in the Internet Advertising unit, it is extremely hard these days to
make a profit from advertising alone, and very very few sites do this
successfully.  One problem is that you need *enormous* traffic to
generate substantial revenues, and the web is now sufficiently vast
that you typically need to invest an enormous amount of money on
advertisements about *your* site to generate the enormous traffic
required to your site that enables you to charge substantial
advertising revenues. It's a chicken-and-egg situation. 

In the VCommerce world, we don't simulate *investment* in
advertising, but sites do get some "advertising" revenue based upon
market share and traffic.  VCommerce does reflect the real world in
that sites that people visit in order to buy products and that
generate additional income through advertising will generally do
better than sites that generate income based purely upon advertising
alone.  

Unfortunately, the original advertising revenue model in VCommerce
required a non-zero level of sales in order to generate an
advertising rate.  I have just updated the advertising revenue model
in the VCommerce entrepreneur guide to enable advertising revenue for
sites without any sales. In the revised model, sites with no sales
revenue at all (or with a sales market share of 10% or less) will all
get an advertising revenue rate of .10/page hit. The release of the
guide including this revision is marked 1/26/00 and is now available
for download. 

Thus, if you want to build a successful VCommerce business that
relies on advertising revenue alone, it is possible.  However, you
will have to put more effort into making the site 'sticky'---in other
words, making it a site that the users spend a great deal of time at,
and return to more frequently during the week of a business cycle
than other sites. And this requirement for advertising-based sites to
be unusually "sticky" is just as true in the real world as it is in
VCommerce. 

---
Preparing for Friday ASP lecture

In Friday's class, Mette will begin her two-part series on ASP
programming.  On Friday, one of the things she will focus on is the
mechanics of how you upload your site to the VCommerce server and
test it out.  

Mette will not be going into elementary website design or HTML.  You
will be responsible for getting up to speed on these topics by
yourself, if you aren't already familiar with them.  Also, I highly
recommend that all of you do some advance reading on ASP prior to
class so that you get the most from the presentation.  See the
Resources page for both offline and online ASP resources.